<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1999
REGISTRATION NO. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
ONE WEST FOURTH STREET, SUITE 210
CINCINNATI, OHIO 45202
(513) 352-0570
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
THOMAS L. CONLAN, JR., 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)
<TABLE>
<S> <C>
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)
</TABLE>
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. [ ] ________________
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<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
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)
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<S> <C> <C> <C> <C>
Series 1998A1-3 Notes [$385,000,000] 100% [$385,000,000] [$107,030]
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Series 1998A1-4 Notes $ 93,300,000 100% $ 93,300,000 $ 25,937
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Series 1998A1-5 Notes $ 90,000,000 100% $ 90,000,000 $ 25,020
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Series 1998A1-6 Notes $ 90,000,000 100% $ 90,000,000 $ 25,020
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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.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE> 2
PROSPECTUS
STUDENT LOAN FUNDING 1998 - A/B TRUST
OFFER TO EXCHANGE
All of its Outstanding
[$385,000,000](1) Series 1998A-3 Senior Asset-Backed Notes (LIBOR Floating Rate)
$93,300,000 Series 1998A-4, $90,000,000 1998A-5 and $90,000,000
1998A-6 Senior Asset-Backed Callable Notes (Auction Rate)
and
$54,500,000 Series 1998B-3 Subordinate Asset-Backed Notes (Fixed Rate)
for its
[$385,000,000](1) Series 1998A1-3 Senior Asset-Backed Notes
(LIBOR Floating Rate), $93,300,000 Series 1998A1-4, $90,000,000
Series 1998A1-5 and $90,000,000 Series 1998A1-6 Senior
Asset-Backed Callable Notes
(Auction Rate)
and
$54,500,000 Series 1998B1-3 Subordinate Asset-Backed Notes (Fixed Rate)
Student Loan Funding 1998-A/B Trust (the "issuer") is offering to exchange all
of its outstanding (i) Series 1998A-3 Senior Asset-Backed Notes (LIBOR Floating
Rate) for its Series 1998A1-3 Senior Asset-Backed Notes (LIBOR Floating Rate),
(ii) Series 1998A-4 Senior Asset-Backed Callable Notes (Auction Rate) for its
Series 1998A1-4 Senior Asset-Backed Callable Notes (Auction Rate), (iii) Series
1998A-5 Senior Asset-Backed Callable Notes (Auction Rate) for its Series
1998A1-5 Senior Asset-Backed Callable Notes (Auction Rate), (iv) Series 1998A-6
Senior Asset-Backed Callable Notes (Auction Rate) for its Series 1998A1-6 Senior
Asset-Backed Callable Notes (Auction Rate) and (v) Series 1998B-3 Subordinate
Asset-Backed Notes (Fixed Rate) for its Series 1998B1-3 Subordinate Asset-Backed
Notes (Fixed Rate). We refer to this prospectus and the accompanying letter of
transmittal as the "exchange offer." We refer to the notes that are being
offered by the issuer in the exchange offer as the "new notes" and we refer to
the outstanding notes of the issuer, that can be exchanged for new notes, as the
"old notes." We refer to new notes and old notes together as "notes." We refer
to the Series 1998A-3 Notes and the Series 1998A1-3 Notes together as the
"Series A-3 Notes"; the Series 1998A-4 Notes and the Series 1998A1-4 Notes
together as the "Series A-4 Notes"; the Series 1998A-5 Notes and the Series
1998A1-5 Notes together as the "Series A-5 Notes"; the Series 1998A-6 Notes and
the Series 1998A1-6 Notes together as the "Series A-6 Notes" and the Series
1998B-3 Notes and the Series 1998B1-3 Notes together as the "Series B-3 Notes."
The principal features of the exchange offer are as follows:
The exchange offer expires at 5:00 p.m., New York City time, on
________________, 1999, unless extended.
If you decide to participate in the exchange offer, the new notes issued to you
will have the same terms as your old notes, except that the new notes will be
registered under the federal securities laws and will be freely transferable.
Any old notes that are not exchanged for new notes will continue to have
restrictions on their transfer.
If you decide to participate in the exchange offer, you must tender your old
notes through the letter of transmittal or as otherwise specified in this
prospectus.
There is no existing public market for your old notes. The new notes issued will
constitute a new issue of securities without an established trading market. The
new notes will not be listed on any securities exchange or automated quotation
system.
We will exchange all old notes that you validly tender and do not validly
withdraw.
You may withdraw tenders of your old notes at any time before the expiration of
the exchange offer.
The exchange offer is subject to certain customary conditions, including that it
not violate any applicable law or interpretation of the staff of the Commission.
We will not receive any proceeds from the exchange offer.
The exchange of your old notes into new notes will be a tax-free event for
United States federal income tax purposes.
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SEE "RISK FACTORS" BEGINNING ON PAGE 24 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE DECIDING TO PARTICIPATE IN THE
EXCHANGE OFFER.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Each broker-dealer receiving new notes in exchange for old notes acquired for
its own account through market-marking or other trading activities must deliver
a prospectus in connection with any resale of the new notes. 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 of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution" herein for more information.
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The Dealer Manager for the exchange offer is:
SALOMON SMITH BARNEY INC.
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The date of this prospectus is March __, 1999.
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(1) This principal amount is subject to reduction as a result of principal
payments made with respect to the Series 1998A-3 Notes.
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION......................................... 3
PROSPECTUS SUMMARY.......................................................... 5
RISK FACTORS................................................................ 24
THE ISSUER.................................................................. 35
THE DEPOSITOR............................................................... 37
USE OF PROCEEDS............................................................. 41
THE EXCHANGE OFFER.......................................................... 41
THE FINANCED STUDENT LOANS.................................................. 50
TRANSFER AND SALE AGREEMENT................................................. 56
MATURITY AND PREPAYMENT CONSIDERATIONS...................................... 56
DESCRIPTION OF THE FFEL PROGRAM............................................. 58
SERVICING................................................................... 75
THE GUARANTEE AGENCIES...................................................... 79
DESCRIPTION OF THE NEW NOTES................................................ 92
REDEMPTION.................................................................. 110
SECURITY FOR THE NOTES...................................................... 111
THE INDENTURE............................................................... 113
FEDERAL INCOME TAX CONSEQUENCES............................................. 135
STATE TAX CONSIDERATIONS.................................................... 145
ERISA CONSIDERATIONS........................................................ 146
LEGAL MATTERS............................................................... 146
RATING...................................................................... 147
PLAN OF DISTRIBUTION........................................................ 147
</TABLE>
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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.
WHERE YOU CAN FIND MORE INFORMATION
The issuer has filed with the Securities and Exchange Commission a
registration statement on Form S-4 (together with all amendments and exhibits
thereto, the "registration statement") pursuant to 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 the exhibits and schedules thereto, as certain
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 upon 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 such instance, are
qualified in all respects by reference to the applicable documents filed with
the SEC.
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<PAGE> 4
The issuer is not currently subject to the information reporting
requirements of the Exchange Act. The issuer will become subject to such
requirements upon the effectiveness of the registration statement, and in
accordance therewith will file certain 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 such site is
http://www.sec.gov.
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<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.
Except as otherwise required by the context, references in this prospectus to
the "issuer," the "trust," "we" or "us" are references to Student Loan Funding
1998-A/B Trust and Firstar Bank, N.A., not in its individual capacity but solely
as Co-owner Trustee of the trust.
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 Securities Act and will not have registration rights. As a
result of this registration, and only if you participate in the exchange offer
and exchange your old notes for new notes, we believe that you may resell your
new notes without complying with the registration and prospectus delivery
requirements of the Securities Act. 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 Securities Act.
Student Loan Funding LLC entered into a Registration Rights Agreement dated
December 1, 1998 with Salomon Smith Barney Inc., as representative for itself,
Fifth Third/The Ohio Company and NationsBanc Montgomery Securities LLC, the
initial purchasers of the old notes. (Salomon Smith Barney Inc., Fifth Third/The
Ohio Company and NationsBanc Montgomery Securities LLC are referred to in this
prospectus as the "initial purchasers.") Student Loan Funding LLC, as the
depositor, entered into a Trust Agreement dated as of March 1, 1999 with First
Union Trust Company, National Association, as owner trustee and Firstar Bank,
N.A., as co-owner trustee, under which the issuer was formed as a common law
trust. Subsequently, on March ____, 1999, Student Loan Funding LLC and its
eligible lender trustee entered into a Transfer and Sale Agreement with Firstar
Bank, National Association, as the co-owner trustee of the issuer. Under the
transfer and sale agreement, Student Loan Funding LLC and its eligible lender
trustee sold all of their respective rights and interests in the financed
student loans, eligible investments and certain accounts to the co-owner trustee
on behalf of the issuer. In consideration of such sale, the co-owner trustee
assumed on behalf of the issuer, among other things, 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" herein 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" herein for further information regarding the
new notes.
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<PAGE> 6
<TABLE>
<CAPTION>
SUMMARY OF THE EXCHANGE OFFER
<S> <C>
THE DEPOSITOR ....................................... Student Loan Funding LLC
THE ISSUER........................................... Student Loan Funding 1998-A/B Trust
SECURITIES OFFERED................................... We are offering (i) [$385,000,000] in principal
amount of Senior Asset-Backed Notes, Series 1998A1-3
(LIBOR Floating Rate), (ii) $93,300,000 in principal
amount of Senior Asset Backed Callable Notes, Series
1998A1-4 (Auction Rate), (iii) $90,000,000 in
principal amount of Senior Asset-Backed Callable
Notes, Series 1998A1-5 (Auction Rate), (iv)
$90,000,000 in principal amount of Senior
Asset-Backed Callable Notes, Series 1998A1-6
(Auction Rate) and (v) $54,500,000 in principal
amount of Subordinate Asset-Backed Notes, Series
1998B1-3 (Fixed Rate). These new notes have the same
terms as the old notes you hold, except that the new
notes will be registered under the Securities Act
and will be freely transferable.
REGISTRATION RIGHTS AGREEMENT....................... Student Loan Funding LLC sold the old notes to the
initial purchasers on December 18, 1998 in a private
placement pursuant to certain exemptions from
registration available under the Securities Act, and
the initial purchasers immediately resold the old
notes to institutional investors pursuant to certain
exemptions from registration available under the
Securities Act. In connection with the private
placement, Student Loan Funding LLC entered into the
registration rights agreement with the initial
purchasers. Under the transfer and sale agreement,
the co-owner trustee, on behalf of the issuer,
assumed Student Loan Funding LLC's obligations under
the registration rights agreement. As the successor
to Student Loan Funding LLC's obligations under the
registration rights agreement, the issuer is
required to:
o file a registration statement for the exchange
offer and the new notes;
o cause the registration statement filed for the
exchange offer and the new notes to be declared
effective by the SEC on or before May 31, 1999; and
o complete the exchange offer on or before June 30,
1999.
After the exchange offer is complete, you will no
longer be entitled to exchange your old notes for
new notes.
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
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 ........................ We believe that the new notes issued in the
exchange offer may be offered for resale, resold and
otherwise transferred by you without compliance with
the registration and prospectus delivery
requirements of the Securities Act if:
o the new notes issued in the exchange offer are being
acquired by you in the ordinary course of your
business;
o 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 issued to you in the exchange offer;
and
o you are not our affiliate.
If we are wrong and you transfer any new notes
issued to you in the exchange offer without delivery
of a prospectus meeting the requirement of the
Securities Act or without an exemption from
registration of your new notes from such
requirements, you may incur liability under the
Securities Act. We do not assume responsibility for
or indemnify you against such liability. A
broker-dealer may use this prospectus for an offer
to resell, resale or re-transfer the new
notes issued to it in the exchange offer. The
exchange offer is not being made to:
o 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
o holders of old notes who are our affiliates.
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
CONSEQUENCES OF FAILURE TO EXCHANGE
YOUR NOTES.......................................... If you do not exchange your old notes for new notes
in the exchange offer, the restrictions on transfer
provided in the old notes and in the indenture
governing the old notes will apply to your old
notes. In general, your old notes may not be offered
or sold unless registered under the Securities Act,
except for offers or sales made in reliance on an
exemption from, or in a transaction not governed by,
the Securities Act and applicable state securities
laws. We have no current plans to register your old
notes under the Securities Act.
EXPIRATION DATE..................................... The exchange offer will expire at 5:00 p.m., New
York City time, on _______________, 1999, unless it
is extended. The expiration date is the latest date
and time to which we extend the exchange offer.
CONDITIONS TO EXCHANGE OFFER........................ The exchange offer has certain customary conditions.
There is no minimum amount of old notes that must be
tendered to complete the exchange offer.
PROCEDURES FOR TENDERING YOUR OLD NOTES............. If you wish to tender your old notes for exchange in
the exchange offer you must transmit to Firstar
Bank, N.A., the exchange agent for the exchange
offer, on or before the expiration date of the
exchange offer, either:
o a properly completed and executed letter of
transmittal that we have provided to you with this
prospectus, or a facsimile of the letter of
transmittal, together with your old notes and any
other documentation requested by the letter of
transmittal, to the exchange agent at the address
set forth under the heading "The Exchange Offer -
Exchange Agent," herein and on the front cover of
the letter of transmittal; or
o a computer-generated message transmitted by means
of The Depository Trust Company's Automated Tender
Offer Program system and received by the exchange
agent, which forms a part of a confirmation of
book-entry transfer in which you acknowledge and
agree to be bound by the terms of the letter of
transmittal.
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
By executing the letter of transmittal, each holder
of old notes will make those representations
described under the heading "The Exchange Offer
Procedures for Tendering" herein.
GUARANTEED DELIVERY PROCEDURES...................... If you wish to tender your old notes and time will
not permit the documents required by the letter of
transmittal to reach the exchange agent prior to the
expiration date of the exchange offer, or the
procedure for book-entry transfer cannot be
completed on a timely basis, you must tender your
old notes according to the guaranteed delivery
procedures described under the heading "The Exchange
Offer - Guaranteed Delivery Procedures" herein.
SPECIAL PROCEDURES FOR BENEFICIAL OWNERS............ If you are a beneficial owner whose old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender your old notes in the exchange
offer, you should contact your registered holder
promptly and instruct such registered holder to
tender on your behalf. If you wish to tender on your
own behalf, you must either make appropriate
arrangements to register ownership of the old notes
in your name or obtain a properly completed bond
power from the registered holder, prior to
completing and executing the letter of transmittal
and delivering your old notes. We must advise you
that the transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the expiration date of the
exchange offer.
WITHDRAWAL RIGHTS................................... Unless the date is extended, 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.......................... The exchange of old notes for new notes will not be
a taxable exchange for United States federal income
tax purposes. You will not recognize any taxable
gain or loss or any interest income as a result of
the exchange. Thompson Hine & Flory LLP will provide
an opinion that there will be no federal income tax
consequences to you if you exchange your old note
for a new note in the exchange offer. For additional
information regarding federal income tax
considerations, you should read the discussion under
the heading "Federal Income Tax Consequences"
herein.
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C>
STATE TAX CONSIDERATIONS............................ We have not addressed the state income tax
consequences of the exchange of your old notes for
new notes in this prospectus. You should consult
your own tax advisors before deciding whether to
participate in the exchange offer.
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 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. See "The Exchange
Offer - Dealer Manager" herein.
</TABLE>
Please review the information contained under the heading "The Exchange Offer"
herein for more detailed information concerning 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. A more detailed
description of the indenture can be found under the heading "Description of the
New Notes" herein.
<TABLE>
<S> <C>
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 will assume the
obligations under the old notes and will issue and
exchange the new notes for the outstanding old
notes.
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C>
THE SERVICER......................................... Student Loan Funding Resources, Inc. ("Resources"),
as the master servicer, will arrange for the
servicing of the student loans pursuant to 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.
THE TRUSTEES......................................... The institutional bank trustees are as follows:
o 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;
o First Union Trust Company, National Association,
is the Owner Trustee for purposes of the trust's
beneficial ownership of the student loans;
o Firstar Bank, N.A., is the Co-owner Trustee for
purposes of the trust's beneficial ownership of the
student loans; and
o Firstar Bank, N.A., a national banking
association, is the indenture trustee.
ISSUE DATE........................................... Issuance of the new notes is scheduled for _______,
1999.
INTEREST............................................. Interest is paid on the new notes in the same manner
as it is paid on the old notes.
SERIES A-3 NOTES Interest is paid monthly on the Series A-3 Notes on
the last business day of each calendar month. The
interest rate will be an annual rate adjusted
monthly to equal the lesser of:
o one-month LIBOR plus 0.38%; or
o 17%.
The adjusted monthly interest rate for each period
will be capped, however, at the net loan rate for
that period.
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C>
SERIES A-4 NOTES Interest on the Series A-4 Notes is paid on the
business day following the expiration of each
applicable auction period. The interest rate will be
an annual rate adjusted at the beginning of each
auction period to equal the lesser of:
o the auction rate; or
o 17%.
The adjusted monthly interest rate for each period
will be capped, however, at the net loan rate for
that auction period.
SERIES A-5 NOTES Interest on the Series A-5 Notes is paid on the
business day following the expiration of each
applicable auction period. The interest rate will be
an annual rate adjusted at the beginning of each
auction period to equal the lesser of:
o the auction rate; or
o 17%.
The adjusted monthly interest rate for each period
will be capped, however, at the net loan rate for
that auction period.
SERIES A-6 NOTES Interest on the Series A-6 Notes is paid on the
business day following the expiration of each
applicable auction period. The interest rate will be
an annual rate adjusted at the beginning of each
auction period to equal the lesser of:
o the auction rate; or
o 17%.
The adjusted monthly interest rate for each period
will be capped, however, at the net loan rate for
that auction period.
SERIES B-3 NOTES Interest on the Series B-3 Notes is paid monthly on
the last business day of each calendar month. The
interest rate is fixed at an annual rate of 6.25%.
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
THE NET LOAN RATE.................................... 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 pursuant to the Indenture.
PRINCIPAL........................................... Principal is paid on the new notes in the same
manner as it is paid on the old notes, from
available funds.
SERIES A-3 NOTES Principal is paid monthly on the Series A-3 Notes.
Principal payments generally will equal the
reduction in the student loan principal balance,
minus, for each monthly payment date after June 30,
2003, the amount of principal paid on such date on
the Series B-3 Notes.
SERIES A-4 NOTES Principal is paid on the Series A-4 Notes on each
auction period payment date after the Series A-3
Notes have been paid in full. Principal payments
generally will equal the reduction in the student
loan principal balance, minus, for each monthly
payment date after June 30, 2003, the amount of
principal paid on such date on the Series B-3 Notes.
SERIES A-5 NOTES Principal is paid on the Series A-5 Notes on each
auction period payment date after the Series A-3
Notes and the Series A-4 Notes have been paid in
full. Principal payments generally will equal the
reduction in the student loan principal balance
minus, for each monthly payment date after June 30,
2003, the amount of principal paid on such date on
the Series B-3 Notes.
SERIES A-6 NOTES Principal is paid on the Series A-6 Notes on each
auction period payment date after the Series A-3
Notes, the Series A-4 Notes and the Series A-5 Notes
have been paid in full. Principal payments generally
will equal the reduction in the student loan
principal balance minus, for each monthly payment
date after June 30, 2003, the amount of principal
paid on such date on the Series B-3 Notes.
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SERIES B-3 NOTES Principal is paid monthly on the Series B-3 Notes.
After the Series A-3 Notes, the Series A-4 Notes,
the Series A-5 Notes and the Series A-6 Notes have
been paid in full, principal payments on the Series
B-3 Notes generally will equal the reduction in the
student loan principal balance. After June 30, 2003,
principal payments on the Series B-3 Notes will
equal the lesser of:
o an amount generally equal to the reduction in the
student loan principal balance and
o 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 such payment
of principal on the Series B-3 Notes.
Principal payments on the Series A-3 Notes will be
made on each monthly payment date. 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. Unless an event of default
has occurred, no principal will be paid on the
Series A-5 Notes until the Series A-3 Notes and the
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. 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.
As long as any Series 1998A Notes are outstanding,
no principal will be paid on the Series B-3 Notes
until the first monthly payment date after June 30,
2003.
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%.
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PARITY PERCENTAGE................................... The parity percentage basically is determined by
dividing:
o 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
o the principal balance of all notes plus accrued
and unpaid interest and expenses. See "Description
of the New Notes - Principal" herein.
SENIOR PARITY PERCENTAGE............................ The senior parity percentage basically is determined
by dividing:
o 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
o the principal balance of all Series 1998A Notes
plus accrued and unpaid interest thereon and
expenses with respect to all notes.
FINAL MATURITY...................................... The final payment of principal and interest will be
made no later than:
o December 1, 2006 on the Series A-3 Notes;
o December 1, 2019 on the Series A-4 Notes;
o December 1, 2019 on the Series A-5 Notes;
o December 1, 2019 on the Series A-6 Notes; and
o December 1, 2019 on the Series B-3 Notes.
For several reasons, the actual maturity of each
series may occur sooner. See "Maturity and
Prepayment Considerations" herein.
PRIORITY OF PAYMENTS................................ On each payment date, funds available after paying
expenses will be applied generally in the following
priority:
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o First, (i) on each monthly payment date, to pay
interest on the Series A-3 Notes, and to pay any
related interest rate exchange payment owed by the
issuer, and (ii) on each applicable auction period
payment date, to pay interest on the Series A-4
Notes, the Series A-5 Notes and the Series A-6
Notes, as applicable, and any related interest rate
exchange payment owed by the issuer;
o Second, on each monthly payment date, to pay
interest on the Series B-3 Notes and any related
interest rate exchange payment owed by the issuer;
o Third, (i) to pay principal on each monthly
payment date on the Series A-3 Notes in an amount
equal to the reduction in the balance of the student
loans and any shortfall from previous principal
distributions on the Series A-3 Notes, less, for
each monthly payment date occurring after June 30,
2003, the amount of any principal to be paid on such
date on the Series B-3 Notes, until the principal
balance of the Series A-3 Notes has been reduced to
zero and (ii) to pay principal on each monthly
payment date occurring after June 30, 2003 on the
Series B-3 Notes in an amount equal to the lesser of
(a) an amount generally equal to the reduction in
the balance of the student loans 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;
o Fourth, after the principal balance of the Series
A-3 Notes has been reduced to zero, (i) to pay
principal on each auction period payment date on the
Series A-4 Notes in an amount equal to the reduction
in the balance of the student loans and any
shortfall from previous principal distributions on
the Series A-4 Notes, less, for each monthly payment
date occurring after June 30, 2003, the amount of
any principal paid on the immediately preceding
monthly payment date on the Series B-3 Notes, until
the principal balance thereof has been reduced to
zero
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and (ii) to pay principal on each monthly payment
date occurring after June 30, 2003 on the Series B-3
Notes in an amount equal to the lesser of (a) an
amount generally equal to the reduction in the
balance of the student loans 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;
o Fifth, after the principal balance of the Series
A-3 Notes and Series A-4 Notes has been reduced to
zero, (i) to pay principal on each auction period
payment date on the Series A-5 Notes in an amount
equal to the reduction in the balance of the student
loans and any shortfall from previous principal
distributions on the Series A-5 Notes, less, for
each monthly payment date occurring after June 30,
2003, the amount of any principal paid on the
immediately preceding monthly payment date on the
Series B-3 Notes, until the principal balance
thereof has been reduced to zero and (ii) to pay
principal on each monthly payment date occurring
after June 30, 2003 on the Series B-3 Notes in an
amount equal to the lesser of (a) an amount
generally equal to the reduction in the balance of
the student loans 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;
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 reduced to zero, (i) to pay principal
on each auction period payment date on the Series
A-6 Notes in an amount equal to the reduction in the
balance of the student loans and any shortfall from
previous principal distributions on the Series A-6
Notes, less, for each monthly payment date occurring
after June 30, 2003, the amount of any principal
paid on the immediately preceding monthly payment
date on the
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Series B-3 Notes, until the principal balance
thereof has been reduced to zero and (ii) to pay
principal on each monthly payment date occurring
after June 30, 2003 on the Series B-3 Notes in an
amount equal to the lesser of (a) an amount
generally equal to the reduction in the balance of
the student loans 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;
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 reduced to
zero, to pay principal on each monthly payment date
on the Series B-3 Notes in an amount generally equal
to the reduction in the balance of the student loans
and any shortfall from previous principal
distributions on the Series B-3 Notes;
o Eighth, on any monthly payment date, 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%:
on the Series A-3 Notes on each monthly payment
date until the principal balance thereof has
been reduced to zero, then
once the Series A-3 Notes are no longer
outstanding, on the Series A-4 Notes on each
auction period payment date until the principal
balance thereof has been reduced to zero, then
once the Series A-3 Notes and the Series A-4
Notes are no longer outstanding, on the Series
A-5 Notes on each auction period payment date
until the principal balance thereof has been
reduced to zero, then
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once the Series A-3 Notes, the Series A-4 Notes
and the Series A-5 Notes are no longer
outstanding, on the Series A-6 Notes on each
auction period payment date until the principal
balance thereof has been reduced to zero, and
thereafter
once the Series A-3 Notes, the Series A-4 Notes,
the Series A-5 Notes and the Series A-6 Notes
are no longer outstanding, on the Series B-3
Notes on each monthly payment date;
o Tenth, on any monthly payment date or auction
period payment date, as applicable, to pay carryover
interest, if any:
on the Series A-3 Notes until payment in full of
all such carryover interest, then
on the Series A-4 Notes until payment in full of
all such carryover interest, then
on the Series A-5 Notes until payment in full of
all such carryover interest, and thereafter
on the Series A-6 Notes until payment in full of
all such carryover interest;
o Eleventh, on any applicable payment date, to an
exchange counterparty 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; and
o Twelfth, on any monthly payment date, any
remainder will be transferred to the excess surplus
account established under the indenture. The issuer
may withdraw amounts from the excess surplus account
at any time upon written request to the indenture
trustee so long as after such withdrawal the parity
percentage will be at least 103%. Any amounts so
withdrawn will not be available thereafter to pay
principal or interest on the notes. See "The
Indenture -- Collection Fund" herein.
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<S> <C>
The above payment order will be modified if, after
giving effect to such 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
payment order will be modified to provide that the
Series B-3 Notes will not receive any interest
payments pursuant to clause "Second" above, no
interest rate exchange payments relating to such
Series B-3 Notes will be made and the Series B-3
Notes will not receive any principal payments
pursuant to clauses "Third", "Fourth", "Fifth" and
"Sixth" above. As long as any Series A-3 Notes,
Series A-4 Notes, Series A-5 Notes or Series A-6
Notes remain outstanding, any such deferral 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, principal distributions on the Series A-3
Notes, the Series A-4 Notes, the Series A-5 Notes
and the Series A-6 Notes will be allocated pro rata
among each series, without preference or priority of
any kind. See "The Indenture -- Collection Fund"
herein.
Notwithstanding the foregoing, principal payments
will be made on the Series A-4 Notes, the Series A-5
Notes and the Series A-6 Notes only in amounts equal
to $50,000 and integral multiples thereof. If the
amount available to be applied as a payment of
principal on the Series A-4 Notes, the Series A-5
Notes or the Series A-6 Notes on the applicable
auction period payment date
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<S> <C>
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 such
auction period payment date, but will be retained in
the Note Payment Account until the amount available
therein for the payment of principal at least equals
$50,000.
RESERVE FUND........................................ The indenture trustee has 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. 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 such date until the
specified reserve fund balance is attained. See
"Security for the Notes -- Reserve Fund" and "The
Indenture -- Reserve Fund" herein.
REDEMPTION..........................................
AUCTION OF THE FINANCED STUDENT LOANS On or after May 31, 2007, if the principal balance
of the student loans (including capitalized
interest) is equal to or less than 10% of the
initial principal amount 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 such 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 such auction date.
See "Redemption -- Auction of the Financed Student
Loans" herein.
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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 thus
effect 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 such 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 amounts due to the holders, including carryover
interest, after application of funds on deposit in
the reserve fund. Such 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, upon 15 days' notice
given by the indenture trustee, at a redemption price
equal to their principal amount, plus all accrued
interest thereon, including carryover interest, provided
that after any such redemption, the parity percentage
must be no less than 101% and certain other conditions
must be satisfied. See "Redemption -- Optional Redemption"
herein.
FEDERAL INCOME TAX CONSEQUENCES The new notes will evidence debt obligations of the
depositor under the Internal Revenue Code of 1986, as
amended, and interest paid or accrued thereon will be
taxable income to holders. Thompson Hine & Flory LLP will
provide an opinion that the new notes will be
characterized as debt of the depositor for federal income
tax purposes. By acceptance of your new note, you will be
deemed to have agreed to treat your new note as a debt
instrument 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 concerning the
application of federal income tax laws with respect to the
new notes, see "Federal Income Tax Consequences" herein.
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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. See "ERISA
Considerations" herein.
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 certain limited circumstances.
See "Description of the Notes --Book-entry
Registration" herein.
The Series 1998A1-3 Notes will be offered in minimum
denominations of $50,000, reduced by the amount of
principal payments made before the exchange offer,
if any, and integral multiples of $1,000 in excess
thereof.
The Series 1998B1-3 Notes will be offered in minimum
denominations of $50,000 and integral multiples of
$1,000 in excess thereof.
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 thereof.
RATING.............................................. It is a condition to the issuance of the new notes
that they be rated by the following rating agencies
as follows:
Moody's Fitch
------- -----
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
See "Risk Factors -- Credit Ratings Address Only a
Limited Scope of Investor Concerns" and "Rating"
herein.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS TOGETHER WITH THE OTHER
MATTERS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO EXCHANGE YOUR OLD NOTES FOR NEW NOTES IN
THE EXCHANGE OFFER.
RISKS RELATING TO YOUR If you do not exchange old notes for new
FAILURE TO PARTICIPATE IN THE notes in this exchange offer, you will
EXCHANGE OFFER hold securities that are not registered
and you will continue to be restricted
from transferring your old notes in the
future. In general, outside of the
exchange offer, you may not offer, sell,
pledge or transfer your old notes unless
they have been registered under the
federal and state securities laws or you
offer, sell, pledge or transfer them in
a transaction that is exempt from such
laws. Following the exchange offer, if
you did not elect to participate, you
will not be entitled to any further
registration rights under the
registration rights agreement. We do not
currently intend to file a registration
statement to register your old notes
except in connection with this exchange
offer.
LIMITED ABILITY TO RESELL YOUR The new notes will constitute a new
YOUR NOTES issue of securities without any
established trading market. We do not
currently intend to list the new notes
on any national securities exchange or
on any automated quotation system of any
registered securities association such
as the NASDAQ Stock Market. The initial
purchasers may assist in resales of the
new notes but they are not required to
do so. A secondary 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.
Salomon Smith Barney Inc. has advised us
that it intends to attempt to make a
secondary market in the new notes;
however, it is not obligated to do so
and a secondary market may not develop.
LIMITED TRUST ASSETS The trust will not have any significant
assets or sources of funds except for the
student loans and related assets. Your
new notes, together with all interest
rate exchange agreements that may be
entered into from time to time, and
carryover interest, if any, are secured
by and payable solely from the assets of
the trust, and will not be insured or
guaranteed by the depositor, the
administrator, the master servicer, the
guarantee agencies, the eligible lender
trustee, any of their affiliates, or the
Department of Education. You must rely
for repayment upon proceeds realized from
the student loans and other assets in the
trust. See "Security for the Notes" and
"The Indenture-- Collection Fund" herein.
FAILURE BY LOAN HOLDERS OR The Higher Education Act, including the
SERVICERS TO COMPLY WITH implementing regulations thereunder,
STUDENT LOAN ORIGINATION requires loan holders and servicers to
FFELP AND SERVICING PROCEDURES follow specified procedures, including
due diligence procedures, to ensure that
the Loans are properly originated and
serviced. Failure to follow these
procedures may result in:
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(i) LOSS OF REINSURANCE PAYMENTS,
INTEREST SUBSIDIES AND SPECIAL
ALLOWANCE PAYMENTS. The Department
of Education's refusal to make
reinsurance payments to the
guarantee agencies or to make
interest subsidy payments and
special allowance payments to the
eligible lender trustee with
respect to the FFELP Loans; and
(ii) LOSS OF GUARANTEE PAYMENTS. The
guarantee agencies' inability or
refusal to make guarantee payments
with respect to the FFELP Loans.
The loss of any such payments may
adversely affect the indenture trustee's
ability to pay principal and interest on
the new notes. See "Description of the
FFEL Program" and "Servicing -- Servicing
Procedures" herein.
SUBORDINATION The Series B-3 Notes and any exchange
counterparties under an interest rate
exchange agreement relating to the Series
B-3 Notes are subordinated to the Series
A-3 Notes, the Series A-4 Notes, the
Series A-5 Notes and the Series A-6 Notes
and any exchange counterparties under an
interest rate exchange agreement relating
to the Series A-3 Notes, the Series A-4
Notes, the Series A-5 Notes or the Series
A-6 Notes. Payments of interest on the
Series B-3 Notes and any interest rate
exchange payments relating to such Series
B-3 Notes on any monthly payment date
will be made only after payment of
interest on and any interest rate
exchange payments relating to the Series
A-3 Notes, the Series A-4 Notes, the
Series A-5 Notes and the Series A-6 Notes
have been made, and if certain specified
conditions exist, payment of interest on
and any interest rate exchange payments
relating to the 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, holders of the Series
B-3 Notes will bear losses on the student
loans before such losses are borne by the
holders of the Series A-3 Notes, the
holders of the Series A-4 Notes, the
holders of the Series A-5 Notes and the
holders of the Series A-6 Notes. In
addition, holders of the Series B-3 Notes
may be limited in the legal remedies that
are available to them until the holders
of the Series A-3 Notes, the holders of
the Series A-4 Notes, the holders of the
Series A-5 Notes and the holders of the
Series A-6 Notes and any exchange
counterparties under an interest rate
exchange agreement on a parity with the
Series A-3 Notes, the Series A-4 Notes,
the Series A-5 Notes and the Series A-6
Notes are paid in full. See "The
Indenture -- Collection Fund" and
"Security for the Notes - The Trust"
herein.
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OFFSET BY GUARANTEE The eligible lender trustee may use a
AGENCIES OR THE Department of Education lender
DEPARTMENT OF identification number that may also be
EDUCATION COULD used for other student loans held by the
REDUCE THE AMOUNT eligible lender trustee on behalf of the
OF AVAILABLE FUNDS depositor or entities established by the
depositor, the administrator or their
affiliates under other indentures. If it
does, the billings submitted to the
Department of Education and the claims
submitted to the guarantee agencies will
be consolidated with the billings and
claims for payments for student loans
under other indentures using the same
lender identification number, and
payments on such billings would be made
by the Department of Education, and claim
payments would be made by the guarantee
agency, to the eligible lender trustee in
lump sum form. These payments would be
allocated by the eligible lender trustee
among the various indentures using the
same lender identification number.
If the Department of Education or a
guarantee agency determines that the
eligible lender trustee owes a liability
to the Department of Education or the
guarantee agency on any FFELP Loan for
which the eligible lender trustee is or
was legal titleholder, including FFELP
loans held under the indenture or other
indentures, the Department of Education
or the guarantee agency might seek to
collect that liability by offsetting
against payments due the eligible lender
trustee under the trust. Such offsetting
or shortfall of payments due to the
eligible lender trustee with respect to
the trust could adversely affect the
amount of available funds for any
collection period and the trust's ability
to pay interest and principal on your 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 such 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 such cross-indemnification
provisions. Although these indentures
will include such provisions, there can
be no assurance that the amount of funds
available to the trust with respect to
such 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 such 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. See "Description
of the FFEL Program" and "The Guarantee
Agencies" herein.
FINANCIAL HEALTH OF The FFELP Loans are not secured by any
GUARANTEE AGENCIES collateral of the borrowers. Payments of
COULD DECLINE principal and interest are guaranteed by
guarantee agencies to the extent
described herein. Excessive borrower
defaults could impair a guarantee
agency's ability to meet its guarantee
obligations. In addition, future
legislation or regulations may reduce
guarantee agency revenues by restricting
the amount of guarantee fees or reducing
Department of Education reimbursements.
Moreover, recently enacted legislation is
expected to reduce the guarantee
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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 indenture
trustee's 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 such a
determination or, if such a determination
was made, that it would pay claims in a
timely manner. In its capacity as holder
of FFELP Loans, the eligible lender
trustee may receive claim payments
directly from the Department of Education
under Section 432(o) of the Higher
Education Act if such a determination is
made. See "Description of the FFEL
Program" and "The Guarantee Agencies"
herein.
FINANCIAL HEALTH OF If any interest rate exchange agreement
ANY EXCHANGE COUNTERPARTY relating to the notes is ever executed,
OR ANY PROVIDER OF AN any time that the exchange rate being
EXCHANGE COUNTERPARTY paid by an exchange counterparty is
GUARANTEE COULD REDUCE greater than the exchange rate being paid
THE AMOUNT OF AVAILABLE by the issuer, the indenture trustee's
FUNDS ability to make principal and interest
payments on the notes will be affected by
such exchange counterparty's ability or
the ability of any provider of an
exchange counterparty guarantee to meet
its net payment obligation to the
indenture trustee. In addition, under
certain circumstances, the failure by the
issuer to make an exchange payment (other
than an early termination payment) under
such interest rate exchange agreement may
constitute an event of default under the
indenture. See "Security for the Notes --
Exchange Agreements" and "The Indenture
-- Events of Default" herein.
POTENTIAL ADVERSE The Higher Education Act and other
CHANGES TO relevant federal or state laws may be
FFEL PROGRAM amended or modified in the future. In
particular, the level of guarantee
payments may be adjusted from time to
time. The issuer cannot predict whether
any changes will be adopted or, if
adopted, what impact such changes may
have on the trust or your new notes.
INCREASED COMPETITION The Federal Direct Student Loan Program
FROM THE FEDERAL DIRECT has been established under the Higher
STUDENT LOAN PROGRAM Education Act. This program could result
in reductions in the volume of loans made
under the FFEL Program. If so, the
depositor, the administrator, the master
servicer and the servicers may experience
increased costs due to reduced economies
of scale. These cost increases could
reduce the ability of the master servicer
or the servicers to satisfy their
obligations to service the student loans.
This could also reduce revenues received
by the guarantee agencies available to
pay claims on defaulted FFELP Loans. The
competition currently existing in the
secondary market for loans made under the
FFEL Program could be reduced, resulting
in fewer potential buyers of the FFELP
Loans and lower prices available in the
secondary market for those loans.
The Department of Education also has
implemented a direct consolidation loan
program, which may reduce the volume of
loans made under the FFEL Program and is
expected to result in prepayments of
student loans. See "Description of the
FFEL Program" herein.
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<PAGE> 28
REINVESTMENT RISK Student loans may be prepaid by borrowers
AND PREPAYMENTS at any time without penalty. The rate of
prepayments cannot be predicted and may
be influenced by economic and other
factors, such as interest rates, the
availability of other financing and the
general job market. To the extent
borrowers elect to borrow money through
consolidation loans, your 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 such prepayments initially will
be to increase the rate of payment first
on the Series A-3 Notes, second on the
Series A-4 Notes, third on the Series A-5
Notes and fourth on the Series A-6 Notes
and therefore, increase the reinvestment
risks with respect to such notes. After
such notes have been paid in full, the
amount of such prepayments will be
applied to the principal balance of the
Series B-3 Notes until they are paid in
full. 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. See
"Maturity and Prepayment Considerations"
herein.
THE MATURITY OF YOUR Scheduled payments on the student loans
INVESTMENT IS UNCERTAIN and the maturities of the student loans
may be extended without your consent,
which may lengthen the weighted average
life of your investment. Prepayments of
principal on the student loans, parity
percentage payments and other factors may
shorten the life of your investment. See
"Maturity and Prepayment Considerations"
herein.
BORROWERS OF STUDENT Collections on the student loans during a
LOANS MAY BE SUBJECT TO A collection period may vary greatly in
VARIETY OF FACTORS THAT both timing and amount from the payments
MAY ADVERSELY AFFECT actually due on the student loan for that
THEIR REPAYMENT ABILITY collection period for a variety of
economic, social and other factors,
including both individual factors, such
as additional periods of deferral or
forbearance prior to or after a
borrower's commencement of repayment, and
general factors, such as a general
economic downturn which could increase
the amount of defaulted student loans and
the number of borrowers who request
deferment or forbearance.
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 such factors,
including the effect on 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 is impossible to predict. See
"Maturity and Prepayment Considerations"
herein.
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<PAGE> 29
THE INTEREST RATES ON THE The interest rate for the Series A-3
NOTES ARE SUBJECT TO Notes will be based on the level of
LIMITATIONS LIBOR. The interest rate for the Series
A-4 Notes, the Series A-5 Notes and the
Series A-6 Notes will be based on the
outcome of an auction of such notes. The
interest rate for the Series B-3 Notes
will be a fixed rate. The student loans,
however, bear interest at a rate equal to
the rate borne by Treasury Bills plus a
stated margin.
The interest rates on the Series 1998A
Notes will be limited by the net loan
rate for each series which will equal
the weighted average effective interest
rate of the student loans, less the
program operating expenses. For a
payment date on which the net loan rate
applies, the difference between the
amount of interest at the rate described
above and the amount of interest at the
net loan rate will be paid on succeeding
payment dates to the extent of available
funds and may never be paid. See
"Description of the New Notes --
Interest" herein.
THE INTEREST RATES ON The interest rates on your notes (except
STUDENT LOANS AND OTHER the Series B-3 Notes) are variable and
INVESTMENTS MAY BE will fluctuate from one interest period
INSUFFICIENT TO COVER to another in response to changes in
INTEREST ON THE NOTES benchmark rates or general market
DUE TO RATE-INDEX conditions. The issuer can make no
DIFFERENCES representation as to what such rates may
be in the future. As described above, the
interest rates on the Series A-3 Notes
will be based on the level of LIBOR. The
interest rates on the Series A-4 Notes,
the Series A-5 Notes and the Series A-6
Notes will be based on the outcome of an
auction of such notes. The Series B-3
Notes will bear interest at a fixed rate.
The student loans, however, bear interest
at an effective rate (taking into account
any special allowance payments) equal to
the rate borne by a Treasury Bill plus a
stated margin.
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 such funds (such as
certain 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
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<PAGE> 30
structure such 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.
See "Description of the New
Notes--Interest" and "The
Indenture--Investment" herein.
PRINCIPAL BALANCE The aggregate principal balance of the
OF NOTES EXCEEDS notes exceeds the sum of the aggregate
POOL BALANCE balance of the student loans and accrued
interest thereon as of _______________,
the amount in the reserve fund and the
amounts in the other funds and accounts
under the indenture by approximately
[$17,285,000 or 2.37%]of the notes.
Payment of principal and interest on the
notes is dependent upon collections on
the student loans, particularly interest
thereon. If the yield on 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 A-3 Notes, the holders of the
Series A-4 Notes, the holders of the
Series A-5 Notes and the holders of the
Series A-6 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 balance of the
student loans.
INDENTURE TRUSTEE MAY Generally, during an event of default,
HAVE DIFFICULTY LIQUIDATING the indenture trustee is authorized to
FINANCED STUDENT LOANS sell the student loans. However, the
indenture trustee may not find a
purchaser for the student loans. Also,
the market value of the student loans
might not equal the principal amount of
notes plus accrued interest. In either
event, you may suffer a loss.
INSUFFICIENCY OF FUNDS FOR The principal amount required to be paid
PRINCIPAL DISTRIBUTIONS IS on the notes on any payment date under
NOT AN EVENT OF DEFAULT the indenture generally is limited to
amounts available for payment. Therefore,
failure to pay principal will not result
in the occurrence of an event of default
until the legal final maturity of the
notes.
BANKRUPTCY OF DEPOSITOR, The depositor is a limited purpose
ISSUER OR STUDENT LOAN subsidiary of Student Loan Funding
FUNDING RESOURCES, INC. Resources, Inc. If the depositor becomes
COULD RESULT IN ACCELERATED bankrupt, and the assets and liabilities
PREPAYMENT ON THE NOTES, of the trust are included in the
REDUCTIONS OF PAYMENT OR depositor's bankruptcy estate, the United
DELAYS IN PAYMENT States Bankruptcy Code could materially
limit or prevent the enforcement of the
issuer's obligations, including, without
limitation, its obligations under the
notes. The depositor's trustee in
bankruptcy (or the depositor itself as
debtor-in-possession) may seek to
accelerate payment on the notes and
liquidate the assets in the trust. If
principal on your notes is declared due
and payable, you may lose the right to
future payments and face the reinvestment
risks mentioned above.
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<PAGE> 31
Resources, as the 99% membership interest
holder of the depositor, has taken
certain steps in structuring the
depositor to insure that the depositor
does not become a debtor under the United
States Bankruptcy Code. These steps
include restrictions on the nature of the
depositor's business and its ability to
incur debt and a restriction on the
depositor's ability to commence a
voluntary proceeding under any insolvency
law without the unanimous affirmative
vote of its management committee. There
can be no assurances, however, that the
depositor would not become subject to a
bankruptcy proceeding under any
insolvency law.
In addition, the depositor has structured
the issuer as a common law trust under
Delaware law, as opposed to a business
trust. Business trusts generally are
eligible for relief under the United
States Bankruptcy Code. Common law trusts
may not be eligible to be debtors under
the United States Bankruptcy Code 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 to insure it would
not be characterized as a business trust
eligible to be a debtor 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 such
payments.
The transactions contemplated hereby also
are intended 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
consolidation of the assets and
liabilities of the depositor with those
of Resources. These steps include the
creation of the depositor as a separate,
special purpose subsidiary pursuant to a
limited liability company agreement that
contains certain limitations, including
restrictions on the nature of the
depositor's business and on the
depositor's ability to commence a
voluntary case or proceeding under any
insolvency law without the unanimous
affirmative vote of its management
committee. See "The Depositor" herein.
However, there can be no assurance that
the activities of the depositor would not
result in a court concluding that the
assets and liabilities of the depositor
should be consolidated with those of
Resources in a proceeding under any
insolvency law. 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 such payments. See "Risk
Factors -- Risk of No True Sale" herein.
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<PAGE> 32
CHANGES IN INCENTIVE AND Under certain incentive programs, the
REPAYMENT TERMS RESULT IN depositor may terminate or change the
YIELD UNCERTAINTIES FOR terms of the incentives with respect to
INVESTORS any or all of a borrower's loans. The
issuer cannot predict which borrowers
will qualify or decide to participate in
these programs. The effect of these
incentive programs may be to reduce the
yield on the student loans.
CONSUMER PROTECTION Consumer protection laws impose
LAWS MAY INCREASE substantial requirements upon lenders and
COSTS AND UNCERTAINTIES servicers. Some state laws impose finance
charge ceilings and other restrictions on
certain 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 such
promissory notes evidencing certain loans
made to borrowers attending for-profit
schools are subject to any claims and
legal defenses that the borrower may have
against the school.
BOOK-ENTRY REGISTRATION The new notes may be represented by one
MAY LIMIT INVESTORS' or more certificates registered in the
ABILITY TO PARTICIPATE name of Cede & Co., the nominee for DTC,
DIRECTLY AS A HOLDER and will not be registered in the names
of the holders of the new notes. You will
only be able to exercise your rights
indirectly through DTC and its
participating organizations. See
"Description of the New Notes --
Book-entry Registration" herein.
CREDIT RATINGS ADDRESS A rating agency has rated each note in
ONLY A LIMITED SCOPE OF one of its four highest rating
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 and may be lowered or withdrawn
entirety by a rating agency if in its
judgment circumstances in the future so
warrant. Any reduction or withdrawal of a
rating may have an adverse effect on the
liquidity and market price of the notes.
See "Rating" herein.
The indenture provides that the issuer
and the indenture trustee may undertake
various actions based upon receipt by the
indenture trustee of confirmation from
each of the rating agencies that the
outstanding respective ratings assigned
by such rating agencies to the
outstanding notes are not adversely
affected. Such actions include, but are
not limited to, the execution by the
issuer of interest rate exchange
agreements and the acquisition of certain
investments. To the extent such actions
are taken after issuance of the notes,
investors in the notes will be relying on
the evaluation by the rating agencies of
such actions and their impact on credit
quality.
RISK OF NO TRUE SALE The depositor acquired the pool of
student loans for the notes from a
variety of sources, including purchases
of student loans from one or more
affiliates of the depositor and from
third party sellers. The depositor views
these transfers of student loans from its
affiliates and
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<PAGE> 33
third parties as a "true sale." The
Depositor has taken steps in structuring
its purchase of student loans from
affiliates to increase the likelihood
that such purchase each will be deemed a
"true sale." In particular, each purchase
from an affiliate of the depositor is
without recourse to that affiliate for
credit losses and is at a purchase price
that the parties believe represent the
fair market value of the student loans.
If the transfer from the affiliate to the
depositor is a "true sale," then the
student loans and proceeds thereof will
not be part of such affiliate's
bankruptcy estate should it become
subject to the United States Bankruptcy
Code after the student loans are
transferred to the depositor. However, a
court could treat these transfers as
secured financings.
If any transfer to the depositor of
student loans from an affiliate of the
depositor is deemed to be a secured
financing, other persons may have an
interest in the loans superior to the
interest of the issuer, the depositor, or
the eligible lender trustee, as
applicable. In addition, if such
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 such creditor,
trustee or affiliate) reductions in the
amount of payments to you could result.
When the depositor transfers the student
loans to the eligible lender trustee on
behalf of the issuer, it will represent
that the student loans are transferred to
the eligible lender trustee on behalf of
the issuer, free and clear of all liens
and will covenant that it will not sell,
pledge, assign, transfer or grant any
lien on any transferred student loan
other than to the eligible lender
trustee. Each servicer will have custody
of the promissory notes related to the
student loans that it is servicing. The
student loans may not be physically
segregated at the servicer's or other
custodian's offices. If any interest in
the student loans were assigned to
another party, that party could acquire
an interest in the student loans superior
to the interest of the eligible lender
trustee, the issuer and your indenture
trustee.
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.
Notwithstanding the foregoing, if the
depositor or the issuer were to become a
debtor in a bankruptcy case and a
creditor or trustee in bankruptcy of such
debtor or such debtor itself were to take
the position that the 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 such trustee, debtor or
creditor, reductions in the amount of
payments on the new notes could occur.
OBLIGATIONS TO PURCHASE The depositor is obligated to repurchase
FINANCED STUDENT LOANS student loans if it breaches any of its
FOR THE BREACH OF A representations, warranties or
REPRESENTATION OR obligations and such breach results in a
WARRANTY loss of insurance or guarantee payments.
The depositor may not have the financial
resources to repurchase any student loan.
The failure of the depositor to
repurchase a student loan is a breach of
the Transfer and Sale Agreement,
enforceable by the trust or by the
indenture trustee, but is not an event of
default under the indenture. See
"Transfer and Sale Agreement" herein.
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<PAGE> 34
INABILITY OF SELLER TO MEET ITS Under certain circumstances, the eligible
REPURCHASE OBLIGATIONS MAY lender trustee on behalf of the issuer,
ADVERSELY AFFECT YOUR NOTES as the successor to the depositor under
the transfer and sale agreement, has the
right, pursuant to the related student
loan purchase agreement or the transfer
and sale agreement, as applicable, to
cause any seller, including the depositor
as a seller under the transfer and sale
agreement, to repurchase any student loan
in the event of a breach of the
representations, warranties or covenants
of such seller with respect to such
student loan. There can be no assurance,
however, that any seller will have the
financial resources to do so. The failure
of such 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 The year 2000 issue refers to a wide
YEAR 2000 ISSUES COULD variety of potential computer program and
RESULT IN REDUCTIONS OR electronic processing and functionality
DELAYS IN PAYMENT issues that may arise from the inability
to properly process date-sensitive
information relating to the year 2000,
years thereafter 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. If the
issuer, the depositor, Student Loan
Funding Resources, Inc., as the
administrator and master servicer, the
servicers, the guarantee agencies, the
indenture trustee or the eligible lender
trustees are unable to modify their
computer and electronic systems and
applications to resolve any year 2000
issues, or if any of these parties are
adversely affected by the inability or
failure of a third party on which they
rely to resolve any year 2000 issues, the
timely receipt of collections on the
student loans may be adversely affected.
The cost of operations of the depositor's
program for financing student loans could
also be adversely affected. In addition,
to the extent the Department of Education
is unable to resolve any year 2000 issues
or is adversely affected by a third party
who was unable to resolve any year 2000
issues, the administration of the FFEL
Program could be adversely affected,
including the timely receipt of interest
subsidy payments, special allowance
payments and other payments from the
Department of Education with respect to
FFELP Loans. If the receipt of any of
these collections or payments were to be
so affected as a result of year 2000
issues, or if the depositor's cost of
operations were to be so affected as a
result of year 2000 issues, the timing
and amounts of payments on your notes
could be adversely affected. See "The
Depositor--Year 2000" herein.
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<PAGE> 35
THE ISSUER
THE TRUST
Student Loan Funding 1998-A/B Trust (the "issuer" or the "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 (i) acquiring, holding, selling and managing
the Financed Student Loans and the other assets of the trust and proceeds
therefrom, (ii) issuing one or more classes of its certificates and notes, (iii)
making payments thereon and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The old notes were issued by the depositor pursuant to 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 was formed and initially capitalized with nominal equity
represented by a trust certificate held by the depositor. The trust purchased
the Financed Student Loans from the depositor by assuming the obligations of the
depositor under the old notes and the indenture. Upon the assumption of the old
notes, the trust entered into an amended and restated indenture dated as of
______________, 1999 between itself and Firstar Bank, N.A. under which the new
notes will be issued (the "Indenture").*
The assets of the trust include (a) the pool of Financed Student Loans, legal
title to which is held by the Eligible Lender Trustee on behalf of the trust,
(b) all funds in respect thereof collected on or after the applicable Cut-off
Date, and (c) all moneys and investments on deposit in the Collection Account,
Note Payment Account, Expense Account, Reserve Account [and Certificate
Distribution Account]. All of the foregoing accounts are maintained with and 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 (i) assigning, granting, transferring,
pledging, mortgaging and conveying the assets of the trust to the Indenture
Trustee for the benefit of the holders of the notes and to hold, manage and
distribute 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
pursuant to the Indenture, (ii) issuing and exchanging the new notes for the
outstanding old notes, (iii) making payments on the notes of the issuer, and
(iv) engaging in other activities that are necessary, suitable or convenient to
accomplish in connection with those activities.
The depositor has structured the issuer as a common law trust under Delaware
law, as opposed to a business trust. Business trusts generally are eligible for
relief under the United States Bankruptcy Code, as amended or other insolvency
laws, as the case may be (the "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 to insure 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 such payments.
The trust's principal offices are located in the offices of the Eligible Lender
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 in accordance with the Indenture. See "Security for the
Notes -- The Trust Assets" herein.
- ----------
* We expect the assumption by the trust to be completed on or about March 30,
1999.
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<PAGE> 36
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 ("Resources") 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. 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 certain responsibilities of the Co-owner Trustee, on
behalf of the issuer, under the Indenture. Pursuant to an Administration
Agreement between Resources and the Co-owner Trustee, on behalf of the issuer,
Resources will provide management and administrative services to the issuer (in
such role, the "administrator"). The administrator will receive an
administration fee as compensation for the performance of its obligations and as
reimbursement for its expenses related thereto. Pursuant to a Master Servicing
Agreement between Resources and the Co-owner Trustee, on behalf of the issuer,
Resources will provide for the servicing of the Financed Student Loans (in such
role, the "master servicer"). The master servicer will receive a master
servicing fee as compensation for the performance of the obligations and the
reimbursement for its expenses related thereto. However, the notes are neither
obligations of nor guaranteed or insured by Resources in its capacity as the
administrator or the master servicer.
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 "Foundation"). Resources is governed by a Board of
Directors that is currently authorized to have seven members. The following
table sets forth certain information with respect to the directors of Resources:
<TABLE>
<S> <C>
Susan E. Arnold........................................Vice President and General Manager,
The Procter & Gamble Company
Ronald D. Brown......................Senior Vice President, Finance and Administration and
Chief Financial Officer, Milacron, Inc.
Scott S. Brown......................................Dean, William Jewett Tucker Foundation
of Dartmouth College
Thomas L. Conlan, Jr..............................President and Chief Executive Officer of
Resources and President of the depositor
Lawrence A. Leser......................................Chairman, The E. W. Scripps Company
William S. Newcomb, Jr..........................Partner, Vorys, Sater, Seymour & Pease LLP
Walker J. Wallace.....................Retired Vice President, The Procter & Gamble Company
</TABLE>
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Thomas L. Conlan, Jr., 60, is President and Chief Executive Officer of Resources
and is also President of the depositor. He has been engaged generally in
financial analysis and financial feasibility work both in private business and
in public finance areas including higher education, energy, housing and health
care. He formerly was Executive Director for a joint select committee of the
Ohio legislature on energy financing and state-wide program development and
participated in developing an equivalent federal program. From its founding in
1981 through May, 1998, Mr. Conlan was President and CEO of The Student Loan
Funding Corporation.
Brian A. Ross, 41, is Senior Vice President and Chief Financial Officer of
Resources and is also Senior Vice President and Manager of the depositor. Mr.
Ross has 15 years of domestic and international financing and financial
reporting experience with Fortune 500 firms in the manufacturing, retail and
telecommunications industries. He has received a Master of Arts from the
University of California, Berkeley and Bachelor of Arts from Miami University
(Ohio). He is a member of the Institute of Management Accountants and the
American Economics Association. Through May, 1998, Mr. Ross was Senior Vice
President and CFO of The Student Loan Funding Corporation.
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 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.
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" herein.
THE DEPOSITOR
Student Loan Funding LLC (the "depositor"), is a Delaware limited liability
company organized as a bankruptcy remote special purpose entity. The depositor
has the following two members: (i) Resources (99% ownership), that also acts as
the administrator for the depositor's business activities and the master
servicer, and (ii) SLF Enterprises, Inc. (1% ownership), an Ohio corporation and
wholly owned subsidiary of Resources.
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The depositor is governed by a five-member Management Committee, which consists
of the following individuals: Christopher P. Chapman, Thomas L. Conlan, Jr.,
Mark A. Ferrucci, Kim Lutthans and Brian A. Ross. Mr. Conlan, Mr. Chapman and
Mr. Ross 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 such offices is (513) 352-0570.
On June 1, 1998, Foundation, in connection with an election under Section
150(d)(3) the Internal Revenue Code of 1986, as amended (the "Code"),
transferred to Resources substantially all of the assets and liabilities of the
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 the Foundation and
Resources have no liability with respect thereto. Until June 1, 1998, the
Foundation was a tax-exempt charitable organization under Section 501(c)(3) of
the Code and a "qualified scholarship funding corporation" within the meaning of
Section 150(d) of the 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 pursuant to Section 150(d)(3) of the Code to terminate its
status as a qualified scholarship funding corporation while continuing to
qualify as a tax-exempt charitable organization under Section 501(c)(3) of the
Code.
Under the depositor's limited liability company agreement, the depositor will
not engage in any activity other than (i) 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 certain contracts, including the Purchase Agreements)
in any of the trusts established by the depositor and proceeds therefrom, (ii)
issuing one or more Series of notes or other debt obligations under one or more
indentures of the depositor, (iii) making payments on the notes or other debt
obligations of the depositor, and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish in connection with those
activities.
Resources has taken steps in structuring the depositor that are intended to
prevent any voluntary or involuntary application for relief by Resources under
the Insolvency Laws from resulting in consolidation of the assets and
liabilities of the depositor with those of Resources. These steps include the
creation of the depositor as a separate, special purpose subsidiary pursuant to
a limited liability company agreement containing certain limitations (including
restrictions on the nature of the depositor's business and a restriction on the
depositor's ability to commence a voluntary case or proceeding under any of the
Insolvency Laws, without the unanimous affirmative vote of its Management
Committee, including the independent members). However, there can be no
assurance that the activities of the depositor would not result in a court
concluding that the assets and the liabilities of the depositor should be
consolidated with those of Resources in a proceeding under any of the Insolvency
Laws.
The depositor has received the advice of counsel to the effect that subject to
certain 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 certain
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 and has represented to such counsel that it will follow these
and other procedures related to maintaining its separate identity. However,
there can be no assurance that
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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 such a
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 foregoing issues,
delays in distributions on the notes could occur or reductions in the amounts of
such distributions could result.
Upon the occurrence of any of certain events of bankruptcy or insolvency with
respect to the depositor, the Financed Student Loans and other assets
constituting the trust may be liquidated. The proceeds from any such liquidation
would be treated as collections on such assets and deposited in trust under the
Indenture. There can be no assurance that the proceeds from the liquidation of
such 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.
Resources also will serve as the administrator and master servicer for
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. 89.8% 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 only certain circumstances and
subject to certain limitations, InTuition Holdings, Inc. has the right to cause
the seller of certain loans to InTuition Holdings, Inc. to repurchase such
student loans in the event of a breach of the representations, warranties or
covenants of such seller with respect to such student loans pursuant to the
purchase agreement between InTuition Holdings, Inc. and such seller. See "Risk
Factors -- Inability of Seller to Meet its Repurchase Obligations May Adversely
Affect Your Notes" and "Servicing -- InTuition, Inc." herein.
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, years
thereafter 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 upon the administrator's information systems. 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
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approximately an additional $40,000 in 1999 on the project. However, 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 Program due to Year 2000 issues,
then the operation of the Program could be adversely affected, and the timing
and amount of payments on the notes could be adversely affected.
The administrator has made inquiries of the Indenture Trustee, the Eligible
Lender Trustee, each of the Servicers and each of the Guarantee Agencies that
guarantee more than 10% of the initial Financed Student Loans, and each of these
parties has confirmed to the administrator that it is reviewing its own
information systems and is taking the necessary steps to make any necessary
modifications to those systems. However, there can be no assurance that the
computer systems of these entities or other companies on which the issuer, the
depositor, the administrator, 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 such party or
another party on which such party relies, or a remediation or conversion that is
incompatible with the administrator'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 such 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 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" herein.
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. Officials at the Department of Education have made statements
to the public acknowledging that the Department of Education has been placed on
the Office of Management and Budget's "watch list" for not meeting certain
milestones toward Year 2000 compliance, but have further indicated that
compliance for the Department of Education's mission-critical systems relating
to the FFEL Program are on schedule for completion by the OMB's March 1999
deadline. Any failure by the Department of Education to resolve any Year 2000
issues or any adverse effect on the Department of Education caused by a party on
which the Department of Education relies as a result of Year 2000 issues may
have a material adverse effect on the FFEL Program and the timely receipt of
payments on Financed FFELP Loans, such as Interest Subsidy Payments and Special
Allowance Payments.
Even if the depositor or the administrator does not incur significant direct
costs in modifying its own information systems, there can be no assurance that
the failure or delay of the Indenture Trustee, any Eligible Lender Trustee, any
Servicer, any Guarantee Agency, the Department of Education or any other third
parties (including any party on which any of these parties rely or any 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 such 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.
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<PAGE> 41
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 was
[$727,397,583] after deducting discounts and offering expenses that we had to
pay. The depositor used the proceeds from the offering of the old notes in the
following amounts:
Percentage of
Fund or Account Amount Proceeds
--------------- ------ --------
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%
The initial purchasers were paid 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, pursuant to 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 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:
o cause the registration statement to be declared effective no later May
31, 1999; and
o 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.
- ----------
* We expect the assumption by the trust to be completed on or about March 30,
1999.
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<PAGE> 42
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, we believe that you may offer for resale, resell and
otherwise transfer the new notes issued to you pursuant to the exchange offer in
exchange for your old notes without compliance with the registration and
prospectus delivery provisions of the 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:
o you are not our "affiliate" (as defined in Rule 405 of the Securities
Act);
o 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
o 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 such 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
such new notes. See "Plan of Distribution" herein. 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 such 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 certain transfer restrictions.
TERMS OF THE EXCHANGE OFFER
Upon 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 [$727.8 less A-3 payments] million 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
pursuant to 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:
o Series 1998A-3 Notes for Series 1998A1-3 Notes;
o Series 1998A-4 Notes for Series 1998A1-4 Notes;
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o Series 1998A-5 Notes for Series 1998A1-5 Notes;
o Series 1998A-6 Notes for Series 1998A1-6 Notes; and
o 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:
o the new notes will be issued by the trust;
o the offering of the new notes has been registered under the Securities
Act;
o the new notes will not be subject to transfer restrictions; and
o 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
______________, 1999. The exchange offer is not conditioned upon any minimum
aggregate principal amount of old notes being tendered. However, the exchange
offer is subject to certain customary conditions, which we may waive, and to the
terms and provisions of the registration agreement. See "--Certain Conditions to
the Exchange Offer" herein.
You do not have any appraisal or dissenters' rights under law or the indenture
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC established under the Exchange Act.
If we do not accept for exchange any tendered old notes because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
for another reason, certificates for any such 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 pursuant
to the exchange offer. We will pay all charges and expenses, other than certain
applicable taxes, in connection with the exchange offer. See "--Fees and
Expenses" herein.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on ____________,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" will mean the latest date and time to which the
exchange offer is extended.
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 "--Certain Conditions
to the Exchange Offer" herein 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
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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 such 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 interest was paid on the old notes surrendered in exchange for them. See
"Description of the New Notes--Interest" herein.
PROCEDURES FOR TENDERING
Each holder of old notes wishing to accept the exchange offer must (i) complete,
sign and date the letter of transmittal, or a facsimile of it, (ii) have the
signatures on it guaranteed if required by the letter of transmittal, and (iii)
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 such tender is being effected pursuant to 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 (the "DTC") may make book-entry
delivery of the old notes by causing DTC to transfer such 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 in accordance with
DTC's procedures for such 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" herein prior to 5:00
p.m., New York City time, on the expiration date of the exchange offer. DELIVERY
OF DOCUMENTS TO DTC IN ACCORDANCE WITH 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 such 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 such 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.
The tender (as set forth above) by a holder of old notes will constitute an
agreement between such holder and us in accordance with the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal.
Delivery of all documents must be made 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 such tender for the holders.
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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 holder of old notes may tender such old notes in the exchange offer. The
term "holder" with respect to the exchange offer means any 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 such old notes by book-entry transfer at DTC.
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 such 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:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
o a commercial bank or trust company having an office or correspondent
in the United States; or
o an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act,
unless the old notes tendered pursuant to the letter of transmittal are
tendered:
o by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
o for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed in it, such old notes must be endorsed or
accompanied by appropriate bond powers that authorize such 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 the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting as fiduciaries or representatives, such persons
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.
All questions as to 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
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absolute right to waive any irregularities or conditions of tender as to
particular old notes. Our interpretation of the terms and 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 such 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 such 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 such 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:
o 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 "--Certain Conditions to the Exchange Offer" herein)
to terminate the exchange offer; and
o 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 will represent to us that, among other things:
o the new notes acquired pursuant to the exchange offer in exchange for
your old notes are being obtained in the ordinary course of your
business;
o you do not have an arrangement or understanding with any person to
participate in the distribution of the new notes; and
o you are not an "affiliate" of depositor within the meaning of Rule 405
under the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon 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 "--Certain Conditions to the Exchange Offer" herein. For
each old note that we accept for exchange, the holder of such 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 be deemed to 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
pursuant to the exchange offer only after timely receipt by the exchange agent
of:
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<PAGE> 47
o certificates for such old notes,
o a properly completed and duly executed letter of transmittal, and
o all other required documents or a timely book-entry confirmation of
such old notes into the exchange agent's account at DTC.
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 pursuant to the book-entry procedures described below,
such non-exchanged old notes will be credited to an account maintained with such
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 such old notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. Although delivery of old notes
may be effected through book-entry transfer at DTC, either:
o 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" herein on or prior to the expiration date of the
exchange offer, or
o 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:
o the tender is made through an eligible guarantor institution;
o 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): (i) setting forth the name and
address of the holder of the old notes, the certificate number or
numbers of such old notes and the principal amount of old notes
tendered, (ii) stating that the tender is being made, and (iii)
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
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<PAGE> 48
o 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.
Upon 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
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:
o specify the name of the person having deposited the old notes to be
withdrawn (the "note depositor");
o 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 such old notes);
o be signed by the note depositor in the same manner as the original
signature on the letter of transmittal by which such 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 such old notes
into the name of the note depositor withdrawing the tender; and
o specify the name in which any such old notes are to be registered, if
different from that of the note depositor.
If old notes have been tendered pursuant to the procedures for book-entry
transfer set forth under the heading "--Procedures for Tendering" and
"--Book-entry Transfer" herein, 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.
All questions as to the validity, form and eligibility (including time of
receipt) for such 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" herein, at any time prior to the expiration
date of the exchange offer.
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<PAGE> 49
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is not subject to any conditions, other than that:
o the exchange offer does not violate any applicable law or
interpretation of the staff of the SEC; and
o 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 any such condition will not occur. Holders of old
notes will have certain rights against us 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:
o refuse to accept any old notes and return any old notes that have been
tendered to their holders;
o extend the exchange offer and retain all old notes tendered before the
expiration date of the exchange offer, subject to the rights of such
holders of tendered old notes to withdraw their tendered old notes; or
o waive such 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 upon 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
such 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 certain
liabilities, including civil liabilities under the Securities Act, and to
contribute to payments that the dealer manager may be required to make in
respect thereof.
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:
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<PAGE> 50
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 Gardner Attention: Brian 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]
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 SUCH 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 pursuant to 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: (i) a pool of Financed Student Loans and moneys payable with
respect thereto after their respective dates of
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<PAGE> 51
acquisition or origination from moneys under the Indenture; (ii) money and
investment securities in the Funds and Accounts held by the Indenture Trustee
under the Indenture; and (iii) all rights of the issuer and the Eligible Lender
Trustee in and to certain contracts. See "Security for the Notes -- The Trust"
herein. "Financed" in the case of Financed Student Loans shall refer to Student
Loans made or acquired directly, or indirectly through the Eligible Lender
Trustee, with the proceeds of the old notes or moneys in the Acquisition Fund or
the Collection Account, or upon the exchange of Financed Student Loans pursuant
to 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 on behalf of the issuer from time to time as of
the Cut-off Date.
The distribution by weighted average interest rate applicable to the Financed
Student Loans in the trust on any date following the Cut-off Date may vary
significantly from that set forth in the tables set forth below as a result of
variation in the effective rates of interest applicable to the Financed Student
Loans. Moreover, the information set forth below with respect to the original
term to maturity and remaining term to maturity of Financed Student Loans as of
the Cut-off Date may vary significantly from the actual term to maturity of any
of the Financed Student Loans as a result of the granting of deferral and
forbearance periods with respect thereto.
The Financed Student Loans were acquired on or about December 31, 1998 in an
amount equal to their principal balance as of their purchase date. Set forth
below are tables and other information describing certain characteristics, as of
November 30, 1998 of the Financed Student Loans expected to be acquired. The
Financed Student Loans will include FFELP Loans that meet several criteria,
including the following: each Financed Student Loan (i) was 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) bears interest at the
maximum interest rate permitted under the Higher Education Act, or such lesser
rate of interest as is approved by the Rating Agencies in accordance with the
Indenture; (iii) contains terms in accordance with those required by the FFEL
Program, the Guarantee Agreements and other applicable requirements, and (iv) is
not more than 120 days past due as of the date such Financed Student Loan is
Financed. See "Description of the FFEL Program" and "The Guarantee Agencies"
herein. As of November 30, 1998, (i) $56,961,993 principal amount of the initial
Financed Student Loans were delinquent for up to 30 days; (ii) $46,640,760
principal amount of the initial Financed Student Loans were delinquent between
31 and 120 days; and (iii) none of the initial Financed Student Loans was
delinquent for more than 120 days. For this purpose, delinquency refers to the
number of days for which any part of a payment is past due. All of the Financed
Student Loans in the trust are FFELP Loans.
Each Financed Student Loan is required to be guaranteed as to principal and
interest by a Guarantee Agency and reinsured by the Department of Education to
the extent provided under the Higher Education Act and eligible for Special
Allowance Payments and, with respect to each Financed Student Loan that is a
subsidized Stafford Loan, Interest Subsidy Payments paid by the Department of
Education. See "Description of the FFEL Program" herein.
Additional Student Loans that may be Financed after the Closing Date include
certain Financed Student Loans that may be substituted for other Financed
Student Loans in the trust meeting certain specified characteristics. See "The
Indenture -- Student Loan Portfolio Fund" and "The Indenture -- Collection Fund"
herein.
Although characteristics of additional Financed Student Loans are expected to
have characteristics similar to the initial Financed Student Loans, because
additional Financed Student Loans may be Financed after the Closing Date as
described above, the aggregate characteristics of the entire pool of Financed
Student
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<PAGE> 52
Loans, including the composition of the Financed Student Loans and of the
borrowers thereof, the distribution by interest rate and the distribution by
principal balance described in the following tables, will vary from those of the
initial Financed Student Loans as described herein.
Each of the Financed Student Loans provides for the amortization of the
outstanding principal balance of such Financed Student Loan over a series of
regular payments. Each regular payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of such
Financed Student Loan multiplied by the applicable interest rate and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received in respect of
such 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 such Financed Student Loan.
A total of approximately $680,000,000 of Financed Student Loans was acquired on
or about December 31, 1998. Set forth below in the following tables is a
description of certain additional characteristics of $642,838,655 the initial
Financed Student Loans as of November 30, 1998. The remaining $37,161,345 of
expected Financed Student Loans will be Student Loans with similar
characteristics.
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance $642,838,655
Aggregate Outstanding Accrued Interest $ 5,202,291
Number of Borrowers 86,135
Average Outstanding Principal Balance Per Borrower $ 7,463
Number of Loans 207,432
Average Outstanding Principal Balance Per Loan $ 3,099
Weighted Average Annual Borrower Interest Rate 8.28%
Weighted Average Remaining Term (months) (does not include the months 116
remaining for the In-School, Grace, Deferment or Forbearance periods)(1)
Weighted Average Remaining Term (months) (including the months 117
remaining for the In-School, Grace, Deferment or Forbearance periods)(1)
</TABLE>
- ---------------
(1) Refers to the payment status of the borrower of each Financed Student Loan
as of November 30, 1998: such borrower may still be attending school
("In-School"), may be in a grace period after completing school and prior to
repayment commencing ("Grace"), may be currently required to repay such loan
("Repayment") or may have temporarily ceased repaying such loan through a
deferral ("Deferment") or a forbearance ("Forbearance") period. See "Description
of the FFEL Program" herein.
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<PAGE> 53
<TABLE>
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY LOAN TYPE
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Loan Type Loans Balance Balance
- --------- ----- ------- -------
<S> <C> <C> <C>
Stafford-Subsidized 145,633 $371,295,678 57.76%
Stafford-Unsubsidized 41,088 131,199,734 20.41
Consolidation 4,599 76,349,585 11.87
PLUS 9,385 41,196,319 6.41
SLS 6,727 22,797,339 3.55
------- ------------ -----
Total 207,432 $642,838,655 100.00%
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY MINIMUM GUARANTEE LEVEL
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Minimum Guarantee Level Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100% 70,810 $153,979,828 23.95%
FFELP Loan Guaranteed 98% 136,622 488,858,827 76.05
------- ----------- -------
Total 207,432 $642,838,655 100.00%
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY
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 131,320 $417,080,571 64.88%
Financial Assistance
Georgia Higher Education Assistance Corporation 17,698 47,347,097 7.37
United Student Aid Funds, Inc. 26,142 105,545,541 16.42
Kentucky Higher Education Assistance Authority 19,840 44,365,494 6.90
Great Lakes Higher Education Guaranty Corporation 10,650 24,987,155 3.89
Other Guarantee Agencies 1,782 3,512,797 0.54
------- ------------ ------
Total 207,432 $642,838,655 100.00%
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER INTEREST RATE
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Interest Rate (1) Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than 7.50% 2,539 $ 5,387,081 0.84%
7.50% to 7.99% 6,395 24,859,171 3.86
8.00% to 8.49% 178,959 505,051,405 78.57
8.50% to 8.99% 15,690 61,969,613 9.64
9.00% to 9.49% 3,504 44,695,764 6.95
9.50% or greater 345 875,621 0.14
------- ------------ --------
Total 207,432 $642,838,655 100.00%
</TABLE>
(1) Determined using the interest rates applicable to the initial Financed
Student Loans as of November 30, 1998. However, because certain of the initial
Financed Student Loans bear interest at variable rates per annum, the existing
interest rates are not indicative of future interest rates on the Financed
Student Loans. See "Description of the FFEL Program" herein.
<TABLE>
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY RANGE OF OUTSTANDING PRINCIPAL BALANCES
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Principal Balance Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than $500 5,504 $ 1,416,165 0.22%
$500-$999.99 8,623 5,908,184 0.92
$1,000-$1,999.99 21,591 28,124,920 4.37
$2,000-$2,999.99 23,792 49,109,178 7.64
$3,000-$3,999.99 16,611 40,641,368 6.32
$4,000-$5,999.99 27,001 82,600,021 12.85
$6,000-$7,999.99 18,471 59,442,189 9.25
$8,000-$9,999.99 15,519 63,328,969 9.85
$10,000-$14,999.99 26,328 99,296,558 15.45
$15,000-$19,999.99 16,343 66,095,382 10.28
$20,000 or greater 27,649 146,875,721 22.85
------- ------------ ------
Total 207,432 $642,838,655 100.00%
</TABLE>
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<PAGE> 55
<TABLE>
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY BORROWER PAYMENT STATUS
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Borrower Payment Status Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
In School 3,641 $ 8,671,578 1.35%
Grace 15,956 51,299,999 7.98
Repayment 131,598 391,098,414 60.84
Deferment 21,628 65,732,601 10.23
Forbearance 34,609 126,036,063 19.60
Claim -- -- 0.00
------- ------------ ------
Total 207,432 $642,838,655 100.00%
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY
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 3,373 $ 2,202,185 0.34%
13 to 24 4,428 3,599,900 0.56
25 to 36 5,763 6,559,756 1.02
37 to 48 7,318 10,423,174 1.62
49 to 60 8,519 14,159,689 2.20
61 to 72 12,554 24,965,602 3.88
73 to 84 14,720 35,229,611 5.48
85 to 96 18,949 51,835,143 8.06
97 to 108 25,712 83,450,849 12.98
109 to 120 102,331 338,983,822 52.73
121 to 180 2,011 25,579,096 4.00
181 to 240 1,360 29,838,749 4.64
241 to 300 265 9,862,979 1.53
Over 300 129 6,148,100 0.96
------- ----------- -----
Total 207,432 $642,838,655 100.00%
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Location (1) Loans Balance Balance
- ------------ ----- ------- -------
<S> <C> <C> <C>
Ohio 7,077 $16,795,019 2.61%
Florida 121,263 392,564,753 61.07
Georgia 19,394 54,305,296 8.45
Kentucky 15,413 34,195,348 5.32
Others (2) 44,285 144,978,239 22.55
------ ----------- -------
Total 207,432 $642,838,655 100.00%
</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.
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<PAGE> 56
To the extent that states with a large concentration of Financed Student Loans
experience adverse economic or other conditions to a greater degree than other
areas of the country, the ability of such borrowers to repay their Financed
Student Loans may be impacted to a larger extent than if such borrowers were
dispersed more geographically.
<TABLE>
<CAPTION>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY SCHOOL TYPES
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
School Type Loans Balance Balance
- ----------- ----- ------- -------
<S> <C> <C> <C>
4 Year Institution 136,623 $440,973,348 68.60%
2 Year Institution 42,040 91,312,687 14.20
Graduate 11,547 58,981,162 9.18
Proprietary 1,964 5,227,517 0.81
Other/Unknown 15,258 46,343,941 7.21
------- ------------ ------
Total 207,432 $642,838,655 100.00%
</TABLE>
INCENTIVE PROGRAMS
Certain of the Financed Student Loans ("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 such a Reduced Rate Loan is reduced by 2.00% per annum,
effective upon 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 such 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 such 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
The depositor caused its eligible lender trustee to contribute and assign to the
Eligible Lender Trustee on behalf of the trust, without recourse, its entire
interest in the Financed Student Loans as described in the Transfer and Sale
Agreement and all collections received and to be received with respect thereto.
CONVEYANCE OF FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES.
The depositor made certain representations and warranties with respect to the
Financed Student Loans to the trust, including, among other things, that (i)
each Financed Student Loan, at the time of transfer to the trust, was free and
clear of all security interests, liens, charges and encumbrances, and no
offsets, defenses or counterclaims have been asserted or, to the depositor's
knowledge, threatened; (ii) the information provided with respect to the
Financed Student Loans was true and correct in all material respects; and (iii)
to the depositor's knowledge, each Financed Student Loan, at the time it was
originated, complied and, at the time of execution of the Transfer and Sale
Agreement, complied in all material respects with applicable federal and state
laws (including, without limitation, the Higher Education Act, consumer credit,
truth-in-lending, equal credit opportunity and disclosure laws) and applicable
restrictions imposed by the FFEL Program or under any Guarantee Agreement with
respect to FFELP Loans.
Following the discovery by or notice to the depositor of a breach of any such
representation or warranty with respect to any Financed Student Loan that
results in the failure of a Guarantee Agency to make a Guarantee Payment to the
Eligible Lender Trustee, the depositor will repurchase such Financed Student
Loan from the Eligible Lender Trustee, at a price equal to the sum of (1) the
then outstanding principal balance of such Financed Student Loan; (2) interest
payable by the obligor accrued and unpaid with respect to such Financed Student
Loan to and including the date of purchase; (3) an amount equal to any Special
Allowance Payments or Interest Subsidy Payments, if applicable, in respect of
such Financed Student Loan for such 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 such Financed Student Loan; and (4) any unamortized premium;
provided, however, that in the event of the occurrence described in the
immediately preceding item (iii) above, the depositor shall have the option of
(a) repurchasing the subject Financed Student Loan upon request of the Co-owner
Trustee or (b) deferring such repurchase until the lack of legal enforceability
of such Financed Student Loan has been determined by a court of law, arbitration
proceeding or other legal process.
The depositor is required to repurchase such Financed Student Loan within ten
business days after receiving written notice from the Co-owner Trustee
requesting repurchase by the 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. Notwithstanding
the foregoing, the Co-owner Trustee shall make a good faith effort to work with
the depositor to resolve any circumstance that would cause a repurchase.
The liability of the Co-owner Trustee in connection with the loss of or damage
to any Financed Student Loan to be returned to the depositor pursuant to a
repurchase is limited to such compensatory loss (including failure to maintain
the eligibility of such Financed Student Loan for its guarantee, Special
Allowance Payments and Interest Subsidy Payments, if applicable, up to a
maximum amount equal to the unpaid principal and unpaid accrued interest and
any other payments attributable to such Financed Student Loan) occurring as a
result of its negligence or willful misconduct in handling or safekeeping
such Financed Student Loan.
AMENDMENT.
The Transfer and Sale Agreement may be amended in writing by the parties
thereto, with the consent of the Indenture Trustee, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of the Transfer and Sale Agreement or of modifying in any manner the
rights of holders of notes; provided, however, that no such amendment may (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments with respect to the Financed Student Loans
or distributions that are required to be made for the benefit of the holders of
notes or (ii) reduce the percentage of the notes which are required to consent
to any such amendment, without the consent of the holders of all the outstanding
notes affected thereby.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the notes and the yield on the notes will be
affected by (i) prepayments of the Financed Student Loans that may occur as
described below, (ii) the sale by the issuer of Financed Student Loans, (iii)
Parity Percentage Payments and (iv) deferrals or delays in payments on the
Financed Student Loans resulting from defaults, Grace Periods, Deferment Periods
and, under certain circumstances, Forbearance Periods.
All the Financed Student Loans are prepayable in whole or in part by the
borrowers at any time without penalty (including by means of Consolidation
Loans) and may be prepaid as a result of (i) borrower's default, death,
disability or bankruptcy, (ii) a closing of or false certification by the
borrower's school, (iii) subsequent liquidation or collection of Guarantee
Payments with respect thereto and (iv) as a result of
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Financed Student Loans being repurchased by the respective Sellers as a result
of a breach of a representation and warranty. The rate of such prepayments
cannot be predicted and may be influenced by a variety of economic, social and
other factors, including those described below. In general, the rate of
prepayments may tend to increase to the extent that alternative financing
becomes available at prevailing interest rates which fall significantly below
the interest rates applicable to the Financed Student Loans. However, because
many of the 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, such Financed
Student Loans will be prepaid. See "Description of the FFEL Program -- Loan
Terms -- Consolidation Loans" herein. See also "Redemption" herein regarding the
auction by the Indenture Trustee of 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's option to repurchase
all remaining Financed Student Loans in the trust if the outstanding Pool
Balance is equal to or less than 10% of the Initial Pool Balance, and the
depositor's option to redeem the Series A-4 Notes, the Series A-5 Notes and the
Series A-6 Notes.
Scheduled payments with respect to, and maturities of, the Financed Student
Loans may be extended, including pursuant to Grace Periods, Deferment Periods
and, under certain circumstances, Forbearance Periods. The rate of 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. Such
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 such interest rates and such spreads would
otherwise have been had such prepayments not been made or had such prepayments
been made at a different time.
THE FOLLOWING INFORMATION IS GIVEN SOLELY TO ILLUSTRATE THE EFFECT OF
PREPAYMENTS ON THE FINANCED STUDENT LOANS ON THE WEIGHTED AVERAGE LIFE OF THE
NOTES UNDER THE ASSUMPTIONS STATED BELOW AND IS NOT A 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 such 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 such Financed Student Loans may be in the form of
scheduled amortization of principal or prepayments (including, without
limitation, Guarantee Payments). For this purpose, the term "prepayments"
includes prepayments in full or in part (including pursuant to Consolidation
Loans), as a result of (i) borrower default, death, disability or bankruptcy,
(ii) a closing of or a false certification by the borrower's school, (iii)
subsequent liquidation of Guarantee Payments with respect thereto and (iv) as a
result of Financed Student Loans being repurchased by the respective Seller 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" herein.
The Constant Prepayment Rate prepayment model ("CPR") 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 per annum percentage. There
can be no assurance that such Financed Student Loans will experience prepayments
at a constant prepayment rate or otherwise in the manner assumed by the
prepayment model.
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The weighted average lives in the following table were determined assuming that
(i) scheduled payments of principal on the Financed Student Loans are received
in a timely manner and prepayments are made at the percentages of the prepayment
model set forth in the table; (ii) the initial principal balance of the Financed
Student Loans is $680,000,000 and such Financed Student Loans have the
characteristics described under the heading "The Financed Student Loans" herein;
(iii) payments are made on the Series A-3 Notes on the last Business Day of each
month; (iv) payments are made on the Auction Rate Notes on the Business Day
following the expiration of each Auction Period commencing June 30, 2003
(assuming an Auction Period of 28 days with no Auction Period Adjustments or
Auction Period Conversions); (v) payments are made on the Series B-3 Notes on
the last Business Day each month commencing July 31, 2003; (vi) the Financed
Student Loans in the trust are auctioned on May 31, 2007; and (vii) 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.
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.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIFE OF THE NOTES AT THE RESPECTIVE CPRS SET FORTH BELOW:
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,
pursuant to which state agencies or private nonprofit corporations administering
student loan insurance programs (referred to as "Guarantee Agencies") are
reimbursed for losses sustained in the operation of their programs, and holders
of certain loans made under such programs are paid subsidies for owning such
loans.
The Higher Education Act currently authorizes certain student loans to be
covered under the FFEL Program through June 30, 2003. Congress has extended
similar authorization dates in prior versions of the Higher Education Act;
however, there can be no assurance that the current authorization dates will
again be extended or that the other provisions of the Higher Education Act will
be continued in their present form.
Various amendments to the Higher Education Act have revised the FFEL Program
from time to time. These amendments include, but are not limited to, the 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 Act of 1990, the Omnibus Budget Reconciliation Act of
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1989, the Omnibus Budget Reconciliation Act of 1987, the Higher Education
Technical Amendments Act of 1987, the Higher Education Amendments of 1986, which
reauthorized the FFEL Program, the Consolidated Omnibus Budget Reconciliation
Act of 1985, the Postsecondary Student Assistance Amendments of 1981 and the
Education Amendments of 1980.
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 such changes reduce certain 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" herein for a more detailed
description of the impact of such 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 (the "Federal Direct Student Loan
Program") to a target of approximately 60% of student loan demand in academic
year 1998-1999, although only about 35% of such 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 reductions or effects
could occur as a result of reductions in the volume of new loans made under the
FFEL Program or the consolidation of existing loans under the Federal Direct
Student Loan Program. Such 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 certain
breaches of the Servicers' covenants. See "Servicing -- Servicer Covenants"
herein. Such 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% per annum); (3) providing that the portion of a
Consolidation Loan that is comprised of Subsidized Stafford Loans retains its
subsidy benefits during periods of deferment; and (4) establishing prohibitions
against various forms of discrimination in the making of Consolidation Loans.
Except for the last of the above changes, all such provisions expired on
September 30, 1998. The combination of the change to a variable rate and the
8.25% interest cap reduced the lender's yield in most cases below the rate that
would have been applicable under the previous weighted average formula.
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
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paid to federal guarantors equal to 0.85% of new loans guaranteed). See "--
Contracts with Guarantee Agencies" herein.
1998 Amendments. On May 22, 1998, Congress passed, and on June 9, 1998, the
President signed into law, a temporary measure relating to the Higher Education
Act and FFELP Loans as part of the Intermodal Surface Transportation Efficiency
Act of 1998 (the "1998 Amendments") that revised interest rate changes under the
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:
o All references to a "transition" to full implementation of
the Federal Direct Student Loan Program were deleted from the FFEL
Program statute.
o Guarantee Agency reserve funds were restructured so that
Guarantee Agencies are provided with additional flexibility in choosing
how to spend certain funds they receive.
o Additional recall of reserve funds by the Secretary of
Education was mandated, amounting to $85 million in fiscal year 2002,
$82.5 million in fiscal year 2006, and $82.5 million in fiscal year
2007. However, certain minimum reserve levels are protected from
recall.
o The administrative cost allowance was replaced by two 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.
o The percentage of collections on defaulted Student Loans a
Guarantee Agency is permitted to retain is reduced from 27% to 24% (23%
beginning on October 1, 2003) plus the complement of the reinsurance
percentage applicable at the time a claim was paid to the lender of the
Student Loan.
o Federal reinsurance provided to Guarantee Agencies is
reduced from 98% to 95% for Student Loans first disbursed on or after
October 1, 1998.
o The delinquency period required for a loan to be declared in
default is increased from 180 days to 270 days for loans on which the
first day of delinquency occurs on or after the date of enactment of
the 1998 Reauthorization Bill.
o Interest rates charged to borrowers on Stafford Loans, and
the yield for Stafford Loans holders established by the 1998
Amendments, were made permanent.
o 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
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Treasury Bill Rate plus 3.1% exceeds the borrower's interest rate,
Special Allowance Payments are made to make up the difference.
o The lender-paid offset fee on Consolidation Loans of 1.05%
is reduced to .62% for loans made pursuant to applications received on
or after October 1, 1998 and on or before January 31, 1999.
o 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.
o Lenders are required to offer extended repayment schedules
to new borrowers after the enactment of the 1998 Reauthorization Bill
who accumulate after such date outstanding loans under the FFEL Program
totaling more than $30,000; under these extended schedules the
repayment period may extend up to 25 years subject to certain minimum
repayment amounts.
o The Secretary of Education is authorized to enter into six
voluntary flexible agreements with Guarantee Agencies under which
various statutory and regulatory provisions can be waived.
o 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.
o 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.
o 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.
o Discharge of FFELP Loans and certain other Student Loans in
bankruptcy is now limited to cases of undue hardship regardless of
whether the Student Loan has been due for more than seven years prior
to the bankruptcy filing.
The new recall of reserves and reduced reinsurance for Guarantee Agencies
increase the risk that resources available to the Guarantee Agencies to meet
their guarantee obligations will be significantly reduced.
There can be no assurance that relevant federal laws, including the Higher
Education Act, will not be changed in a manner that may adversely affect the
receipt of funds by the Guarantee Agencies or by the issuer or the Eligible
Lender Trustee with respect to Financed FFELP Loans.
This is only a summary of certain provisions of the Higher Education Act.
Reference is made to the text of the Higher Education Act for full and complete
statements of its provisions.
LOAN TERMS
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
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requirements, interest rates, repayment periods, loan limits and eligibility for
interest subsidies and Special Allowance Payments. Some of these loan types have
had other names in the past. References herein to the various loan types
include, where appropriate, predecessors to such loan types.
The primary loan under the FFEL Program is the Stafford Loan. Students who are
not eligible for Stafford Loans based on their economic circumstances may be
able to obtain Unsubsidized Stafford Loans. Parents of students may be able to
obtain PLUS Loans. Consolidation Loans are available to borrowers with existing
loans made under the FFEL Program and certain other federal programs to
consolidate repayment of such existing loans. For periods of enrollment
beginning prior to July 1, 1994, SLS Loans were available to students with costs
of education that were not met by other sources and that exceeded the Stafford
or Unsubsidized Stafford Loan limits.
Eligibility
General. A student is eligible for loans made under the FFEL Program only if he
or she: (i) has been accepted for enrollment or is enrolled in good standing at
an eligible institution of higher education (which term includes certain
vocational schools), (ii) is carrying or planning to carry at least one-half the
normal full-time workload for the course of study the student is pursuing as
determined by the institution (which, in the case of a loan to cover the cost of
a period of enrollment beginning on or after July 1, 1987, must either lead to a
recognized educational credential or be necessary for enrollment in a course of
study that leads to such a credential), (iii) has agreed to notify promptly the
holder of the loan concerning any change of address, (iv) if presently enrolled,
is maintaining satisfactory progress in the course of study he or she is
pursuing, (v) does not owe a refund on, and is not (except as specifically
permitted under the Higher Education Act) in default under, any loan or grant
made under the Higher Education Act, (vi) has filed with the eligible
institution a statement of educational purpose, (vii) meets certain citizenship
requirements, and (viii) except in the case of a graduate or professional
student, has received a preliminary determination of eligibility or
ineligibility for a Pell Grant.
Stafford Loans. Stafford Loans generally are made only to student borrowers who
meet certain needs tests. The educational institution must provide the lender
with a statement evidencing a determination of need for a loan, and the amount
of such need, calculated by subtracting from the estimated cost of attendance
the sum of the expected family contribution with respect to the student plus the
estimated financial assistance available to such student. The amounts of the
expected family contribution, estimated available financial assistance, and
estimated costs of attendance are to be computed in accordance with standards
set forth in the Higher Education Act.
Unsubsidized Stafford Loans. A student borrower meeting the requirements set
forth under "General" above is eligible for an Unsubsidized Stafford Loan
without regard to need. Unsubsidized Stafford Loans were not available before
October 1, 1992.
PLUS Loans. PLUS Loans are made only to borrowers who are parents, certain legal
guardians and, under certain circumstances, spouses of remarried parents of
dependent undergraduate students. For PLUS Loans made on or after July 1, 1993,
the parent borrower must not have an adverse credit history (as determined
pursuant to criteria established by the Department of Education). Prior to the
Higher Education Amendments of 1986, the Higher Education Act did not
distinguish between PLUS Loans and SLS Loans. Student borrowers were eligible
for PLUS Loans; however, parents of graduate and professional students were
ineligible.
SLS Loans. Eligible borrowers for SLS Loans were limited to (a) graduate or
professional students, (b) independent undergraduate students, and (c) under
certain circumstances, dependent undergraduate students, if such student's
parents were unable to obtain a PLUS Loan and were also unable to provide
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such 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 (a)
have outstanding indebtedness on student loans made under the FFEL Program
and/or certain other federal student loan programs, and (b) be in repayment
status or in a Grace Period, or be a defaulted borrower who has made
arrangements to repay the defaulted loan(s) satisfactory to the holder of the
defaulted loan(s). A married couple, each of whom has outstanding loans under
the FFEL Program, who 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 such indebtedness.
Interest Rates
The Higher Education Act establishes maximum interest rates for each of the
various types of loans. These rates vary not only among loan types, but also
within loan types depending upon when the loan was made or when the borrower
first obtained a loan under the 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 certain loans made under the FFEL Program.
Stafford Loans. For a Stafford Loan made prior to July 1, 1994, the applicable
interest rate for a borrower who, on the date the promissory note was signed,
did not have an outstanding balance on a previous loan which was made, insured
or guaranteed under the FFEL Program (a "New Borrower"):
(a) is 7% per annum for a loan covering a period of instruction
beginning before January 1, 1981;
(b) is 9% per annum for a loan covering a period of instruction
beginning on or after January 1, 1981, but before September 13, 1983;
(c) is 8% per annum for a loan covering a period of instruction
beginning on or after September 13, 1983, but before July 1, 1988;
(d) for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, is 8% per annum for the
period from the disbursement of the loan to the date which is four years
after the loan enters repayment, and thereafter shall be adjusted annually,
and for any 12-month period commencing on a July 1 shall be equal to the
bond equivalent rate of 91-day Treasury Bills auctioned at the final
auction prior to the preceding June 1, plus 3.25% per annum (but not to
exceed 10% per annum); or
(e) for a loan made on or after October 1, 1992 shall be adjusted
annually, and for any 12-month period commencing on a July 1 shall be equal
to the bond equivalent rate of 91-day Treasury Bills auctioned at the final
auction prior to the preceding June 1, plus 3.1 % per annum (but not to
exceed 9% per annum).
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For a Stafford Loan made prior to July 1, 1994, the applicable interest
rate for a borrower who, on the date the promissory note evidencing the
loan was signed, had an outstanding balance on a previous loan made,
insured or guaranteed under the FFEL Program (a "Repeat Borrower"):
(f) for a loan made prior to July 23, 1992 is the applicable interest
rate on the previous loan or, if such previous loan is not a Stafford Loan,
8% per annum, or
(g) for a loan made on or after July 23, 1992 shall be adjusted
annually, and for any twelve month period commencing on a July 1 shall be
equal to the bond equivalent rate of 91-day Treasury Bills auctioned at the
final auction prior to the preceding June 1, plus 3.1 % per annum but not
to exceed:
(i) 7% per annum in the case of a Stafford Loan made to a
borrower who has a loan described in clause (a) above;
(ii) 8% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clause (c) above, (B)
a Stafford Loan which has not been in repayment for four
years and which was made to a borrower who has a loan
described in clause (d) above (C) a Stafford Loan for
which the first disbursement was made prior to December
20, 1993 to a borrower whose previous loans do not include
a Stafford Loan or an Unsubsidized Stafford Loan;
(iii) 9% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clauses (b) or (e)
above or (B) a Stafford Loan for which the first
disbursement was made on or after December 20, 1993 to a
borrower whose previous loans do not include a Stafford
Loan or an Unsubsidized Stafford Loan; and
(iv) 10% per annum in the case of a Stafford Loan which has
been in repayment for four years or more and which was
made to a borrower who has a loan described in clause (d)
above.
The interest rate on all Stafford Loans made on or after July 1, 1994 but prior
to July 1, 1998, regardless of whether the borrower is a New Borrower or a
Repeat Borrower, is the rate described in clause (g) above, except that such
rate shall not exceed 8.25% per annum. For any Stafford Loan made on or after
July 1, 1995, the interest rate is further reduced prior to the time the loan
enters repayment and during any Deferment Periods. During such periods, the
formula described in clause (g) above is applied, except that 2.5% is
substituted for 3.1%, and the rate shall not exceed 8.25% per annum.
For Stafford Loans made on or after July 1, 1998 but before 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% per annum prior to the time the loan enters repayment and
during any Deferment Periods, and (y) 2.3% per annum during repayment, but not
to exceed 8.25% per annum.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to the same
interest rate provisions as Stafford Loans.
PLUS Loans. The applicable interest rate on a PLUS Loan:
(a) made on or after January 1, 1981, but before October 1, 1981,
is 9% per annum;
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(b) made on or after October 1, 1981, but before November 1, 1982,
is 14% per annum;
(c) made on or after November 1, 1982, but before July 1, 1987, is
12% per annum;
(d) made on or after July 1, 1987, but before October 1, 1992
shall be adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week Treasury Bills
auctioned at the final auction prior to the preceding June 1, plus 3.25%
per annum (but not to exceed 12% per annum);
(e) made on or after October 1, 1992, but before July 1, 1994,
shall be adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week Treasury Bills
auctioned at the final auction prior to the preceding June 1, plus 3.1% per
annum (but not to exceed 10% per annum);
(f) made on or after July 1, 1994, but before July 1, 1998, is the
same as that described in clause (e) above, except that such rate shall not
exceed 9% per annum; or
(g) made on or after July 1, 1998, but before July 1, 2003, shall
be adjusted annually, and for any 12-month period beginning on July 1 shall
be equal to the bond equivalent rate of 91-day Treasury Bills auctioned at
the final auction prior to the proceeding June 1, plus 3.1% per annum (but
not to exceed 9% per annum).
If requested by the borrower, an eligible lender may consolidate SLS or PLUS
Loans of the same borrower held by the lender under a single repayment schedule.
The repayment period for each included loan shall be based on the commencement
of repayment of the most recent loan. The consolidated loan shall bear interest
at a rate equal to the weighted average of the rates of the included loans. Such
a consolidation shall not be treated as the making of a new loan. In addition,
at the request of the borrower, a lender may refinance an existing fixed rate
SLS or PLUS Loan (including an SLS or PLUS Loan held by a different lender who
has refused so to refinance such loan at a variable interest rate). In such a
case, proceeds of the new loan are used to discharge the original loan.
SLS Loans. The applicable interest rates on SLS Loans made prior to October 1,
1992 are identical to the applicable interest rates on PLUS Loans made at the
same time. For SLS Loans made on or after October 1, 1992, the applicable
interest rate is the same as the applicable interest rate on PLUS Loans, except
that the ceiling is 11% per annum instead of 10% per annum.
Consolidation Loans. A Consolidation Loan made prior to July 1, 1994 bears
interest at a rate equal to the weighted average of the interest rates on the
loans retired, rounded to the nearest whole percent, but not less than 9% per
annum. Except as described in the next sentence, a Consolidation Loan made on or
after July 1, 1994 bears interest at a rate equal to the weighted average of the
interest rates on the loans retired, rounded upward to the nearest whole
percent, but with no minimum rate. Consolidation Loans made on or after November
13, 1997 and before October 1, 1998 bear interest at the annual variable rate
applicable to 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% per annum. Notwithstanding these
general interest rates, 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. Such portion is adjusted on
July 1 of each year, but is the sum of the average of the T-Bill Rates auctioned
for the quarter ending on the preceding June 30, plus 3.0%, without any cap on
the interest rate. For a discussion of required payments that reduce the return
on Consolidation Loans, See "Fees -- Rebate Fees on Consolidation Loans" below.
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Loan Limits
Each type of loan (other than Consolidation Loans, which are limited only by the
amount of eligible loans to be consolidated) is subject to limits as to the
maximum principal amount, both with respect to a given year and in the
aggregate. All of the loans are limited to the difference between the cost of
attendance and the other aid available to the student. Stafford Loans are also
subject to limits based upon the needs analysis as described above under
"Eligibility -- Stafford Loans" above. Additional limits are described below.
Stafford and Unsubsidized Stafford Loans. Except as described in the next
paragraph, Stafford and Unsubsidized Stafford Loans are generally treated as one
loan type for loan limit purposes. A student who has not successfully completed
the first year of a program of undergraduate education may borrow up to $2,625
in an academic year. A student who has successfully completed such first year,
but who has not successfully completed the second year may borrow up to $3,500
per academic year. An undergraduate student who has successfully completed the
first and second year, but who has not successfully completed the remainder of a
program of undergraduate education, may borrow up to $5,500 per academic year.
For students enrolled in programs of less than an academic year in length, the
limits are generally reduced in proportion to the amount by which such programs
are less than one year in length. A graduate or professional student may borrow
up to $8,500 in an academic year. The maximum aggregate amount of Stafford and
Unsubsidized Stafford Loans (including that portion of a Consolidation Loan used
to repay such loans) which an undergraduate student may have outstanding is
$23,000. The maximum aggregate amount for a graduate and professional student,
including loans for undergraduate education, is $65,500. The Secretary 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 (as described below under "SLS Loans").
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 such first and second year, but who had not successfully
completed the remainder of a program of undergraduate education could borrow up
to $4,000 per academic year. The maximum for graduate and professional students
was $7,500 per academic year. The maximum aggregate amount of Stafford Loans
which a borrower could have outstanding (including that portion of a
Consolidation Loan used to repay such loans) was $17,250. The maximum aggregate
amount for a graduate or professional student, including loans for undergraduate
education, was $54,750. Prior to the 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 such first and
second year, but who had not successfully completed the remainder of a program
of undergraduate education could borrow up to $5,000 per year. Graduate and
professional
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students could borrow up to $10,000 per year. SLS Loans were subject to an
aggregate maximum of $23,000 ($73,000 for graduate and professional students).
Prior to the 1992 changes, 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 such student for such 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 (similar to the limits described above under "Stafford Loans").
Repayment
Loans made under the FFEL Program (other than Consolidation Loans) must provide
for repayment of principal in periodic installments over a period of not less
than five nor more than ten years. A Consolidation Loan must be repaid during a
period agreed to by the borrower and lender, subject to maximum repayment
periods which vary depending upon the principal amount of the borrower's
outstanding student loans (but no longer than 30 years). For Consolidation Loans
for which the application was received prior to January 1, 1993, the repayment
period could not exceed 25 years. The repayment period commences (a) not more
than twelve months after the borrower ceases to pursue at least a half-time
course of study with respect to Stafford Loans for which the applicable rate of
interest is 7% per annum, (b) not more than six months after the borrower ceases
to pursue at least a half-time course of study with respect to other Stafford
Loans and Unsubsidized Stafford Loans (the six month or twelve month periods are
the "Grace Periods") and (c) on the date of final disbursement of the loan in
the case of SLS, Plus and Consolidation Loans, except that the borrower of an
SLS Loan who also has a Stafford or Unsubsidized Stafford Loan may defer
repayment of the SLS Loan to coincide with the commencement of repayment of the
Stafford or Unsubsidized Stafford Loan. During periods in which repayment of
principal is required, payments of principal and interest must in general be
made at a rate of not less than the greater of $600 per year or the interest
that accrues during the year, except that a borrower and lender may agree at any
time before or during the repayment period that repayment may be at a lesser
rate. A borrower may agree, with concurrence of the lender, to repay the loan in
less than five years with the right subsequently to extend his minimum repayment
period to five years. Borrowers 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 in accordance with 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 certain periods of deferment
prescribed by the Higher Education Act ("Deferment Periods"). For loans to a
borrower who first obtained a loan which was disbursed before July 1, 1993,
deferments are available (i) during a period not exceeding three years while the
borrower is a member of the Armed Forces, an officer in the Commissioned Corps
of the Public Health Service or, with respect to a borrower who first obtained a
student loan disbursed on or after July 1, 1987, or a student loan to cover the
cost of instruction for a period of enrollment beginning on or after July 1,
1987, an active duty member of the National Oceanic and Atmospheric
Administration Corps, (ii) during a period not in excess of three years while
the borrower is a volunteer under the Peace Corps Act, (iii) during a period not
in excess of three years while the borrower is a full-time volunteer under the
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Domestic Volunteer Act of 1973, (iv) during a period not exceeding three years
while the borrower is in service, comparable to the service referred to in
clauses (ii) and (iii), as a full-time volunteer for an organization which is
exempt from taxation under Section 501(c)(3) of the Code, (v) during a period
not exceeding two years while the borrower is serving an internship, the
successful completion of which is required to receive professional recognition
required to begin professional practice or service, or a qualified internship or
residency program, (vi) during a period not exceeding three years while the
borrower is temporarily totally disabled, as established by sworn affidavit of a
qualified physician, or while the borrower is unable to secure employment by
reason of the care required by a dependent who is so disabled, (vii) during a
period not to exceed twenty-four months while the borrower is seeking and unable
to find full-time employment, (viii) during any period that the borrower is
pursuing a full-time course of study at an eligible institution (or, with
respect to a borrower who first obtained a student loan disbursed on or after
July 1, 1987, or a student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, is pursuing at least a half-time
course of study for which the borrower has obtained a loan under the FFEL
Program), or is pursuing a course of study pursuant to a graduate fellowship
program or a rehabilitation training program for disabled individuals approved
by the Secretary of Education, (ix) during a period, not in excess of 6 months,
while the borrower is on parental leave, and (x) only with respect to a borrower
who first obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of enrollment
beginning on or after July 1, 1987, (A) during a period not in excess of three
years while the borrower is a full-time teacher in a public or nonprofit private
elementary or secondary school in a "teacher shortage area" (as prescribed by
the Secretary of Education), and (B) during a period not in excess of 12 months
for mothers, with preschool age children, who are entering or re-entering the
work force and who are compensated at a rate not exceeding $1 per hour in excess
of the federal minimum wage. For loans to a borrower who first obtains a loan on
or after July 1, 1993, deferments are available (a) during any period that the
borrower is pursuing at least a half-time course of study at an eligible
institution or a course of study pursuant to a graduate fellowship program or
rehabilitation training program approved by the Secretary, (b) during a period
not exceeding three years while the borrower is seeking and unable to find
full-time employment, and (c) during a period not in excess of three years for
any reason which the lender determines, in accordance with regulations under the
Higher Education Act, has caused or will cause the borrower economic hardship.
Economic hardship includes working full time and earning an amount not in excess
of the greater of the minimum wage or the poverty line for a family of two.
Additional categories of economic hardship are based on the relationship between
a borrower's educational debt burden and his or her income. Prior to the 1992
changes, only the Deferment Periods described above in clauses (vi) and (vii)
(with respect to the parent borrower) and the Deferment Period described in
clause (viii) (with respect to the parent borrower or a student on whose behalf
the parent borrowed) were available to PLUS Loan borrowers, and only the
Deferment Periods described above in clauses (vi), (vii) and (viii) were
available to Consolidation Loan borrowers. Prior to the 1986 changes, PLUS Loan
borrowers were not entitled to Deferment Periods. Deferment Periods extend the
ten-year maximum term.
The Higher Education Act also provides for periods of forbearance during which
the borrower, in case of temporary financial hardship, may defer any payments (a
"Forbearance Period"). A borrower is entitled to forbearance for a period not to
exceed three years while the borrower's debt burden under Title IV of the Higher
Education Act (which includes the FFEL Program) equals or exceeds 20% of the
borrower's gross income, and also is entitled to forbearance while he or she is
serving in a qualifying medical or dental internship program or in a "national
service position" under the National and Community Service Trust Act of 1993. In
addition, mandatory administrative forbearances are provided when exceptional
circumstances such as a local or national emergency or military mobilization
exist; or when the geographical area in which the borrower or endorser resides
has been designated a disaster area by the President of the United States or
Mexico, the Prime Minister of Canada, or by the governor of a state. In other
circumstances, forbearance is at the lender's option. Such forbearance also
extends the ten year maximum term.
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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 certain eligible loans while the borrower
is in school and during Grace and Deferment Periods. Interest that accrues
during Forbearance Periods and, if the loan is not eligible for interest Subsidy
Payments, while the borrower is in school and during the Grace and Deferment
Periods, may be paid monthly or quarterly or capitalized (added to the principal
balance) not more frequently than quarterly.
Disbursement
Loans made under the FFEL Program (except Consolidation Loans) generally must be
disbursed in two or more installments, none of which may exceed 50% of the total
principal amount of the loan.
Fees
Guarantee Fee. A Guarantee Agency is authorized to charge a premium, or
guarantee fee, of up to 1% of the principal amount of the loan, which must be
deducted proportionately from each installment payment of the proceeds of the
loan to the borrower. Guarantee fees may not currently be charged to borrowers
of Consolidation Loans. However, lenders may be charged an insurance fee to
cover the costs of increased or extended liability with respect to Consolidation
Loans. For loans made prior to July 1, 1994, the maximum guarantee fee was 3% of
the principal amount of the loan, but no such guarantee fee was authorized to be
charged with respect to Unsubsidized Stafford Loans.
Origination Fee. An eligible lender is authorized to charge the borrower of a
Stafford or 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 such 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, such
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 such guarantees, see "The Guarantee
Agencies" herein. 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 such a 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.
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Under certain circumstances, guarantees may be assumed by the Secretary of
Education or another Guarantee Agency. See "-- Contracts with Guarantee
Agencies" below.
CONTRACTS WITH GUARANTEE AGENCIES
Under the FFEL Program, the Secretary of Education is authorized to enter into
guaranty and interest subsidy agreements with Guarantee Agencies. The FFEL
Program provides for reimbursements to Guarantee Agencies for default claims
paid by Guarantee Agencies, support payments to Guarantee Agencies for
administrative and other expenses, advances for a Guarantee Agency's reserve
funds, and Interest Subsidy Payments and Special Allowance Payments to the
holders of qualifying student loans made pursuant to the FFEL Program.
The Secretary of Education has certain oversight powers over Guarantee Agencies.
Guarantee Agencies are required to maintain their reserves at certain levels
based on the amount of outstanding loans that they have guaranteed. If a
Guarantee Agency falls below the required level in two consecutive years, or its
claims rate exceeds 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 such problem(s).
If a Guarantee Agency fails to timely submit an acceptable plan or fails to
improve its condition, or if the Secretary of Education determines that the
Guarantee Agency is in danger of financial collapse, the Secretary of Education
may terminate the Guarantee Agency's reimbursement contract. The circumstances
under which the Secretary of Education may terminate such reimbursement
contracts also includes a determination that such action is necessary to protect
the federal fiscal interest or to ensure continued availability of student
loans. See "-- Direct Loans" below.
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 such Guarantee Agency
may submit claims directly to the Secretary of Education for payment, unless the
Secretary of Education has provided for the assumption of such guarantees by
another Guarantee Agency.
Federal Reimbursement
A Guarantee Agency's right to receive federal reimbursements for various
guarantee claims paid by such Guarantee Agency is governed by the Higher
Education Act and various contracts entered into between Guarantee Agencies and
the Secretary of Education. See "The Guarantee Agencies -- Federal Agreements"
herein. Under the Higher Education Act and the Federal Reimbursement Contracts,
the Secretary of Education currently agrees to reimburse a Guarantee Agency for
the amounts expended by the Guarantee Agency in the discharge of its guarantee
obligation (i.e., the unpaid principal balance of and accrued interest on loans
guaranteed by the Guarantee Agency, which loans are referred to herein as
"guaranteed loans") as a result of the default of the borrower. With respect to
loans made prior to October 1, 1993, the Secretary of Education currently agrees
to reimburse the Guarantee Agency for up to 100% of the amounts so expended. For
loans made on or after October 1, 1993, the Secretary of Education currently
agrees to reimburse the Guarantee Agency for a maximum of 98% of the amount
expended with respect to guaranteed loans. The 1998 Reauthorization Bill further
reduced the maximum reinsurance rate to Guarantee Agencies from 98% to 95% for
loans made on or after October 1, 1998. Depending on the claims rate experience
of a Guarantee Agency, such 100%, 98% or 95% reimbursement
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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 (or in the case of a PLUS Loan, the death of the
student on behalf of whom the loan was borrowed), or in certain circumstances,
as a result of school closures, which reimbursements are not to be included in
the calculations of the Guarantee Agency's Claims Rate experience for the
purpose of federal reimbursement under the Federal Reimbursement Contracts.
The formula for computing the percentage of federal reimbursement under the
Federal Reimbursement Contracts is not accumulated over a period of years but is
measured by the amount of federal reimbursement payments in any one federal
fiscal year as a percentage of the original principal amount of loans under the
FFEL Program guaranteed by the Guarantee Agency and in repayment at the end of
the preceding fiscal year. Under the formula, federal reimbursement payments to
a Guarantee Agency in any one fiscal year not exceeding 5% of the original
principal amount of loans in repayment at the end of the preceding fiscal year
are to be paid by the Secretary of Education at 100% (or 98% for loans made on
or after October 1, 1993 or 95% for loans made on or after October 1, 1998).
Beginning at any time during any fiscal year that federal reimbursement payments
exceed 5%, and until such time as they may exceed 9%, of the original principal
amount of loans in repayment at the end of the preceding fiscal year, then
reimbursement payments on claims submitted during that period are to be paid at
90% (or 88% for loans made on or after October 1, 1993 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 such payments
for the balance of that fiscal year will be paid at 80% (or 78% for loans made
on or after October 1, 1993 or 75% for loans made on or after October 1,1998).
The original principal amount of loans in repayment for purposes of computing
reimbursement payments to a Guarantee Agency means the original principal amount
of all loans guaranteed by such Guarantee Agency less: (1) guarantee payments on
such loans, (2) the original principal amount of such loans that have been fully
repaid, and (3) the original principal amount of such loans for which the first
principal installment payment has not become due or such first installment need
not be paid because of a Deferment Period.
Under present practice, after the Secretary of Education reimburses a Guarantee
Agency for a default claim paid on a guaranteed loan, the Guarantee Agency
continues to seek repayment from the borrower. The Guarantee Agency returns to
the Secretary of Education payments that it receives from a borrower after
deducting and retaining (i) a percentage amount equal to the complement of the
reimbursement percentage in effect at the time the loan was reimbursed, and (ii)
an amount equal to 24% (23% beginning October 1, 2003) (or 18-1/2% in the case
of a payment from the proceeds of a Consolidation Loan) of such payments for
certain administrative costs. The Secretary of Education may, however, require
the assignment to the Secretary of 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 (as described in clause (ii) above) was 27%.
A Guarantee Agency may enter into an addendum to its Interest Subsidy Agreement
(as hereinafter defined), which addendum provides for the Guarantee Agency to
refer to the Secretary of Education certain defaulted guaranteed loans. Such
loans are then reported to the 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 such a referred loan, the Guarantee Agency will not recover any
amounts subsequently collected by the federal government which are attributable
to that portion of the defaulted loan for which the Guarantee Agency has not
been reimbursed.
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Rehabilitation of Defaulted Loans
Under Section 428F of the Higher Education Act, each Guarantee Agency is
required to enter into an agreement with the Secretary of Education pursuant to
which the Guarantee Agency shall sell defaulted loans that are eligible for
rehabilitation to an eligible lender. The Guarantee Agency shall repay the
Secretary of Education an amount equal to 81.5% of the then current principal
balance of such loan, multiplied by the reimbursement percentage in effect at
the time the loan was reimbursed. The amount of such repayment shall be deducted
from the amount of federal reimbursement payments for the fiscal year in which
such repayment occurs, for purposes of determining the reimbursement rate for
that fiscal year.
For a loan to be eligible for rehabilitation, the Guarantee Agency must have
received consecutive payments for 12 months of amounts owed on such loan. Upon
rehabilitation, a loan is eligible for all the benefits under the Higher
Education Act for which it would have been eligible had no default occurred.
Eligibility for Federal Reimbursement
To be eligible for federal reimbursement payments, guaranteed loans must be made
by an eligible lender under the applicable Guarantee Agency's Guarantee Program,
which must meet requirements prescribed by the rules and regulations promulgated
under the Higher Education Act, including the borrower eligibility, loan amount,
disbursement, interest rate, repayment period and guarantee fee provisions
described herein and the other requirements set forth in Section 428(b) of the
Higher Education Act.
Under the Higher Education Act, a guaranteed loan must be delinquent for 180
days (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. As a prerequisite to entitlement to payment on the
guarantee by the Guarantee Agency, and in turn payment of reimbursement by the
Secretary of Education, the lender must have exercised reasonable care and
diligence in making, servicing and collecting the guaranteed loan. Generally,
these procedures require that completed loan applications be processed, a
determination of whether an applicant is an eligible borrower attending an
eligible institution under the Higher Education Act be made, the borrower's
responsibilities under the loan be explained to him or her, the promissory note
evidencing the loan be executed by the borrower and that the loan proceeds be
disbursed by the lender in a specified manner. After the loan is made, the
lender must establish repayment terms with the borrower, properly administer
deferments and forbearances and credit the borrower for payments made. If a
borrower becomes delinquent in repaying a loan, a lender must perform certain
collection procedures (primarily telephone calls, demand letters, skiptracing
procedures and requesting assistance from the applicable Guarantee Agency) that
vary depending upon the length of time a loan is delinquent.
Federal Interest Subsidy Payments
"Interest Subsidy Payments" are interest payments paid with respect to an
eligible loan during the period prior to the time that the loan enters repayment
and during Grace and Deferment Periods. The Secretary of Education and the
Guarantee Agencies entered into the Interest Subsidy Agreements as described in
"The Guarantee Agencies --Federal Agreements" herein, whereby the Secretary of
Education agrees to pay Interest Subsidy Payments to the holders of eligible
guaranteed loans for the benefit of students meeting certain requirements,
subject to the holders' compliance with all requirements of the Higher Education
Act. Only Stafford Loans, and Consolidation Loans for which the application was
received on or after January 1, 1993, are eligible for Interest Subsidy
Payments. Consolidation Loans made after
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August 10, 1993 are eligible for Interest Subsidy Payments only if all loans
consolidated thereby are Stafford Loans, except that Consolidation Loans for
which the application is received by an eligible lender on or after November 13,
1997 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 such costs related to
the Guarantee Agency's Guarantee Program. The 1993 Amendments repealed such
entitlement, effective October 1, 1993. The 1993 Amendments, however, authorized
payments for transition support (including administrative costs) to Guarantee
Agencies, in connection with the transition to direct lending. See "Direct
Loans" below. Budget legislation adopted since that time has provided for the
payment to Guarantee Agencies of an administrative expense allowance equal to
0.85% of the agency's annual new guarantee volume, which has been extended
through the fiscal year ending September 30, 2002. After the fiscal year ending
September 30, 1997, however, such amounts are subject to decreasing aggregate
limits. Under the 1998 Reauthorization Bill, the administrative cost allowance
was replaced by two new payments: (1) a student loan processing fee equal to 65
basis points (40 basis points for loans made on or after October 1, 2003) paid
at the time a loan is guaranteed, and (2) an account maintenance fee of 12 basis
points (10 basis points for fiscal years 2001-2003) paid annually on outstanding
guaranteed Student Loans.
Federal Advances
Pursuant to agreements entered into between the Guarantee Agencies and the
Secretary of Education under Sections 422 and 422(c) of the Higher Education
Act, the Secretary of Education was authorized to advance moneys from time to
time to the Guarantee Agencies for the purpose of establishing and strengthening
the Guarantee Agencies' reserves. Section 422(c) currently authorizes the
Secretary of Education to make advances to Guarantee Agencies in various
circumstances, on terms and conditions satisfactory to the Secretary 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.
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FEDERAL SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for the payment by the Secretary of Education
of additional subsidies, called Special Allowance Payments, to holders of
qualifying student loans. The amount of the Special Allowance Payments, which
are made on a quarterly basis, is computed by reference to the average of the
bond equivalent rates of the 91-day Treasury Bills auctioned during the
preceding quarter (the "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 such 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 foregoing formula. For loans
disbursed on or after October 1, 1992, 3.1% has been substituted for 3.5% in
such formula. For Stafford and Unsubsidized Stafford Loans made on or after July
1, 1995, 2.5% has been substituted for 3.1% in such formula prior to the time
such loans enter repayment and during any Deferment Periods. For Stafford and
Unsubsidized Stafford Loans made on or after July 1, 1998, the 1998 Amendments
substitute 2.2% for 3.1% in such formula prior to the time such loans enter
repayment and during any Deferment Periods, and substitute 2.8% for 3.1% in such
formula while such 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 such loans operates to reduce the rate that would otherwise apply based upon
the applicable formula. See "Loan Terms -- Interest Rates -- PLUS Loans" and
"-- SLS Loans" above. Special Allowance Payments are paid with respect to PLUS
Loans made on or after July 1, 1994 only if the rate that would otherwise apply
exceeds 10% per annum, notwithstanding that the interest rate ceiling on such
loans is 9% per annum. 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 such holder shall be increased by an amount equal
to the daily interest accruing on the special allowance and Interest Subsidy
Payments due the holder.
Special Allowance Payments and Interest Subsidy Payments are reduced by the
amount which the lender is authorized or required to charge the borrower as an
origination fee, as described above under "Loan Terms -- Fees -- Origination
Fee". In addition, the amount of the lender origination fee described above
under "Loan Terms -- Fees -- Lender Origination Fees" is collected by offset to
Special Allowance Payments and Interest Subsidy Payments.
EDUCATION LOANS GENERALLY NOT SUBJECT TO DISCHARGE IN BANKRUPTCY
Under the United States Bankruptcy Code, educational loans are not generally
dischargeable. Title 11 of the United States Code at Section 523(a)(8) provides
as follows:
(a) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b)
of this title does not discharge an individual debtor from any debt --
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(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 such 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 thereafter. Based upon 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 (and 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
Resources, in its capacity as the master servicer, will arrange for the
servicing of the Financed Student Loans pursuant to the Master Servicing
Agreement, dated as of __________, 1999, between the depositor and the master
servicer (the "Master Servicing Agreement"). The following is a summary of the
servicing arrangements entered, or to be entered, into with the master servicer
and various approved servicers (each, a "Servicer") 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 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
pursuant to 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 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
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Program Operating Expenses. This summary does not purport to be complete and is
qualified in its entirety 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
Pursuant to 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.
Without limiting the foregoing, 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 such Financed
Student Loans and collections thereon and will furnish monthly and annual
statements to the related Indenture Trustee with respect to such information, in
accordance with 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 such loans or in a
Guarantee Agency's refusal to honor its guarantee or make a Guarantee Payment on
such loans to the issuer and/or in the limitation, suspension or termination of
such Servicer's eligibility to contract to service Financed Student Loans.
SERVICER COVENANTS
In each Servicing Agreement, the related Servicer covenants that: (a) 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 (b) 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 such
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 such Financed Student Loan and reimburse the issuer for
certain payments, all on the terms of the applicable Servicing Agreement. The
Servicer's purchase and reimbursement obligations are contractual obligations
pursuant to the Servicing Agreement that may be enforced against the Servicer,
but the breach thereof will not constitute an Event of Default under the notes.
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SERVICING COMPENSATION
Each Servicer will be entitled to receive a fee (the "Servicing Fee") with
respect to 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 certain 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. 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 confirmed by the issuer, the administrator, the master servicer,
the initial purchasers or their respective counsel, and comprises all
information in respect of each such 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." herein.
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." herein.
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. pursuant to a subservicing
arrangement between InTuition and USA Group Loan Services, Inc. Recourse by the
issuer with respect to servicing errors on such Financed Student Loans
subserviced by USA Group Loan Services, Inc. is limited solely to InTuition
pursuant to the Servicing Agreement between the issuer and InTuition.
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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, 1998 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. ("Loan Services"), formerly known as Education
Loan Servicing Center, Inc., is a private, nonprofit, non-stock membership
corporation which was organized in 1982 under and pursuant to 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 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 ("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 such
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.
GREAT LAKES HIGHER EDUCATION SERVICING CORPORATION
As of October 31, 1998, Great Lakes Higher Education Servicing Corporation
("GLHESC") serviced 894,290 student and parental accounts with an outstanding
balance of $6,205,012,739 for 1,121 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 October 31, 1998, 59% of the portfolio serviced by GLHESC was in
repayment status, 8% was in grace status and the remaining 33% 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,
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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.
(Source: GLHESC.)
GLHESC will provide a copy of its most recent audited financial statements upon
receipt of a written request directed to 2401 International Lane, Madison,
Wisconsin 53704, Attention: Vice President and Chief Financial Officer.
UNIPAC SERVICE CORPORATION
UNIPAC Service Corporation, a Nebraska corporation ("UNIPAC"), began its
education loan servicing operations on January 1, 1978, and provides education
loan servicing, time sharing, administration and other services to lenders,
secondary market purchasers and Guarantee Agencies throughout the United States.
UNIPAC is a privately held corporation, owned primarily by Union Bank and Trust
Company, Lincoln, Nebraska. UNIPAC offers student loan servicing to lending
institutions and secondary markets. UNIPAC's corporate headquarters is located
in Aurora, Colorado, where UNIPAC employs approximately 733 people. In December
1989, UNIPAC opened a second servicing center in Lincoln, Nebraska, which as of
October 31, 1998 employed approximately 262 people. In November 1997, UNIPAC
opened a third servicing center in St. Paul, Minnesota, which as of October 31,
1998, employed approximately 167 people. As of October 31, 1998, UNIPAC's
servicing volume was approximately $8.8 billion for its full-service and
secondary market clients.
The following information covers UNIPAC's Year 2000 Plan and provides a status
of UNIPAC's Year 2000 compliance initiative to date. UNIPAC's student loan
servicing system, UNISTAR, has been modified to process dates into the next
century. UNIPAC's Private Loan System (STAR) is written in a combination of SQL
Server version 6.5 and Visual Basic version 4.0. These software programming
languages are believed to be Year 2000 compliant and address Year 2000 dates.
For the last several years (since 1994), UNIPAC has been planning system changes
for the Year 2000. As a result, UNIPAC completed major program changes for its
student loan servicing mainframe system during 1997. As of May 1997, all date
fields, stored in the files and processed in program logic, contain 8 digits for
the expanded century usage. All phases (analysis, design, construction, quality
assurance, testing, and implementation) of the project were completed relative
to the 8 byte dates usage. These processes have been documented as part of
UNIPAC's quality assurance processes. Systems integration testing was completed
in April 1997 and production implementation occurred May 1997.
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, certain schools, pension funds and insurance companies. A
Guarantee Agency generally purchases defaulted student loans which it has
guaranteed from its cash and reserves (generally referred to herein as its
"Guarantee Fund"). A lender may submit a default claim to the Guarantee Agency
after the student loan has been delinquent for at least 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 (which
generally is expected to be 300 days following the date a loan becomes
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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 (the cost of which may be passed on to borrowers),
investment income on moneys in the Guarantee Fund, and a portion of the moneys
collected from borrowers on Guaranteed Loans that have been reimbursed by the
Secretary of Education to cover the Guarantee Agency's administrative expenses.
Various changes to the Higher Education Act have adversely affected the receipt
of revenues by the Guarantee Agencies and their ability to maintain their
Guarantee Funds at previous levels, and may adversely affect their ability to
meet their guarantee obligations. These changes include the various recalls of
reserves by the Department of Education, the reduction in reinsurance payments
from the Secretary of Education because of reduced reimbursement percentages;
the reduction in maximum permitted guarantee fees from 3% to 1% for loans made
on or after July 1, 1994; and the reduction in retention by a Guarantee Agency
of collections on defaulted loans from 30% to 23%. Additionally, the adequacy of
a Guarantee Agency's Guarantee Fund to meet its guarantee obligations with
respect to existing student loans depends, in significant part, on its ability
to collect revenues generated by new loan guarantees. The Federal Direct Student
Loan Program may adversely affect the volume of new loan guarantees. Pending
legislation and future legislation may make additional changes to the Higher
Education Act that would significantly affect the revenues received by Guarantee
Agencies and the structure of the guarantee agency program. For a more complete
description of provisions of the Higher Education Act that relate to payments
described in this paragraph or affect the funding of a Guarantee Fund, see
"Description of the FFEL Program" herein.
The Higher Education Act gives the Secretary of Education various oversight
powers over Guarantee Agencies. These include requiring a Guarantee Agency to
maintain its Guarantee Fund at a certain required level and taking various
actions relating to a Guarantee Agency if its administrative and financial
condition jeopardizes its ability to meet its obligations. These actions
include, among others, providing advances to the Guarantee Agency, terminating
the Guarantee Agency's Federal Reimbursement Contracts, assuming responsibility
for all functions of the Guarantee Agency, and transferring the Guarantee
Agency's guarantees to another guarantee agency or assuming such guarantees. The
Higher Education Act provides that a Guarantee Agency's Guarantee Fund shall be
considered to be the property of the United States to be used in the operation
of the FFEL Program or the Federal Direct Student Loan Program, and, under
certain circumstances, the Secretary of Education may demand payment of amounts
in the Guarantee Fund. Pursuant to 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, certain minimum reserve levels are
protected from recall. The amounts to be demanded of each Guarantee Agency shall
be determined in accordance with formulas included in the Higher Education Act.
Each Guarantee Agency will be required to deposit funds in a restricted account
in installments, beginning in the federal fiscal year ending September 30, 1998,
to provide for such payment. The Secretary of Education has made the
determinations, and advised the Guarantee Agencies, of the amounts required to
be so transferred by the Guarantee Agencies. 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" herein.
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Pursuant to Section 432(o) of the Higher Education Act, if the Department of
Education has determined that a Guarantee Agency is unable to meet its insurance
obligations, the holders of loans guaranteed by such Guarantee Agency 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 thereto
in accordance with guarantee claims processing standards no more stringent than
those applied by the Guarantee Agency. See "Description of the FFEL Program"
herein.
There are no assurances as to the Secretary of Education's actions if a
Guarantee Agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a Guarantee Agency transfer
additional portions or all of its Guarantee Fund to the Secretary of Education.
FEDERAL AGREEMENTS
Each Guarantee Agency and the Secretary of Education have entered into Federal
Reimbursement Contracts pursuant to Section 428(c) of the Higher Education Act
(which include, for older Guarantee Agencies, a supplemental contract pursuant
to former Section 428A of the Higher Education Act), which provide for the
Guarantee Agency to receive 75% to 100% reimbursement of insurance payments that
the Guarantee Agency makes to eligible lenders with respect to loans guaranteed
by the Guarantee Agency prior to the termination of the Federal Reimbursement
Contracts or the expiration of the authority of the Higher Education Act. The
1998 Reauthorization Bill reduced the reimbursement percentages referred to
above with respect to claims on most loans made on or after October 1, 1998. See
"-- Effect of Annual Claims Rate" below. The Federal Reimbursement Contracts
provide for termination under certain circumstances and also provide for certain
actions short of termination by the Secretary of Education to protect the
federal interest. See "Description of the FFEL Program -- Contracts with
Guarantee Agencies -- Federal Reimbursement" herein.
In addition to guarantee benefits, qualified Student Loans acquired under the
FFEL Program benefit from certain federal subsidies. Each Guarantee Agency and
the Secretary of Education have entered into an interest subsidy agreement under
Section 428(b) of the Higher Education Act (as amended, an "Interest Subsidy
Agreement"), which entitles the holders of eligible loans guaranteed by the
Guarantee Agency to receive Interest Subsidy Payments from the Secretary of
Education on behalf of certain students while the student is in school, during a
six to twelve month Grace Period after the student leaves school, and during
certain Deferment Periods, subject to the holders' compliance with all
requirements of the Higher Education Act. See "Description of the FFEL Program
- -- Contracts with Guarantee Agencies -- Federal Interest Subsidy Payments"
herein 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, (i) abrogated certain rights of guarantee agencies under contracts
with the Secretary of Education relating to the repayment of certain advances
from the Secretary of Education, (ii) authorized the Secretary of Education to
withhold reimbursement payments otherwise due to certain guarantee agencies
until specified amounts of such guarantee agencies' reserves had been
eliminated, (iii) added new reserve level requirements for guarantee agencies
and authorized the Secretary of Education to terminate the Federal Reimbursement
Contracts under circumstances that did not previously warrant such termination,
and (iv) expanded the Secretary of Education's authority to terminate such
contracts and to seize guarantee agencies' reserves. There can be no assurance
that future legislation will not further adversely affect the rights of the
Guarantee Agencies, or holders of loans guaranteed by a Guarantee Agency under
such contracts.
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EFFECT OF ANNUAL CLAIMS RATE
A Guarantee Agency's ability to meet its obligation to pay default claims on
Financed 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 (as defined below) for its
Guarantee Program to exceed the 5% and 9% levels described below, and result in
the Secretary of Education reimbursing the Guarantee Agency at lower percentages
of default claims payments made by the Guarantee Agency.
In general, Guarantee Agencies are currently entitled to receive reimbursement
payments under the Federal Reimbursement Contracts in amounts that vary
depending on the Claims Rate experience of the Guarantee Agency. The "Claims
Rate" is computed by dividing total default claims since the previous September
30 by the total original principal amount of the Guarantee Agency's guaranteed
loans in repayment on such September 30. On October 1 of each year the Claims
Rate begins at zero, regardless of the experience in preceding years. For loans
made prior to October 1, 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 such 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" herein.
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 FFELP
Loans. Information relating to these particular Guarantee Agencies is set forth
below. These Guarantee Agencies collectively guarantee in excess of 99% of the
Financed FFELP 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 such 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 has been authorized to administer federally guaranteed
student loans under what is now known as the Federal Family Education Loan
("FFEL") Program, in compliance with the Higher Education Act of 1965, as
amended. Chapter
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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 (the "State Board") 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 chair of the State Board), 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. OSFA's gross guarantees for federal fiscal year 1997-98
were approximately $645 million and approximately $95 million in student loan
claims were paid during the same period. According to the U.S. Department of
Education the net default rate is approximately 10.7 percent, with recoveries.
The foregoing figures are estimates only and may differ from those derived
through precise calculations.
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 such 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.
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 guaranteed a total of approximately $236.7 million of
Stafford and SLS loans in the federal fiscal year 1992-1993, $322.1 million in
the federal fiscal year 1993-1994, $253.3 million in the federal fiscal year
1994-1995, $179.4 million in the federal fiscal year 1995-1996 and $219.1
million in the federal fiscal year 1996-1997.
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:
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<TABLE>
<CAPTION>
FISCAL FUND TOTAL LOANS RESERVE
YEAR BALANCE OUTSTANDING RATIO
<S> <C> <C> <C>
1993 $7,926,203 $ 988,518,233 0.80%
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
</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>
1993 53.6%
1994 52.8
1995 50.7
1996 51.0
1997 49.3
</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, 1997 is
set forth below.
<TABLE>
<CAPTION>
LOANS PERCENTAGE OF
TYPE OF SCHOOL OUTSTANDING LOANS OUTSTANDING
<S> <C> <C>
Two-year $ 160,905,318 4.5%
Four-year 1,192,162,129 85.3
Proprietary 109,708,171 10.2
-------------- ----
$1,462,775,618 100.0%
</TABLE>
NOTE: THE AMOUNT AND PERCENTAGE OF LOANS BY SCHOOL TYPE ARE AN EXTRAPOLATION
OF THE AVERAGE OF FIVE YEARS' GUARANTEES BY SCHOOL TYPE.
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<PAGE> 85
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>
1993 3.1%
1994 3.1
1995 2.4
1996 3.6
1997 3.3
</TABLE>
As of September 30, 1998, Year 2000 renovations to GHEAC's new mainframe
guaranty system was completed. GHEAC's new system GOALS is provided under a
third party contract with the Great Lakes Higher Education Guaranty Corporation.
During renovation, each module was independently tested, approved, and
implemented into the production environment. Validation is underway and will be
completed by December 31, 1998.
For GHEAC's collections functionality, Year 2000 compliance will be fully
implemented in the GOALS production environment on February 6, 1999, when
GHEAC's claim portfolio is converted to the new system.
GHEAC's school based software, SCHOLAR, is Year 2000 compliant. However,
validation of Year 2000 compliance for GHEAC's new system with which SCHOLAR
interacts, will be completed by December 31, 1998.
Unless otherwise indicated, all of the above information was provided by GHEAC.
GHEAC will provide a copy of its most recent audited financial statements upon
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.
UNITED STUDENT AID FUNDS, INC.
United Student Aid Funds, Inc. ("USA Funds") was organized as a private,
nonprofit corporation under the General Corporation Law of the State of Delaware
in 1960. In accordance with its Certificate of Incorporation, USA Funds (i)
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; (ii) guarantees
education loans made pursuant to certain loan programs under the Higher
Education Act loan programs as well as loans made under private loan programs;
and (iii) 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: Student Loan Guarantee Foundation
of Arkansas, Iowa College Student Aid Commission, Louisiana Office of Student
Financial Assistance, Finance Authority of Maine, Michigan Guaranty Agency,
Montana Guaranteed Student Loan Program, New Mexico Student Loan Guarantee
Corporation, Northwest Education Loan Association, Oklahoma Guaranteed Student
Loan Program, Oregon State Scholarship Commission and Rhode Island
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<PAGE> 86
Higher Education Assistance Authority. Certain 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. Certain trustees and
officers of USA Funds are also trustees or officers of USA Group Loan Services,
Inc.
For the purpose of providing loan guarantees under the Higher Education Act, USA
Funds has entered into various agreements with the Secretary (collectively, the
"Federal Reinsurance Agreements"). Pursuant to the Federal Reinsurance
Agreements, USA Funds serves as a "guaranty agency" as defined in Section 435(j)
of the Higher Education Act. The Federal Reinsurance Agreements may be
terminated by the Secretary for cause upon sixty (60) days written notice to USA
Funds. Under the Student Loan Reform Act of 1993, which became effective August
10, 1993, the Secretary, at the Secretary's discretion, is permitted to
terminate agreements into which a guarantee agency has entered upon thirty (30)
days notice.
Reinsurance is paid to USA Funds by the Secretary in accordance with a formula
based on the annual default rate of loans guaranteed by USA Funds under the Act
and the disbursement date of loans, and ranges from 100% to 75% of USA Funds'
losses on default claim payments made to lenders. The Higher Education
Amendments of 1998 reduced the reinsurance coverage for loans in default made on
or after October 1, 1998 to a range from 95% to 75% based upon the annual
default claims rate of the guarantee agency. Reinsurance on non-default claims
remains at 100%.
The Higher Education Amendments of 1998 require guarantee agencies to establish
two (2) separate funds, a federal reserve fund (property of the United States)
and an operating fund (property of the guarantee agency). The federal reserve
fund is to be used to pay lender claims and to pay a default aversion fee to the
operating fund. The operating fund is to be used by the guarantee agency to pay
its operating expenses. All existing Federal Family Education Loan Program
reserves must be moved to the federal reserve fund.
The U.S. Department of Education (the "Department") has advised USA Funds that,
pursuant to the Balanced Budget Act of 1997, USA Funds must pay approximately
$209 million to the Secretary on September 1, 2002 and make annual restricted
account deposits toward such payment beginning in fiscal year 1998 of
approximately $41.8 million. Further, the Higher Education Amendments of 1998
require guarantee agencies to return to the Secretary $250 million in reserve
funds from fiscal years 2002 to 2007. Each guarantee agency's required share
will be calculated based on a formula prescribed in the Higher Education
Amendments of 1998. USA Funds is and has been in compliance with the provisions
of the reserve fund requirements of the Act.
As of September 30, 1997, USA Funds had total Federal Family Education Loan
Program assets of approximately $658 million; guarantee deposits and advance
funds, allowance for future defaults, and deferred revenue of approximately $287
million; and a fund balance of approximately $292 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, 1997, 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 $33.2 billion.
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<PAGE> 87
USA Funds' "claims rate" represents the percentage of federal reinsurance claims
paid by the Secretary during any fiscal year relative to USA Funds' existing
portfolio of loans in repayment at the end of the prior fiscal year. For the
last five fiscal years, the "claims rate" (excluding Arizona, Hawaii and certain
Pacific Islands) for the fiscal years 1997-1993, was as follows: 1997 - 4.65%;
1996 - 4.65%; 1995 - 4.69%; 1994 - 4.99%; 1993 - 6.89%.
As of September 30, 1997 USA Funds employed approximately 257 persons and is
headquartered in Indianapolis, Indiana. USA Group, Inc. will provide a copy of
its most recent annual report upon receipt of a written request directed to its
headquarters at 30 S. Meridian Street, Indianapolis, Indiana 46204, Attention:
Vice President, Corporate Communications.
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 such 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.
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 (i) 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; (ii) 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 such student loans
for interest subsidies, reimbursement, reinsurance, and other benefits available
under the Higher Education Act; (iii) entering into contracts with eligible
lenders and eligible education institutions to provide for the administration of
student financial assistance programs; (iv) 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 such loan; (v) 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; (vi) 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; (vii)
administering federal funds allotted to the Commonwealth in respect of student
loans, administrative costs, and other matters; and (viii) 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 programs, one teacher incentive
loan program and the state work-study program
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in order to provide financial assistance to eligible students. Such programs are
partially funded by the Commonwealth of Kentucky supplemented by Federal Funds.
Effective May 10, 1990, responsibilities for the Kentucky Educational Savings
Plan Trust (the "KHEAA Trust") were transferred to KHEAA pursuant to Executive
Order 90-433, ratified by the 1992 Kentucky General Assembly. The KHEAA Trust
offers opportunities for families to save for future college costs. KHEAA 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
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 in accordance with Kentucky
law, and KHEAA's agreements with the Secretary.
Pursuant to the 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 certain 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. Pursuant to 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.
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 such funds; uses of funds are default and other
claims on loans guaranteed, and operating expenses for loan guarantee functions.
Pursuant to 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.
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Outstanding loan guarantee commitments by ACHE, on which no claims had been
filed or paid, were transferred to 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, pursuant to 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 restricted account
deposits toward such 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 is 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>
1991 $ 94,276,142 $ 454,679,372 3.37 3.30%
1992 114,122,320 500,404,653 3.54 3.87
1993 131,206,838 556,234,650 3.74 3.97
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.
All KHEAA information systems are Year 2000 compliant with the exception of one.
A new system is being developed to replace the non-compliant system. KHEAA is
currently in the renovation and validation stages of that effort. The system
will be largely completed by December 31, 1998 with implementation scheduled for
March 31, 1999. KHEAA is committed to this effort; however, KHEAA is unable to
give any assurances at this time that all Year 2000 related problems will be
avoided.
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. (As of December 31, 1997, GLHEGC assumed the
designated guarantor responsibility for the State of Minnesota from its
Northstar affiliate and merged Northstar's guarantee agency operations with
GLHEGC's own guarantee agency operations under the Higher Education Act).
Guarantee Volume. GLHEGC guaranteed a total of $1,197.3 million in federal
fiscal year 1993-94, $1,070.7 million in federal fiscal year 1994-95, $1,172.6
million in federal fiscal year 1995-96, $1,794.6 million
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in federal fiscal year 1996-97 (including Northstar) and $1.640.2 million in
federal fiscal year 1997-98.
(Source: U.S. Department of Education Loan Programs Data Book 1994 through 1996,
4th Quarter ED Volume Report for 1997 and ED Form 1130 for 1998.)
Reserve Ratio. Following are GLHEGC's reserve fund levels as calculated in
accordance with 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 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.
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<TABLE>
<CAPTION>
School Type Loans Percentage
- ----------- ----- ----------
(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>
(Source: GLHEGC)
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 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.
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DESCRIPTION OF THE NEW NOTES
The old notes were issued by the depositor pursuant to an indenture dated as of
December 1, 1998 between the depositor and Firstar Bank, N.A. The proceeds 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 was formed
and initially capitalized with nominal equity represented by a trust certificate
held by the depositor. The trust purchased the Financed Student Loans by
assuming the obligations of the depositor under the old notes and the indenture.
Upon the assumption of the old notes and the obligations thereunder, the issuer
entered into an amended and restated indenture, dated as of _____________, 1999,
between itself and Firstar Bank, N.A. pursuant to which the new notes will be
offered.* 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 Indenture in its entirety. 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 certain capitalized terms under the heading
"Summary of Terms" herein 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.
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 in its
entirety 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
denominations of [$50,000][original issue amounts] and integral multiples of
[$________] in excess thereof in book-entry form only, and the Auction Rate
Notes will be offered in minimum denominations of [$50,000][original issue
amounts] and any integral multiples thereof in book-entry form only (each, an
"Authorized Denomination"). The notes will initially be represented by one or
more notes registered in the name of the nominee of DTC (together with any
successor depository selected by the issuer, the "Depository"). 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" herein, 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 upon instructions from its participating
organizations (the "Participants") 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 in accordance with DTC's procedures with
respect thereto. See "-- Book-entry Registration" herein.
- --------------------
* We expect the assumption by the trust to be completed on or about March 30,
1999.
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<PAGE> 93
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 hereby
through DTC, in the United States, or Cedel or Euroclear, in Europe, if they are
participants of such systems, or indirectly through organizations that are
participants in such systems. Purchases by beneficial owners of the notes
("Book-entry Interest Owners") are to be made in Book-entry Form in Authorized
Denominations. 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 with respect
to 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 based 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) if they are participants of such systems, or indirectly
through organizations that are participants in such systems.
DTC will hold the global notes. Cedel and Euroclear will hold omnibus positions
on behalf of the Cedel Participants and the Euroclear Participants,
respectively, through customers securities accounts in Cedel's and Euroclear's
names on the books of their respective depositories (collectively, the
"Depositories") which in turn will hold such positions in customers' securities
accounts in the Depositories' names on the books of DTC.
DTC is a limited purpose trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its Participants ("DTC Participants") and facilitates the
clearance and settlement among DTC Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic book-entry
changes in DTC Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its DTC Participants are on file with the SEC.
DTC management is aware that some computer applications, systems, and the like
for processing dates ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
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<PAGE> 94
However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to issuers and their agents, as well as
third party vendors from whom DTC licenses software and hardware, and third
party vendors on whom DTC relies for information or the provision of services,
including telecommunication and electrical utility service providers, among
others. DTC has informed the Industry that it is contacting (and will continue
to contact) third party vendors from whom DTC acquires services to: (i) impress
upon them the importance of such services being Year 2000 compliant; and (ii)
determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the information set forth in the preceding two paragraphs
about DTC has been provided to the Industry 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 in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositories.
Because of time-zone differences, credits of securities in Cedel or Euroclear as
a result of a transaction with a DTC Participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date, and such credits or any transactions in such securities
settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC. For additional information regarding clearance and settlement procedures
for the new notes, see Appendix B hereto.
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.
Purchases of notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual owner of a note (a "note owner") is in turn to
be recorded on the DTC Participants' and Indirect Participants' records. Note
owners will not receive written confirmation from DTC of their purchase, but
note owners are expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the DTC
Participant or Indirect Participant through which the note owner entered into
the
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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 not receive certificates representing their
ownership interest in notes, except in the event that 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 such notes are credited, which may or may not be the note owners. The
DTC Participants will remain responsible for keeping account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants, by
DTC Participants to Indirect Participants, and by DTC Participants and Indirect
Participants to note owners will be governed by arrangements among them, subject
to any statutory or regulatory requirements as may be in effect from time to
time.
Neither DTC nor Cede & Co. will consent or vote with respect to the notes. Under
its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede's consenting or voting rights
to those DTC Participants to whose accounts the notes are credited on the record
date (identified in a listing attached thereto).
Principal and interest payments on the notes will be made to DTC. DTC's practice
is to credit DTC Participants' accounts on the applicable Distribution Date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on such 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 such 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. Payment of principal and interest to DTC is
the responsibility of the Indenture Trustee, disbursement of such payments to
DTC Participants shall be the responsibility of DTC, and disbursement of such
payments to note owners shall be the responsibility of DTC Participants and
Indirect Participants.
DTC may discontinue providing its services as securities depository with respect
to the notes at any time by giving reasonable notice to the issuer or the
Indenture Trustee. Under such circumstances, in the event that 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"
herein.
Cedel is incorporated under the laws of Luxembourg as a professional depository.
Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in 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 subject to regulation 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
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<PAGE> 96
corporations and certain 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 ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may be settled in 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
(the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, Societe Cooperative, a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative Board
establishes policy for the Euroclear System. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the 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 (collectively, the "Terms and
Conditions"). The Terms and Conditions govern transfers of securities and cash
within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a fundable
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants and has no record of or relationship
with persons holding through Euroclear Participants.
The Euroclear Operator has advised as follows: Under Belgian law, investors that
are credited with securities on the records of the Euroclear Operator have a
co-property right in the fungible pool of interests in securities on deposit
with the Euroclear Operator in an amount equal to the amount of interests in
securities credited to their accounts. In the event of the insolvency of the
Euroclear Operator, Euroclear Participants would have a right under Belgian law
to the return of the amount and type of interests in securities credited to
their accounts with the Euroclear Operator. If the Euroclear Operator did not
have a sufficient amount of interests in securities on deposit of a particular
type to cover the claims of all Euroclear Participants credited with such
interests in securities on the Euroclear Operator's records, all Euroclear
Participants having an amount of interests in securities of such type credited
to their accounts with the Euroclear Operator would have the right under Belgian
law to the return of their pro-rata share of the amount of interests in
securities actually on deposit. Under Belgian law, the Euroclear Operator is
required to pass on the benefits of ownership in any interests in securities on
deposit with it (such as
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dividends, voting rights and other entitlements) to any person credited with
such interests in securities on its records.
Distributions with respect to notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences" herein. 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 in
accordance with its relevant rules and procedures and subject to its
Depository's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
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
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, it should be understood that while the notes are in
Book-entry System, references in other sections of this Prospectus to holders
should be read to include the person for whom the Participant acquires an
interest in the notes, but (i) all rights of ownership must be exercised through
DTC and the Book-entry System and (ii) notices that are to be given to holders
by the issuer or the Indenture Trustee will be given only to DTC.
DEFINITIVE NOTES
The notes will be issued in fully registered, certificated form (the "Definitive
Notes") to note owners or their nominees rather than to DTC or its nominee, if
(i) 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,
(ii) the issuer, at its option, advises the Indenture Trustee in writing that it
elects to terminate the book-entry system through DTC or successor securities
depository or (iii) after the occurrence of an Event of Default under the
Indenture, holders representing not less than 50% of the outstanding principal
balance of the Directing 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 thereto) is no longer in the best interest of the holders.
Upon the occurrence of any of the events described in the immediately preceding
paragraph, the Indenture Trustee will cause DTC to notify all DTC Participants
of the availability through DTC of Definitive Notes. Upon 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 thereafter the Indenture Trustee will recognize the holders of such
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 in accordance with the
procedures set forth in the related Indenture. Interest
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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 upon presentation and surrender of such note at
the office or agency specified in the notice of final distribution to holders.
The Indenture Trustee will provide such notice to registered holders prior to
the Distribution Date on which it expects such 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.
INTEREST
Interest will accrue during each Interest Accrual Period on the principal
balance of each Series of notes at a rate per annum equal to the related Series
Interest Rate calculated or set forth below and will be payable (i) monthly on
the last Business Day of each month on the Series A-3 Notes and the Series B-3
Notes (each, a "Monthly Distribution Date"), and (ii) on each Business Day
following the expiration of each Auction Period on the Auction Rate Notes (each,
an "Auction Period Distribution Date", and any Monthly Distribution Date or
Auction Period Distribution Date, a "Distribution Date") to the applicable
holders as of the Record Date. The Auction Period Distribution Date is subject
to change as described under the heading "-- Determination of the Auction Rate"
herein. 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 such Distribution Date will be payable on the
succeeding Distribution Date for such Series, together with interest thereon at
the applicable Series Interest Rate. Interest will be paid pro rata to the
holders of each Series of notes outstanding.
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 such Distribution Date, except the
first Interest Accrual Period will begin on the Closing Date.
An Interest Determination Date is (i) with respect to the Series A-3 Notes, the
second London Banking Day prior to the first day of the next succeeding Interest
Accrual Period; and (ii) with respect to the Series A-4 Notes, January 27, 1999
and each fourth Wednesday thereafter, (iii) with respect to the Series A-5
Notes, February 3, 1999 and each fourth Wednesday thereafter, and (iv) with
respect to the Series A-6 Notes February 10, 1999 and each fourth Wednesday
thereafter; provided that if any such date is not a Business Day then the next
succeeding Business Day. The Interest Determination Date on the Auction Rate
Notes is subject to change as described under the heading "-- Determination of
the Auction Rate" herein.
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 such Interest Accrual Period.
The Series Interest Rate for each Interest Accrual Period for the Series B-3
Notes will be equal to a fixed rate of 6.25% per annum. 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 such Interest
Accrual Period plus 0.38%, but in no event
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greater than 17% per annum. See "-- Determination of LIBOR" herein. 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 such Interest Accrual Period, but in no event greater
than 17% per annum. The Formula Rate for each Interest Accrual Period for the
Series A-5 Notes will equal the Auction Rate for such Interest Accrual Period,
but in no event greater than 17% per annum. The Formula Rate for each Interest
Accrual Period for the Series A-6 Notes will equal the Auction Rate for such
Interest Accrual Period, but in no event greater than 17% per annum. 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" herein.
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" herein.
Information concerning the current Series Interest Rates will be available by
telephoning the Indenture Trustee at (513) 762-8870 between the hours of 9 a.m.
and 5 p.m. Eastern time on any day on which the Cincinnati Corporate Trust
Office of the Indenture Trustee is open for business and will also be available
through Dow Jones Telerate Service of Bloomberg L.P.
The Net Loan Rate for any Interest Accrual Period is equal to the annualized
percentage rate determined by multiplying (a) the ratio of 360 to the actual
number of days in 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
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 (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 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 FFELP Loans in
the trust, 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 with respect to such Collection Period prior to
the related Distribution Date.
If interest at the Formula Rate for any Series of Series 1998A Notes for any
Interest Accrual Period exceeds interest at the Net Loan Rate, the excess
interest, together with interest thereon at the applicable Formula Rate
("Carryover Interest") will be paid on subsequent Distribution Dates only to the
extent funds are available after other required payments on the notes. See
"-- Collection Fund" herein. Carryover Interest will continue to be so payable
notwithstanding that the principal amount of the applicable Series of notes has
been reduced to zero until (i) no new notes remain outstanding and (ii) the
balances in the Funds and Accounts have been reduced to zero. The ratings of the
notes do not address
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the likelihood of payment of Carryover Interest. Any reference herein to
"interest" excludes Carryover Interest.
DETERMINATION OF LIBOR
For each Interest Accrual Period after the initial Interest Accrual Period, the
Calculation Agent will determine the applicable LIBOR rate for purposes of
calculating the Series Interest Rate on the 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 (each, an "Interest
Determination Date"). "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 of interest per annum equal to the rate per annum 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 such 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 such quotations appear, LIBOR will be the arithmetic mean (rounded to the
nearest one-hundredth of a percent (.01%)) of such offered rates. If fewer than
two such quotations appear, LIBOR with respect to such Interest Accrual Period
will be determined at approximately 11:00 A.M., London time, on such Interest
Determination Date on the basis of the rate at which deposits in United States
dollars having such 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 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 will be the arithmetic mean (rounded to the
nearest one-hundredth of a percent (.01%) of such offered rates). If fewer than
two quotations are provided, LIBOR with respect to such Interest Accrual Period
will be the arithmetic mean (rounded to the nearest one-hundredth of a percent
(.01%)) of the rates quoted at approximately 11:00 A.M., New York City time on
such Interest Determination Date by three major banks in New York, New York
selected by the Calculation Agent for loans in United States dollars to leading
European banks having a particular maturity and in a principal amount equal to
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 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 in accordance with the Auction Procedures described in Appendix C
hereto (the "Auction Procedures") on each Interest Determination Date for each
such Interest Accrual Period, initially based on a 28-day Auction Period
generally beginning (i) with respect to the Series A-4 Notes, on January 27,
1999 and each fourth Wednesday thereafter, (ii) with respect to the Series A-5
Notes, on February 3, 1999 and each fourth Wednesday thereafter and (iii) with
respect to the Series A-6 Notes, on February 10, 1999 and each fourth Wednesday
thereafter, in each case subject to adjustment as described below.
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 either:
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(i) 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),
(ii) 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
(iii) 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%.
The Auction Rate for each Series of the Auction Rate Notes for each Auction
Period after the Initial Period will be determined on each Interest
Determination Date (i.e., January 27, 1999 and each fourth Wednesday thereafter
with respect to the Series A-4 Notes, February 3, 1999 and each fourth Wednesday
thereafter with respect to the Series A-5 Notes and February 10, 1999 and each
fourth Wednesday thereafter with respect to the Series A-6 Notes) in accordance
with the Auction Procedures. Each such Auction Period will commence on the first
Business Day following each Interest Determination Date (the "Auction Period
Commencement Date") and will terminate on and include the day preceding the next
Auction Period Commencement Date, subject to adjustment as described below in
the event that there are fewer than three Business Days in any week during which
such Auction Period would otherwise be scheduled to expire.
At the option of the issuer, the length of the Auction Period for any Series of
the Auction Rate Notes may be adjusted pursuant to an Auction Period Adjustment
to an Auction Period of not less than 7 nor more than 91 days in length. See "--
Auction Period Adjustment" herein and Appendix C, "Auction Procedures -- Changes
in Auction Terms". In addition, at the option of the issuer and as described
below under the heading "-- Auction Period Conversion of and Mandatory Tender of
the Auction Rate Notes" herein, the length of the Auction Period is subject to
an Auction Period Conversion on the first day of any Interest Accrual Period (an
"Auction Period Conversion Date") from a Short Auction Period to a Long Auction
Period, or vice versa, or to a Long Auction Period that is more than three
months shorter or longer than the initial Long Auction Period. Upon any Auction
Period Conversion, the Auction Rate Notes are subject to mandatory tender. 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".
Notwithstanding the foregoing for each Series of Auction Rate Notes:
o if the ownership of the Auction Rate Notes is no longer maintained in
Book-entry Form, the Auction Rate for any Auction Period commencing
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
o if a Payment Default has occurred, the Auction Rate for the Auction
Period commencing on or during such Payment Default and for each
Auction Period thereafter, to and including the Auction Period, if any,
during which, or commencing less than two Business Days after, such
Payment Default is cured in accordance with the Indenture, will equal
the Non-Payment Rate on the first day of each such Auction Period; or
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o 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" herein 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 such date, and the
length of the Auction Period commencing upon the failed Auction Period
Conversion Date will be the same as was in effect immediately preceding
such failed Auction Period Conversion Date; or
o the Auction Rate for an Auction Period that commences on an Auction
Period Conversion Date will equal 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.
The Auction Agent will promptly give written notice to the Indenture Trustee and
the issuer of the 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 will notify the holders of the 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 Business Days in any week during
which the Auction Period would otherwise be scheduled to expire, the expiration
date and Auction Period Distribution Date for such Auction Period then in
effect, and the Interest Determination Date and commencement date for the
immediately following Auction Period, 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.
In the event that 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 such 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 such Auction Period, and 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 such a determination in accordance with the
provisions of the Indenture, and written notice of such determination will be
given by such securities dealer to the Indenture Trustee.
AUCTION PERIOD ADJUSTMENT
With respect to each Series of Auction Rate Notes, the issuer may, from time to
time in accordance with 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"). 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
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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 of such
Series of Auction Rate Notes or Auction Period Conversion of such Auction Rate
Notes, as the case may be, with respect to Auction Rate Notes with a Long
Auction Period, or be allowed in any event unless certain prescribed conditions
are 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 pursuant to 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 (i) from an Auction
Period between 7 and 91 days, inclusive, to an Auction Period between 92 days
and the Legal Final Maturity for such Series, inclusive, (ii) from an Auction
Period between 92 days and the Legal Final Maturity for such Series, inclusive,
to an Auction Period between 7 and 91 days, inclusive, or (iii) from an Auction
Period between 92 days and the Legal Final Maturity for such Series, inclusive,
to an Auction Period between 92 days and the Legal Final Maturity for such
Series, inclusive, if such latter Auction Period is at least 3 months shorter or
at least 3 months longer than the Auction Period established upon the initial
issuance of such Series or pursuant to 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 such 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 such Series of Auction Rate
Notes subject to the Auction Period Conversion, none of the Auction Rate Notes
of such Series tendered will be converted and the Series Interest Rate for such
Series of Auction Rate Notes will equal the lesser of the Net Loan Rate or the
Maximum Auction Rate, but in no event greater than 17%, as of the date of the
failed Auction Period Conversion, as applicable, for the Auction Period
commencing on such date, and the length of the Auction Period will remain the
same. See Appendix C, "Auction Procedures".
AUCTION PROCEDURES
The interest rate on each Series of Auction Rate Notes will be determined
periodically (generally, for periods ranging from 7 days to one year) by means
of a "Dutch Auction." In this Dutch Auction, investors and potential investors
submit orders through an eligible broker/dealer as to the principal amount of
Auction Rate Notes such investors wish to buy, hold or sell at various interest
rates. The broker/dealers submit their clients' orders to the auction agent, who
processes all orders submitted by all eligible broker/dealers and determines the
interest rate for the upcoming interest period. The broker/dealers are notified
by the auction agent of the interest rate for the upcoming interest period and
are provided with settlement instructions relating to purchases and sales of
Auction Rate Notes.
In the auction procedures, the following types of orders may be submitted:
(i) 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;
(ii) 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
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<PAGE> 104
(iii) 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.
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>
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
100 Units at 3.10% 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
50 Units at 3.14%
100 Units at 3.15%
</TABLE>
Total units under existing Bid/Hold Orders and Sell Orders must always equal
issue size (in this case 500 Units).
(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
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at the winning rate are allocated units on a pro rata basis. Notwithstanding the
foregoing, in no event will the interest rate exceed the lesser of the Net Loan
Rate or the Maximum Auction Rate.
The above example assumes that a successful auction has occurred (i.e., all Sell
Orders and all Bid/Hold Orders below the new interest rate were fulfilled). In
certain circumstances, there may be insufficient Potential Bid Orders to
purchase all the Auction Rate Notes of the applicable Series offered for sale.
In such 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 such 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 such
Series of Auction Rate Notes.
For a more detailed description of the Auction Procedures, 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 CERTAIN CONDITIONS WHILE THE SERIES 1998A NOTES
ARE OUTSTANDING BUT ONLY FOR MONTHLY DISTRIBUTION DATES OCCURRING AFTER JUNE 30,
2003.
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 such Monthly Distribution Date until the
principal balance of such notes has been reduced to zero. 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
such Auction Period Distribution Date until the principal balance of such notes
has been reduced to zero. 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
such Auction Period Distribution Date until the principal balance of such notes
has been reduced to zero. 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 such Auction Period Distribution Date until the
principal balance of such notes has been reduced to 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
thereof. Principal payments on the Series B-3 Notes will be made on each Monthly
Distribution Date in an amount generally equal to the Series 1998B-3 Holders'
Principal Distribution Amount for such Monthly Distribution Date until the
principal balance of such notes has been reduced to 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 thereafter to
the Series B-3 Notes) until the Parity Percentage equals 101%.
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<PAGE> 106
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" herein.
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, such shortfall will be added to the principal
payable to such holders on subsequent Distribution Dates, as applicable, AND
(EXCEPT WITH RESPECT TO THE LEGAL FINAL MATURITY OF A SERIES OF NOTES) SUCH
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 such Series of notes to zero. See "Security for the Notes
- -- Reserve Fund" herein.
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 such new note. The Principal Factor for the Series A-3 Notes and for
the Series B-3 Notes shall be initially 1.0000000 and will thereafter 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 such note by the Principal Factor applicable to that Series of notes.
The "Series 1998A-3 Holders' Interest Distribution Amount" means, 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 Closing Date) and (ii) the Series 1998A-3 Interest Shortfall for such
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.
The "Series 1998A-3 Interest Shortfall" means, with respect to any Monthly
Distribution Date, the excess of (i) the Series 1998A-3 Holders' Interest
Distribution Amount on the preceding Monthly Distribution Date over (ii) the
amount of interest actually distributed to the holders of Series A-3 Notes on
such preceding Monthly Distribution Date, plus interest on the amount of such
excess interest due to the holders of Series A-3 Notes, to the extent permitted
by law, at the related Series Interest Rate from such preceding Monthly
Distribution Date to the current Monthly Distribution Date.
The "Series 1998A-4 Holders' Interest Distribution Amount" means, 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 Closing Date) and (ii) the Series 1998A-4 Interest
Shortfall for such 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.
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<PAGE> 107
The "Series 1998A-4 Interest Shortfall" means, with respect to any Auction
Period Distribution Date, the excess of (i) the Series 1998A-4 Holders' Interest
Distribution Amount on the preceding Auction Period Distribution Date over (ii)
the amount of interest actually distributed to the holders of Series A-4 Notes
on such preceding Auction Period Distribution Date, plus interest on the amount
of such excess interest due to the holders of Series A-4 Notes, 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.
The "Series 1998A-5 Holders' Interest Distribution Amount" means, 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 Closing Date) and (ii) the Series 1998A-5 Interest
Shortfall for such 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.
The "Series 1998A-5 Interest Shortfall" means, with respect to any Auction
Period Distribution Date, the excess of (i) the Series 1998A-5 Holders' Interest
Distribution Amount on the preceding Auction Period Distribution Date over (ii)
the amount of interest actually distributed to the holders of Series A-5 Notes
on such preceding Auction Period Distribution Date, plus interest on the amount
of such excess interest due to the holders of Series A-5 Notes, 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.
The "Series 1998A-6 Holders' Interest Distribution Amount" means, 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 Closing Date) and (ii) the Series 1998A-6 Interest
Shortfall for such 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.
The "Series 1998A-6 Interest Shortfall" means, with respect to any Auction
Period Distribution Date, the excess of (i) the Series 1998A-6 Holders' Interest
Distribution Amount on the preceding Auction Period Distribution Date over (ii)
the amount of interest actually distributed to the holders of Series A-6 Notes
on such preceding Auction Period Distribution Date, plus interest on the amount
of such excess interest due to the holders of Series A-6 Notes, 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.
The "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 such 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, (i) on the
Legal Final Maturity of the Series A-3 Notes, the principal required to be
distributed to the holders of Series A-3 Notes 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 holders of Series A-4 Notes will include the amount
required to reduce the outstanding principal balance on 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 holders of Series A-5 Notes will include the
amount required to reduce the outstanding principal balance on the Series A-5
Notes to zero, and (iv) on the Legal Final Maturity of the Series A-6 Notes,
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the principal required to be distributed to the holders of Series A-6 Notes will
include the amount required to reduce the outstanding principal balance on the
Series A-6 Notes to zero.
The "Series 1998A Principal Distribution Amount" means (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 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 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, (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 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 paid on the immediately preceding Monthly Distribution
Date on the Series B-3 Notes.
The "Series 1998A Principal Shortfall" means, as of the close of any
Distribution Date for a Series of Series 1998A Notes, the excess of (i) the
Series 1998A Principal Distribution Amount on such Distribution Date over (ii)
the amount of principal actually distributed to the holders of the Series 1998A
Notes on such Distribution Date.
The "Series 1998B-3 Holders' Interest Distribution Amount" means, 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 Closing Date) and (ii) the Series 1998B-3 Interest Shortfall for such
Monthly Distribution Date.
The "Series 1998B-3 Interest Shortfall" means, with respect to any Monthly
Distribution Date, the excess of (i) the Series 1998B-3 Holders' Interest
Distribution Amount on the preceding Monthly Distribution Date over (ii) the
amount of interest actually distributed to the holders of Series B-3 Notes on
such preceding Monthly Distribution Date, plus interest on the amount of such
excess interest due to the holders of Series B-3 Notes, to the extent permitted
by law, at the related Series Interest Rate from such preceding Monthly
Distribution Date to the current Monthly Distribution Date.
The "Series 1998B-3 Holders' Principal Distribution Amount" means, 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 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,
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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.
The "Series 1998B-3 Principal Distribution Amount" means, (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 Holders' Principal Distribution Amount on such Monthly
Distribution Date).
The "Series 1998B-3 Principal Shortfall" means, as of the close of any Monthly
Distribution Date, the excess of (i) the Series 1998B-3 Principal Distribution
Amount on such Monthly Distribution Date over (ii) the amount of principal
actually distributed to the holders of Series B-3 Notes on such Monthly
Distribution Date.
The "Parity Percentage" is the fraction expressed as a percentage, the numerator
of which is the sum of (i) the Pool Balance plus accrued interest thereon due
from borrowers, accrued interest which is expected to be capitalized, and
accrued Interest Subsidy Payments and Special Allowance Payments, if any, as of
the end of the preceding Collection Period, and (ii) all amounts on deposit
(including any accrued interest thereon) in the Collection Fund, the Acquisition
Fund and the Reserve Fund, and the denominator of which is the sum of (a) the
outstanding principal amount of all notes, and accrued and unpaid interest
thereon and (b) accrued and unpaid Program Operating Expenses.
The "Senior Parity Percentage" is the fraction expressed as a percentage, the
numerator of which is the sum of (i) the Pool Balance plus accrued interest
thereon due from borrowers, accrued interest which is expected to be
capitalized, and accrued Interest Subsidy Payments and Special Allowance
Payments, if any, as of the end of the preceding Collection Period, and (ii) all
amounts on deposit (including any accrued interest thereon) in the Collection
Fund, the Acquisition Fund and the Reserve Fund, and the denominator of which is
the sum of (a) the outstanding principal amount of all Series 1998A Notes (after
payment thereon on such Distribution Date), and accrued and unpaid interest
thereon and (b) all accrued and unpaid Program Operating Expenses.
A "Collection Period" is each calendar month. The "Pool Balance" as of the end
of a Collection Period is 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 FFELP Loans, the Secretary of Education and (ii) the
principal portion of all Purchase Amounts received by the Indenture Trustee for
such Collection Period.
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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, their 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 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 such 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 such auction date.
OPTIONAL REDEMPTION
All outstanding Series of notes will be subject to redemption in whole on any
applicable Distribution Date in the event the depositor 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 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 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
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 Auction Period Distribution Date prior
to their Legal Final Maturity at the option of the issuer (including the
designation of which Series to be redeemed) from funds deposited by or on behalf
of the issuer with the Indenture Trustee, upon notice given by the Indenture
Trustee to the holders thereof not less than 15 days prior to the redemption
date in the form and manner described under the heading "-- Notice of
Redemption" herein, at a redemption price of 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 any such redemption the Parity Percentage is no less than
101% and certain 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" herein. In the
event of a redemption in part of a Series, 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 thereof, 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 such Series must be paid on or before the date of optional
redemption of such Series.
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NOTICE OF REDEMPTION
The Indenture Trustee is required to give written notice of redemption of the
notes to the holders not less than 15 days prior to the date on which such notes
are to be redeemed. Each note must be surrendered to the Indenture Trustee in
exchange for payment of the redemption price. In the event the Indenture Trustee
gives notice of redemption as provided above, and upon deposit with the
Indenture Trustee of moneys for payment of the redemption price, including
accrued interest, to the redemption date, the notes so called for redemption
will become due and payable at the redemption price specified in such notice and
interest on such notes with cease to accrue, and interest on any unpaid
Carryover Interest will cease to accrue.
SECURITY FOR THE NOTES
THE TRUST
The notes, together with all Exchange Agreements as may be entered into from
time to time related to such notes, and Carryover Interest, if any, on such
notes are secured by and payable solely from the assets of the trust. The
property in the trust includes: (i) all Available Funds derived from amounts in
the trust, (ii) 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, (iii) 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, (iv) any Spread
Guaranty Agreement, (v) 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 depositor under the warranties
of each Seller, master servicer or Servicer, as the case may be, thereunder, and
(vi) any proceeds thereof. 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, 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 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, to the holders of any Subordinate Notes issued under the
Indenture and the Exchange Counterparties under any related Subordinate Exchange
Agreement. Because the payment obligations of the issuer under any Senior
Exchange Agreements would be on a parity with payment of the Senior Notes, an
Event of Default with respect to such Senior 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.
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, such pledge, lien or
security interest will only be effective to the extent that (i) 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 such assets, (ii) either such filing or
such 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 (iii) either such act of filing or such act of possession, as
applicable, has in fact been taken by the Indenture Trustee.
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In order to create, perfect and maintain a security interest in the assets of
the trust, the Indenture Trustee intends, to the extent possible (i) 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 pursuant to the applicable Uniform Commercial Code, (ii) 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 (iii) to take or cause to be taken any and all other action necessary to
create or perfect such 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
certain circumstances) and interest payments will be subordinated to such rights
of the holders of the Series 1998A Notes and to Exchange Counterparties under
Senior 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" herein.
The rights of the holders of the Series 1998A Notes are on a parity with the
rights of any Exchange Counterparty under any Senior Exchange Agreement. The
rights of the holders of all Series 1998A Notes and Exchange Counterparties
under any Senior 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 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
in an amount 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 such Accounts. The Reserve
Fund will be augmented on each Monthly Distribution Date by deposit therein of
the amount, if any, necessary to cause the balance of such Reserve Fund to equal
the Specified Reserve Fund Balance from the amount of Available Funds remaining
after making all prior distributions on such 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 such
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" herein.
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 certain 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 such
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.
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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.
EXCHANGE AGREEMENTS
Under the Indenture, the issuer has the right to enter into one or more interest
rate exchange agreements (each, an "Exchange Agreement") 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 such Exchange Agreements may be on a parity
with the Series 1998A Notes (a "Senior Exchange Agreement"), or on a parity with
the Series B-3 Notes (a "Subordinate Exchange Agreement"). If the issuer enters
into such an agreement with an Exchange Counterparty, such 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 such notional amount. The issuer expects that any such Exchange Agreement
will provide that the payment obligations of the issuer and an Exchange
Counterparty to each other will be netted on such Distribution Date and only one
payment will be made by one party to the other. Any payment from an Exchange
Counterparty to the Indenture Trustee under the Exchange Agreement will be
deposited to the Collection Account. Payments under such Exchange Agreements may
be on a parity with other Senior Notes issued under the Indenture (a "Senior
Exchange Payment") or on a parity with Subordinate Notes issued under the
Indenture (a "Subordinate Exchange Payment").
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 certain circumstances, the failure by the
issuer to make an issuer Exchange Payment may constitute an Event of Default.
See "Risk Factors" herein. The Indenture requires that prior to the date that
the issuer enters into an Exchange Agreement, the issuer must obtain written
evidence from each Rating Agency then rating any of the notes that the execution
and delivery of the Exchange Agreement will not adversely affect such Rating
Agency's rating on such notes.
THE INDENTURE
The old notes were issued by the depositor pursuant to an indenture dated as of
December 1, 1998 between the depositor and Firstar Bank, N.A. and were
subsequently assigned to and assumed by the issuer. Upon the assignment and
assumption of the old notes, the issuer entered into an amended and restated
indenture of trust, dated as of [_________, 1999], (the "Indenture"), among the
issuer and Firstar Bank, N.A. pursuant to which the new notes will be issued.*
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 certain 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 such
document. Copies of the Indenture may be obtained upon request from the
Indenture Trustee.
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* We expect the assumption by the trust to be completed on or about March 30,
1999.
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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., a national banking association organized under the laws of
the United States , is 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 "Eligible Lender Trust
Agreement"). 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" herein.
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
thereto (indicating, whether such interest rates are based on the
Formula Rate or on the Net Loan Rate with respect to each Series
of notes, and specifying what each such 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, 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;
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(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 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
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 any
Reserve Fund, Acquisition Fund or other account established under
the Indenture, the amount of any other withdrawals from such funds
or accounts for such Monthly Distribution Date, the balance of
such funds or 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 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 such calendar year was a holder and
received any payment thereon, a statement containing certain information for the
purposes of such holder's preparation of federal income tax returns. See
"Federal Income Tax Consequences" herein.
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" herein. Such amount was used to acquire
on or about December 31, 1998, directly or indirectly through the Eligible
Lender Trustee, the Financed Student Loans described under the heading "The
Financed Student Loans" herein. To the extent necessary or appropriate, the
issuer and the Indenture Trustee may establish Accounts within the Acquisition
Fund and subaccounts within such Accounts.
Any portion of the balances of the Acquisition Fund was not used to Finance
Student Loans prior to January 31, 1999 was transferred to the Collection
Account and because such balances so transferred exceeded $1,000,000,
substantially all of such balances were applied to pay principal on the Series
A-4 Notes on the next succeeding Auction Period Distribution Date.
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The moneys to be applied from the Acquisition Fund for the Financing of Student
Loans will be an amount equal to the full remaining unpaid principal amount of
such Student Loans that have been fully disbursed, plus the full remaining
unpaid principal amount of such Student Loans that have not been fully
disbursed, plus 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 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. Upon
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 such 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 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 borrowers in respect thereof, 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 (i) as provided in the applicable Purchase Agreements
with respect to rejections and repurchases thereof, (ii) as provided in the
applicable Servicing Agreements, (iii) as provided for defeasance of the
Indenture, (iv) as required to obtain the benefits of a guarantee in case of
default on such Financed Student Loan, and (v) in connection with the
consolidation of such Financed Student Loan by the borrower. To the extent
necessary or appropriate, the issuer and the Indenture Trustee may establish
Accounts within the Student Loan Portfolio Fund and subaccounts within such
accounts.
The Indenture Trustee shall permit the sale of Financed Student Loans selected
by the issuer only (i) to avoid an Event of Default or, if an Event of Default
has occurred, as may be required or appropriate pursuant to the Indenture, (ii)
in an exchange of Financed Student Loans as described below, (iii) in connection
with a mandatory auction of the Financed Student Loans in the trust as described
under "Redemption" herein and (iv) 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" herein.
The issuer may at any time and from time to time instruct the Indenture Trustee
to exchange Financed Student Loans for other Student Loans having an aggregate
principal amount no less than the aggregate principal amount of the Financed
Student Loans being exchanged, bearing the same or higher rates of interest,
being eligible, after exchange, for the same Special Allowance Payments, and
having the same status, whether interim, grace or payout (provided, however,
that as a result of such exchange the average principal amount of all of the
Financed Student Loans included in the trust shall not be decreased, the average
maturity of all such Financed Student Loans shall not be increased and no
Student Loan shall be
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Financed which is not at the time authorized under the Indenture), 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. In addition to the foregoing in order 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, 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.
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 foregoing 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
In connection with the issuance of the old notes, the Indenture Trustee will
established a "Collection Fund" and the following Accounts were established 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 such Accounts.
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" herein. The issuer will, and will cause each Seller and
Servicer in accordance with the applicable Purchase Agreement or Servicing
Agreement to, transfer all Available Funds received by it to the Indenture
Trustee. The Indenture Trustee will, upon receipt of any Available Funds with
respect to the Financed Student Loans held in the Student Loan Portfolio Fund,
immediately deposit and credit such 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 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 the 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 Students Loans purchased
by the Indenture Trustee during such 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 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 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
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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.
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 pursuant to the provisions of
its respective 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
thereof. See "-- Expense Account" herein.
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:
(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 (A) the Series 1998A-3 Holders'
Interest Distribution Amount for payment on such
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 e 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;
(iii) to the Note Payment Account, an amount up to (A) the Series
1998B-3 Holders' Interest Distribution Amount for payment on
such 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;
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(iv) to the Note Payment Account:
(a) an amount up to the Series 1998A Holders' Principal
Distribution Amount for payment on such Monthly
Distribution Date to the holders of Series A-3 Notes
until the principal balance thereof has been reduced
to zero and an amount up to the Series 1998B-3
Holders' Principal Distribution Amount for payment on
such Monthly Distribution Date to the holders of
Series B-3 Notes, then
(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 thereof has been reduced to zero and an
amount up to the Series 1998B-3 Holders' Principal
Distribution Amount for payment on such 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 thereof has been reduced to zero
and an amount up to the Series 1998B-3 Holders'
Principal Distribution Amount for payment on such
Monthly Distribution Date to the holders of Series
B-3 Notes, and thereafter,
(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 thereof has been reduced to zero and an
amount up to the Series B-3 Holders' Principal
Distribution Amount for payment on such Monthly
Distribution Date to the holders of Series B-3 Notes;
(v) 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 such
Monthly Distribution Date to the holders of Series B-3 Notes;
(vi) to the Reserve Fund, the amount, if any, required to increase
the balance thereof to the Specified Reserve Fund Balance as
described under the heading "-- Reserve Fund" herein;
(vii) 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
such Monthly Distribution Date until the principal
balance thereof has been reduced to 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 thereof 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 to the holders
of Series A-5 Notes on the next succeeding Auction
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Period Distribution Date until the principal balance
thereof 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 to the holders of Series A-6 Notes on the
next succeeding Auction Period Distribution Date
until the principal balance thereof has been reduced
to zero, and thereafter,
(e) once the Series 1998A Notes are no longer
outstanding, for payment to the holders of Series B-3
Notes on such Monthly Distribution Date until the
principal balance thereof has been reduced to zero;
(viii) 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 such Monthly Distribution Date, and upon 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
upon 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
upon payment of all Carryover Interest due to the
holders of Series A-5 Notes, and thereafter,
(d) to the holders of Series A-6 Notes for payment on the
next succeeding Auction Period Distribution Date;
(ix) to the Note Payment Account, an amount up to the amount, if
any, owed an Exchange Counterparty in respect of an early
termination payment or damages for early termination 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 following 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 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 such 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 pursuant to clauses (iii) and (iv) above and no
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Subordinate issuer Exchange Payments will be made. For so long as any Series
1998A Notes remain outstanding, such 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" herein.
Notwithstanding the foregoing, 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 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 on the
applicable Series of Auction Rate Notes 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 Business Days prior to the related 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 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 given by the Indenture Trustee by first-class mail, postage prepaid, mailed
not less than five Business Days but no more than ten Business Days before the
applicable Auction Period Distribution Date at the address of the applicable
holder 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 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" herein.
Expense Account. A portion of the proceeds from the offering of the old notes
was deposited into the Expense Account. See "Use of Proceeds" herein. 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" herein. 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 thereof.
The "Program Expense Requirement" means, 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 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.
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For purposes hereof, "Program Operating Expenses" means 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,
the Broker-Dealers, market agent or other agent in connection with the notes or
under the Indenture, (iii) 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, (iv) 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
(v) 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 (iv) 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 such Distribution Date
will be deposited to the credit of the Excess Surplus Account. Amounts on
deposit in the Excess Surplus Account may be withdrawn by the issuer at any time
upon written request to the Indenture Trustee to be used for any lawful purpose;
provided that after such withdrawal the Parity Percentage is at least 103%. Any
Available Funds distributed to the issuer from the Excess Surplus Account will
not thereafter be available to make payments on the notes. Until withdrawal by
the issuer, amounts on deposit in the Excess Surplus Account will be available
for transfer by the Indenture Trustee to the Reserve Fund if, 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" herein. 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 such Distribution Date after giving effect to payments on such
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 such Monthly Distribution Date as described
under "-- Collection Fund" herein, and
second, from the Excess Surplus Account.
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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 such order of priority from the Collection
Account as they become available and in accordance with the instructions for
transfers from such Account as described under the heading "-- Collection Fund"
herein 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 such Financed Student Loan
will be deposited into the Reserve Fund.
Any excess over the related Specified Reserve Fund Balance in the Reserve Fund
will be transferred to the Collection Account. After the transfer of any such
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 such Account pursuant to
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 such interest or
Subordinate Issuer Exchange Payment is deferred as described
under the heading "-- Collection Fund" herein) on any
Distribution Date or on any other date on which interest is
due upon 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" herein), 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 the Legal Final Maturity thereof or for the payment of the
principal of such Series being redeemed in whole as described
under the heading "Redemption" herein, by transfer and deposit
by the Indenture Trustee to the credit of the Note Payment
Account on the Legal Final Maturity of such Series or the date
of any such 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 such amount would be required to be distributed as a
payment of interest, the issuer may, no later than the third Business Day before
such Distribution Date, deposit into the Note Payment Account an amount up to
the amount of such payments applied for but not received (such deposits by the
issuer are referred to herein as "Advances"). Such Advances are recoverable by
the issuer, (i) first, from the source for which such Advance was made and (ii)
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. The issuer will have no
obligation, legal or otherwise, to make any Advance, and a determination by the
issuer to make an Advance will not create any obligation of the issuer, legal or
otherwise, to make any future Advances.
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INVESTMENT
Pending application of moneys in the Funds and Accounts in accordance with the
Indenture, such 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
- 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 (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
(i) which are rated, based on an irrevocable escrow
account or fund (the "escrow"), in the highest rating
category of each Rating Agency; or
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(ii) (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 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 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 such moneys will be required by the
Indenture Trustee for the purposes intended. Any earnings on or income from such
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 pursuant to the Indenture (the "Program") in
accordance with 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 such calendar quarter
except on certain conditions described in the related Indenture. If the issuer
fails to file a report for any calendar year, the report filed for the preceding
calendar year will apply.
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EVENTS OF DEFAULT
Under the Indenture, the following constitute an Event of Default:
1. Failure in the due and punctual payment of:
(i) principal or interest on any note issued under the
Indenture when due, either at Legal Final 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 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 such date,
and
(c) 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
(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 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 such Series B-3 Notes on such
date, and
(c) 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 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 outstanding notes;
3. Certain events of bankruptcy, insolvency, receivership or
liquidation of the issuer; and
4. The entry of a final judgment against the issuer 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 or decree upon which such judgment was granted or
entered in such manner as to conclusively set aside the
execution under such judgment or order or the enforcement
thereof, if such judgment constitutes or could result in:
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(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 upon written direction by the holders
of at least a majority of the aggregate principal amount of the outstanding
Directing Notes, the Indenture Trustee must declare all outstanding notes to be
immediately due and payable, by written notice to the issuer.
If an Event of Default described in clause (2) above should occur and be
continuing, the Indenture Trustee may, and upon 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 such
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 upon 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 such 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 such
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 such payment:
(i) all overdue installments of interest upon:
(a) the Series 1998A Notes if Series 1998A Notes are
outstanding, or
(b) the Series B-3 Notes if no Series 1998A Notes are
outstanding, and
(ii) 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
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interest accrued since the next preceding Distribution Date
on the notes due and payable solely by virtue of such
declaration),
then, the holders of at least a majority of the aggregate principal amount of
the outstanding Directing Notes, by written notice to the issuer and to the
Indenture Trustee, may rescind such declaration and annul such 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 such
declaration and any such default by written notice to the issuer. No such
rescission and annulment will extend to or affect any subsequent Event of
Default or impair or exhaust any right or power with respect thereto.
Upon any declaration of acceleration of the notes, the Indenture Trustee will
give notice of such 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 such notes from and after the date
set forth in such notice (which will be not more than five days from the date of
such declaration).
Prior to a declaration accelerating the maturity of the notes as provided above,
the holders of at least two-thirds in aggregate principal amount of the
outstanding Directing Notes and each Exchange Counterparty that is not in
default or their attorneys-in-fact duly authorized may on behalf of the holders
of all notes issued under the Indenture and each Exchange Counterparty waive any
past failure under such 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 (i) an Event of Default has occurred and is continuing, and (ii) at any time
the moneys held by the Indenture Trustee is insufficient for the payment of
principal and interest then due on the notes or for the payment of any Issuer
Exchange Payment, then such 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
thereafter 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 such Series 1998A Notes, and to all Senior Issuer
Exchange Payments then due, in the order that such installments
and/or Senior Issuer Exchange Payments will have become due, and,
if the amounts available are not sufficient to pay in full all
such installments and Senior issuer Exchange Payments coming due
on the same date, then to the payment thereof ratably to the
parties entitled thereto 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 such payment, such
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payments to be made ratably to the parties entitled thereto
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 such Series B-3 Notes, and to all Subordinate
Issuer Exchange Payments then due, in the order that such
installments and/or Subordinate Issuer Exchange Payments will have
become due, and, if the amounts available are not sufficient to
pay in full all such installments of interest and Subordinate
Issuer Exchange Payments coming due on the same date, then to the
payment thereof ratably to the parties entitled thereto 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 such payment, such payments to be made
ratably to the parties entitled thereto 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, such payments to be made ratably to the parties
entitled thereto without discrimination or preference;
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, such payments to be made ratably to the parties
entitled thereto without discrimination or preference; and
Third, to the payment of all Carryover Interest due and unpaid on
the Series 1998A Notes, such payments to be made ratably to the
parties entitled thereto 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 thereto and the right of redemption thereof, at any
such place or places, and at such time or times and upon such notice and terms
as may be required by law. 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 parties 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. 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 such purchaser or purchasers all such
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 such 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 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 such
capacities by its agents and attorneys, is entitled and empowered to institute
such
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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 such 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 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 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 upon being
furnished with reasonable security and indemnity, will take such steps and
institute such 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 (i) such holder or Exchange
Counterparty previously shall have given to the Indenture Trustee written notice
of a continuing Event of Default, (ii) with respect to any Exchange
Counterparty, such Exchange Counterparty is not in default of its obligations
under its Exchange Agreement, all obligations of all of the parties to such
agreement have not been satisfied, and such agreement has not been terminated,
(iii) 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 such proceeding in its own name as Indenture Trustee, (iv)
such holder or holders have offered the Indenture Trustee reasonable indemnity,
(v) the Indenture Trustee has for a period of 30 days after notice failed to
institute such proceeding, and (vi) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 30-day period by the
holders of a majority in aggregate principal amount of the outstanding Directing
Notes.
Remedies Not Exclusive
The remedies conferred upon 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 such 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 (15) 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 such
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
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manifest error contained in the Indenture or to insert in the Indenture
such 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 upon 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 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 any Exchange Counterparty any
additional rights, duties, remedies, powers or authority;
(6) To make such 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 such Supplemental
Indenture, not to be contrary to the terms of the Higher Education Act;
(7) To make such 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 indenture
supplemental thereto in such manner as to permit the qualification thereof
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 indenture supplemental thereto
such 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 certain funds to other indentures, and for the pledge of certain
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 (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 the Indenture, including the
lien and security interest granted therein, applicable to an Exchange
Agreement;
(12) To make such 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;
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(14) To add any additional Eligible Lender Trustee or replace any
existing Eligible Lender Trustee;
(15) To modify, amend or supplement the Indenture or any supplemental
indenture thereto in such manner as to permit the registration of the
notes with the SEC under the Securities Act; and
(16) 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.
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 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 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, the
Indenture, or modifying or amending the rights and obligations of the issuer, or
modifying or amending in any manner the rights of an Exchange Counterparty or
the holders of outstanding notes; provided, however, that, without the specific
consent of the holder of each such note which would be affected thereby, no
Supplemental Indenture amending or supplementing the provisions of such
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 thereon, or reduce the
principal amount of any note or, except on an Interest Determination Date,
the interest rate thereon;
(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 such 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 (i) or (ii) below shall have occurred; (b) any Program
Operating Expenses, when item (iii) shall have occurred; (c) any related
Exchange Agreement, when item (iv) shall have occurred; (d) Carryover Interest,
when item (v) below shall have occurred, and such note, Program Operating
Expense, Exchange Agreement, or Carryover Interest will no longer be deemed to
be outstanding thereunder
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(provided, however, that the Indenture shall not deemed to be defeased unless
and until all of the following shall have occurred):
(i) when such note has been canceled;
(ii) as to any such 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) has been made or caused to be made in accordance with
the terms thereof, 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 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, should the issuer be a debtor
under such Code, (accompanied by an opinion of
counsel experienced in bankruptcy matters to that
effect) of:
(1) moneys sufficient to make such payment,
and/or
(2) Eligible Investments (which for this purpose
shall include only those obligations which
are described in item (a) of the definition
thereof 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 in
writing by a firm of independent certified
public accountants;
(iii) 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 thereof provided for to the satisfaction of the
Indenture Trustee;
(iv) in the case of payment of any Issuer Exchange Payment 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 the Indenture
Trustee, or
(b) all amounts held in the related Funds and Accounts
under the Indenture which are available pursuant to
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.
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NONPRESENTMENT
If any note is not presented for payment when the principal thereof becomes due,
whether at maturity or at the date fixed for the redemption thereof, or
otherwise, and if moneys and/or Eligible Investments are held at such due date
by the Indenture Trustee, in trust for that purpose sufficient and available to
pay the principal of such note, together with all interest due on such principal
to the due date thereof (including any Carryover Interest), or to the date fixed
for redemption thereof, as the case may be, all liability of the issuer for such
payment will cease and be completely discharged. Thereafter, it will be the duty
of the Indenture Trustee to hold such 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 will be restricted
exclusively to such moneys and/or Eligible Investments for any claim of whatever
nature on its part on or with respect to such 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 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)
will be paid to the issuer free from the trusts created by the Indenture, and
all liabilities of the Indenture Trustee with respect to such moneys and/or
Eligible Investments will cease. In such event, the holders will thereafter be
deemed to be general unsecured creditors of the issuer for the amounts so paid
to the issuer (without interest thereon), subject to any applicable statute of
limitation.
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 upon affirmative vote of the holders of a majority in
aggregate principal amount of the outstanding Directing Notes under the
Indenture or their attorneys-in-fact duly authorized.
In case at any time any of the following occurs:
(1) the Indenture Trustee has or shall fail to comply with certain
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 such Series who has
been a bona fide holder of a note of such Series for at least
6 months,
(2) the Indenture Trustee ceases to be eligible in accordance with
the provisions of the Indenture and thereafter fails to resign
after written request therefor has been given to such
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 certain 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. Such court
may thereupon, after such 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 and all holders.
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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 such
holders or their attorneys-in-fact duly authorized; provided, however, that in
case at any time there will be a vacancy in the office of the Indenture Trustee,
the issuer, by an instrument in writing, will appoint a successor to fill such
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 of material federal income tax consequences of
exchange of the old notes for the new notes and the purchase, ownership and
disposition of the new notes. Thompson Hine & Flory LLP has reviewed this
summary with respect to federal income tax matters and 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 likely to be material to holders. The
discussion is based upon the provisions of the Code, 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 IRS may disagree with certain
aspects of the discussion below. The statutory provisions, regulations, and
interpretations on which this discussion is based are subject to change, and
such a change could apply retroactively. No ruling on any of the issues
discussed below will be sought from the IRS.
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 certain 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 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 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
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it is actually received. The Indenture Trustee will report annually to the IRS
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.
The Series B-3 Notes are subordinated to the Series 1998A Notes. Such
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" herein and "Summary of Terms -- ERISA
Considerations" herein.
EXCHANGE OFFER
In the opinion of Thompson Hine & Flory LLP, the exchange of an old note for a
new note pursuant to 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 pursuant to the exchange offer. Each such
holder will have the same adjusted tax basis and holding period in the new note
as such holder had in the old note immediately before the exchange.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based upon 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 upon which the above
opinion is based are: (1) the pertinent provisions of the 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. Such opinion will not be binding on the courts or the IRS.
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.
Contrary to the opinion of Thompson Hine & Flory LLP, the IRS 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
IRS 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 upon a representation of both the trust and the depositor that for
1999 and for any subsequent taxable year 90% or more of the gross income of the
depositor, and the trust if treated as a separate entity, will be interest
income attributable to Financed Student Loans acquired by either the depositor
or the trust and not attributable to Financed Student Loans originated by either
the depositor or the trust or an affiliate of either of them, although the trust
might be treated as a publicly traded partnership, it would not be taxable as a
corporation. Nonetheless, treatment of the new notes as equity interests in such
a publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain 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 certain limitations on
their ability to deduct their share of trust expenses. Furthermore, such a
characterization could subject holders to state and local taxation in
jurisdictions in which they are not currently subject to tax.
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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 IRS 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 upon a representation of both the
trust and the depositor that for 1999 and for any subsequent taxable year 90% or
more of the gross income of the depositor, and the trust if treated as a
separate entity, will be interest income attributable to Financed Student Loans
acquired by either the depositor or the trust and not attributable to Financed
Student Loans originated by either the depositor or the trust or an affiliate of
either of them, 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.
The IRS, however, might assert that one or more of the activities of the trust
constitutes a financial business such that the qualifying income tests are not
met. If such 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
such holders would be treated as dividends for tax purposes to the extent of
such publicly traded partnership's or corporation's earnings and profits.
ORIGINAL ISSUE DISCOUNT
Notes issued at a price less than their stated principal amount ("Discount
Notes") and certain other Series of notes will be issued with "original issue
discount" within the meaning of Section 1273(a) of the Code. Such original issue
discount will equal the difference between the "stated redemption price at
maturity" of the Note (generally, its principal amount) and its issue price.
Original issue discount is treated as ordinary interest income, and holders of
notes with original issue discount must include the amount of original issue
discount in income on an accrual basis in advance of the receipt of the cash to
which it relates.
The amount of original issue discount required to be included in a holder's
income in any taxable year will be computed in accordance with Section
1272(a)(6) of the Code, which provides rules for the accrual of original issue
discount for certain 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 Treasury 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 (the "Tax Administrator"), except as otherwise
provided herein, expects to base its computations on Code Section 1272(a)(6) and
final regulations governing the accrual of original issue discount on debt
instruments (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
(i) a single constant yield to maturity and (ii) the prepayment rate of the
Financed Student Loans and the reinvestment rate on amounts held pending
distribution that were assumed in pricing the note (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 Code
Section 1272(a)(6), and, accordingly, there can be no assurance that such
methodology, which is described below, represents the correct manner of
calculating original issue
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discount on the notes. The Tax Administrator intends to account for income on
certain notes that provide for one or more contingent payments as described in
"-- Variable Rate Notes" herein.
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" ("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 (i) a single fixed
rate or (ii) a variable rate that meets certain requirements set out in the OID
Regulations. See "-- Variable Rate Notes" herein. Thus, in the case of any note
providing for such 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 tranche of notes generally will equal the
initial price at which such tranche is sold to the public.
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 ("WAM") of the note. No Treasury Regulations have been issued with
respect to computing the WAM of instruments like a note. The Tax Administrator
will compute the WAM 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, upon disposition of the note, unless the holder
makes an "All OID Election" (as defined below).
Notes of certain Series may bear interest under terms that provide for a teaser
rate period, interest holiday, or other period during which the rate of interest
payable on the notes is lower than the rate payable during the remainder of the
life of the notes ("Teaser Notes"). The OID Regulations provide a more expansive
test under which a Teaser Note may be considered to have a de minimis amount of
original issue discount even though the amount of the original issue discount on
the note would be more than de minimis as determined under the regular test. The
expanded test applies to a Teaser Note only if the stated interest on such note
would be qualified stated interest but for the fact that during one or more
accrual periods its interest rate is below the rate applicable for the remainder
of its term. Under the expanded test, the amount of original issue discount on a
Teaser Note that is measured against the de minimis amount of original issue
discount allowable on the mote is the greater of (i) the excess of the stated
principal amount of the mote over its issue price ("True Discount") and (ii) the
amount of additional stated interest that would be necessary to be payable on
the note in order for all stated interest to be qualified stated interest (the
"Additional Interest Amount").
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 such 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 (i) the
sum of (a) the present value of all payments under the note yet to be received
as of the close of such period and (b) the amount of any Deemed Principal
Payments received on the note during such period over (ii) the note `s "adjusted
issue price" at the beginning of such period. The present value of payments yet
to be received on a note will be computed by using the Pricing Prepayment
Assumptions and the note's original yield to maturity (adjusted to take into
account the length of the particular accrual period), and taking into account
Deemed Principal Payments actually received on the note prior to the close of
the accrual period. The adjusted issue price of a note at the beginning of the
first accrual period is its issue price. The adjusted issue price at the
beginning of each subsequent period is the adjusted issue price of the note at
the beginning of the
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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 such note.
The yield to maturity of a note will be calculated based on (i) the Pricing
Prepayment Assumptions and (ii) 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.
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 such
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 such 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 IRS will agree with the Tax Administrator's position.
The OID Regulations provide that a holder may make an election (an "All OID
Election") to include in gross income all stated interest, acquisition discount,
original issue discount, de minimis original issue discount, market discount
(see "-- Market Discount" herein), de minimis market discount that accrues on
the note, and unstated interest (as reduced by any amortizable premium, see
"Amortizable Premium" herein or acquisition premium, as described below) under
the constant yield method used to account for original issue discount. To make
an All OID 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 All OID Election is irrevocable unless the holder obtains
the consent of the IRS. If an All OID 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" herein. In addition,
if an All OID 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" herein. Holders should be aware that
the law is unclear as to whether an All OID Election is effective for a note
that is subject to the contingent payment rules. See "-- Variable Rate Notes"
herein.
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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 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" herein. 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 an All
OID 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.
VARIABLE RATE NOTES
A note may pay interest at a variable rate (a "Variable Rate Note"). A Variable
Rate Note that qualifies as a "variable rate debt instrument" as that term is
defined in the OID Regulations (a "VRDI") will be governed by the rules
applicable to VRDIs in the OID Regulations, which are described below. A
Variable Rate Note qualifies as a VRDI under the OID Regulations if (i) the note
is not issued at a premium to its noncontingent principal amount in excess of
the lesser of (a) .015 multiplied by the product of such noncontingent principal
amount and the WAM (as that term is defined above in the discussion of the de
minimis rule) of the note or (b) 15 percent of such noncontingent principal
amount (an "Excess Premium"); (ii) stated interest on the note compounds or is
payable unconditionally at least annually at (a) one or more qualified floating
rates, (b) a single fixed rate and one or more qualified floating rates, (c) a
single "objective rate," or (d) a single fixed rate and a single objective rate
that is a "qualified inverse floating rate," and (iii) the qualified floating
rate or the objective rate in effect during an accrual period is set at a
current value of that rate (i.e., the value of the rate on any day occurring
during the interval that begins three months prior to the first day on which
that value is in effect under the note and ends one year following that day).
However, if the Variable Rate Note provides for any contingent payments (which
do not include qualified stated interest), the Tax Administrator intends to
account for the income thereon as described below.
Under the OID Regulations, a rate is a qualified floating rate if variations in
the value of the rate reasonably can be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the debt
instrument is denominated. A qualified floating rate may measure contemporaneous
variations in borrowing costs for the issuer of the debt instrument or for
Depositors in general. A multiple of a qualified floating rate is considered a
qualified floating rate only if the rate is equal to either (a) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. If a note provides for two or more qualified floating
rates that reasonably can be expected to have approximately the same values
throughout the term of the note, the qualified floating rates together will
constitute a single qualified floating rate. Two or more qualified floating
rates conclusively will be presumed to have approximately the same values
throughout the term of a note, if the values of all such rates on the issue date
of the note are within 25 basis points of each other.
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A variable rate will be considered a qualified floating rate if it is subject to
a restriction or restrictions on the maximum stated interest rate (a "Cap"), a
restriction or restrictions on the minimum stated interest rate (a "Floor"), a
restriction or restrictions on the amount of increase or decrease in the stated
interest rate (a "Governor"), or other similar restriction only if (a) the Cap,
Floor, or Governor is fixed throughout the term of the related note or (b) the
Cap, Floor, Governor, or similar restriction is not reasonably expected, as of
the issue date, to cause the yield on the note to be significantly less or
significantly more than the expected yield on the note determined without such
Cap, Floor, Governor, or similar restriction, as the case may be.
Under the OID Regulations, an objective rate is a rate (other than a qualified
floating rate) that (i) is determined using a single fixed formula, (ii) is
based on objective financial or economic information, and (iii) is not based on
information that either is within the control of the issuer (or a related party)
or is unique to the circumstances of the issuer (or related party), such as
dividends, profits, or the value of the issuer's (or related party's) stock.
That definition would include a rate that is based on changes in a general
inflation index. In addition, a rate would not fail to be an objective rate
merely because it is based on the credit quality of the issuer.
Under the OID Regulations if interest on a Variable Rate Note is stated at a
fixed rate for an initial period of less than one year followed by a variable
rate that is either a qualified floating rate or an objective rate for a
subsequent period, and the value of the variable rate on the issue date is
intended to approximate the fixed rate, the fixed rate and the variable rate
together constitute a single qualified floating rate or objective rate. A fixed
rate and a variable rate conclusively will be presumed to approximate an initial
fixed rate if the value of the variable rate on the issue date does not differ
from the value of the fixed rate by more than 25 basis points.
Under the OID Regulations, all interest payable on a Variable Rate Note that
qualifies as a VRDI and provides for stated interest unconditionally payable in
cash or property at least annually at a single qualified floating rate or a
single objective rate (a "Single Rate VRDI Note") is treated as qualified stated
interest. The amount and accrual of OID on a Single Rate VRDI Note is
determined, in general, by converting such note into a hypothetical fixed rate
note and applying the rules applicable to fixed rate notes described under
"Original Issue Discount" above to such hypothetical fixed rate note. Qualified
stated interest or original issue discount allocable to an accrual period with
respect to a Single Rate VRDI Note also must be increased (or decreased) if the
interest actually accrued or paid during such accrual period exceeds (or is less
than) the interest assumed to be accrued or paid during such accrual period
under the related hypothetical fixed rate note.
Except as provided below, the amount and accrual of OID on a Variable Rate Note
that qualifies as a VRDI but is not a Single Rate VRDI Note (a "Multiple Rate
VRDI Note") is determined by converting such note into a hypothetical equivalent
fixed rate note that has terms that are identical to those provided under the
Multiple Rate VRDI Note, except that such hypothetical equivalent fixed rate
note will provide for fixed rate substitutes in lieu of the qualified floating
rates or objective rates provided for under the Multiple Rate VRDI Note. A
Multiple Rate VRDI Note that provides for a qualified floating rate or rates or
a qualified inverse floating rate is converted to a hypothetical equivalent
fixed rate note by assuming that each qualified floating rate or the qualified
inverse floating rate will remain at its value as of the issue date. A Multiple
Rate VRDI Note that provides for an objective rate or rates is converted to a
hypothetical equivalent fixed rate note by assuming that each objective rate
will equal a fixed rate that reflects the yield that reasonably is expected for
the Multiple Rate VRDI Note. Qualified stated interest or original issue
discount allocable to an accrual period with respect to a Multiple Rate VRDI
Note must be increased (or decreased) if the interest actually accrued or paid
during such accrual period exceeds (or
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is less than) the interest assumed to be accrued or paid during such accrual
period under the hypothetical equivalent fixed rate note.
Under the OID Regulations, the amount and accrual of OID on a Multiple Rate VRDI
Note that provides for stated interest at either one or more qualified floating
rates or at a qualified inverse floating rate and in addition provides for
stated interest at a single fixed rate (other than an initial fixed rate that is
intended to approximate the subsequent variable rate) is determined using the
method described above for all other Multiple Rate VRDI Notes except that prior
to its conversion to a hypothetical equivalent fixed rate Note, such Multiple
Rate VRDI Note is treated as if it provided for a qualified floating rate (or a
qualified inverse floating rate), rather than the fixed rate. The qualified
floating rate (or qualified inverse floating rate) replacing the fixed rate must
be such that the fair market value of the Multiple Rate VRDI Note as of its
issue date would be approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the qualified floating
rate (or qualified inverse floating rate), rather than the fixed rate.
ANTI-ABUSE RULE
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, the Treasury issued
regulations containing an anti-abuse rule. 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 IRS can apply or depart from the OID Regulations as
necessary or appropriate to achieve a reasonable result. A result is not
considered unreasonable under 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 such 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 such market discount is de
minimis, i.e., less than the product of (i) 0.25% of the remaining principal
amount (or, in the case of a note having original issue discount, the adjusted
issue price of such note), multiplied by (ii) the WAM 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, in an amount equal to the lesser of (i) the amount of the
principal payment received or (ii) the amount of market discount that has
"accrued" (as described below), but that has not yet been included in income.
The purchaser 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
thereafter, to recognize market discount currently on an uncapped accrual basis
(the "Current Recognition Election"). In addition, the purchaser may make an All
OID Election with respect to a note purchased with market discount. See
"-- Original Issue Discount" herein.
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Until the Treasury promulgates applicable regulations, the purchaser of a note
with market discount may elect to accrue the market discount either: (i) on the
basis of a constant interest rate; (ii) 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
such period; or (iii) 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 such period.
Regardless of which computation method is elected, the Pricing Prepayment
Assumptions must be used to calculate the accrual of market discount.
A holder who has acquired any note with market discount generally will be
required to treat a portion of any gain on a sale or exchange of the note as
ordinary income to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued market discount
previously reported as ordinary income as partial principal payments were
received. Moreover, such 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 such 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 a Current
Recognition Election or an All OID Election, the interest deferral rule will not
apply. Under the Contingent Payment Regulations, a secondary market purchaser of
a Contingent Payment Obligation at a discount generally would continue to accrue
interest and determine adjustments on such note based on the original projected
payment schedule devised by the issuer of such note. See "-- Original Issue
Discount" herein. The holder of such a note would be required, however, to
allocate the difference between the adjusted issue price of the note and its
basis in the note as positive adjustments to the accruals or projected payments
on the note over the remaining term of the note in a manner that is reasonable
(e.g., based on a constant yield to maturity).
Treasury regulations implementing the market discount rules have not yet been
issued, and uncertainty exists with respect to many aspects of those rules. For
example, the treatment of a note subject to redemption at the option of the
issuer that is acquired at a market discount is unclear. It appears likely,
however, that the market discount rules applicable in such a 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.
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 (i) the original yield-to-maturity of the debt instrument plus 5
percentage points, or (ii) the applicable federal rate at the time the taxpayer
acquired the debt instrument plus 5 percentage points. This proposal would be
effective for debt instruments acquired on or after the date of enactment.
AMORTIZABLE PREMIUM
A purchaser of a note who purchases the note at a premium over the total of its
Deemed Principal Payments may elect to amortize such 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,
such Treasury Regulations generally provide that in the case of notes subject to
optional redemption, the holder is deemed to exercise or not exercise such
option in the manner that maximizes the holder's yield on the note and the
issuer is deemed to
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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. Such 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, such Treasury Regulations would apply to all of
the holder's notes held on or after the first day of that taxable year.
Under the Contingent Payment Regulations, a secondary market purchaser of a
Contingent Payment Obligation at a premium generally would continue to accrue
interest and determine adjustments on such note based on the original projected
payment schedule devised by the issuer of such note. See "-- Original Issue
Discount" herein. The holder of such a note would allocate the difference
between its basis in the note and the adjusted issue price of the note as
negative adjustments to the accruals or projected payments on the note over the
remaining term of the note in a manner that is reasonable (e.g., based on a
constant yield to maturity).
GAIN OR LOSS ON DISPOSITION
If a note is sold, the holder will recognize gain or loss equal to the
difference between the amount realized on the sale and his adjusted basis in the
note. The adjusted basis of a note will equal the cost of the note to the
holder, increased by any original issue discount or market discount previously
includable in the holder's gross income with respect to the note and reduced by
the portion of the basis of the note allocable to payments on the note (other
than qualified stated interest) previously received by the holder and by any
amortized premium. Similarly, a holder who receives a scheduled or prepaid
principal payment with respect to a note will recognize gain or loss equal to
the difference between the amount of the payment and the allocable portion of
his adjusted basis in the note. Except to the extent that the market discount
rules apply and except as provided below, any gain or loss on the sale or other
disposition of a note generally will be capital gain or loss. Such 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.
If the holder of a note is a bank, thrift, or similar institution described in
Section 582 of the 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 such note is held as part of a "conversion
transaction" within the meaning of Section 1258 of the 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 such 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 IRS) 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.
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 certain limitations.
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MISCELLANEOUS TAX ASPECTS
Backup Withholding. A note may, under certain 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 (i) fails to
furnish the Indenture Trustee with its taxpayer identification number ("TIN");
(ii) furnishes the Indenture Trustee or the issuer an incorrect TIN; (iii) fails
to report properly interest, dividends or other "reportable payments" as defined
in the Code; or (iv) under certain circumstances, fails to provide the Indenture
Trustee or the issuer or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN is its correct number
and that the holder is not subject to backup withholding. Backup withholding
will not apply, however, with respect to certain payments made to holders,
including payments to certain exempt recipients (such as exempt organizations)
and to certain Nonresidents (as defined below) 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 IRS each calendar
year the amount of any "reportable payments" during such 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 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
certain foreign estates and trusts ("Nonresidents") or holders holding on behalf
of a Nonresident generally will be treated as "portfolio interest" and therefore
will not be subject to any United States tax provided that (i) such interest is
not effectively connected with a trade or business in the United States of the
holder and (ii) the issuer (or other person who would otherwise be required to
withhold tax from such payments) is provided with an appropriate statement that
the beneficial owner of a note is a Nonresident. Interest (including original
issue discount) paid on notes to holders who are foreign persons will not be
subject to withholding if such 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.
On October 6, 1997, Treasury Regulations (the "New Withholding Tax Regulations")
were issued which alter the rules described above in certain respects. The New
Withholding Tax 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 such payments are made. It is suggested that prospective
investors consult their tax advisors concerning the requirements imposed by the
New Withholding Tax Regulations and their effect on the holding of the notes.
Due to the complexity of the Federal Income Tax Rules applicable to holders and
the considerable uncertainty that exists with respect to many aspects of those
rules, it is suggested that potential investors consult their own tax advisors
regarding the tax treatment of the acquisition, ownership, and disposition of
the notes.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal Income
Tax Consequences," potential investors should consider the state income tax
consequences of the acquisition, ownership, and disposition of the notes. State
income tax law may differ substantially from the corresponding federal
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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 certain other retirement plans and
arrangements that are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or corresponding provisions of the Code, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds in which such plans, accounts, annuities or arrangements are
invested (any of the foregoing, a "Plan"), persons acting on behalf of a Plan,
or persons using the assets of a Plan ("Plan Investors"), 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 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 (the "Plan Asset Regulations"). Prospective investors should be aware
that, although certain exceptions from the application of the prohibited
transaction rules and the Plan Asset Regulations exist, there can be no
assurance that any such 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 such Plan. However,
one or more exemptions may be available with respect to certain prohibited
transaction rules of ERISA and might apply in connection with the initial
purchase, holding and resale of the notes, depending in part upon the type of
Plan fiduciary making the decision to acquire notes and the circumstances under
which such 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 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
Certain legal matters relating to the issuer, the depositor, the notes and
federal income tax matters will be passed upon by Thompson Hine & Flory LLP.
Certain legal matters relating to the notes will be passed upon for the issuer
by Calfee, Halter & Griswold LLP. Certain legal matters will be passed upon for
the Dealer Manager by Squire, Sanders & Dempsey L.L.P. Each of these firms has
performed legal services for the depositor in the past, and it is expected that
they will continue to perform such services in the future.
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RATING
Each Series of Series 1998A Notes has been rated "Aaa" by Moody's and "AAA" by
Fitch. The Series B-3 Notes have been rated at least "A2" by Moody's and at
least "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 pursuant to 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 such rating agencies certain
information and materials, some of which have not been included in this
Prospectus. Generally, a rating agency bases its rating on such information and
materials and investigations, studies and assumptions furnished to and obtained
and made by the rating agency. There is no assurance that any such 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 such
rating should be evaluated independently. Each rating is subject to change or
withdrawal at any time and any such 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 such 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 such
holder which is our "affiliate" within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act. However, this applies only if the new notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of such
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) for support of this belief.
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 such
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 such 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 one year 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 such 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 such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any
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such 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 such broker-dealer and/or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
underwriter within the meaning of the Securities Act, and any profit on any such
resale of new notes and any commissions or concessions received by any such
persons may be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus meeting the requirements of the Securities Act, a broker-dealer
will not be admitting that it is an underwriter within the meaning of the
Securities Act.
For a period of one year 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 such 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
certain liabilities, including certain liabilities under the Securities Act.
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APPENDIX A
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
Prospectus.
"Account" means any of the accounts established and maintained by the
Indenture Trustee under the Indenture.
"Acquisition Fund" means the Fund established under the Indenture which
enabled the depositor to Finance Student Loans with the proceeds of the old
notes.
"Administration Agreement" means the agreement between the
administrator and the Co-owner Trustee, on behalf of the issuer, providing for,
among other things, the administration of the Indenture on behalf of the issuer.
"administrator" means one who performs certain administrative duties
for the issuer under the Administration Agreement.
"Advances" means deposits to the trust made by the depositor with
respect to anticipated future collections on the Financed Student Loans.
"adversely affect" means, when used with respect to any rating on any
Series of notes, to cause the reduction or withdrawal of such rating.
"All Hold Rate" means 85% of the Applicable LIBOR Rate.
"Applicable LIBOR Rate" means, (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 "One-Month LIBOR," "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 one month, three months, six months or one year, respectively.
"Auction" means the implementation of the Auction Procedures on an
Interest Determination Date.
"Auction Agent" means 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" means with respect to the Auction Rate Notes,
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" means 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 the Indenture.
"Auction Period Adjustment" means with respect to any 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
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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 any
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 Conversion" means with respect to any 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) 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" means the date on which an Auction
Period Conversion is effective which shall be an Auction Period Distribution
Date with respect to the related Series of Auction Rate Notes.
"Auction Period Distribution Date" means, with respect to any Series of
Auction Rate Notes, the Business Day immediately following the expiration of
each 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" means the auction procedures that will be used in
determining the interest rates on the Auction Rate Notes, as set forth in the
Indenture and as summarized in Appendix C hereto.
"Auction Rate" means the interest rate that results from the
implementation of the Auction Procedures.
"Auction Rate holders" means the holders of Auction Rate Notes.
"Auction Rate Notes" means the Series A-4 Notes, Series A-5 Notes and
Series A-6 Notes.
"Authenticating Agent" means 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 the Indenture 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 the Indenture, provisions relating
to the Authenticating Agent shall be read as applying to the Indenture Trustee.
"Authenticating Agent Agreement" means 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 any 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 the Indenture.
"Authorized Denominations" means (a) with respect to the Series A-3
Notes, (i) as applicable solely in connection with the original issuance of
notes, [$50,000] reduced by the amount of principal payments made before the
exchange offer, if any, and integral multiples of [$1,000] in excess thereof and
(ii) after distribution of principal in accordance with the Indenture, the
outstanding principal amount that results after such distribution, (b) with
respect to the Series B-3 Notes, (i) as applicable solely in connection with the
original issuance of notes, [$50,000] and integral multiples of [$1,000] in
excess thereof and (ii) after distribution of principal in accordance with the
Indenture, the outstanding principal amount that results after such
distribution, and (c) with respect to the Auction Rate Notes, $50,000 and
integral multiples of $50,000 in excess thereof.
"Authorized Officer" when used with reference to the issuer means
the Co-owner Trustee.
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"Available Funds" means, 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 the 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 Students Loans purchased by the Indenture Trustee
during such 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 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 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 such Advance is made, and (3) amounts which are
paid to the issuer pursuant to the Indenture.
"Book-entry Form" or "Book-entry System" means 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" means Salomon Smith Barney Inc. or any other broker or
dealer (each as defined in the Securities Exchange Act of 1934, as amended),
commercial bank or other entity permitted by law to perform the functions
required of a Broker-Dealer set forth in the Auction Procedures that (a) is a
Participant (or an affiliate of a Participant), (b) has been appointed as such
by the issuer pursuant to the Indenture and (c) has entered into a Broker-Dealer
Agreement that is in effect on the date of reference.
"Broker-Dealer Agreement" means each agreement between the Auction
Agent and a Broker-Dealer, approved by 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 Salomon Smith
Barney Inc., 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.
"Business Day" means any day on which the Indenture Trustee and the
Authenticating Agent, if any, at their respective addresses set forth in or for
purposes of the Indenture, are open for commercial banking business and on which
the New York Stock Exchange is open.
"Calculation Agent" means 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" means the Calculation Agent Agreement,
dated as of December 1, 1998, among the depositor and assumed by the Co-owner
Trustee on behalf of the issuer, the Calculation Agent and the
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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.
"Carryover Interest" means 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" means 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 outstanding notes, showing, (i) all Available Funds expected to be received
during such period, (ii) the application of all such Available Funds in
accordance with the 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 the 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.
"Cedel" means a professional depository incorporated under the laws of
Luxembourg which holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel Participants through electronic book-entry.
"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.
"Certificate", "Direction", "Instruction", "Order", "Request" or
"Requisition" of the issuer, as the case may be, means, respectively, a
certificate, direction, instruction, order, request or requisition which shall,
unless otherwise specifically provided herein, be in writing and which is signed
in the name of the issuer by an Authorized Officer.
"Claims Rates" means those rates determined by dividing total default
claims since the previous September 30 by the total original principal amount of
the Guarantee Agency's guaranteed loans in repayment on such September 30.
"Co-owner Trustee" means Firstar Bank, N.A., not in its individual
capacity, but solely as Co-owner Trustee with the Owner Trustee of the trust
and its permitted successors and assigns.
"Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended and the regulations promulgated thereunder.
"Collection Fund"' means the Fund maintained by the Indenture Trustee
into which all collections on the Financed Student Loans are to be deposited.
"Collection Period" means a period of one-calendar month commencing and
including the date next following the end of the preceding Collection Period.
"Consolidation Loans" means 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" means a contract between a Guarantee Agency and
a Lender providing for, or a certificate or other evidence of, the Guarantee of
Student Loans.
"Cooperative" means Societe Cooperative, a Belgian cooperative
corporation.
"Costs of Issuance" means all items of expense allocable to
establishment of the Program and the authorization, issuance, sale and delivery
of the notes, or any obligations of the issuer the proceeds of which are
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used in whole or in any part, directly or indirectly through the Eligible Lender
Trustee, to acquire Financed Student Loans under the 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, Eligible Lender Trustee, Calculation Agent,
the Auction Agent, any Broker-Dealer, 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" means a payment due to the issuer from
an Exchange Counterparty pursuant to the applicable Exchange Agreement.
"Credit Enhancement" means the credit support available to one or more
Series of notes, including Reserve Funds, over-collateralization, letters of
credit, liquidity facilities, interest rate cap agreements, interest rate swap
agreements, currency swap agreements, insurance policies, spread accounts, one
or more Series of subordinate securities, derivative products or other forms of
credit enhancement including but not limited to third party guarantees.
"Cut-off Date" means 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.
"Date of Issuance" means with respect to the old notes, December 22,
1998, the date of their initial issuance and delivery.
The term "day" means any calendar day, whether or not a Business Day.
"Deferment Period" means certain periods when no principal repayments
need be made on certain Financed Student Loans.
"Definitive Notes" means notes to be issued in fully registered,
certificated form to note owners or their nominees rather than to DTC or its
nominee.
"Department of Education" means the U.S. Department of Education.
"Depositor" means Student Loan Funding LLC, a Delaware limited
liability company, and its lawful successors and assigns.
"Depositories" means DTC, Cedel and Euroclear, collectively.
"Depository" means any securities depository that is a clearing agency
under federal law operating and maintaining a Book-Entry System to record
beneficial ownership of the right to principal and interest, and to effect
transfers of notes, in Book-Entry Form, and includes and means initially (i)
DTC, if the notes are offered in the United States, and (ii) Cedel or Euroclear,
if the notes are offered in Europe.
"Directing Notes" means, as long as any Series of the Series 1998A
Notes are outstanding, the Series 1998A Notes, and thereafter the Series B-3
Notes.
"Distribution Date" means (i) with respect to the Series A-3 Notes and
the Series B-3 Notes, a Monthly Distribution Date, (ii) with respect to each
Series of Auction Rate Notes, an Auction Period Distribution Date, (iii) any
date on which an Issuer Exchange Payment is due and payable, and (iv) the Legal
Final Maturity of each Series of notes, or if such day is not a Business Day, on
the next succeeding Business Day.
"DTC" means The Depository Trust Company (a limited purpose trust
company), New York, New York.
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"DTC Participants" means the participating organizations that utilize
the services of DTC, including securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
"Eligible Investments" means 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 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 a nationally recognized rating service acceptable
to each Rating Agency;
(g) Pre-refunded Municipal Notes 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
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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.
"Eligible Lender Trust Agreement" means, the Eligible Lender Trust
Agreement dated as of March 1, 1999 by and between the Co-owner Trustee and the
Eligible Lender Trustee, as from time to time amended or supplemented.
"Eligible Lender Trustee" means Firstar Bank, N.A., solely in its
capacity as legal titleholder to the Financed Student Loans, and any successor
trustee designated pursuant to the Eligible Lender Trust Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels,
Belgium office.
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
"Euroclear Participants" means the participating organizations that
utilize the services of Euroclear, including banks, securities brokers and
dealers and other professional financial intermediaries and may include the
initial purchasers.
"Event of Default" shall have the meaning set forth in the Indenture.
"Excess Surplus Account" means the Account so designated and
established in the Collection Fund pursuant to the Indenture.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
"Exchange Agreement" means an interest rate exchange agreement between
Co-owner Trustee, on behalf of 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" means any Person with whom the issuer shall,
from time to time, enter into an Exchange Agreement.
"Exchange Counterparty Guarantee" means a guarantee in favor of the
issuer given in connection with the execution and delivery of an Exchange
Agreement under the Indenture, which guarantee shall be designated a Senior
Exchange Counterparty Guarantee or Subordinate Exchange Counterparty Guarantee
consistent with the Exchange Agreement to which it relates.
"Exchange Offer" means an offer to exchange the new notes for the old
notes.
"Existing Holder" means, (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.
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"Existing Holder Registry" means the registry of Persons who are
holders of Auction Rate Notes maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Expected Interest Collections" means, 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 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, 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 with respect to such Collection Period
prior to the related Distribution Date.
"FFEL Program" means the Federal Family Education Loan Program
established by the Higher Education Act pursuant to which loans are made to
borrowers pursuant to certain guidelines, and the repayment of such loans is
guaranteed by a Guarantee Agency, and any predecessor or successor program.
"FFELP Loans" means student loans made under the FFEL Program.
"Financed" in the case of Financed Student Loans refers to Student
Loans made or acquired directly, or indirectly through the Eligible Lender
Trustee, with the proceeds of the Notes or moneys in the Acquisition Fund or the
Collection Account, or upon the exchange of Financed Student Loans pursuant to
the Indenture, and included in the Student Loan Portfolio Fund; and to "Finance"
or "Financing" in the case of Student Loans means to make or acquire or the
making or acquisition of, respectively, directly, or indirectly through the
Eligible Lender Trustee, Student Loans with such moneys or upon any such
exchange or transfer.
"Financed FFELP Loans" or "Financed Student Loans" means FFELP Loans
which are Financed and are evidenced solely by promissory notes and applications
related thereto.
"Fiscal Year" means the fiscal year of the depositor, which is, as of
the date of execution and delivery of the Indenture, each twelve-month period
commencing on July 1 and ending on the next succeeding June 30.
"Fitch" means Fitch IBCA, Inc., and its successors and assigns.
"Forbearance Period" means a period of time during which a borrower, in
case of temporary financial hardship, may defer the repayment of principal.
"Formula Rate" means, (i), with respect to the Series A-3 Notes, the
lesser of One-Month LIBOR as of the Interest Determination Date for such
Interest Accrual Period plus 0.38% per annum and 17%, (ii) with respect to the
Series A-4 Notes, the lesser of the Auction 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%.
"Foundation" means the Thomas L. Conlan Education Foundation (formerly
known as The Student Loan Funding Corporation), an Ohio nonprofit corporation.
"Fund" means any of the Funds established and maintained by the
Indenture Trustee under the Indenture.
"Grace Period" means a period of time, following a borrower's ceasing
to pursue at least a half-time course of study and prior to the commencement of
a repayment period, during which principal need not be paid on certain Financed
Student Loans.
"Guarantee" or "Guaranteed" means, with respect to a 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
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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 Agency" means a state agency or private nonprofit
corporation which guarantees certain payments of principal and interest on
Financed FFELP Loans pursuant to a Guarantee Agreement.
"Guarantee Agreements" means Contracts of Guarantee.
"Guarantee Fund" means cash and reserves used for the purchase of
defaulted student loans by a Guarantee Agency.
"Guarantee Payments" means those payments made by a Guarantee Agency
with respect to a Financed Student Loan.
"Higher Education Act" means the Title IV, Part B of the Higher
Education Act of 1965, as amended, together with any rules and regulation
promulgated by the Department of Education or the Guarantee Agencies.
"holder" means any person who shall be the registered owner of any note
or the duly authorized attorney-in-fact, representative or assignee of such
person.
"Indenture" means the Amended and Restated Indenture of Trust, dated as
of _______________, 1999, between the issuer and Firstar Bank N.A., as from time
to time amended or supplemented by Supplemental Indentures.
"Indenture Trustee" means Firstar Bank, N.A., as trustee under the
Indenture, and any successor or successors thereto which may at any time be
appointed or substituted in its place pursuant to the Indenture.
"Indirect Participants" means organizations which have 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" means Bankers Trust Company, New York, New
York, its successors and assigns.
"Initial Auction Agent Agreement" means the Auction Agent Agreement,
dated as of December 1, 1998, by and among the depositor, the Indenture Trustee
and the Initial Auction Agent, including any amendment thereof or supplement
thereto, relating to the Auction Rate Notes, as assumed by the Co-owner Trustee
on behalf of the issuer.
"Initial Pool Balance" means the Pool Balance of the Financed Student
Loans as of the Cut-off Date.
"initial purchasers" mean Salomon Smith Barney Inc., New York, New
York, NationsBanc Montgomery Securities LLC, Charlotte, North Carolina, and
Fifth Third/The Ohio Company, Columbus, Ohio.
"Insolvency Laws" mean the United States Bankruptcy Code or other
insolvency laws, as the case may be.
"Interest Accrual Period" means 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 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" means (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
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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; provided, however, that if such day is not a Business Day, then
the next succeeding Business Day.
"Interest Subsidy Agreement" means, with respect to any Financed FFELP
Loans, the agreement between a Guarantee Agency and the Secretary of Education
pursuant to Section 428(b) of the Higher Education Act, as amended, which
entitles the holders of eligible loans guaranteed by the Guarantee Agency to
receive Interest Subsidy Payments from the Secretary of Education on behalf of
certain students while the student is in school, during a six to twelve month
Grace Period after the student leaves school, and during certain Deferment
Periods, subject to the holders' compliance with all requirements of the Higher
Education Act.
"Interest Subsidy Payments" are interest payments paid with respect to
an eligible Student Loan during the period prior to the time that the loan
enters repayment and during Grace and Deferment Periods.
"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 under the Indenture to be deposited into the
Collection Fund on or prior to such Distribution Date pursuant to the Indenture.
"issuer" means Student Loan Funding Trust 1998A/B, a Delaware common
law trust, and its lawful successors and assigns.
"Issuer Exchange Payment" means a payment due to an Exchange
Counterparty from the issuer pursuant to the applicable Exchange Agreement
(excluding payments in respect of any early termination date, as defined in the
applicable Exchange Agreement).
"Legal Final Maturity" means 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.
"Lender" means any "eligible lender" as defined in the Higher Education
Act and qualified to participate as a seller of Student Loans to the issuer.
"LIBOR" means the rate of interest per annum equal to the rate per
annum 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 such 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 such quotations appear, LIBOR will be the arithmetic mean (rounded to the
nearest one-hundredth of a percent (.01%)) of such offered rates. If fewer than
two such quotations appear, LIBOR with respect to such Interest Accrual Period
will be determined at approximately 11:00 A.M., London time, on such Interest
Determination Date on the basis of the rate at which deposits in United States
dollars having such 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 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 will be the arithmetic mean (rounded to the
nearest one-hundredth of a percent (.01%)) of such offered rates. If fewer than
two quotations are provided, LIBOR with respect to such Interest Accrual Period
will be the arithmetic mean (rounded to the nearest one-hundredth of a percent
(.01%)) of the rates quoted at approximately 11:00 A.M., New York City time on
such Interest Determination Date by three major banks in New York, New York
selected by the Calculation Agent for loans in United States dollars to leading
European banks having a particular maturity and in a principal amount equal to
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 will be LIBOR in effect for
the previous Interest Accrual Period.
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"London Banking Day" means a business day on which dealings in deposits
in United States dollars are transacted in the London interbank market.
"master servicer" means initially Student Loan Funding Resources, Inc.
"Master Servicing Agreement" means the Master Servicing Agreement,
dated as of ____________, 1999, by and between the Co-owner Trustee, on behalf
of the issuer and the master servicer, pursuant to which the master servicer
covenants and agrees to provide for the servicing of the Financed Student Loans
by the Servicers.
"Maximum Auction Rate" means (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" and "AA-" or better), (b)
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-" 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 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" means, 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 the Series A-3 Notes and the Series B-3 Notes.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors and assigns.
"Net Loan Rate" means with respect to any Interest Accrual Period for
any 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 Auction Period Distribution Date.
"New Borrower" means a borrower who, on the date the promissory note
was signed, did not have an outstanding balance on a previous loan which was
made, insured or guaranteed under the FFEL Program.
"new notes" means each of: (i) the Series 1998A1-3 Notes, (ii) the
Series 1998A1-4 Notes, (iii) the Series 1998A1-5 Notes, (iv) the Series 1998A1-6
Notes, and (v) the Series 1998B1-3 Notes.
"Non-Payment Rate" on any date of determination, means (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.
"Nonresidents" means holders who are nonresident alien individuals,
foreign corporations, foreign partnerships or certain foreign estates and
trusts.
"notes" means the new notes and the old notes together.
"Notice of Fee Change" means a notice of a change in the Auction Agent
Fee Rate or the Broker-Dealer Fee Rate substantially in the form of an exhibit
attached to the applicable Auction Agent Agreement.
"Officer's Certificate" means a document signed by an Authorized
Officer of the depositor 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.
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"old notes" means each of: (i) the Series 1998A-3 Notes, (ii) the
Series 1998A-4Notes, (iii) the Series 1998A-5 Notes, (iv) the Series 1998A-6
Notes, and (v) the Series 1998B-3 Notes.
"outstanding" when used with respect to notes refers to any notes
executed, authenticated, issued and delivered under the 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 the
Indenture and other than notes which at the time are deemed not to be
outstanding under the Indenture by reason of the operation and effect of, or the
limitation of, certain provisions of the Indenture.
"Parity Percentage" means the fraction expressed as a percentage, the
numerator of which is the sum 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 the 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 Payment" means those principal amounts required to
be paid on the notes pursuant to the Indenture until the Parity Percentage is
101%.
"Participants" means the participating organizations that utilize the
services of the Depository.
"Payment Default" means, with respect to any Series of Auction Rate
Notes (a) a default in the due and punctual payment of any installment of
interest on such Series or (b) a default in the due and punctual payment of any
interest on and principal of such Series at their Legal Final Maturity.
"Person" or words importing persons means firms, associations,
partnerships, limited liability companies, joint ventures, societies, estates,
trusts, corporations, public or governmental bodies, other legal entities and
natural persons.
"Plan" means any employee benefit plan or retirement arrangement,
including individual retirement accounts and annuities, Keogh plans, and
collective investment funds in which such plans, accounts, annuities or
arrangements are invested, that are described in or subject to the Plan Asset
Regulations, ERISA, or corresponding provisions of the Code.
"Plan Asset Regulations" means the Department of Labor regulations set
forth in 29 C.F.R. Section 2510.3-101, as amended from time to time.
"Plan Investors" means persons acting on behalf of a Plan, or persons
using the assets of a Plan.
"PLUS Loans" or "Plus Loans" means loans made only to borrowers who are
parents (and, under certain circumstances, spouses of remarried parents) of
dependent undergraduate students.
"Pool Balance" means at any time, 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.
"Potential Holder" means 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).
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"Principal Distribution Amount" means the principal amount of any
Series of notes calculated to be distributed on a Distribution Date.
"Principal Factor" means 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" means the issuer's program of Financing the Financed Student
Loans pursuant to the Indenture.
"Program Expense Requirement" means, 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 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" means 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,
(iii) 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, (iv) 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 Notes, and (v) 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 (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 means and specifically includes the purchase
directly, or indirectly through an Eligible Lender Trustee, of such Student
Loans.
"Purchase Agreements" means the Student Loan Purchase Agreements with
Sellers for purposes of the Program (in whole or in part), in each case only to
the extent that each such Purchase Agreement covers Financed Student Loans.
"Purchase Amount" means, 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 and unpaid interest
thereon.
"Rating Agency" means 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" means, 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" means, (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
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Period Distribution Date and (iii) with respect to the Series B-3 Notes, the
Business Day preceding a Monthly Distribution Date.
"Reference Bank" means four leading banks, selected by the Calculation
Agent, or by the Indenture Trustee, as applicable, (i) engaged in transactions
in Eurodollar deposits in the international Eurocurrency market, (ii) not
controlling, controlled by or under common control with the administrator or the
issuer and (iii) having an established place of business in London.
"registration rights agreement" means the registration rights agreement
dated December 1, 1998 between the depositor and the initial purchasers as
assumed by the Co-owner Trustee, on behalf of the issuer.
"Relief Act" means the Taxpayer Relief Act of 1997, as amended.
"Remarketing Agent" means, 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" means a remarketing agreement among the 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.
"Repayment Phase" means, with respect to any Financed Student Loan,
that period of time during which principal is repayable.
"Repeat Borrower" means an borrower who, on the date the promissory
note evidencing the loan was signed, had an outstanding balance on a previous
loan made, insured or guaranteed under the FFEL Program.
"Reserve Fund" means the Fund established with the Indenture Trustee
under the Indenture, the balance of which may be used to fund certain payments
by the trust.
"Resources" means Student Loan Funding Resources, Inc., an Ohio
corporation.
"Reuters Screen LIBOR Page" means the display designated as page
"LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBOR page for the purposes of displaying London interbank offered
rates of major banks).
"SEC" means 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 the 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.
"Secretary of Education" means 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" means the United States Securities Act of 1933, as
amended.
"Seller" means a Lender or other party from which the issuer is
purchasing or has purchased or agreed to purchase Financed Student Loans
pursuant to a Purchase Agreement with such party.
"Senior Exchange Agreement" means any Exchange Agreement on a parity
with the Series 1998A Notes.
"Senior Issuer Exchange Payment" means any Issuer Exchange Payment, the
priority of payment of which is on a parity with Series 1998A Notes.
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"Senior Parity Percentage" means the fraction expressed as a
percentage, the numerator of which is the sum of (i) the Pool Balance plus
accrued interest thereon due from borrowers, accrued interest which is expected
to be capitalized, and accrued Interest Subsidy Payments and Special Allowance
Payments, if any, as of the end of the preceding Collection Period, and (ii) all
amounts on deposit (including any accrued interest thereon) in the Collection
Fund, the Acquisition Fund and the Reserve Fund, and the denominator of which is
the sum of (a) the outstanding principal amount of all Series 1998A Notes (after
payment thereon on such Distribution Date), and accrued and unpaid interest
thereon and (b) all accrued and unpaid Program Operating Expenses.
"Serial Loan" means a loan made to the same borrower under the same
loan program and guaranteed by the same Guarantee Agency (or a successor), with
respect to FFELP Loans.
"Series" means any series of old notes and corresponding series new
notes.
"Series Account" means an Account established by the Indenture, the use
of which is related primarily to a specific Series of notes.
"Series Interest Rate" means as of a given date with respect to any
Series of notes the annual rate at which interest accrues on the notes of such
Series on such date.
"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 such 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,
(i) on the Legal Final Maturity of the Series A-3 Notes, the principal required
to be distributed to the holders of Series A-3 Notes 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 holders of Series A-4 Notes will include the
amount required to reduce the outstanding principal balance on 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 holders of Series A-5 Notes will
include the amount required to reduce the outstanding principal balance on 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 holders of Series A-6
Notes 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 (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 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 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, (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 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 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 (i) the
Series 1998A Principal Distribution Amount on such Distribution Date over (ii)
the amount of principal actually distributed to the holders of Series 1998A
Notes on such Distribution Date.
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"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 (i) the Series 1998A-3 Holders' Interest
Distribution Amount on the preceding Monthly Distribution Date over (ii) the
amount of interest actually distributed to the holders of Series A-3 Notes on
such preceding Monthly Distribution Date, plus interest on the amount of such
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 such
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 (i) 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 such preceding Monthly
Distribution Date (or, in the case of the first Monthly Distribution Date, on
the Closing Date) and (ii) the Series 1998A Interest Shortfall for such 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 by the depositor and assumed by the issuer.
"Series 1998A1-3 Notes" means the Student Loan Senior Asset-Backed
Notes, Series 1998A1-3 of the issuer issued under the Indenture.
"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 (i) the Series 1998A-4 Holders' Interest
Distribution Amount on the preceding Auction Period Distribution Date over (ii)
the amount of interest actually distributed to the holders of Series 1998A-4
Notes on such preceding Auction Period Distribution Date, plus interest on the
amount of such excess interest due to the holders of Series A-4 Notes, 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 Holders' Interest Distribution Amount" means, 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 redemptions to Series 1998A-4 holders on such preceding
Auction Period Distribution Date (or, in the case of the first Auction Period
Distribution Date, on the Closing Date) and (ii) the Series 1998A-4 Interest
Shortfall for such 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 by the depositor and assumed by the
issuer.
"Series 1998A1-4 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-4 of the issuer, issued under the Indenture.
"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 (i) the Series 1998A-5 Holders' Interest
Distribution Amount on the preceding Auction Period Distribution Date over (ii)
the amount of interest actually distributed to the holders of the Series A-5
Notes on such preceding Auction Period Distribution Date, plus interest on the
amount of such excess interest due to the holders of Series A-
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5 Notes, 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 Holders' Interest Distribution Amount" means, 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 redemptions 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 Closing Date) and (ii) the Series 1998A-5
Interest Shortfall for such 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 by the depositor and assumed by the
issuer.
"Series 1998A1-5 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-5 of the issuer, issued under the Indenture.
"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 (i) the Series 1998A-6 Holders' Interest
Distribution Amount on the preceding Auction Period Distribution Date over (ii)
the amount of interest actually distributed to the holders of Series A-6 Notes
on such preceding Auction Period Distribution Date, plus interest on the amount
of such excess interest due to the holders of Series A-6 Notes, 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 Holders' Interest Distribution Amount" means, 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 redemptions 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 Closing Date) and (ii) the Series 1998A-6
Interest Shortfall for such 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 by the depositor and assumed by the
issuer.
"Series 1998A1-6 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-6 of the issuer issued under the Indenture.
"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 (i) the Series 1998B-3 Holders' Interest
Distribution Amount on the preceding Monthly Distribution Date over (ii) the
amount of interest actually distributed to the holders of Series B-3 Notes on
such preceding Monthly Distribution Date, plus interest on the amount of such
excess interest due to the holders of Series B-3 Notes, to the extent permitted
by law, at the related Series Interest Rate from such preceding Monthly
Distribution Date to the current Monthly Distribution Date.
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"Series 1998B-3 Holders' Interest Distribution Amount" means, 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 Series B-3 Notes on such preceding Monthly
Distribution Date (or, in the case of the first Monthly Distribution Date, on
the Closing Date) and (ii) the Series 1998B-3 Interest Shortfall for such
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 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 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, (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 Holders' Principal Distribution Amount on such Monthly
Distribution Date).
"Series 1998B-3 Principal Shortfall" means, as of the close of any
Monthly Distribution Date, the excess of (i) the Series 1998B-3 Principal
Distribution Amount on such Monthly Distribution Date over (ii) the amount of
principal actually distributed to the holders of Series B-3 Notes on such
Monthly Distribution Date.
"Series 1998B-3 Notes" means the Student Loan Subordinate Asset-Backed
Notes Series 1998B-3 issued by the depositor and assumed by the issuer.
"Series 1998B1-3 Notes" means the Student Loan Subordinate Asset-Backed
Notes Series 1998B1-3 of the issuer issued under the Indenture.
"Series B-3 Notes" means the Series 1998B-3 Notes together with the
Series 1998B1-3 Notes.
"Servicing Fee" means the fee payable to the Servicers with respect to
the servicing of the Financed Student Loans.
"Servicing Development Fees" mean costs, fees and expenses relating to
the development of electronic data information or systems in connection with the
servicing of Financed Student Loans, the establishment of a servicing center for
the servicing of Financed Student Loans, or reserves for current or future
servicing fees for Financed Student Loans; provided, however, that Servicing
Development Fees are payable only with the consent of the Rating Agencies then
rating the notes.
"SLS Loans" means loans that were limited to (a) graduate or
professional students, (b) independent undergraduate students, and (c) under
certain circumstances, dependent undergraduate students, if such students'
parents were unable to obtain a Plus Loan and were also unable to provide such
students' expected family contribution.
"Special Allowance Payments" means payments designated as such made by
the Department of Education with respect to certain FFELP Loans pursuant to
Section 438 of the Higher Education Act.
"Specified Reserve Fund Balance" means 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.
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"Spread Guaranty Agreement" means an agreement between the issuer and
any Person providing a hedge with respect to the minimum difference between or
among the yield or yields on certain Eligible Investments and the interest rate
per annum on any Series of notes.
"Stafford Loans" means loans that are generally made only to student
borrowers who meet certain needs tests, as set forth in the Higher Education
Act.
"Student Loan Portfolio Fund" means the Fund maintained by the
Indenture Trustee the balances of which shall include all Financed Student Loans
in the trust.
"Student Loans" means FFELP Loans.
"Submission Deadline" means 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.
"Subordinate Exchange Agreement" means an Exchange Agreement on a
parity with the Series B-3 Notes.
"Subordinate Issuer Exchange Payment" means any Issuer Exchange
Payment, the priority of payment of which is on a parity with the Series B-3
Notes.
"Substitute Auction Agent" means a Person having the qualifications
required by the Indenture with whom the Indenture Trustee and the issuer enter
into a Substitute Auction Agent Agreement.
"Substitute Auction Agent Agreement" means 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 the Indenture.
"Supplemental Indenture" means any supplement to or amendment of an
Indenture entered into by the issuer, the Eligible Lender Trustee and the
Indenture Trustee pursuant to and in accordance with the provisions of the
Indenture.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Terms and Conditions" means the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System.
"TIN" means taxpayer identification number assigned by the IRS.
"Transfer and Sale Agreement" means the Transfer and Sale Agreement
between Firstar Bank, National Association, as the Co-owner Trustee of the
issuer, whereby the depositor and the Eligible Lender Trustee sold all of their
respective rights and interests in the Financed Student Loans, eligible
investments and certain accounts to the Co-owner Trustee on behalf of the
issuer. In consideration of such sale, the Co-owner Trustee assumed on behalf of
the issuer, among other things, all of the depositor's obligations under the
Indenture, the registration rights agreement and the old notes.
"U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof, (iii) an estate the income of which
is includable in gross income for United States tax purposes, regardless of its
source, or (iv) a trust if a court within the United States is able to exercise
primary jurisdiction over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust.
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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.
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Trading between Cedel and/or Euroclear participants. Secondary market
trading between Cedel participants and/or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Cedel participant or a Euroclear participant, the purchaser
will send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. Cedel or Euroclear will instruct the
respective depositary to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including, the
last coupon payment date to and excluding the settlement date. Payment will then
be made by the respective depository to the DTC participant's account against
delivery of the Global.
Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system 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 New York). If settlement is not
completed on the intended value date (i.e., the trade fails). the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel participants and Euroclear participants will need to make
available to the respective clearing system the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement. either from cash on hand or exiting lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, participants can elect not to preposition funds and allow that credit
line to be drawn 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
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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,
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.
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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 thereof, plus accrued but unpaid interest and unpaid Carryover
Interest, if any, and interest accrued thereon, 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 is directed by the issuer 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
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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 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 Montgomery Securities 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
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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 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 any Payment Default. The Auction Agent
will determine the Applicable LIBOR Rate for each Interest Accrual Period other
than the Initial Period; provided, that if the ownership of the Auction Rate
Notes is no longer maintained in book-entry form, or if a Payment Default has
occurred, then the Indenture Trustee will determine the Applicable LIBOR Rate
for each 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 (in 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
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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".
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.
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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.
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 Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Holder at the rate therein specified.
Sell Orders. All Sell Orders will be considered valid up to the amount
of the excess of the principal amount of outstanding Auction Rate Notes held by
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
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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.
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
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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 described below under "Insufficient Bids."
Sufficient Clearing Bids. If Sufficient Clearing Bids have been made
and the Net Loan Rate for the Auction Rate Notes is equal to or greater than the
Bid Auction Rate (in which case the Series Interest Rate will be the Bid Auction
Rate), all Submitted Sell Orders will be accepted and, subject to the
denomination requirements described below, Submitted Bids will be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids will be rejected:
(a) Existing Holders' Submitted Bids specifying any rate that is higher
than the Series Interest Rate will be accepted, thus requiring each 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") 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:
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(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 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
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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.
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 at both the Auction preceding the date
on which the notice of the proposed change was given as described above and the
Auction preceding the proposed change.
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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 week constituting an Interest
Determination Date and the interest rate borne on the Auction Rate Notes. The
Authorized Officer of the issuer will not consent to 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 or more Auction Periods by means of a written notice delivered at least
10 days prior to the proposed changed Interest Determination Date to the
Indenture Trustee, the Auction Agent, the issuer and the Depository. 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.
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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
purchasers 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)
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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;
(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.
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(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 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.
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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 we 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.
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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 "accredited 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
E-2
<PAGE> 186
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.
Dated:
-------------------------------
(Name of Purchaser)
By:
-----------------------------
Printed Name:
------------------
Title:
-------------------------
Mailing Address of Purchaser:
-------------------------------
-------------------------------
-------------------------------
E-3
<PAGE> 187
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 UPON 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
Where You Can Find More Information
Prospectus Summary
Risk Factors
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 , 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. March , 1999
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 TRUST
1998-A/B
PROSPECTUS
March , 1999
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
[TO BE PROVIDED]
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 Amended and Restated Indenture of Trust, dated as of __________, 1999,
by and among Firstar Bank, N.A., as Co-Owner Trustee, Firstar Bank,
N.A., as Eligible Lender Trustee and Firstar Bank, N.A., as Indenture
Trustee*
4.2 Amended & Restated Terms Supplement to the Amended & Restated Indenture
of Trust, dated as of _______________, 1999 by and among Firstar Bank,
N.A. as Co-owner Trustee, Firstar Bank, N.A. as 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 ___________, 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 _____________, 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 ____________, 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 1, 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.
2
<PAGE> 189
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
23.1 Consent of Thompson Hine & Flory LLP (contained in their opinions
filed as Exhibit 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*
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules:
All financial statements, schedules and historical financial information have
been omitted as they are not applicable.
ITEM 22. UNDERTAKINGS.
(a) 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. In the event that 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.
(b) 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.
(c) 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.
3
<PAGE> 190
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 March 5, 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/ ROBERT P. JONES
----------------------------------------
Robert P. Jones, Senior Trust Officer
STUDENT LOAN FUNDING LLC
By: /s/ BRIAN A. ROSS
--------------------------------------
Brian A. Ross, Senior Vice President
and Manager
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Thomas
L. Conlan, Jr., and Brian A. Ross, as that person's true and lawful
attorneys-in-fact and agents, each acting alone, with full powers 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 Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, 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, this 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, March 5, 1999
- ------------------------- Chief Executive
Thomas L. Conlan, Jr. Officer and President
(Principal Executive Officer)
/S/ BRIAN A. ROSS Management Committee member and March 5, 1999
- ----------------- Senior Vice President and Manager
Brian A. Ross (Principal Financial Officer
and Principal Accounting Officer)
/S/ CHRISTOPHER P. CHAMPMAN Management Committee member March 5, 1999
- ---------------------------
Christopher P. Chapman
/S/ MARK A. FERRUCCI Management Committee member March 5, 1999
- --------------------
Mark A. Ferrucci
/S/ KIM LUTTHANS Management Committee member March 5, 1999
- ----------------
Kim Lutthans
</TABLE>
4
<PAGE> 191
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 Amended and Restated Indenture of Trust, dated as of __________, 1999,
by and among Firstar Bank, N.A. as Co-owner Trustee, Firstar Bank,
N.A., as Eligible Lender Trustee and Firstar Bank, N.A., as Indenture
Trustee*
4.2 Amended & Restated Terms Supplement to the Amended & Restated Indenture
of Trust, dated as of _______________, 1999 by and among Firstar Bank,
N.A. as Co-owner Trustee, Firstar Bank, N.A. as 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 ___________, 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 _____________, 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 ____________, 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 1, 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
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*
- -------------
* To be filed by Amendment.
5
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
STUDENT LOAN FUNDING LLC
This Certificate of Formation is being executed by the undersigned for
the purpose of forming a limited liability company pursuant to the Delaware
Limited Liability Act.
1. The name of the limited liability company is Student Loan
Funding LLC.
2. The address of the registered office and the registered agent
of the limited liability company in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered
agent of the limited liability company is The Corporation
Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation on this 20th day of May, 1998.
/s/ CATHRYN D. GRIFFIN
-------------------------------------
Cathryn D. Griffin, Authorized Person
<PAGE> 1
Exhibit 3.2
LIMITED LIABILITY COMPANY AGREEMENT
(ALSO REFERRED TO AS THE "OPERATING AGREEMENT")
OF
STUDENT LOAN FUNDING LLC,
A DELAWARE LIMITED LIABILITY COMPANY
EFFECTIVE AS OF MAY 28, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................1
ARTICLE II FORMATION OF COMPANY........................................................................5
2.01 Formation...................................................................................5
2.02 Name........................................................................................5
2.03 Principal Place of Business.................................................................5
2.04 Registered Office and Registered Agent......................................................5
2.05 Effective Date..............................................................................5
2.06 Term........................................................................................5
2.07 Foreign Qualification.......................................................................5
2.08 No State Law Partnership....................................................................5
ARTICLE III BUSINESS OF COMPANY.........................................................................6
3.01 Purpose of the Company......................................................................6
3.02 Change in Purpose of Company................................................................7
ARTICLE IV ACTIVITIES SEPARATE FROM
AFFILIATES AND MEMBERS......................................................................7
4.01 Affirmative Covenants.......................................................................7
4.02 Negative Covenants..........................................................................8
ARTICLE V MEMBERS.....................................................................................8
5.01 Members.....................................................................................8
5.02 Admission of Additional Members.............................................................8
ARTICLE VI CONTRIBUTIONS TO THE COMPANY AND
CAPITAL ACCOUNTS............................................................................9
6.01 Initial Capital Contributions; Interests....................................................9
6.02 Additional Contributions....................................................................9
6.03 Loans and Securities.......................................................................10
6.04 Withdrawal and Return of Contributions.....................................................10
6.05 Interest on Contributions..................................................................10
6.06 Capital Accounts...........................................................................10
6.07 Limitation on Member's Deficit Make-up.....................................................11
6.08 Member Liability...........................................................................11
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII ALLOCATIONS AND DISTRIBUTIONS..............................................................11
7.01 Allocation of Net Profits and Net Losses from Operations...................................11
7.02 Distributions..............................................................................11
7.03 Limitation Upon Distributions..............................................................12
7.04 Tax Elections..............................................................................12
7.05 Tax Matters Partner........................................................................12
ARTICLE VIII RIGHTS, DUTIES, POWERS AND COMPENSATION
OF THE MANAGEMENT COMMITTEE................................................................12
8.01 Management of Business.....................................................................12
8.02 Management Committee.......................................................................12
8.03 Matters Reserved Exclusively to Management Committee.......................................13
8.04 Rights and Powers of Management Committee..................................................14
8.05 Initial Officers...........................................................................16
8.06 Reimbursement of Management Committee......................................................16
8.07 Consideration of the Company's Creditors by the
Management Committee.......................................................................16
ARTICLE IX MANAGER AND OFFICERS.......................................................................16
9.01 Designation................................................................................16
9.02 Duties.....................................................................................16
9.03 Matters Reserved Exclusively to Members....................................................16
9.04 Delegation of Authority; Officers..........................................................17
9.05 Standard of Conduct........................................................................17
9.06 Compensation...............................................................................17
9.07 Removal....................................................................................17
9.08 Resignation................................................................................18
9.09 Indemnification............................................................................18
9.10 Employees..................................................................................18
ARTICLE X RIGHTS AND OBLIGATIONS OF MEMBERS..........................................................18
10.01 Limitation of Liability....................................................................18
10.02 Company Debt Liability.....................................................................18
10.03 List of Members............................................................................18
10.04 Company Books..............................................................................18
10.05 Priority and Return of Capital.............................................................19
10.06 Binding Authority..........................................................................19
10.07 Consideration of the Company's Creditors by Members........................................19
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XI MEETINGS OF MEMBERS........................................................................19
11.01 Meetings...................................................................................19
11.02 Place of Meetings..........................................................................19
11.03 Notice of Meetings.........................................................................19
11.04 Meeting of all Members.....................................................................19
11.05 Record Date................................................................................20
11.06 Quorum.....................................................................................20
11.07 Manner of Acting...........................................................................20
11.08 Proxies....................................................................................20
11.09 Action by Members Without a Meeting........................................................20
11.10 Waiver of Notice...........................................................................21
11.11 Participation by Electronic Communication..................................................21
11.12 Representations and Warranties.............................................................21
11.13 Conflicts of Interest......................................................................21
ARTICLE XII TRANSFERABILITY............................................................................22
12.01 Transfers..................................................................................22
12.02 Conditions to Transfers....................................................................22
12.03 Substitution of a Member...................................................................23
12.04 Pledge or Other Encumbrance................................................................23
ARTICLE XIII DISSOLUTION, TERMINATION AND
LIQUIDATION OF THE COMPANY.................................................................23
13.01 Dissolution................................................................................23
13.02 Winding Up, Liquidation and Distribution of Assets.........................................24
13.03 Certificate of Cancellation................................................................25
13.04 Return of Contribution Nonrecourse to Other Members........................................25
13.05 Final Accounting...........................................................................26
ARTICLE XIV MISCELLANEOUS PROVISIONS...................................................................26
14.01 Notices....................................................................................26
14.02 Fiscal Year................................................................................26
14.03 Application of Delaware Law................................................................26
14.04 Waiver of Action for Partition.............................................................26
14.05 Amendments to Organizational Documents.....................................................26
14.06 Construction...............................................................................26
14.07 Headings and Pronouns......................................................................27
14.08 Waivers....................................................................................27
14.09 Successors and Assigns.....................................................................27
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
14.10 Creditors..................................................................................27
14.11 Counterparts...............................................................................27
14.12 Enforcement of Independent Committee Members...............................................27
14.13 Indemnification of Members and Committee Members...........................................27
</TABLE>
Exhibit 2.01 - Certificate of Formation
Exhibit 5.01 - Members
Exhibit 6.01 - Capital Contributions and Membership Interests
Exhibit 8.02 - Members of the Management Committee
Exhibit 8.05 - Initial Officers
(iv)
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
OF
STUDENT LOAN FUNDING LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (also referred to as
the "Operating Agreement") is made and entered as of the 28th day of May, 1998,
between Student Loan Funding Resources, Inc., an Ohio corporation, and SLF
Enterprises, Inc., an Ohio corporation, as the initial members of the Company
(individually, a "Member" and collectively, "Members").
ARTICLE I
DEFINITIONS
The following terms used in this Agreement shall have the following
meanings:
1.01 "ACT" shall mean the Delaware Limited Liability Company Act
contained in Title 6, Chapter 18 of the Delaware Code Annotated, as amended from
time to time.
1.02 "ADDITIONAL CAPITAL CONTRIBUTION" shall have the meaning set forth
in Section 6.02(a) hereof.
1.03 "ADDITIONAL MEMBER" shall mean any Person admitted as an
additional member of the Company pursuant to Section 5.02 of this Agreement.
1.04 "AFFILIATE" shall mean with respect to any Person, any other
Person which directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such Person. SLFC,
Inc., an Ohio nonprofit corporation, The Student Loan Funding Corporation, an
Ohio nonprofit corporation ("Student Loan Funding"), and the Members shall be
deemed Affiliates for the purposes of this Agreement.
1.05 "AGREEMENT" shall mean this Limited Liability Company Agreement
(also referred to as the "Operating Agreement") of the Company as originally
executed and as amended, restated or supplemented from time to time.
1.06 "APPROVAL OF THE MEMBERS" shall mean the approval of the Members
(i) holding a Majority Interest in accordance with Section 11.07 hereof or (ii)
by unanimous written consent as set forth in Section 11.09 hereof.
1.07 "CAPITAL ACCOUNT" as of any given date shall mean the Capital
Contribution to the Company by a Member as adjusted up to the date in question
pursuant to Article VI.
<PAGE> 7
1.08 "CAPITAL CONTRIBUTION" shall mean any contribution to the capital
of the Company in cash or property by a Member whenever made.
1.09 "CERTIFICATE OF FORMATION" shall mean the Certificate of Formation
of Student Loan Funding LLC, as filed with the Secretary of State of the State
of Delaware, as the same may be amended and/or restated from time to time.
1.10 "CODE" shall mean the Internal Revenue Code of 1986, as amended,
or corresponding provisions of subsequent superseding federal revenue laws, as
each of the foregoing may be amended from time to time.
1.11 "COMMITTEE MEMBER" shall mean a member of the Management Committee
of the Company designated in accordance with Section 8.02 hereof. A Committee
Member shall be deemed a manager of the Company within the meaning of Section
18-101(10) of the Act.
1.12 "COMPANY" shall refer to Student Loan Funding LLC.
1.13 "CONTRIBUTING MEMBER" shall have the meaning set forth in
Section 6.02(b) hereof.
1.14 "CONTRIBUTION DATE" shall have the meaning set forth in
Section 6.02(a) hereof.
1.15 "DISSOLUTION EVENT" shall have the meaning set forth in
Section 13.01(a) hereof.
1.16 "ENTITY" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
1.17 "INDEMNITEE" shall have the meaning set forth in
Section 8.04(h).
1.18 "INDEPENDENT COMMITTEE MEMBER" shall mean a Person who is not, and
has not been for the preceding five (5) years, a direct, indirect or beneficial
shareholder, director (other than a member of the Management Committee of the
Company), officer, employee, Affiliate, customer, creditor or supplier of the
Members, any Affiliate (including, but not limited to, the Company) or any
Affiliate of any Member. In accordance with Section 8.02 of this Agreement, the
Independent Committee Members shall be designated on Exhibit 8.02. An
Independent Committee Member shall be deemed a manager of the Company within the
meaning of Section 18-101(10) of the Act.
1.19 "INITIAL CAPITAL CONTRIBUTION" shall have the meaning set forth in
Section 6.01.
1.20 "INITIAL MEMBERS" shall mean Student Loan Funding Resources, Inc.
and SLF Enterprises, Inc.
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1.21 "MAJORITY INTEREST" shall mean one or more of the Membership
Interests of the Members, which individually or taken together exceed 50% of the
aggregate of all Membership Interests.
1.22 "MANAGEMENT COMMITTEE" shall mean the committee described in
Section 8.02 hereof.
1.23 "MANAGER" shall mean the Person appointed as manager of the
Company pursuant to Section 9.01 hereof.
1.24 "MEMBERS" shall mean the Initial Members, Substitute Members and
Additional Members.
1.25 "MEMBERSHIP INTEREST" shall mean a Member's entire limited
liability company interest in the Company, including such Member's share of the
Net Profits and Net Losses of the Company and distributions of the Company's
assets pursuant to this Agreement and the Act, a Member's rights to participate
in the management or affairs of the Company, including rights to vote on,
consent to or otherwise participate in, any decision of the Members and such
other rights and privileges that the Member may enjoy by being a Member.
1.26 "NET PROFITS" and "NET LOSSES" shall mean for each taxable year of
the Company an amount equal to the Company's net taxable income or loss for such
year as determined for federal income tax purposes (including separately stated
items and the proceeds from the sale of all or any portion of the Company's
assets) in accordance with the accounting method and rules used by the Company
and in accordance with Section 703 of the Code.
1.27 "NON-CONTRIBUTING MEMBER" shall have the meaning set forth in
Section 6.02(a).
1.28 "OFFICERS" shall mean the Manager, provided the Manager is not an
Entity, and the Persons elected by the Management Committee to act as officers
of the Company.
1.29 "PARENT" shall have the meaning set forth in Section 3.01(a).
1.30 "PERSON" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns, of
such "Person" where the context so permits.
1.31 "QUALIFIED DEBT" shall have the meaning set forth in
Section 3.01(a).
1.32 "RATING AGENCIES" shall mean Fitch IBCA, Inc., Moody's Investors
Service, Inc. and Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. and their respective successors.
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1.33 "RATING AGENCY CONDITION" shall mean, with respect to any action
referred to as such herein, that each Rating Agency shall have been given prior
written notice thereof and such Rating Agency shall have notified the Company in
writing that such action will not, in and of itself, result in a reduction or
withdrawal of the then current rating of the Qualified Debt and each additional
outstanding bond obligation, note obligation or other indebtedness of the
Company then outstanding and then rated by each Rating Agency, as applicable,
including, without limitation, any shadow rating.
1.34 "RESERVES" shall mean, with respect to any fiscal period, funds
set aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Management Committee for working
capital and to pay taxes, insurance, debt service or other costs or expenses
incident to the ownership or operation of the Company's business.
1.35 "STUDENT LOANS" shall have the meaning set forth in
Section 3.01(a).
1.36 "SUBSTITUTE MEMBER" shall mean any transferee of a Membership
Interest permitted to become a member of the Company pursuant to Section 12.02
of this Agreement.
1.37 "TAX MATTERS PARTNER" shall have the meaning set forth in
Section 7.05.
1.38 "TRANSFER" means, with respect to a Membership Interest, to sell,
give, assign, bequeath, divest, dispose of, or transfer ownership or control of
all, any part of, or any interest in the Membership Interest, whether
voluntarily or by operation of law.
1.39 "TRANSFER AND SALE AGREEMENT" shall have the meaning set forth in
Section 3.01(a).
1.40 "TRANSFEROR" shall mean any Member that sells, assigns or
otherwise transfers in accordance with the terms of this Agreement either for or
without consideration all or any portion of its Membership Interest to any
Person permitted to be a member of a limited liability company under the Act.
1.41 "TREASURY REGULATIONS" shall include proposed, temporary and final
regulations promulgated under the Code in effect as of the date of filing the
Certificate of Formation and the corresponding sections of any regulations
subsequently issued that amend or supersede such regulations.
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ARTICLE II
FORMATION OF COMPANY
--------------------
2.01 FORMATION. The Members caused the Company to be formed as a
limited liability company effective May 20, 1998 by filing the executed
Certificate of Formation in the form of Exhibit 2.01 attached hereto, with the
Secretary of State of the State of Delaware in accordance with and pursuant to
the Act. Cathryn D. Griffin, in her capacity as an authorized person of the
Company, was authorized to execute, deliver and file the Certificate of
Formation with the Secretary of State of the State of Delaware.
2.02 NAME. The name of the Company is Student Loan Funding LLC and all
business of the Company shall be conducted under that name.
2.03 PRINCIPAL PLACE OF BUSINESS. The principal place of business of
the Company is One West Fourth Street, Suite 210, Cincinnati, Ohio 45202. The
Company may establish additional offices or relocate its place of business as
the Members may from time to time deem advisable; provided, that the Company
shall not establish an office or locate its place of business at the address of
any Affiliate, Member or Affiliate of a Member.
2.04 REGISTERED OFFICE AND REGISTERED AGENT. The Company's initial
registered agent for the service of process shall be The Corporation Trust
Company and the registered office in the State of Delaware shall be Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware. The Manager may change
the registered office and registered agent from time to time by making an
appropriate filing with the Delaware Secretary of State pursuant to the Act.
2.05 EFFECTIVE DATE. Pursuant to Section 18-201(d) of the Act, this
Agreement shall be effective as of May 28, 1998.
2.06 TERM. The Company shall exist perpetually, unless earlier
dissolved and its affairs wound up in accordance with either the provisions of
this Agreement or the Act. The existence of the Company as a separate legal
entity shall continue until the cancellation of the Certificate of Formation as
provided in the Act.
2.07 FOREIGN QUALIFICATION. The Company will qualify to do business in
each jurisdiction where its business requires it to be so qualified. Each Member
shall execute, acknowledge, swear to and deliver all certificates and other
instruments conforming with this Agreement that are necessary or appropriate to
qualify, continue and terminate, as appropriate, the Company as a foreign
limited liability company in all such jurisdictions in which the Company may
conduct business.
2.08 NO STATE LAW PARTNERSHIP. The Members intend that the Company be
operated in a manner consistent with its treatment as a partnership for federal
and state income tax purposes, but not be operated or treated as a "partnership"
(including, without limitation,
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a limited partnership or joint venture), and that no Member be a partner or
joint venturer with any other Member, for any other purpose, including but not
limited to Section 303 of the Federal Bankruptcy Code, and this Agreement shall
not be construed to suggest otherwise. No Member shall take any action
inconsistent with the express intent of the Members hereto as set forth herein.
ARTICLE III
BUSINESS OF COMPANY
-------------------
3.01 PURPOSE OF THE COMPANY. The nature of the business or purposes of
the Company shall be to engage exclusively in the following business and
financial activities, in accordance with the provisions and restrictions of this
Agreement:
(a) to acquire from Student Loan Funding Resources, Inc., an
Ohio corporation (the "Parent") and other Persons, and to hold, sell, transfer
or pledge, or to hold, sell, transfer or pledge interests in, or interests in
pools of, any rights to payment arising from student loan notes and additional
contract and other related rights, whether constituting accounts, chattel paper,
instruments, general intangibles or otherwise, including the right to payment of
any interest or finance charges and other obligations with respect thereto (such
rights to payment, together with any collateral security for and guarantees
thereof, and together with associated rights, being herein collectively called
"Student Loans") and, without limiting the generality of the foregoing, to pay
and otherwise perform its obligations with respect to the Qualified Debt (as
defined in the Transfer and Sale Agreement dated May 29, 1998, among the
Company, the Parent and Student Loan Funding [the "Transfer and Sale
Agreement"]), and each additional outstanding bond obligation, note obligation
or other indebtedness issued by the Company from time to time, in accordance
with the terms and provisions thereof;
(b) to borrow money to facilitate any activity authorized
herein and to pledge or otherwise grant security interests in the Student Loans
to secure such borrowing;
(c) to enter into any agreement that provides for the
administration, servicing and collection of amounts due on any Student Loans;
(d) to lend or otherwise invest proceeds from Student Loans
and any other funds determined by the Management Committee in accordance with
the contractual agreements to which the Company is subject; and
(e) to engage in any lawful act or activity and to exercise
any powers permitted to limited liability companies organized under the Act,
provided that such act, activity or power is incidental to and necessary,
suitable or convenient for the accomplishment of the purposes specified in
subsections (a) through (d) above.
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3.02 CHANGE IN PURPOSE OF COMPANY. Notwithstanding any other provision
of this Agreement, the Company shall not, and none of the Members, the
Management Committee or the Manager shall cause the Company to, change the
purpose of the Company as set forth in this Article III, without the unanimous
consent of (a) the Members and (b) the Management Committee, including the
affirmative vote of the Independent Committee Members.
ARTICLE IV
ACTIVITIES SEPARATE FROM
------------------------
AFFILIATES AND MEMBERS
----------------------
4.01 AFFIRMATIVE COVENANTS. The Company will take, and the Members, the
Management Committee and Manager shall cause the Company to take, all of the
following actions:
(a) operate its business separate and apart from the
business of any other Entity, including, without
limitation, any of its Affiliates, Members and
Affiliates of its Members;
(b) hold itself out as an independent Entity which
conducts business separate and apart from all other
Entities and correct any misunderstanding regarding
its separate identity;
(c) prepare and maintain separate records and books of
accounts from those of any other Entity, including,
without limitation, any of its Affiliates, Members
and Affiliates of its Members;
(d) maintain bank accounts and other accounts separate
and apart from any other Entity;
(e) pay its own liabilities, indebtedness and obligations
from its own assets;
(f) prepare financial statements based only upon its
operations and business;
(g) maintain separate phone numbers, mailing addresses,
stationery and other business forms from those of any
other Entity;
(h) observe all formalities set forth in this Agreement
and any other organizational document;
(i) maintain an arms-length relationship with its
Affiliates, Members and Affiliates of its Members;
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<PAGE> 13
(j) maintain a sufficient number of officers to conduct
its business and pay the salaries and wages of such
officers from its own assets or enter into arm-length
relationships with other parties for the conduct of
the business;
(k) maintain adequate working capital and Reserves to
conduct its business; and
(l) allocate fairly and reasonably any overhead expenses
for shared office space, if any.
4.02 NEGATIVE COVENANTS. Except as provided for herein, the Company
shall not take (or agree to take), and the Members or Manager shall cause the
Company not to take (or agree to take), any of the following actions:
(a) commingle its assets with the assets of any other
Entity;
(b) guarantee or become obligated for the debts of any
other Entity or hold out its credit as being
available to satisfy the debts or obligations of any
other Entity;
(c) acquire or assume the obligations of its Affiliates,
Members or Affiliates of a Member; or
(d) pledge any of its assets as collateral for the
benefit of any other Entity.
ARTICLE V
MEMBERS
-------
5.01 MEMBERS. The names and addresses of each of the Members are set
forth on Exhibit 5.01 attached hereto, as the same may be amended from time to
time.
5.02 ADMISSION OF ADDITIONAL MEMBERS. Additional Members may be
admitted to the Company only upon the Approval of the Members which approval
shall state the Capital Contribution of such Additional Member and prescribe
such other terms and conditions regarding such admission. Each Additional Member
approved for admission to the Company shall execute a copy of this Agreement.
Upon the admission of an Additional Member, this Agreement and the Exhibits
hereto shall be revised as appropriate to reflect such admission.
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<PAGE> 14
ARTICLE VI
CONTRIBUTIONS TO THE COMPANY AND
--------------------------------
CAPITAL ACCOUNTS
----------------
6.01 INITIAL CAPITAL CONTRIBUTIONS; INTERESTS. On or before the Closing
Date as defined in the Transfer and Sale Agreement, each Member shall make
contributions in cash, property or other assets to the capital of the Company in
such amounts as set forth on Exhibit 6.01 attached hereto (the "Initial Capital
Contribution") in exchange for the Membership Interests set forth on Exhibit
6.01. Exhibit 6.01 shall be amended from time to time to reflect changes in
Members and Membership Interests.
6.02 ADDITIONAL CONTRIBUTIONS.
(a) In the event that the Management Committee determines
additional funds (over and above the Initial Capital Contributions of the
Members which are made pursuant to Section 6.01) are required or desired to
carry on the business and purposes of the Company, and to the extent the
Management Committee determines that the Company should not borrow such
additional funds pursuant to Section 6.03, the Management Committee may approve
and authorize a call for additional capital contributions from each of the
Members in proportion to their respective Membership Interests ("Additional
Capital Contributions"). At the direction of the Management Committee, the
Manager shall give each Member a written notice calling for an Additional
Capital Contribution and stating the amount of such Additional Capital
Contribution to be paid by such Member and the date by which such Additional
Capital Contribution must be received (the "Contribution Date"), such date being
at least fifteen (15) days after the date the request for Additional Capital
Contributions is made. Each Member shall either (i) contribute its Additional
Capital Contribution to the Company on the Contribution Date, or (ii) give
written notice to the Manager and each other Member at least ten (10) days prior
to the Contribution Date of such Member's election not to make all or any part
of such Member's Additional Capital Contribution. In the event a Member makes
the election described in subsection (a)(ii) of this Section 6.02 (a
"Non-Contributing Member"), the other Members may, but are not obligated to,
contribute to the Company all or any portion of the unpaid capital call.
(b) If more than one Member desires to contribute a portion of
an unpaid capital call requested of any Non-Contributing Member (each a
"Contributing Member") and unless such Contributing Members otherwise agree
between or among themselves, each such Contributing Member shall be entitled to
contribute that portion of the unpaid capital call which is equal to the
Contributing Member's then Membership Interest in the Company divided by the
then aggregate Membership Interest of all of the Contributing Members. Any such
contribution made by a Contributing Member shall be deemed an Additional Capital
Contribution to the Company.
(c) On the Contribution Date, the Membership Interest of each
Member making any Additional Capital Contribution to the Company shall be
adjusted and increased to
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reflect such Additional Capital Contribution, and the Membership Interests of
Members not making Additional Capital Contributions shall be adjusted and
decreased to reflect such Additional Capital Contributions.
(d) The Management Committee shall not be required to seek
additional funds for the Company by borrowing funds pursuant to Section 6.03
before authorizing a call for Additional Capital Contributions under this
Section 6.02.
6.03 LOANS AND SECURITIES. In the event that the Management Committee
determines additional funds (over and above the Capital Contributions of the
Members as of that date) are required or desired to carry on the business
purposes of the Company, the Management Committee may, in lieu of or in addition
to its rights under Section 6.02, approve and authorize the borrowing of funds
on behalf of the Company or the issuance of debt securities at commercially
available rates, and, if necessary, secured by mortgages, deeds of trust or
security interests in the property or assets of the Company or the issuance of
equity interests or securities, provided, that, in each case (other than with
respect to warehouse lines of credit in existence as of the effective date of
this Agreement) the Rating Agency Condition shall have been satisfied. The
determination of the amount of the funds required from time to time for the
conduct of the Company's business and the source of those funds (which may
include Members) shall be within the sole discretion of the Management
Committee, subject to the satisfaction of the Rating Agency Condition. The
Management Committee shall not be required to seek additional funds for the
Company by calling for Additional Capital Contributions pursuant to Section 6.02
before authorizing the borrowing of funds under this Section 6.03.
6.04 WITHDRAWAL AND RETURN OF CONTRIBUTIONS. No Member shall be
entitled to withdraw or to the return of its Capital Contributions, except as
provided in this Agreement. No Member shall have the right to demand and receive
property other than cash in return for its Capital Contributions except that,
upon dissolution, the Members shall be entitled to share in the distribution of
the remaining assets of the Company in accordance with Article XIII of this
Agreement.
6.05 INTEREST ON CONTRIBUTIONS. Capital Contributions to the Company
shall not earn interest, unless otherwise agreed by the Members.
6.06 CAPITAL ACCOUNTS.
(a) Maintenance of Capital Accounts. A separate Capital
Account shall be maintained and adjusted for each Member on the books and
records of the Company in strict accordance with the Code and the Treasury
Regulations. The initial Capital Accounts of the Members are set forth on
Exhibit 6.01. Such Capital Accounts shall be adjusted from time to time as set
forth below.
(1) Increase. To each Member's Capital Account there
shall be credited the amount of any cash and the fair market value of
any property contributed by
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<PAGE> 16
such Member to the Company, such Member's distributive share of
profits, and any other items in the nature of income or gain that are
allocated pursuant to Article VII hereof.
(2) Decrease. To each Member's Capital Account there
shall be debited the amount of cash and the fair market value of any
Company property distributed to such Member pursuant to any provision
of this Agreement, such Member's distributive share of losses, and any
other items in the nature of expenses or losses that are specially
allocated pursuant to Article VII hereof.
(b) Transfers. In the event of a permitted sale, transfer or
other disposition of a Membership Interest, the Capital Account of the
Transferor shall become the Capital Account of the transferee of such Membership
Interest to the extent it relates to the transferred Membership Interest in
accordance with Section 1.704-l(b)(2)(iv) of the Treasury Regulations.
(c) Interpretation. The manner in which Capital Accounts are
to be maintained pursuant to this Section 6.06 is intended to and shall be
construed so as to comply with the requirements of Section 704(b) of the Code
and the Treasury Regulations promulgated thereunder.
6.07 LIMITATION ON MEMBER'S DEFICIT MAKE-UP. No Member shall have any
obligation to restore any deficit in its Capital Accounts.
6.08 MEMBER LIABILITY. Except as otherwise provided under the Act, no
Member, solely by reason of being a Member, shall be liable for the debts,
obligations or liabilities of the Company, whether arising in contract, tort or
otherwise, including under any judgment, decree or order of any court.
ARTICLE VII
ALLOCATIONS AND DISTRIBUTIONS
-----------------------------
7.01 ALLOCATION OF NET PROFITS AND NET LOSSES FROM OPERATIONS. Except
as otherwise provided in Article XIII hereof, the Net Profits or Net Losses of
the Company, and each item of income, gain, loss, deduction, or credit
attributable thereto, will be allocated among the Members in proportion to their
respective Membership Interests and in accordance with Section 704(b) and (c) of
the Code and the Treasury Regulations thereunder.
7.02 DISTRIBUTIONS. All distributions shall be made to Members pro rata
in proportion to their respective Membership Interests on the record date of
such distribution. Except as provided in Section 7.03, all distributions of cash
and property shall be made at such time as determined by the Management
Committee. All amounts withheld pursuant to the Code or any provisions of state
or local tax law with respect to any payment or distribution to the Members
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<PAGE> 17
from the Company shall be treated as amounts distributed to the relevant Members
pursuant to this Section 7.02.
7.03 LIMITATION UPON DISTRIBUTIONS. No distribution shall be declared
and paid to a Member on account of its interest in the Company if such
distribution would violate Section 18-607 of the Act or other applicable law.
7.04 TAX ELECTIONS. The Management Committee may make any tax elections
for the Company allowed under the Code or the tax laws of any state or other
jurisdiction having taxing jurisdiction over the Company.
7.05 TAX MATTERS PARTNER. The Members shall designate a "tax matters
partner" of the Company (the "Tax Matters Partner"), as provided in the Treasury
Regulations pursuant to Code Section 6231(including Treasury Regulation
301.6231(a)(7)-2), to perform such duties as are required or appropriate
thereunder. The Tax Matters Partner shall not take any action contemplated by
Sections 6222 through 6232 of the Code without the Approval of the Members. The
Tax Matters Partner shall timely file and/or deliver to the appropriate taxing
authority and/or to each Member, as the case may be, all tax returns, reports
and documents required by local, state and federal law.
ARTICLE VIII
RIGHTS, DUTIES, POWERS AND COMPENSATION
---------------------------------------
OF THE MANAGEMENT COMMITTEE
---------------------------
8.01 MANAGEMENT OF BUSINESS. Except as otherwise provided or prohibited
herein, the Manager shall (i) be responsible for the day-to-day operation and
management of the business and affairs of the Company, (ii) shall make all
decisions, and take or cause to be taken all such actions, on behalf of the
Company or otherwise as are necessary in connection with the operation and
management of the Company in the ordinary course of business, and (iii) shall
have all the powers of a manager of a limited liability company permitted under
the Act. Notwithstanding the foregoing, in no event shall this Section 8.01
operate or be construed to allow the Manager to act in contravention of Sections
8.02, 8.03 or 9.03 of this Agreement.
8.02 MANAGEMENT COMMITTEE. A Management Committee shall be established
with the responsibility for (i) establishing policies and guidelines for the
conduct of the business and affairs of the Company, (ii) supervising and
directing the Manager, and (iii) making determinations with respect to certain
other significant and extraordinary matters (as more fully referenced in Section
8.03 below). The Management Committee shall consist of five (5) individuals
designated by the Members and listed on Exhibit 8.02 attached hereto. At any
given time, at least two (2) Committee Members must be, and must be designated
on Exhibit 8.02 as, Independent Committee Members. Independent Committee Members
may vote on any action taken by the Management Committee; provided that the
Independent Committee Members must
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vote upon the matters set forth in Sections 3.02, 8.03(c) through (f), and
14.05. In the event of the removal, death, complete disability, or resignation
of any Committee Member, the Management Committee shall have the right to
designate a substitute Committee Member, provided, that any vacancy created by
the removal, death, complete disability or resignation of an Independent
Committee Member shall be filled by the Members. Each individual designated by
the Members may be removed by the Members at any time for any reason, provided
that no Independent Committee Member may be removed unless his or her successor
has been duly appointed. An individual who serves on the Management Committee
may voluntarily resign at any time by delivering written notice to the Members.
8.03 MATTERS RESERVED EXCLUSIVELY TO MANAGEMENT COMMITTEE. The Company
shall not take (or agree to take), and none of the Members, the Manager or the
Management Committee shall cause the Company to take (or agree to take), any
action with respect to the following matters except upon the approval of all of
the Members and the Management Committee, including the affirmative vote of both
Independent Committee Members and all of the other Committee Members with
respect to Sections 8.03(c) through (f):
(a) call for Additional Capital Contributions;
(b) declare and pay distributions to Members;
(c) make an assignment for the benefit of creditors,
file, or consent to the filing of, a petition in
bankruptcy, petition or apply to any tribunal for the
appointment of a custodian, receiver, trustee or
other similar official for it or for a substantial
part of its assets, commence, to the fullest extent
permitted by law, any proceeding under any
bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute or
similar law or statute of any jurisdiction, consent
or acquiesce in the filing of any such petition,
application, proceeding or appointment of or taking
possession by the custodian, receiver, liquidator or
trustee of the Company of substantially all or part
of its assets, or admit its inability to pay its debt
generally as they become due;
(d) cause or permit the Company to furnish any collateral
or issue a guarantee; provided, that, the Company
shall not be permitted to guarantee any indebtedness
of the Parent and the Rating Agency Condition shall
have been satisfied with respect to any such
transaction;
(e) sell, transfer, assign, convey or lease any
substantial part of the assets of the Company,
provided, that, the Rating Agency Condition shall
have been satisfied with respect to any such
transaction;
(f) merge, consolidate, liquidate or, subject to Article
XIII and to the fullest extent permitted by law,
dissolve the Company, provided, that, the Rating
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<PAGE> 19
Agency Condition shall have been satisfied with
respect to any such transaction;
(g) directly or indirectly purchase or otherwise acquire
all or substantially all of the assets of another
Entity;
(h) approve the terms of any material settlement
involving the payment of consideration by the
Company;
(i) enter into transactions between the Company and
either a Member or an Affiliate of a Member;
(j) change any benefit plans or arrangements offered by
the Company to its employees;
(k) select and remove the auditors or legal counsel of
the Company;
(l) declare bonuses to Officers and employees of the
Company;
(m) enter into a collective bargaining agreement;
(n) elect and remove Officers; and
(o) purchase or otherwise acquire additional Student
Loans, except as permitted by the Student Loan
Acquisition Policy adopted by the Management
Committee from time to time.
8.04 RIGHTS AND POWERS OF MANAGEMENT COMMITTEE.
(a) Meetings. Meetings of the Management Committee may be
called at any time by any Member and shall be held at the Company's principal
office unless otherwise agreed upon by the Members; provided that, the
Management Committee shall meet at least four (4) times during each calendar
year. Written notice stating the date, time and place of the meeting shall be
given to each Member and each Committee Member not less than five (5) nor more
than thirty (30) days before the date of such meeting. Such notice shall specify
the purpose for which the meeting is called and any issues that are proposed to
be discussed or voted upon at such meeting.
(b) Waiver of Notice. Any Committee Member may waive notice of
any meeting before or after the meeting. The waiver must be in writing, signed
by the Committee Member entitled to the notice and delivered to the Manager for
inclusion in the minutes or filing with the Company's records. A Committee
Member's attendance at or participation in a meeting waives any objection to
lack of notice or defective notice of the meeting unless the Committee Member at
the beginning of the meeting, or promptly upon arrival, objects to holding the
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meeting or to transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
(c) Quorum. Except as otherwise consented to in writing by
each Member, a quorum for the transaction of business at any meeting of the
Management Committee requires the presence at such meeting, in person or by
proxy, of at least two (2) Committee Members; provided that if the matter to be
voted upon requires the vote of the Independent Committee Members then a quorum
requires the presence at such meeting, in person or by proxy, of three (3)
Committee Members then in office.
(d) Proxy. Any Committee Member (other than an Independent
Committee Member with respect to matters specified in Sections 3.02, 8.03(c)
through (f), and 14.05 hereof) may grant any other Committee Member a proxy to
vote in his or her stead.
(e) Voting of Management Committee. Unless otherwise required
by the Act or this Agreement, all decisions of the Management Committee shall be
made by the vote of a majority of the Committee Members. Notwithstanding the
prior sentence, any decision requiring the approval of the Independent Committee
Members shall require the approval of all Committee Members. No issue shall be
voted on by the Management Committee unless notice of the issue is given or such
notice is waived by any Committee Member not receiving such notice as set forth
in Section 8.04(b) above.
(f) Action Without Meeting. Any action required or permitted
by this Agreement or by law to be taken at a meeting of the Management Committee
may be taken without a meeting if a written consent or consents, describing the
action so taken, is signed by all of the Committee Members entitled or required
to vote with respect to the subject matter thereof and delivered to the Company
for inclusion in the Company's records. Any such written consent may be signed
in two or more counterparts.
(g) Telephonic Meetings. Except as provided herein and
notwithstanding any place set forth in the notice of the meeting or this
Agreement, the Management Committee and any committees thereof may participate
in regular or special meetings by, or through the use of, any means of
communication by which all participants may simultaneously hear each other.
(h) Indemnification. The Company shall, to the maximum extent
provided by law, indemnify, defend and hold harmless each present or former
Committee Member ("Indemnitee"), to the extent of the Company's assets, from and
against any liability, damage, cost, expense, loss, claim, judgment or amounts
paid in settlement thereof (including reasonable attorneys' fees and costs in
settlement or defense thereof) incurred by reason of the fact that such
Indemnitee is or was a Committee Member. Notwithstanding the foregoing, no
Indemnitee shall be so indemnified, defended or held harmless for claims arising
out of a breach by the Indemnitee of this Agreement or any acts or omissions by
the Indemnitee that constitute fraud, willful misconduct or breach of fiduciary
duty to the Company or to the Members. The Company shall advance the expenses of
defense if the Indemnitee undertakes in writing to repay
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<PAGE> 21
the advanced funds to the Company if the Indemnitee is finally determined by a
court of competent jurisdiction not to be entitled to indemnification pursuant
to this Section 8.04(h).
8.05 INITIAL OFFICERS. The Persons designated on Exhibit 8.05 shall be
the initial Officers of the Company and shall hold the position or positions set
forth opposite their nameson Exhibit 8.05. Each initial Officer shall serve at
the pleasure of the Management Committee until his or her successor is duly
elected, or until his or her earlier resignation or removal.
8.06 REIMBURSEMENT OF MANAGEMENT COMMITTEE. The Company shall reimburse
Committee Members for all reasonable out-of-pocket expenses (including, but not
limited to, legal fees) incurred in connection with the carrying out of the
duties set forth in this Agreement and the management of the Company.
8.07 CONSIDERATION OF THE COMPANY'S CREDITORS BY THE MANAGEMENT
COMMITTEE. When voting on actions, to the fullest extent permitted by law,
including Section 18-1101(C) of the Act, each Committee Member shall consider
the interests of the Company's creditors.
ARTICLE IX
MANAGER AND OFFICERS
--------------------
9.01 DESIGNATION. The Manager shall be such Person as the Management
Committee shall designate from time to time. The Manager may be removed and
replaced upon the affirmative vote of the majority of the Management Committee.
9.02 DUTIES. In addition to the duties set forth in Section 8.01, the
Manager shall be primarily responsible for the general management of the
business of the Company, shall make the ordinary and usual decisions concerning
the business affairs of the Company, shall have authority to make contracts on
behalf of the Company in the ordinary course of the Company's business, shall be
responsible to effect all properly approved orders and resolutions of the
Management Committee and Members, except as may be otherwise delegated by the
Management Committee or provided by law, shall preside at all meetings of the
Members, and shall perform such other duties as from time to time may be
assigned by the Management Committee. Without limiting the generality of the
foregoing, the Manager is authorized to sign contracts and obligations on behalf
of the Company, including, without limitation, purchase contracts, sales
contracts, leases, promissory notes, mortgages, deeds of trust; institute and
defend legal proceedings, lend money; invest and reinvest Company funds; appoint
employees and agents; and purchase insurance on the life of any Members or any
member of the Management Committee.
9.03 MATTERS RESERVED EXCLUSIVELY TO MEMBERS. Notwithstanding Sections
8.01 or 9.02 herein, the Company shall not take (or agree to take), and neither
the Management Committee nor the Manager shall cause the Company to take (or
agree to take), any action with
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respect to the following matters except upon Approval of the Members, and after
providing written notice of such action to the Rating Agencies:
(a) combine or reclassify the Membership Interests;
(b) admit Additional or Substitute Members; or
(c) any other acts on behalf of or with respect to the
Company which under Delaware law would require action
by the Members.
9.04 DELEGATION OF AUTHORITY; OFFICERS. The Management Committee shall
have the authority and power to appoint Officers and to delegate to one or more
of such Officers, the rights and powers to manage and control the business and
affairs of the Company; provided, that the Management Committee may not delegate
the right to vote that is reserved exclusively to the Management Committee in
Section 8.03 hereof. The Officers of the Company, if deemed necessary by the
Management Committee, may include a president, one or more vice presidents,
secretary, treasurer, assistant secretary and assistant treasurer. The Officers
shall serve at the pleasure of the Management Committee, subject to all rights,
if any, of an Officer under any contract of employment. Any individual may hold
any number of offices. The Officers shall exercise such powers and perform such
duties as shall be determined from time to time by the Management Committee.
9.05 STANDARD OF CONDUCT. Each of the Officers (including the Manager)
shall discharge the duties of an office in good faith, in a manner he or she
reasonably believes to be in the best interest of the Company and with the care
an ordinarily prudent person in a like position would exercise under similar
circumstances. In discharging his or her duties, the Officer is entitled to rely
in good faith on information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by
employees of the Company whom the Officer reasonably believes to be reliable and
competent in the matters presented; or legal counsel, public accountants, or
other persons as to matters the Officer reasonably believes are within the
person's professional or expert competence. An Officer is not acting in good
faith who has knowledge concerning the matter in question that makes reliance
otherwise permitted by this provision unwarranted. An Officer shall not be
liable for any action taken as an officer, or any failure to take any action, if
the Officer has performed the duties of the office in compliance with this
provision.
9.06 COMPENSATION. The salaries and other compensation of the Officers
and employees of the Company shall be as determined by the Management Committee,
in its discretion, from time to time.
9.07 REMOVAL. The Management Committee may remove any of the Officers
at any time, for any reason, but no such removal shall affect the contractual
rights, if any, of the Officer so removed.
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9.08 RESIGNATION. The Manager or an Officer may resign at any time by
delivering written notice to the Management Committee. A resignation is
effective without acceptance when the notice is delivered to the Management
Committee, unless the notice specifies a later effective date. If a resignation
is made effective at a later date and the Management Committee accepts the
future effective date, the Management Committee may fill the pending vacancy
before the effective date if it provides that the successor does not take office
until the effective date. An Officer's resignation does not affect the Company's
contractual rights, if any, with the Officer.
9.09 INDEMNIFICATION. Subject to applicable law, the Company shall
indemnify and advance expenses to each present and future Manager of the Company
(and, in either case, his heirs, estate, executors or administrators) to the
full extent allowed by the laws of the State of Delaware, both as now in effect
and as hereafter adopted. The Company may indemnify and advance expenses to any
Officer or agent of the Company who is not the Manager (and his or her heirs,
estate, executors or administrators) to the same extent as the Manager, if the
Management Committee determines that it is in the best interests of the Company
to do so. The Company shall also have the power to contract with any Officer or
agent for whatever additional indemnification the Management Committee shall
deem appropriate.
9.10 EMPLOYEES. The Company shall not have any employees other than the
Officers permitted under this Agreement or required by applicable law.
ARTICLE X
RIGHTS AND OBLIGATIONS OF MEMBERS
---------------------------------
10.01 LIMITATION OF LIABILITY. Each Member's liability shall be limited
as set forth in this Agreement, the Act and other applicable law.
10.02 COMPANY DEBT LIABILITY. A Member will not be personally liable
for any debts or losses of the Company beyond its respective Capital
Contributions and any obligation of the Member under Section VI to make Capital
Contributions, except as otherwise required by law.
10.03 LIST OF MEMBERS. Upon written request of any Member, the Manager
shall provide a list showing the names, addresses and Membership Interests of
all Members.
10.04 COMPANY BOOKS. Full and complete books of account of the Company
(separate and apart from its Affiliates, Members and Affiliates of Members)
shall be kept in accordance with generally accepted accounting principles and
shall be maintained at all times at the Company's principal office or such other
place as the Manager shall determine, and shall be open to the reasonable
inspection and examination of the Members during reasonable business hours. The
Manager shall maintain and preserve, during the term of the Company, and for
five (5) years thereafter, all accounts, books, and other relevant Company
documents. Upon reasonable
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request, each Member shall have the right, during ordinary business hours, to
inspect and copy such Company documents at the requesting Member's expense. The
Manager and Committee Members shall not have the right to keep confidential from
the Members any information that the Manager or Committee Members might
otherwise be permitted to keep confidential from the Members pursuant to Section
18-305(c) of the Act.
10.05 PRIORITY AND RETURN OF CAPITAL. Except as may be expressly
provided in Article VII, no Member shall have priority over any other Member,
either as to the return of Capital Contributions or as to Net Profits, Net
Losses or distributions; provided that this Section 9.05 shall not apply to
loans (as distinguished from Capital Contributions) which a Member has made to
the Company.
10.06 BINDING AUTHORITY. No Member shall have authority to bind the
Company without the approval of the Management Committee in accordance with
Section 8.04(e) hereof.
10.07 CONSIDERATION OF THE COMPANY'S CREDITORS BY MEMBERS. When voting
on actions, each Member to the fullest extent permitted by law, including
Section 18-1101(c) of the Act, shall consider the interests of the Company's
creditors.
ARTICLE XI
MEETINGS OF MEMBERS
-------------------
11.01 MEETINGS. Meetings of the Members may be called for any purpose
or purposes and, unless otherwise prescribed by statute, may be called by any
Member.
11.02 PLACE OF MEETINGS. The Members may designate any place, either
within or outside the State of Delaware, as the place of meeting for any meeting
of the Members. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
Company.
11.03 NOTICE OF MEETINGS. Except as provided in Section 11.04, written
notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than seven
(7) nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the Manager or person calling
the meeting, to each Member entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered two (2) calendar days after being
deposited in the United States mail, addressed to the Member at its address as
it appears on the books of the Company, with postage thereon prepaid.
11.04 MEETING OF ALL MEMBERS. If all of the Members shall meet at any
time and place, either within or outside of the State of Delaware, and consent
to the holding of a meeting at such
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time and place, such meeting shall be valid without call or notice, and at such
meeting lawful action may be taken.
11.05 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. All Members who have not withdrawn from the Company
shall be entitled to vote on any matter submitted to a vote of the Members. When
a determination of Members entitled to vote at any meeting of Members has been
made as provided in this Section 10.05, such determination shall apply to any
adjournment thereof.
11.06 QUORUM. Members holding at least a Majority Interest, represented
in person or by proxy, shall constitute a quorum at any meeting of Members. In
the absence of a quorum at any such meeting, a majority of the Membership
Interests so represented may adjourn the meeting from time to time for a period
not to exceed sixty (60) days without further notice. However, if the
adjournment is for more than sixty (60) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Member of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The Members present at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the withdrawal during
such meeting of that number of Membership Interests whose absence would cause
less than a quorum.
11.07 MANNER OF ACTING. If a quorum is present, the affirmative vote of
Members holding a Majority Interest shall be the act of the Members, unless the
vote of a greater proportion or number is otherwise required by the Act. Such
action shall be evidenced by a written resolution for inclusion in the minutes
of the Company records.
11.08 PROXIES. At all meetings of Members, a Member that is entitled to
vote may vote in person or by proxy executed in writing by the Member or by a
duly authorized attorney-in-fact. Such proxy shall be filed with the Manager
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
11.09 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the action
is evidenced by one or more written consents describing the action taken, signed
by each Member entitled to vote and delivered to the Manager for inclusion in
the minutes or for filing with the Company records. Action taken under this
Section 11.09 is effective when all Members entitled to vote have signed the
consent, unless the consent specifies a different effective date. The record
date for
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determining Members entitled to take action without a meeting shall be the date
the first Member signs a written consent.
11.10 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the Member entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.
11.11 PARTICIPATION BY ELECTRONIC COMMUNICATION. A meeting among
Members may be held by any means of communication through which the participants
may simultaneously hear each other during the meeting, provided, that there is
at least one meeting each fiscal year at which all Members are present in
person. Subject to the preceding sentence, if all the other requirements for a
meeting are met, a Member participating in a meeting by electronic communication
shall be deemed to be present at the meeting in person or by proxy, as the case
may be, and the minutes may reflect such.
11.12 REPRESENTATIONS AND WARRANTIES. Each Member, and in the case of
an Entity, the Person(s) executing this Agreement on behalf of the Entity,
hereby represents and warrants to the Company and each other Member: (a) that
the Member is acquiring its interest in the Company for the Member's own account
as an investment and without an intent to distribute the interest and (b) that
the Member acknowledges that the interests have not been registered under the
Securities Act of 1933, as amended, or any state securities laws, and may not be
resold or transferred by the Member without appropriate registration or the
availability of an exemption from such requirements.
11.13 CONFLICTS OF INTEREST.
(a) A Member shall be entitled to enter into transactions that
may be considered to be competitive with, or a business opportunity that may be
beneficial to, the Company, it being expressly understood that one or more of
the Members may enter into transactions that are similar to the transactions
into which the Company may enter. Notwithstanding the foregoing, Members shall
account to the Company and hold as trustee for it any property, profit or
benefit derived by the Member, without the consent of the other Members, in the
conduct and winding up of the Company business or from a use or appropriation by
the Member of Company property, including, without limitation, information
developed exclusively for the Company and opportunities expressly offered to the
Company.
(b) No resolution adopted, or contract or transaction entered
into, by the Members of the Company (an "action"), shall be void or voidable
with respect to the Company for the reason that it is between or affects the
Company and one or more of its Members, or is between or affects the Company and
any other entity in which one or more of its Members is a member, manager,
director, trustee or officer, or has a financial or personal interest, or for
the reason that one or more interested Members participates in or votes at the
meeting that authorizes such contract, action or transaction, if in any case any
of the following apply:
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(i) The material facts as to his or their
relationship or interest and as to the contract, action or transaction
are disclosed or are known to the Manager and the Manager, in good
faith reasonably justified by such facts, authorize the contract,
action or transaction; or
(ii) The contract, action, or transaction is fair to
the Company as of the time it is authorized or approved by the Manager.
ARTICLE XII
TRANSFERABILITY
---------------
12.01 TRANSFERS. Subject to and in full compliance with the terms and
conditions of this Agreement, including, but not limited to, the conditions set
forth in Section 12.02, any Member may Transfer to any Person permitted to be a
member of a limited liability company under the Act, all or a fractional portion
of such Member's Membership Interest in the Company.
12.02 CONDITIONS TO TRANSFERS. No Member may make a Transfer of its
Membership Interest in the Company without the satisfaction of all of the
conditions set forth in this Section 12.02. The Company will register the
Membership Interest in the name of a transferee, and the transferee shall be
deemed to own such Membership Interest and shall become a Member, with the
rights and responsibilities of a Member, only if and when all of the following
conditions are satisfied:
(a) the Company has received a written instrument of
Transfer of such Membership Interest in a form
satisfactory to the Company, which instrument shall
be signed by the Transferor and the transferee and
shall contain the name and address of the transferee
and the transferee's express acceptance of and
agreement to be bound by all of the terms and
conditions of this Agreement;
(b) all requirements of applicable state and federal
securities laws have been met;
(c) such Transfer will not result in the Company being
classified as an "association" which is taxable as a
corporation for federal income tax purposes;
(d) the Company shall have been reimbursed by the
Transferor for all reasonable expenses incurred by
the Company in connection with such Transfer,
including but not limited to, reasonable attorneys'
fees and expenses relating to evaluation of the
proposed Transfer and the
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preparation, filing and/or publishing of any and all
documents necessary or appropriate to effectuate such
Transfer; and
(e) in the case of a Transfer which results from a pledge
or other similar encumbrance arising in connection
with the securing of a loan or other obligation of
the Transferor, all applicable conditions to the
transfer of ownership of the Membership Interest to
the pledgee or holder of the pledge or encumbrance
set forth in the agreement(s) relating thereto shall
have been satisfied.
12.03 SUBSTITUTION OF A MEMBER. A transferee of a Membership Interest
shall be admitted as a Substitute Member and admitted to all the rights of the
Transferor upon the satisfaction of the conditions set forth in Section 12.02.
If so admitted, the Substitute Member shall have all the rights and powers, and
be subject to all the restrictions on and liabilities of, the Transferor. In
addition, the Substitute Member is liable for the obligations of the Transferor
to make an Initial Capital Contribution or Additional Capital Contributions, if
any. The admission of a Substitute Member shall not release the Transferor from
any liability to the Company that may have existed prior to the Transfer of the
Membership Interest to the Substitute Member.
12.04 PLEDGE OR OTHER ENCUMBRANCE. A Membership Interest can be pledged
or otherwise encumbered, provided that no transfer of ownership of the
Membership Interest shall occur in connection with such pledge or other
encumbrance unless the conditions of Section 12.02(e) are satisfied.
ARTICLE XIII
DISSOLUTION, TERMINATION AND
----------------------------
LIQUIDATION OF THE COMPANY
--------------------------
13.01 DISSOLUTION.
(a) Subject to Sections 7.03 and 13.01(d), the Company shall
be dissolved and its affairs wound up upon the first to occur of any of the
following events (which, unless in the case of the events described in section
13.01(a)(ii) the Members agree to continue the business of the Company, shall
constitute "Dissolution Events"):
(i) at any time there are no members of the Company
unless the business of the Company is continued without
dissolution in a manner permitted by the Act;
(ii) the entry of a decree of judicial dissolution
under the Act; or
(iii)the sale of all or substantially all of the
assets of the Company.
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(b) The death, retirement, resignation, expulsion, bankruptcy
or dissolution of any Member of the Company or the occurrence of any other event
that terminates the continued membership of any Member of the Company shall not
cause the Company to be dissolved or its affairs to be wound up, and upon the
occurrence of any such event, the Company shall be continued without
dissolution. Notwithstanding any other provision in this Agreement, the
bankruptcy (as defined in Section 18-101(1) and 18-304 of the Act) of a Member
shall not cause the Member to cease to be a member of the Company, and upon the
occurrence of such an event, the business of the Company shall be continued
without dissolution. Notwithstanding any other provision of this Agreement, the
Members waive any right that they might have under Section 18-801(b) of the Act
to agree in writing to dissolve the Company upon the bankruptcy of a Member or
the occurrence of any other event that causes a Member to cease to be a member
of the Company.
(c) Upon the occurrence of a Dissolution Event, the Company
shall continue its existence until the winding up of the affairs is completed
and a certificate of cancellation of the Certificate of Formation has been filed
with the Secretary of State of the State of Delaware. A reasonable time shall be
allowed for the orderly liquidation of the assets of the Company and the
discharge of the Company's liabilities to creditors so as to minimize the normal
losses attendant to such liquidation.
(d) The Members shall not be permitted to dissolve the Company
by consent, unless the Management Committee, with the affirmative vote of both
Independent Committee Members, approves such dissolution and the Rating Agency
Condition shall have been satisfied.
13.02 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS.
(a) Upon the occurrence of a Dissolution Event, an accounting
shall be made by the Company's independent accountants of the accounts of the
Company and of the Company's assets, liabilities and operations, from the date
of the last previous accounting until the date of dissolution. The Manager shall
immediately proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be
wound up, the Manager shall sell or otherwise liquidate all of the Company's
assets as promptly as practicable (except to the extent the Manager may
determine to distribute any assets to the Members in kind) and distribute the
proceeds of the liquidation of such assets and any other remaining, unliquidated
assets in the following order of priority:
(i) to creditors, excluding Members who are
creditors, to the extent permitted by law, in satisfaction of
the Company's liabilities (whether by payment or the making of
reasonable provision for payment thereof);
(ii) to Members who are creditors of the Company in
satisfaction of Company liabilities, including, without
limitation, the repayment of principal of
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and interest on loans made by Members to the Company (whether
by payment or the making of reasonable provision for payment
thereof); and
(iii) to Members in accordance with positive Capital
Account balances taking into account all Capital Account
adjustments for the Company's fiscal year in which the
liquidation occurs.
Liquidation proceeds shall be paid within sixty (60) days of the end of the
Company's fiscal year or, if later, within ninety (90) days after the date of
dissolution; provided, that, any distributions of the positive balances of
Members' Capital Accounts shall be made in accordance with the time requirements
set forth in Section 1.704-1(b)(2)(ii)(b)(2) of the Treasury Regulations.
(c) If any assets of the Company are to be distributed in
kind, the net fair market value of such assets as of the date of dissolution
shall be determined by independent appraisal or by agreement of the Members.
Such assets shall be deemed to have been sold as of the date of dissolution for
their fair market value, and the Capital Accounts of the Members shall be
adjusted pursuant to the provisions of Article VI of this Agreement to reflect
such deemed sale.
(d) Notwithstanding anything to the contrary in this
Agreement, upon a liquidation within the meaning of Section 1.704-l(b)(2)(ii)(g)
of the Treasury Regulations, if any Member has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions, allocations
and other Capital Account adjustments for all taxable years, including the year
during which such liquidation occurs), such Member shall have no obligation to
make any Capital Contribution, and the negative balance of such Member's Capital
Account shall not be considered a debt owed by such Member to the Company or to
any other Person for any purpose whatsoever.
(e) The Manager shall comply with any applicable requirements
of applicable law pertaining to the winding up of the affairs of the Company and
the final distribution of its assets.
13.03 CERTIFICATE OF CANCELLATION. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, a certificate of cancellation shall be executed and filed in
accordance with the Act. Upon the filing with the Secretary of State of the
State of Delaware of a certificate of cancellation of the Certificate of
Formation, the existence of the Company shall cease.
13.04 RETURN OF CONTRIBUTION NONRECOURSE TO OTHER MEMBERS. Except as
provided by law or as expressly provided in this Agreement, upon dissolution,
each Member shall look solely to the assets of the Company for the return of its
Capital Contribution. If the Company property remaining after the payment or
discharge of the debts and liabilities of the Company is
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insufficient to return the cash contribution of one or more Members, such Member
or Members shall have no recourse against any other Member.
13.05 FINAL ACCOUNTING. Each of the Members shall be furnished a
statement reviewed by the Company's accountants, which shall set forth the
assets and liabilities of the Company as at the date of distribution and
liquidation of the Company.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
------------------------
14.01 NOTICES. Any notice, demand, or communication required or
permitted to be given by any provision of this Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally to
the party or to an executive officer of the party to whom the same is directed
or, if sent by registered or certified mail, postage and charges prepaid,
addressed to the Member's or Company's address, as appropriate, which is set
forth in this Agreement.
14.02 FISCAL YEAR. The Company's fiscal year for financial and income
tax purposes shall end on June 30 of each year.
14.03 APPLICATION OF DELAWARE LAW. This Agreement and the application
or interpretation hereof shall be governed exclusively by its terms and by the
laws of the State of Delaware, and specifically the Act, without regard to
principles of conflicts of laws.
14.04 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably waives
during the term of the Company any right that it may have to maintain any action
for partition with respect to the property of the Company.
14.05 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. This Agreement and the
Certificate of Formation may not be amended, restated or otherwise modified in
any respect by the Members, Management Committee or Manager without the Approval
of the Members and the approval of the Management Committee, including the
affirmative vote of both Independent Committee Members nor may it be amended
without the consent of each Member adversely affected if such amendment would
(i) modify the limited liability of a Member or (ii) alter the interest of a
Member in Net Profits, Net Losses, other items, or any Company distributions.
Notwithstanding the foregoing, Sections 1.18, 1.33, 6.03, 8.02, 8.03, 8.04(d),
9.03, 9.10 and 13.01 of this Agreement shall not be amended, restated or
otherwise modified, unless the Rating Agency Condition shall have been
satisfied.
14.06 CONSTRUCTION. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and neuter
genders and vice versa.
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14.07 HEADINGS AND PRONOUNS. The headings in this Agreement are
inserted for convenience only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof. All pronouns and any variations thereof shall be deemed to refer to
masculine, feminine or neuter, singular or plural as the identity of the Person
or Persons may require.
14.08 WAIVERS. The failure of any party to seek redress for violation
of or to insist upon the strict performance of any covenant or condition of this
Agreement shall not be deemed a waiver of such violation or failure to perform
or of any subsequent violation or failure to perform.
14.09 SUCCESSORS AND ASSIGNS. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective legal representatives, successors and assigns.
14.10 CREDITORS. Except as otherwise provided in this Agreement, none
of the provisions of this Agreement shall be for the benefit of or enforceable
by any creditors of the Company.
14.11 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
14.12 ENFORCEMENT OF INDEPENDENT COMMITTEE MEMBERS. Notwithstanding any
other provision of this Agreement, the Members agree that this Agreement,
including, without limitation, Article VIII, constitutes a legal, valid and
binding agreement of the Members, and is enforceable against the Members by the
Independent Committee Members, in accordance with its terms. In addition, the
Independent Committee Members shall be beneficiaries of this Agreement.
14.13 INDEMNIFICATION OF MEMBERS AND COMMITTEE MEMBERS. Subject to
applicable law, the Company shall indemnify and advance expenses to each present
and future Member and Committee Member of the Company (and, in either case, any
heirs, estate, executors or administrators of any of them) to the full extent
allowed by the laws of the State of Delaware, both as now in effect and as
hereafter adopted.
IN WITNESS WHEREOF, this Agreement has been executed by the Members as
evidenced by their signature on the attached signature page to be effective as
of the date first above written.
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MEMBER'S SIGNATURE PAGE
Each of the undersigned agrees to become a Member in Student Loan
Funding LLC, and each shall be bound by all the terms of the Agreement to which
this signature page is attached.
Student Loan Funding Resources, Inc.
By: /S/ THOMAS L. CONLAN, JR.
---------------------------------
Its: President & CEO
--------------------------------
SLF Enterprises, Inc.
By: /S/ THOMAS L. CONLAN, JR.
---------------------------------
Its: President
--------------------------------
<PAGE> 34
EXHIBIT 2.01 - CERTIFICATE OF FORMATION
---------------------------------------
CERTIFICATE OF FORMATION
OF
STUDENT LOAN FUNDING LLC
This Certificate of Formation is being executed by the undersigned for
the purpose of forming a limited liability company pursuant to the Delaware
Limited Liability Act.
1. The name of the limited liability company is Student Loan
Funding LLC.
2. The address of the registered office and the registered agent
of the limited liability company in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered
agent of the limited liability company is The Corporation
Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation on this 20th day of May, 1998.
/S/ CATHRYN D. GRIFFIN
-------------------------------------
Cathryn D. Griffin, Authorized Person
<PAGE> 35
EXHIBIT 5.01 - MEMBERS
----------------------
Name Address
- ---- -------
Student Loan Funding One West Fourth Street, Suite 200
Resources, Inc., an Ohio Cincinnati, Ohio 45202
corporation
SLF Enterprises, Inc., an One West Fourth Street, Suite 220
Ohio corporation Cincinnati, Ohio 45202
<PAGE> 36
EXHIBIT 6.01 - CAPITAL CONTRIBUTIONS AND MEMBERSHIP INTERESTS
-------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Capital Membership
Member Name Contribution Interest
- ----------- --------------- ----------
<S> <C> <C>
Student Loan Funding Resources, $990.00 99%
Inc.
SLF Enterprises, Inc. $ 10.00 1%
</TABLE>
<PAGE> 37
EXHIBIT 8.02 - MEMBERS OF THE MANAGEMENT COMMITTEE
--------------------------------------------------
Thomas L. Conlan, Jr.
Brian A. Ross
Christopher P. Chapman
Kim E. Lutthans - Independent Committee Member
Mark A. Ferrucci - Independent Committee Member
<PAGE> 38
EXHIBIT 8.05 - INITIAL OFFICERS
-------------------------------
Name Office
- ---- ------
Thomas L. Conlan, Jr. President
Brian A. Ross Senior Vice President and Manager
Patricia Mann Smitson Secretary
<PAGE> 1
EXHIBIT 3.3
TRUST AGREEMENT
Relating to
STUDENT LOAN FUNDING 1998-A/B TRUST
Dated as of March 1, 1999
among
STUDENT LOAN FUNDING LLC,
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as Delaware Trustee,
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as Co-Owner Trustee
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as Co-Owner Eligible Lender Trustee
<PAGE> 2
TABLE OF CONTENTS
INTRODUCTION...................................................................1
ARTICLE I......................................................................1
DEFINITIONS....................................................................1
Section 1.1. Definitions....................................................1
Section 1.2. Usage of Terms.................................................5
Section 1.3. Section References.............................................5
ARTICLE II.....................................................................6
CREATION OF TRUST..............................................................6
Section 2.1. Creation of Trust..............................................6
Section 2.2. Office.........................................................6
Section 2.3. Purposes and Powers............................................6
Section 2.4. Appointment of Delaware Trustee, Co-Owner Trustee
and Co-Owner Eligible Lender Trustee...........................7
Section 2.5. Initial Capital Contribution of Trust Estate...................7
Section 2.6. Declaration of Trust...........................................7
Section 2.7. Liability of a The Certificateholder...........................8
Section 2.8. Title to Trust Property........................................8
Section 2.9. Situs of Trust.................................................8
Section 2.10. Representations and Warranties of the Depositor................9
Section 2.11. Federal Income Tax Allocations................................10
Section 2.12 Covenants of The Certificateholder............................10
ARTICLE III...................................................................11
THE CERTIFICATE...............................................................11
i
<PAGE> 3
Section 3.1. Initial Ownership.............................................11
Section 3.2. The Certificate...............................................11
Section 3.3. Authentication of Certificate.................................11
Section 3.4. Registration of Transfer and Exchange of Certificate..........11
Section 3.5. Mutilated, Destroyed, Lost or Stolen Certificate..............12
Section 3.6. Person Deemed Certificateholder...............................13
Section 3.7. Access to Certificateholder's Name and Address................13
Section 3.8. Maintenance of Office or Agency...............................13
Section 3.9. Appointment of Paying Agent...................................14
ARTICLE IV....................................................................15
ACTIONS BY DELAWARE TRUSTEE, CO-OWNER TRUSTEE AND
CO-OWNER ELIGIBLE LENDER TRUSTEE..............................................15
Section 4.1. Restriction on Power of The Certificateholder.................15
Section 4.2. Prior Notice to Certificateholder with Respect to Certain
Matters.......................................................15
Section 4.3. Action by Certificateholder with Respect to Bankruptcy........15
Section 4.4. Restrictions on Certificateholder's Power.....................15
Section 4.5. Rights of Certificateholder...................................16
ARTICLE V.....................................................................17
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES....................................17
Section 5.1. Certificate Contribution Account; Certificate Distribution
Account.......................................................17
Section 5.2. Application of Funds in Certificate Distribution Account
and Certificate Contribution Account..........................18
Section 5.3. Method of Payment.............................................19
Section 5.4. No Segregation of Moneys; No Interest.........................19
Section 5.5. Accounting: Reports: Tax Returns..............................19
ARTICLE VI....................................................................20
ii
<PAGE> 4
AUTHORITY AND DUTIES OF DELAWARE TRUSTEE, CO-OWNER
TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE..................................20
Section 6.1. General Authority.............................................20
Section 6.2. General Duties................................................20
Section 6.3. Action upon Instruction.......................................20
Section 6.4. No Duties Except as Specified in this Agreement or in
Instructions..................................................22
Section 6.5. No Action Except under Specified Documents or Instructions....22
Section 6.6. Restrictions..................................................22
Section 6.7. Administration Agreement......................................23
ARTICLE VII...................................................................24
CONCERNING THE DELAWARE TRUSTEE, CO-OWNER TRUSTEE AND
CO-OWNER ELIGIBLE LENDER TRUSTEE..............................................24
Section 7.1. Acceptance of Delaware Trustee, Co-Owner Trustee and
Co-Owner Eligible Lender Trustee; Duties......................24
Section 7.2. Furnishing of Documents.......................................25
Section 7.3. Representations and Warranties................................25
Section 7.4. Reliance; Advice of Counsel...................................27
Section 7.5. Not Acting in Individual Capacity.............................28
Section 7.6. Delaware Trustee Not Liable for Certificate, Notes or
Financed Student Loans........................................28
Section 7.7. Delaware Trustee, Co-Owner Trustee and Co-Owner Eligible
Lender Trustee May Own Certificate and Notes..................29
ARTICLE VIII..................................................................30
COMPENSATION OF DELAWARE TRUSTEE, CO-OWNER TRUSTEE AND
CO-OWNER ELIGIBLE LENDER TRUSTEE..............................................30
Section 8.1. Fees and Expenses of Delaware Trustee, Co-Owner Trustee and
Co-Owner Eligible Lender Trustee..............................30
Section 8.2. Indemnification...............................................30
iii
<PAGE> 5
Section 8.3. Non-recourse Obligations......................................31
ARTICLE IX....................................................................32
TERMINATION...................................................................32
Section 9.1. Termination of the Trust......................................32
ARTICLE X.....................................................................34
SUCCESSOR DELAWARE TRUSTEES, CO-OWNER TRUSTEES
AND CO-OWNER ELIGIBLE LENDER TRUSTEES.........................................34
Section 10.1. Eligibility Requirements for Delaware Trustee, Co-Owner
Trustee and Co-Owner Eligible Lender Trustee..................34
Section 10.2. Resignation or Removal of Delaware Trustee, Co-Owner
Trustee and Co-Owner Eligible Lender Trustee..................34
Section 10.3. Successor Trustee.............................................35
Section 10.4. Merger or Consolidation of Delaware Trustee, Co-Owner
Trustee or Co-Owner Eligible Lender Trustee...................36
Section 10.5. Appointment of Additional Co-Trustee or Separate Trustee......36
ARTICLE XI....................................................................39
MISCELLANEOUS PROVISIONS......................................................39
Section 11.1. Amendment.....................................................39
Section 11.2. No Recourse...................................................40
Section 11.3. Governing Law.................................................40
Section 11.4. Severability of Provisions....................................41
Section 11.5. Certificate Nonassessable and Fully Paid......................41
Section 11.6. Third-Party Beneficiaries.....................................41
Section 11.7. Counterparts..................................................41
Section 11.8. Notices.......................................................41
SIGNATURES....................................................................43
iv
<PAGE> 6
EXHIBIT A - FORM OF TRUST CERTIFICATE
EXHIBIT B - FORM OF PURCHASER'S LETTER
v
<PAGE> 7
THIS TRUST AGREEMENT, dated as of March 1, 1999, is made among STUDENT
LOAN FUNDING, LLC, a Delaware limited liability company (together with its
permitted successors and assigns, the "Depositor"), FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association, not in its individual
capacity, but solely as Delaware Trustee of the Trust created hereunder (in such
capacity, the "Delaware Trustee"), FIRSTAR BANK, NATIONAL ASSOCIATION, a
national banking association, not in its individual capacity, but solely as
co-owner trustee of the Trust created hereunder (in such capacity, the "Co-Owner
Trustee") and FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity, but solely as co-owner eligible
lender trustee for the benefit of the Co-Owner Trustee (in such capacity, the
"Co-Owner Eligible Lender Trustee").
WHEREAS, the Depositor has heretofore issued and sold certain Notes
secured under the hereinafter-defined Indenture and now desires to form a common
law (as opposed to statutory) trust under the laws of the State of Delaware (the
"Trust") and, in connection therewith, to assign all the assets pledged under
the Indenture to secure the payment of the Notes to the Co-Owner Trustee and,
but solely with respect to legal title to the Financed Student Loans, to the
Co-Owner Eligible Lender Trustee, in consideration of the assumption by the
Co-Owner Trustee of all the Depositor's obligations with respect to the Notes;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
Capitalized words and phrases used as defined words and phrases and not
otherwise defined herein shall have the meanings given such words and phrases in
the Indenture. The following words and phrases, unless otherwise specified,
shall have the following meanings:
"Administration Agreement" shall mean the Administration Agreement,
to be dated as of March 15, 1999, between the Administrator and the
Co-Owner Trustee, as the same may be amended and supplemented from time to
time.
"Administrator" shall mean Student Loan Funding Resources,
Inc., an Ohio corporation, or any successor Administrator under the
Administration Agreement.
"Agreement" or "this Agreement" shall mean this Trust Agreement, all
amendments and supplements thereto and all exhibits and schedules to any
of the foregoing.
"Authentication Agent" shall mean Firstar Bank, National
Association, or its successor in interest, and any successor
authentication agent appointed as provided in this Agreement.
1
<PAGE> 8
"Benefit Plan" shall mean the meaning assigned in Section 3.4
hereof.
"Business Day" shall mean any day on which the Delaware Trustee,
Co-Owner Trustee and the Paying Agent, if any, at their respective
addresses set forth in or for purposes of this Agreement, are open for
commercial banking business and on which the New York Stock Exchange is
open.
"Certificate" shall mean a certificate executed by the Delaware
Trustee and authenticated by the Authentication Agent evidencing an
undivided interest, whether fractional or whole, in the Trust.
"Certificate Contribution Account" shall mean the account designated
as the Certificate Contribution Account in, and which is established and
maintained pursuant to, Section 5.1 hereof.
"Certificate Distribution Account" shall mean the account designated
as the Certificate Distribution Account in, and which is established and
maintained pursuant to, Section 5.1 hereof.
"Certificate Register" shall mean the register maintained by the
Certificate Registrar pursuant to Section 3.4 hereof.
"Certificate Registrar" shall mean the registrar appointed pursuant
to Section 3.4 hereof.
"Certificateholder" or "Holder" shall mean the Person in whose name
the Certificate is registered in the Certificate Register; provided,
however, that if no Certificate has been issued by the Delaware Trustee,
the Depositor shall be deemed to be the Certificateholder for purposes of
this Agreement.
Certificateholder's Distribution Date" shall mean the date on which
amounts in the Certificate Distribution Account are disbursed by the
Co-Owner Trustee to the Certificateholder which Date shall be the last
Business Day of each calendar month in which a deposit has been made to
the Certificate Distribution Account at least one day prior to such last
Business Day.
"Closing Date" shall mean March 4, 1999.
"Co-Owner Eligible Lender Trust Agreement" shall mean the Co-Owner
Eligible Lender Trust Agreement, dated as of March 1, 1999, by and between
the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee, as
originally executed and as from time to time amended or supplemented.
"Co-Owner Eligible Lender Trustee" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely as eligible lender
trustee for the benefit of the Co-Owner Trustee, and its permitted
successors and assigns.
2
<PAGE> 9
"Co-Owner Trustee" shall mean Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of the
Trust created hereunder, and its permitted successors and assigns.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
"Corporate Trust Office" shall mean (i) with respect to the Delaware
Trustee, the principal office of the Delaware Trustee at which, at any
particular time, its corporate trust business shall be administered, which
office at the Closing Date is located at One Rodney Square, Suite 100, 920
King Street, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration; the telecopy number for the Corporate Trust Office on the
date of the execution of this Agreement is (302) 888-7544 ; (ii) with
respect to the Co-Owner Trustee, the principal office of the Co-Owner
Trustee at which, at any particular time, its corporate trust business
shall be administered, which office at the Closing Date is located at 425
Walnut Street, Cincinnati, Ohio 45202, Attention: Corporate Trust
Administration; the telecopy number for the Corporate Trust Office on the
date of the execution of this Agreement is (513) 632-5511 and (iii) with
respect to the Co-Owner Eligible Lender Trustee, at the principal office
of the Co-Owner Eligible Lender Trustee at which, at any particular time,
its corporate trust business shall be administered, which office at the
Closing Date is located at 425 Walnut Street, Cincinnati, Ohio 45202,
Attention: Corporate Trust Administration -- Eligible Lender Trustee; the
telecopy number for the Corporate Trust Office of the Co-Owner Eligible
Lender Trustee on the date of the execution of this Agreement is (513)
632-5511.
"Delaware Trustee" shall mean First Union Trust Company, National
Association, not in its individual capacity, but solely as Delaware
trustee of the Trust created hereunder, and any successor trustee
appointed as provided in this Agreement.
"Depositor" shall mean Student Loan Funding LLC, a Delaware limited
liability company, and its permitted successors and assigns.
"Depositor Eligible Lender Trustee" shall mean Firstar Bank,
National Association (successor by merger to Star Bank, National
Association), as the eligible lender trustee under the Eligible Lender
Trust Agreement, and its lawful successors and assigns.
"Eligible Lender Trust Agreement" shall mean the Eligible Lender
Trust Agreement, dated as of June 1, 1998, by and between the Depositor
and the Depositor Eligible Lender Trustee, as originally executed and as
from time to time amended or supplemented.
"ERISA" shall mean the meaning assigned to such term in Section
3.4(e) hereof.
"Expenses" shall have the meaning assigned to such term in Section
8.2 hereof.
"Indemnified Parties" shall mean the meaning assigned to such term
in Section 8.2 hereof.
3
<PAGE> 10
"Indenture" shall mean, collectively, the Indenture of Trust and the
Terms Supplement to the Indenture of Trust, each dated as of December 1,
1998, among the Depositor, the Depositor Eligible Lender Trustee and the
Indenture Trustee, as amended, supplemented or
restated from time to time.
"Indenture Trustee" shall mean Firstar Bank, National Association
(successor by merger to Star Bank, National Association), or its successor
in interest, acting not individually but solely as trustee, and any
successor trustee appointed as provided in the Indenture.
"Instructing Party" shall have the meaning assigned to such term in
Section 6.3(a) hereof
"Master Servicing Agreement" shall mean the Master Servicing
Agreement, to be dated as of March 15, 1999, between the Co-Owner Trustee
and the Administrator, as the same may be amended and supplemented from
time to time.
"Notes" shall mean the Student Loan Asset-Backed Notes, Senior
Series 1998A-3, Senior Series 1998A-4, Senior Series 1998A-5, Senior
Series 1998A-6 and Subordinate Series 1998B-3, dated December 22, 1998,
issued by the Depositor under the Indenture and to be assigned by the
Depositor to, and assumed by, the Co-Owner Trustee pursuant to the
Transfer and Sale Agreement, and any notes issued in exchange therefor.
"Paying Agent" shall mean any paying agent or co-paying agent
appointed pursuant to Section 3.9 hereof, which initially shall be Firstar
Bank, National Association.
"Percentage Interest" shall mean that percentage of the total
beneficial interest in the Trust that is held by the Certificateholder,
which Percentage Interest with respect to the initially issued Certificate
shall be 100%.
"Record Date" shall mean, with respect to the Certificateholder's
Distribution Date, the close of business on the last Business Day
immediately preceding such Certificateholder's Distribution Date.
"Related Documents" shall mean the Co-Owner Eligible Lender Trust
Agreement, the Transfer and Sale Agreement, the Master Servicing
Agreement, the Indenture, the Certificate, the Notes and the
Administration Agreement. The Related Documents executed by any party are
referred to herein as "such party's Related Documents," "its Related
Documents" or by a similar expression.
"Responsible Officer" shall mean a duly appointed officer of the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender
Trustee, having responsibility for performance of the respective
obligations of the Delaware Trustee, the Co-Owner Trustee or Co-Owner
Eligible Lender Trustee hereunder.
"Student Loan" shall have the meaning assigned to such term in
Section 1.1 of the Indenture.
4
<PAGE> 11
"Transfer and Sale Agreement" shall mean the Transfer and Sale
Agreement, to be dated as of March 15, 1999, among the Transferor, the
Co-Owner Trustee and the Co-Owner Eligible Lender Trustee, as the same may
be amended and supplemented from time to time.
"Transferor" shall mean, collectively, the Depositor or its
successor in interest, and the Depositor Eligible Lender Trustee or its
successor in interest, if and to the extent that the Depositor Eligible
Lender Trustee holds legal title to the Financed Student Loans on behalf
of the Depositor to be transferred in trust to the Co-Owner Eligible
Lender Trustee.
"Trust" shall mean the common law (as opposed to statutory) trust
created by this Agreement under the laws of the State of Delaware and
designated "Student Loan Funding 1998-A/B Trust", the estate of which
consists of the Trust Property.
"Trust Property" shall mean the property and proceeds of every
description conveyed to the Co-Owner Trustee and, but solely with respect
to legal title to the Financed Student Loans, the Co-Owner Eligible Lender
Trustee (i) initially pursuant to Section 2.5 hereof and (ii) hereafter
pursuant to the Transfer and Sale Agreement, together with all amounts
deposited in the Certificate Contribution Account and the Certificate
Distribution Account (including all Eligible Investments therein and all
proceeds therefrom).
"Trustee" shall mean any one of the Trustees.
"Trustees" shall mean, collectively, the Delaware Trustee, the
Co-Owner Trustee and the Co-Owner Eligible Lender Trustee.
Section 1.2 Usage of Terms.
With respect to all terms used in this Agreement, the singular includes
the plural and the plural the singular; words importing any gender include the
other genders; references to "writing" include printing, typing, lithography,
and other means of reproducing words in a visible form; references to agreements
and other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the terms "include" or "including" mean "include
without limitation" or "including without limitation." To the extent that
definitions are contained in this Agreement, or in any such certificate or other
document, such definitions shall control.
Section 1.3 Section References.
All references to Articles, Sections, paragraphs, subsections, exhibits
and schedules shall be to such portions of this Agreement unless otherwise
specified.
5
<PAGE> 12
ARTICLE II
CREATION OF TRUST
Section 2.1 Creation of Trust.
There is hereby formed a common law (as opposed to statutory) trust to be
known as "Student Loan Funding 1998-A/B Trust," under which and in which name,
but solely to the extent provided in this Agreement, the Delaware Trustee, the
Co-Owner Trustee and the Co-Owner Eligible Lender Trustee may conduct business,
make and execute contracts and other instruments and sue and be sued. References
to the name "Student Loan Funding 1998-A/B Trust" in this Agreement, any Related
Document or any registration statement and related prospectus shall mean Firstar
Bank, National Association, not in its individual capacity, but solely as
Co-Owner Trustee of the Trust.
Section 2.2 Office.
Except as otherwise provided in this Agreement with respect to the
Delaware Trustee for purposes of performance of the duties of the Delaware
Trustee set forth herein, the office of the Trust shall be in care of the
Co-Owner Trustee at its Corporate Trust Office or at such other address in the
State of Ohio as the Co-Owner Trustee may designate by written notice to the
Delaware Trustee, the Certificateholder and the Depositor.
Section 2.3 Purposes and Powers.
(a) The purpose of the Trust is, and the Delaware Trustee, the Co-Owner
Trustee and the Co-Owner Eligible Lender Trustee on behalf of the Trust, but
each only to the extent provided in this Agreement, shall have the power and
authority, to engage in the following activities:
(i) to issue and sell the initial Certificate pursuant to this
Agreement and to pay the organizational, start-up and transactional
expenses of the Trust from amounts on deposit in the Certificate
Contribution Account;
(ii) to execute and deliver the Transfer and Sale Agreement, whereby
the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee, in
consideration of the assignment and transfer by the Depositor and the
Depositor Eligible Lender Trustee of all of the assets pledged under the
Indenture, will assume all obligations of the Depositor and the Depositor
Eligible Lender Trustee under the Notes and the Indenture;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Trust Property to which it holds title, to the Indenture Trustee for the
benefit of the Noteholders and to hold, manage and distribute to the
Certificateholder pursuant to the terms hereof any portion of the Trust
Property released from the lien of, and remitted to the Co-Owner Trustee
for deposit in the Trust pursuant to, the Indenture;
(iv) to issue and exchange Exchange Notes for the outstanding Notes
pursuant to the Exchange Offer;
(v) to enter into and perform its obligations under the Related
Documents to which it is a party;
6
<PAGE> 13
(vi) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vii) subject to compliance with the Related Documents, to engage in
such other activities as may be required in connection with conservation
of the Trust Property and the making of distributions to the
Certificateholder.
(b) Except as otherwise expressly provided herein with respect to the
Delaware Trustee and the Co-Owner Eligible Lender Trustee, the Co-Owner Trustee
is hereby authorized to engage in the foregoing activities. The Co-Owner Trustee
shall not engage in any activity other than in connection with the foregoing or
other than as required or expressly authorized by the terms of this Agreement or
the Related Documents.
Section 2.4 Appointment of Delaware Trustee, Co-Owner Trustee and Co-Owner
Eligible Lender Trustee.
The Depositor hereby appoints (i) the Delaware Trustee as trustee of the
Trust, (ii) the Co-Owner Trustee as co-trustee of the Trust and (iii) the
Co-Owner Eligible Lender Trustee as eligible lender trustee of the Trust,
effective as of the date hereof, to have all the respective rights, powers and
duties set forth herein. Each of the Delaware Trustee, the Co-Owner Trustee and
the Co-Owner Eligible Lender Trustee hereby accepts its respective appointment.
Section 2.5 Initial Capital Contribution of Trust Property.
The Depositor hereby assigns, transfers, conveys and sets over to the
Co-Owner Trustee, as of the date hereof, the sum of One Hundred Dollars ($100).
The Co-Owner Trustee hereby acknowledges receipt in trust from the Depositor, as
of the date hereof, of the foregoing contribution, which shall constitute the
initial Trust Property and shall be deposited in the Certificate Contribution
Account. To the extent not otherwise provided for by amounts on deposit in the
Certificate Contribution Account, the Depositor shall pay organizational
expenses of the Trust as they may arise or shall, upon the request of the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee,
promptly reimburse the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee for any such expenses paid by the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee.
Section 2.6 Declaration of Trust.
Each of the Delaware Trustee, the Co-Owner Trustee and the Co-Owner
Eligible Lender Trustee hereby declares that it will hold the Trust Property in
trust upon and subject to the conditions set forth herein for the use and
benefit of the Certificateholder, subject to the interests and rights in the
Trust Property granted to other Persons by the Related Documents. It is the
intention and agreement of the parties hereto that the Trust constitute a common
law (as opposed to a statutory) trust under the laws of the State of Delaware
and that this Agreement constitute the governing instrument of such trust. It is
the intention and agreement of the parties hereto that, solely for income and
franchise tax purposes, the Trust, having at all times but a single
Certificateholder, shall be treated as a "disregarded entity", i.e. the Trust
will be disregarded as an entity separate from the Certificateholder. Unless
otherwise required by appropriate tax
7
<PAGE> 14
authorities, the Trust will file or cause to be filed all required annual or
other necessary returns, reports and other forms consistent with the
characterization of the Trust as a "disregarded entity" for such tax purposes.
Effective as of the date hereof, each of the Delaware Trustee, the Co-Owner
Trustee and the Co-Owner Eligible Lender Trustee shall have all rights, powers
and duties set forth herein and in the laws of the State of Delaware with
respect to accomplishing the purposes of the Trust.
Section 2.7 Liability of a Certificateholder.
(a) The Certificateholder shall not be liable directly to indemnify an
injured party for all losses, claims, damages, liabilities and expenses of the
Trust, to the extent not paid out of the Trust Property. The Certificateholder
shall not be liable for any losses incurred by a Note Owner in the capacity of
an investor in the Notes.
(b) The Certificateholder shall not have any personal liability for any
liability or obligation of the Trust or by reason of any action taken by the
parties to this Agreement pursuant to any provisions of this Agreement or any
Related Document.
Section 2.8 Title to Trust Property.
(a) Legal title to all the Trust Property (other than the Financed Student
Loans) shall be vested at all times in the Co-Owner Trustee, not in its
individual capacity but solely as Co-Owner Trustee of the Trust and except where
applicable law in any jurisdiction requires title to any part of such Trust
Property to be vested in another trustee or trustees, in which case title shall
be deemed to be vested in such other co-trustee and/or separate trustee, as the
case may be. Legal title to all Trust Property consisting of the Financed
Student Loans shall be vested at all times in the Co-Owner Eligible Lender
Trustee, not in its individual capacity but solely as Co-Owner Eligible Lender
Trustee of the Trust and except where applicable law in any jurisdiction
requires title to the Financed Student Loans to be vested in another trustee or
trustees, in which case title shall be deemed to be vested in such other
co-trustee and/or separate trustee, as the case may be, provided, however, that
any such trustee shall be an "eligible lender" under the Higher Education Act.
(b) The Certificateholder shall not have legal title to any part of the
Trust Property. The Certificateholder shall be entitled to receive distributions
with respect to its undivided beneficial interest therein only in accordance
with Articles V and IX of this Agreement. No transfer, by operation of law or
otherwise, of any right, title or interest by the Certificateholder of its
ownership interest in the Trust Property shall operate to terminate this
Agreement or the trusts hereunder or entitle any transferee to an accounting or
to the transfer to it of legal title to any part of the Trust Property.
Section 2.9 Situs of Trust.
The chief executive office and principal place of business of the Trust
will be located at the Corporate Trust Office of the Co-Owner Trustee. The Trust
shall at all times be administered in the State of Ohio. All bank accounts shall
be maintained by the Co-Owner Trustee and shall be located in the State of Ohio.
The Trust shall not have any employees in any state; provided, however, that
nothing herein shall restrict or prohibit the Delaware Trustee, the Co-Owner
8
<PAGE> 15
Trustee, the Co-Owner Eligible Lender Trustee, the Depositor, the Administrator,
the Servicer or any agent of the Trustees from having employees within or
without the State of Delaware or the State of Ohio. Payment will be received by
the Co-Owner Trustee only in the State of Ohio, and payments will be made by the
Co-Owner Trustee only from the State of Ohio.
Section 2.10 Representations and Warranties of the Depositor.
By execution of this Agreement, the Depositor makes the following
representations and warranties on which the Delaware Trustee, the Co-Owner
Trustee and the Co-Owner Eligible Lender Trustee each relies in accepting the
Trust Property in trust and issuing the Certificate:
(a) Organization and Good Standing. It has been duly organized and is
validly existing as a limited liability company in good standing under the laws
of the State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and as such business
is currently conducted and is proposed to be conducted pursuant to this
Agreement and the Related Documents.
(b) Due Qualification. It is duly qualified to do business as a limited
liability company in good standing, and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of its property,
the conduct of its business and the performance of its obligations under this
Agreement and the Related Documents requires such qualification.
(c) Power and Authority. It has the power and authority to execute and
deliver this Agreement and its Related Documents and to perform its obligations
pursuant thereto, and the execution, delivery and performance of this Agreement
and its Related Documents have been duly authorized by all necessary company
action.
(d) No Consent Required. No consent, license, approval or authorization or
registration or declaration with, any Person or with any governmental authority,
bureau or agency is required in connection with its execution, delivery or
performance of this Agreement and the Related Documents, except for such as have
been obtained, effected or made.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and its Related Documents and the fulfillment of its obligations
under this Agreement and its Related Documents shall not conflict with, result
in any breach of any of the terms and provisions of or constitute (with or
without notice, lapse of time or both) a default under, its certificate of
formation or limited liability company agreement, or any indenture, agreement,
mortgage, deed of trust or other instrument to which it is a party or by which
it is bound, or result in the creation or imposition of any lien upon any of its
properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust or other instrument, or violate any law, order, rule or regulation
applicable to it of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over it or any of its properties.
(f) No Proceedings. There are no proceedings or investigations pending or,
to its knowledge, threatened against it before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over it or its properties
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(i) asserting the invalidity of this Agreement or any of the Related Documents,
(ii) seeking to prevent the issuance of the Certificate or the Exchange Offer
with respect to the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Related Documents, (iii) seeking
any determination or ruling that might materially and adversely affect its
performance of its obligations under, or the validity or enforceability of, this
Agreement or any of the Related Documents, or (iv) seeking to adversely affect
the federal income tax or other federal, state or local tax attributes of the
Certificate.
Section 2.11 Federal Income Tax Allocations.
Net income of the Trust for any month as determined for Federal income tax
purposes (and each item of income, gain, loss and deduction entering into the
computation thereof) shall be allocated to the Certificateholder, as of the
Record Date for such month, in an amount equal to the amount distributable for
such month to such Certificateholder.
Section 2.12. Covenants of Certificateholder.
The Certificateholder agrees:
(a) to be bound by the terms and conditions of the Certificate and of this
Agreement, including any supplements or amendments hereto and to perform the
obligations of the Certificateholder as set forth therein or herein, in all
respects as if it were a signatory hereto. This undertaking is made for the
benefit of the Delaware Trustee, the Co-Owner Trustee, the Co-Owner Eligible
Lender Trustee and any other future Certificateholder.
(b) to hereby appoint the Administrator as such Certificateholder's agent
and attorney-in-fact to sign any federal income tax information return filed on
behalf of the Certificateholder with respect to this Agreement and that, if
requested by the Co-Owner Trustee, it will sign such federal income tax
information return in its capacity as holder of an interest in the Trust. The
Certificateholder also hereby agrees that in its tax returns it will not take
any position inconsistent with those taken in any tax returns filed by the
Administrator on behalf of the Certificateholder.
(c) to notify the Delaware Trustee and the Co-Owner Trustee of any
transfer by it of the Certificate in a taxable sale or exchange, within 30 days
of the date of the transfer.
(d) not to, for any reason, institute proceedings for the Trust to be
adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against the Trust, or file a petition seeking or
consenting to reorganization or relief under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trust or a
substantial part of its property, or cause or permit the Co-Owner Trustee or the
Co-Owner Eligible Lender Trustee to make any assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
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ARTICLE III
THE CERTIFICATE
Section 3.1. Initial Ownership.
Upon the creation of the Trust by the contribution by the Depositor
pursuant to Section 2.5 and in the absence of the issuance of the initial
Certificate, the Depositor shall be the sole beneficiary of the Trust.
Section 3.2. The Certificate.
A single Certificate registered in the name of the Depositor and
representing the whole beneficial interest in the Trust shall be initially
issued in accordance with the provisions of Section 3.3 hereof. The Certificate
shall be substantially in the form of Exhibit A to this Agreement with such
changes as are necessary or appropriate and not inconsistent with this
Agreement. The Certificate shall be executed by the Delaware Trustee by manual
or facsimile signature of any authorized signatory of the Delaware Trustee. A
Certificate bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Delaware Trustee shall be validly issued and entitled to the benefits of
this Agreement, notwithstanding that such individuals or any of them have ceased
to be so authorized prior to the authentication and delivery of such
Certificate.
Section 3.3. Authentication of Certificate.
Simultaneously with the assignment and transfer to the Trust of the Trust
Property pursuant to the Transfer and Sale Agreement and the delivery to the
Co-Owner Eligible Lender Trustee and the Co-Owner Trustee of the Financed
Student Loans and the other Trust Property, respectively, the Delaware Trustee
shall execute the Certificate and shall cause the Certificate to be
authenticated by the Authentication Agent and delivered to or upon the order of
the Depositor. No Certificate shall entitle its Holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication, executed by the Authentication
Agent, by manual signature; such authentication shall constitute conclusive
evidence that such Certificate shall have been duly authenticated and delivered
hereunder. The Co-Owner Trustee is hereby initially appointed Authentication
Agent. The Certificate shall be dated the date of its authentication.
Section 3.4. Registration of Transfer and Exchange of Certificate.
(a) The Certificate Registrar shall maintain, or cause to be maintained,
at the office or agency maintained pursuant to Section 3.8 hereof, a Certificate
Register in which, subject to such reasonable regulations as it may prescribe,
the Co-Owner Trustee shall provide for the registration of the Certificate and
of transfers and exchanges of the Certificate as provided in this Agreement. The
Co-Owner Trustee is hereby initially appointed Certificate Registrar for the
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purpose of registering the Certificate and transfers and exchanges of the
Certificate as provided in this Agreement.
(b) Subject to the provisions of paragraph (e) of this Section 3.4, the
Depositor, as the registered Holder of the initial single Certificate, may
transfer (but solely to the extent not otherwise limited or prohibited in the
Certificate or this Agreement), or exchange for other Certificates aggregating
Percentage Interests equal to 100%, the initial Certificate upon surrender of
such Certificate to be transferred or exchanged at the office or agency of the
Co-Owner Trustee maintained pursuant to Section 3.8 hereof. Upon surrender for
registration of transfer of any Certificate at the office or agency of the
Co-Owner Trustee maintained pursuant to Section 3.8 hereof, the Co-Owner Trustee
shall cause the Delaware Trustee to execute, and the Authentication Agent shall
authenticate and deliver in the name of the designated transferee, one or more
new Certificates in an aggregate amount equal to the surrendered Certificate,
each dated the date of authentication.
(c) Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Co-Owner Trustee and the Certificate Registrar, duly
executed by the Holder or its attorney duly authorized in writing. Each
Certificate surrendered for registration of transfer or exchange shall be
canceled and subsequently disposed of by the Co-Owner Trustee in accordance with
its customary practice.
(d) No service charge shall be made for any registration of transfer or
exchange of a Certificate, but the Co-Owner Trustee or the Certificate Registrar
(if different from the Co-Owner Trustee) may require payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in connection with
any transfer or exchange of a Certificate.
(e) No Certificate may be acquired by or for the account of (i) an
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that is subject to the
provisions of Title 1 of ERISA, (ii) a plan described in Section 4975(e)(1) of
the Code, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding a Certificate, the Certificateholder thereof shall be
deemed to have represented and warranted that it is not a Benefit Plan.
Section 3.5. Mutilated, Destroyed, Lost or Stolen Certificate.
If (a) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (b) there is delivered to
the Delaware Trustee, the Certificate Registrar (if different from the Co-Owner
Trustee) and the Co-Owner Trustee such security or indemnity as may be required
by them to save each of them harmless, then, in the absence of notice to the
Certificate Registrar, the Co-Owner Trustee or the Delaware Trustee that such
Certificate has been acquired by a bona fide purchaser, the Co-Owner Trustee
shall cause the Delaware Trustee to execute, and the Authentication Agent shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
amount. In connection with the issuance of any new Certificate under this
Section 3.5, the
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Co-Owner Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Co-Owner Trustee, the Delaware
Trustee and the Certificate Registrar) connected therewith. Any duplicate
Certificate issued pursuant to this Section 3.5 shall constitute conclusive
evidence of beneficial ownership in the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Certificate shall be found at any time.
Section 3.6. Person Deemed Certificateholder.
Prior to due presentation of a Certificate for registration of transfer,
the Co-Owner Trustee, the Certificate Registrar (if different from the Co-Owner
Trustee) and any agent of the Co-Owner Trustee or the Certificate Registrar may
treat the Person in whose name any Certificate is registered as the holder of
such Certificate for the purpose of receiving distributions pursuant to Section
5.2 hereof and for all other purposes whatsoever, and neither the Delaware
Trustee, the Co-Owner Trustee, or the Certificate Registrar nor any agent of the
Delaware Trustee, the Co-Owner Trustee or the Certificate Registrar shall be
affected by any notice to the contrary.
Section 3.7. [Reserved]
Section 3.8. Maintenance of Office or Agency.
(a) The Co-Owner Trustee shall maintain in Cincinnati, Ohio an office or
offices or agency or agencies where a Certificate may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Co-Owner Trustee in respect of such Certificate and the Related Documents
may be served. The Co-Owner Trustee initially designates its Corporate Trust
Office for such purposes. The Co-Owner Trustee shall give prompt written notice
to the Delaware Trustee, the Depositor, the Co-Owner Eligible Lender Trustee and
the Certificateholder of any change in the location of the Certificate Register
or any such office or agency.
(b) The Delaware Trustee shall maintain in Wilmington, Delaware an office
or offices from which it shall perform its obligations under this Agreement and
at which all service of process with respect to this Agreement shall be made.
The Delaware Trustee initially designates its Corporate Trust Office for such
purposes. The Delaware Trustee shall give prompt written notice to the Co-Owner
Trustee, the Depositor, the Co-Owner Eligible Lender Trustee and the
Certificateholder of any change in the location of such office or agency.
(c) The Co-Owner Eligible Lender Trustee shall maintain in Cincinnati,
Ohio an office or offices from which it shall perform its obligations under this
Agreement and at which all service of process with respect to this Agreement
shall be made. The Co-Owner Eligible Lender Trustee initially designates its
Corporate Trust Office for such purposes. The Co-Owner Eligible Lender Trustee
shall give prompt written notice to the Delaware Trustee, the Co-Owner Trustee,
the Depositor and the Certificateholder of any change in the location of such
office or agency.
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Section 3.9. Appointment of Paying Agent.
The Paying Agent shall make distributions to the Certificateholder from
the Certificate Distribution Account pursuant to Section 5.2 hereof and shall
report the amounts of such distributions to the Delaware Trustee and Co-Owner
Trustee (if different from the Paying Agent). Any Paying Agent (if different
from the Co-Owner Trustee) shall have the revocable power to withdraw funds from
the Certificate Distribution Account for the purpose of making the distributions
referred to above. The Co-Owner Trustee (if different from the Paying Agent) may
revoke such power and remove the Paying Agent if the Co-Owner Trustee determines
in its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect. The Paying Agent shall
initially be Firstar Bank, National Association, and any co-paying agent chosen
by Firstar Bank, National Association. Firstar Bank, National Association shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Delaware Trustee. In the event that Firstar Bank, National Association shall no
longer be the Paying Agent, the Co-Owner Trustee with the written consent of the
Delaware Trustee, shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company). The Co-Owner Trustee shall cause such successor
Paying Agent or any additional Paying Agent appointed by the Co-Owner Trustee to
execute and deliver to the Co-Owner Trustee an instrument in which such
successor Paying Agent or additional Paying Agent shall agree with the Co-Owner
Trustee that as Paying Agent, such successor Paying Agent or additional Paying
Agent will hold all sums, if any, held by it for payment to the
Certificateholder in trust for the benefit of the Certificateholder entitled
thereto until such sums shall be paid to such Certificateholder. The Paying
Agent (if different from the Co-Owner Trustee) shall return all unclaimed funds
to the Co-Owner Trustee and upon removal of a Paying Agent such Paying Agent
shall also return all funds in its possession to the Co-Owner Trustee (if
different from the Paying Agent). The provisions of Sections 7.1, 7.3, 7.4 and
8.2 hereof shall apply to the Co-Owner Trustee also in its role as Paying Agent,
for so long as the Co-Owner Trustee shall act as Paying Agent and, to the extent
applicable, to any other paying agent appointed hereunder. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
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ARTICLE IV
ACTIONS BY DELAWARE TRUSTEE,
CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 4.1. Restriction on Power of Certificateholder.
The Certificateholder shall not have any right to vote or in any manner
otherwise control the operation and management of the Trust except as expressly
provided in this Agreement.
Section 4.2. Prior Notice to Certificateholder with Respect to Certain
Matters.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall take any of the following actions, unless at least
30 days before the taking of such action, the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee, as the case may be, shall have
notified the other Trustees and the Certificateholder in writing of the proposed
action and the Certificateholder shall not have notified the Delaware Trustee or
the Co-Owner Trustee, as the case may be, in writing prior to the 30th day after
such notice is given that such Certificateholder has withheld consent or
provided alternative direction:
(a) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required unless such
amendment would not materially adversely affect the interests of the
Certificateholder, the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee; or
(b) the amendment, change or modification of the Administration Agreement,
unless such amendment would not materially adversely affect the interests of the
Certificateholder, the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee.
Section 4.3. Action by Certificateholder with Respect to Bankruptcy.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall have the power to commence a voluntary proceeding
in bankruptcy relating to the Trust, if otherwise permitted by applicable law,
without the prior approval of the Certificateholder and the delivery to the
Delaware Trustee and the Co-Owner Trustee by such Certificateholder of a
certificate certifying that such Certificateholder reasonably believes that the
Trust is insolvent.
Section 4.4. Restrictions on Certificateholder's Power.
The Certificateholder shall not have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement
or any Related Document, unless the Certificateholder previously shall have
given to the Delaware Trustee and the Co-Owner Trustee a written notice of
default and of the continuance thereof, as provided in this Agreement and unless
also the
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Certificateholder shall have made written request upon the Delaware Trustee and
the Co-Owner Trustee to institute such action, suit or proceeding in its own
respective names as Delaware Trustee and Co-Owner Trustee under this Agreement
and shall have offered to the Delaware Trustee and Co-Owner Trustee such
reasonable indemnity as each may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Delaware Trustee and
Co-Owner Trustee, for 30 days after their receipt of such notice, request, and
offer of indemnity, shall have neglected or refused to institute any such
action, suit, or proceeding and during such 30-day period, no request or waiver
inconsistent with such written request has been given to the Delaware Trustee
and Co-Owner Trustee pursuant to and in compliance with this Section or Section
6.3 hereof.
Section 4.5. Rights of Certificateholder.
Notwithstanding anything to the contrary in the Related Documents, without
the prior written consent of the Certificateholder, neither the Delaware
Trustee, the Co-Owner Trustee nor the Co-Owner Eligible Lender Trustee shall (i)
remove the Administrator, (ii) initiate any claim, suit or proceeding under this
Agreement or compromise any claim, suit or proceeding brought pursuant to this
Agreement or (iii) authorize the merger, conversion or consolidation of the
Trust with or into any business trust or other entity (other than in accordance
with the Indenture).
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ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1. Certificate Contribution Account; Certificate Distribution
Account.
(a) The Co-Owner Trustee, for the benefit of the Certificateholder, shall
establish and maintain the Certificate Contribution Account, in the name of the
Co-Owner Trustee for the benefit of the Certificateholder. The Certificate
Contribution Account shall be a segregated trust account hereunder established
by the Co-Owner Trustee and maintained at the Corporate Trust Office of the
Co-Owner Trustee. The Co-Owner Trustee shall deposit in the Certificate
Contribution Account all amounts received from the Depositor pursuant to Section
2.5 hereof.
(b) The Co-Owner Trustee, for the benefit of the Certificateholder, shall
establish and maintain the Certificate Distribution Account in the name of the
Trust for the benefit of the Certificateholder. The Certificate Distribution
Account shall be a segregated trust account hereunder established and maintained
by and with the Co-Owner Trustee at its Corporate Trust Office. The Co-Owner
Trustee shall deposit in the Certificate Distribution Account all amounts
received from the Indenture Trustee as and when received.
(c) The Co-Owner Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Certificate Contribution Account
and the Certificate Distribution Account and in all proceeds of each.
(d) All amounts held in the Certificate Distribution Account shall, to the
extent permitted by applicable laws, rules and regulations, be invested, by the
Co-Owner Trustee, in Eligible Investments that mature not later than one
Business Day prior to the Certificateholder's Distribution Date to which such
amounts relate. Investments in Eligible Investments shall be made in the name of
the Co-Owner Trustee, and such investments shall not be sold or disposed of
prior to their maturity. Any investment of funds in the Certificate Distribution
Account shall be made in Eligible Investments held by a financial institution
with respect to which (a) such institution has noted the Co-Owner Trustee's
interest therein by book entry or otherwise and (b) a confirmation of the
Co-Owner Trustee's interest has been sent to the Co-Owner Trustee by such
institution, provided that such Eligible Investments are (i) specific
certificated securities, and (ii) either (A) in the possession of such
institution or (B) in the possession of a clearing corporation in New York,
registered in the name of such clearing corporation, not endorsed for collection
or surrender or any other purpose not involving transfer, not containing any
evidence of a right or interest inconsistent with the Co-Owner Trustee's
interest therein, and held by such clearing corporation in an account of such
institution. Subject to the other provisions hereof, the Co-Owner Trustee shall
have sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall be
delivered directly to the Co-Owner Trustee or its agent, together with each
document of transfer, if any, necessary to transfer title to such investment to
the Co-Owner Trustee in a manner which complies with this Section 5.1. All
interest, gains upon sale and other income from, or earnings
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on investment of funds in the Certificate Distribution Account shall be
distributed on the next Certificateholder's Distribution Date pursuant to
Section 5.2 hereof.
Section 5.2. Application of Funds in Certificate Distribution Account and
Certificate Contribution Account.
(a) On each Certificateholder's Distribution Date, the Co-Owner Trustee
shall distribute to the Certificateholder the Certificateholder's pro rata
amount of the aggregate undistributed amounts deposited in the Certificate
Distribution Account pursuant to Section 5.1 hereof.
(b) On each Certificateholder's Distribution Date, the Co-Owner Trustee
shall send to the Certificateholder any statement received from the Indenture
Trustee pursuant to the Indenture.
(c) In the event that any withholding tax is imposed on the Co-Owner
Trustee's distribution (or allocations of income) to the Certificateholder, such
tax shall reduce the amount otherwise distributable to such Certificateholder in
accordance with this Section. The Co-Owner Trustee is hereby authorized and
directed to retain from amounts otherwise distributable to such
Certificateholder sufficient funds for the payment of any tax that is legally
owed on account of the Trust (but such authorization shall not prevent the
Co-Owner Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The amount of any withholding tax imposed with respect to
such Certificateholder shall be treated as cash distributed to such
Certificateholder at the time it is withheld by the Trust and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Co-Owner Trustee may, in its sole discretion, withhold
such amounts in accordance with this paragraph (c). In the event that such
Certificateholder wishes to apply for a refund of any such withholding tax, the
Co-Owner Trustee shall reasonably cooperate with such Certificateholder in
making such claim so long as such Certificateholder agrees to reimburse the
Co-Owner Trustee for any out-of-pocket expenses incurred.
(d) On any Business Day on which there are due and payable organizational,
start-up and transactional expenses pursuant to this Agreement, the Co-Owner
Trustee shall, to the extent of available amounts in the Certificate
Contribution Account, pay such expenses from the Certificate Contribution
Account; provided, however, that if an insufficiency in the Certificate
Contribution Account exists or would exist upon payment of such expenses, the
Co-Owner Trustee shall notify the Depositor in writing of such insufficiency and
the Depositor shall immediately pay to the Co-Owner Trustee an amount at least
equal to such insufficiency. To the extent that there are amounts on deposit in
the Certificate Distribution Account pending distribution on any such Business
Day, the Co-Owner Trustee, with the consent of the Certificateholder, may
transfer a portion or all of such amounts from the Certificate Distribution
Account to the Certificate Contribution Account and such amounts shall be
applied to the payment of the expenses payable from amounts in the Certificate
Contribution Account.
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Section 5.3. Method of Payment.
Subject to Section 9.1(c) hereof, distributions required to be made to the
Certificateholder on any Certificateholder's Distribution Date shall be made to
such Certificateholder of record on the preceding Record Date either by wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Distribution Date
and the amount of such distribution is not less than $50,000 or, if not, by
check mailed to such Certificateholder at the address of such Holder appearing
in the Certificate Register.
Section 5.4. No Segregation of Moneys; No Interest.
Subject to Sections 5.1 and 5.2, moneys received by the Co-Owner Trustee
hereunder need not be segregated in any manner except to the extent required by
law and may be deposited under such general conditions as may be prescribed by
law, and the Co-Owner Trustee shall not be liable for any interest thereon.
Section 5.5. Accounting; Reports; Tax Returns.
(a) The Administrator has agreed pursuant to the Administration Agreement
that the Administrator shall (i) maintain (or cause to be maintained) the books
of the Trust on a fiscal year basis on the accrual method of accounting (such
fiscal year initially being the fiscal year of the Depositor), (ii) deliver to
the Certificateholder, as may be required by the Code and applicable Treasury
Regulations, such information as may be required to enable such
Certificateholder to prepare its Federal and state income tax returns, (iii)
file or cause to be filed such tax returns, if any, relating to the Trust, and
direct the Co-Owner Trustee to make such elections as may from time to time be
required or appropriate under any applicable state or Federal statute or rule or
regulation thereunder so as to maintain the Trust's characterization as a
"disregarded entity" (or, if applicable, a partnership for Federal income tax
purposes), (iv) collect or cause to be collected any withholding tax as
described in and in accordance with Section 5.2(c) with respect to income or
distributions to the Certificateholder and (v) file or cause to be filed all
documents required to be filed by the Co-Owner Trustee with the Commission and
otherwise take or cause to be taken all such actions as are required for the
Trust's compliance with all applicable provisions of state and federal
securities laws.
(b) The Co-Owner Trustee shall make all elections pursuant to this Section
5.5 as directed in writing by the Certificateholder.
(c) The Co-Owner Trustee shall sign any tax returns relating to the Trust,
unless applicable law requires the Certificateholder to sign such documents, in
which case such documents shall be signed by the Certificateholder qualified to
sign such return, or such Certificateholder's law agent or attorney-in-fact. In
signing any such tax return, the Co-Owner Trustee shall rely entirely upon, and
shall have no liability for, information or calculations provided by the
Administrator.
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ARTICLE VI
AUTHORITY AND DUTIES OF DELAWARE TRUSTEE,
CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 6.1. General Authority.
The Co-Owner Trustee is authorized and directed to execute, not in its
individual capacity but solely as trustee of the Trust, and deliver, and the
Co-Owner Eligible Lender Trustee is authorized and directed to execute, not in
its individual capacity but solely as eligible lender trustee for the benefit of
the Co-Owner Trustee, and deliver, the Related Documents to which it is to be a
party and each certificate or other document attached as an exhibit to, or
contemplated by, the Related Documents to which the Trust is to be a party and
any amendment thereto. In addition to the foregoing, the Co-Owner Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Related Documents. The Co-Owner Trustee is further
authorized hereunder to enter into the Administration Agreement, to appoint,
with the prior written consent of the Depositor, a successor Administrator and
to take from time to time such action as the Administrator recommends with
respect to the Related Documents so long as such actions are consistent with the
terms of the Related Documents.
Section 6.2. General Duties.
It shall be the duty of the Co-Owner Trustee (and not the Delaware
Trustee) to discharge (or cause to be discharged through the Administrator or
such agents as shall be appointed by the Administrator) all of its
responsibilities pursuant to the terms of this Agreement and the Related
Documents and to administer the Trust in the interest of the Certificateholder,
subject to the Related Documents and in accordance with the provisions of this
Agreement. Notwithstanding the foregoing, the Co-Owner Trustee shall be deemed
to have discharged its duties and responsibilities hereunder and under the
Related Documents to the extent the Administrator has agreed in the
Administration Agreement, or the Co-Owner Eligible Lender Trustee has agreed in
the Co-Owner Eligible Lender Trust Agreement, to perform any act or to discharge
any duty of the Co-Owner Trustee hereunder or under any Related Document, and
the Co-Owner Trustee shall not be liable for the default or failure of the
Administrator or the Co-Owner Eligible Lender Trustee, as the case may be, to
carry out its obligations under the Administration Agreement or Co-Owner
Eligible Lender Trust Agreement, respectively.
Section 6.3. Action upon Instruction.
(a) Subject to Article IV of this Agreement, the Administrator (the
"Instructing Party") shall have the exclusive right to direct the actions of the
Co-Owner Trustee in the management of the Trust, so long as such instructions
are not inconsistent with the express terms set forth herein or in any Related
Document. The Instructing Party shall not instruct the Co-Owner Trustee in a
manner inconsistent with this Agreement or the Related Documents.
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(b) Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall be required to take any action hereunder or under
any Related Document if they, or any one of them, shall have reasonably
determined, or shall have been advised by counsel, that such action is contrary
to the terms hereof or of any Related Document or is otherwise contrary to law.
(c) Whenever the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee is unable to decide between alternative courses of
action permitted or required by the terms of this Agreement or any Related
Document, the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee, as the case may be, shall promptly give notice (in such form as
shall be appropriate under the circumstances) to the Instructing Party
requesting instruction as to the course of action to be adopted, and to the
extent the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender acts in good faith in accordance with any written instruction received
from the Instructing Party, neither the Delaware Trustee, the Co-Owner Trustee
nor the Co-Owner Eligible Lender Trustee, as the case may be, shall be liable on
account of such action to any Person. If the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee shall not have received
appropriate instruction within ten days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances), it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Related
Documents, as it shall deem to be in the best interests of the
Certificateholder, and shall have no liability to any Person for such action or
inaction.
(d) In the event that the Delaware Trustee, the Co-Owner Trustee or the
Co-Owner Eligible Lender Trustee is unsure as to the application of any
provision of this Agreement or any Related Document or any such provision is
ambiguous as to its application, or is, or appears to be, in conflict with any
other applicable provision, or in the event that this Agreement permits any
determination by the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee or is silent or is incomplete as to the course of action
that the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender
Trustee is required to take with respect to a particular set of facts, the
Delaware Trustee, the Co-Owner Trustee, or the Co-Owner Eligible Lender Trustee
may give notice (in such form as shall be appropriate under the circumstances)
to the Instructing Party requesting instruction and, to the extent that the
Delaware Trustee, the Co-Owner Trustee and/or the Co-Owner Eligible Lender
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, neither the Delaware Trustee, the Co-Owner Trustee nor the
Co-Owner Eligible Lender Trustee shall be liable on account of such action or
inaction to any Person. If the Delaware Trustee, the Co-Owner Trustee or the
Co-Owner Eligible Lender Trustee shall not have received appropriate instruction
within 10 days of such notice (or within such shorter period of time as
reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Related
Documents, as it shall deem to be in the best interests of the
Certificateholder, and shall have no liability to any Person for such action or
inaction.
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Section 6.4. No Duties Except as Specified in this Agreement or in
Instructions.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall have any duty or obligation to manage, make any
payment with respect to, register, record, sell, dispose of or otherwise deal
with the Trust Property, or to otherwise take or refrain from taking any action
under, or in connection with, any document contemplated hereby to which any one
of them is a party, except as expressly provided by the terms of this Agreement
(including as provided in Section 6.2 hereof) or in any written instruction
received by the Co-Owner Trustee or Co-Owner Eligible Lender Trustee pursuant to
Section 6.3 hereof; and no implied duties or obligations shall be read into this
Agreement or any Related Document against the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee. Neither the Delaware Trustee,
the Co-Owner Trustee nor the Co-Owner Eligible Lender Trustee shall have any
responsibility for preparing, monitoring or filing any financing or continuation
statements in any public office at any time or otherwise to perfect or maintain
the perfection of any security interest or lien granted to it hereunder or to
record this Agreement or any Related Document; provided, however, the Co-Owner
Trustee and the Co-Owner Eligible Lender Trustee shall, from time to time,
execute and deliver such financing or continuation statements as are prepared by
the Administrator or the Indenture Trustee and are delivered to the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee for execution for the purpose of
perfecting or maintaining the perfection of such a security interest or lien or
effecting such a recording. Each of the Delaware Trustee, the Co-Owner Trustee
and the Co-Owner Eligible Lender Trustee, nevertheless, agrees that it will, at
its own cost and expense (and not at the expense of the Trust), promptly take
all action as may be necessary to discharge any liens on any part of the Trust
Property that are attributable to claims against the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee in its individual
capacity, respectively, that are not related to the ownership or the
administration of the Trust Property.
Section 6.5. No Action Except under Specified Documents or Instructions.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall manage, control, use, sell, dispose of or
otherwise deal with any part of, the Trust Property except (i) in accordance
with the powers granted to and the authority conferred upon the Delaware
Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee,
respectively, pursuant to this Agreement, (ii) in accordance with the Related
Documents and (iii) in accordance with any document or instruction delivered to
the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender
Trustee, respectively, pursuant to Section 6.3 or Section 6.4 hereof.
Section 6.6. Restrictions.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall take any action (i) that is inconsistent with the
purposes of the Trust set forth in Section 2.3 hereof or (ii) that, to the
actual knowledge of the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee would result in the Trust's becoming taxable as a
corporation for Federal income tax purposes. The Certificateholder shall not
direct the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee to take action that would violate the provisions of this Section.
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Section 6.7. Administration Agreement.
(a) The Administrator is authorized to execute on behalf of Co-Owner
Trustee as trustee of the Trust all documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Co-Owner Trustee to
prepare, file or deliver pursuant to the Related Documents. Upon written
request, the Co-Owner Trustee shall execute and deliver to the Administrator a
power of attorney appointing the Administrator its agent and attorney-in-fact to
execute all such documents, reports, filings, instruments, certificates and
opinions.
(b) If the Administrator shall resign or be removed pursuant to the terms
of the Administration Agreement, the Co-Owner Trustee may, and is hereby
authorized and empowered to, subject to obtaining the prior written consent of
the Depositor, appoint or consent to the appointment of a successor
Administrator pursuant to the Administration Agreement.
(c) If the Administration Agreement is terminated, the Co-Owner Trustee
may, and is hereby authorized and empowered to, subject to obtaining the prior
written consent of the Depositor, appoint or consent to the appointment of a
Person to perform substantially the same duties as are assigned to the
Administrator in the Administration Agreement pursuant to an agreement
containing substantially the same provisions as are contained in the
Administration Agreement.
(d) The Co-Owner Trustee shall promptly notify the Certificateholder of
any default by or misconduct of the Administrator under the Administration
Agreement of which the Co-Owner Trustee has received written notice or of which
a Responsible Officer has actual knowledge.
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ARTICLE VII
CONCERNING THE DELAWARE TRUSTEE,
THE CO-OWNER TRUSTEE AND THE CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 7.1. Acceptance of Delaware Trustee, Co-Owner Trustee and
Co-Owner Eligible Lender Trustee; Duties.
Each of the Delaware Trustee, the Co-Owner Trustee and the Co-Owner
Eligible Lender Trustee accepts the trusts hereby created and agrees to perform
its respective duties hereunder with respect to such trusts but only upon the
terms of this Agreement. The Co-Owner Trustee also agrees to disburse all moneys
actually received by it constituting part of the Trust Property upon the terms
of the Related Documents and this Agreement. Neither the Delaware Trustee, the
Co-Owner Trustee nor the Co-Owner Eligible Lender Trustee shall be answerable or
accountable hereunder or under any Related Document under any circumstances,
except that the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee, as applicable, shall be answerable or accountable hereunder (i)
for its own willful misconduct or negligence, (ii) in the case of the inaccuracy
of any representation or warranty given by it contained in Section 7.3 hereof,
(iii) for liabilities arising from its failure to perform obligations expressly
undertaken by it in the last sentence of Section 6.4 hereof, (iv) for any
investments issued by it or any branch or affiliate thereof in its commercial
capacity and (v) for taxes, fees or other charges on, based on or measured by,
any fees, commissions or compensation received by it in connection with any of
the transactions contemplated by this Agreement or any Related Document. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall be liable for any error of judgment made in good
faith by an authorized officer of the Delaware Trustee, the Co-Owner Trustee or
the Co-Owner Eligible Lender Trustee, respectively;
(b) neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall be liable with respect to any action taken or
omitted to be taken by either in good faith in accordance with the instructions
of the Instructing Party;
(c) no provision of this Agreement or any Related Document shall require
the Delaware Trustee, the Co-Owner Trustee and/or the Co-Owner Eligible Lender
Trustee to expend or risk funds or otherwise incur any financial liability in
the performance of its rights or powers hereunder or under any Related Document
if they shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
or provided to them;
(d) under no circumstances shall the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee be liable for indebtedness
evidenced by or arising under this Agreement or any of the Related Documents,
including the principal of and interest and any Carryover Interest on the Notes;
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(e) neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall be responsible for or in respect of the validity
or sufficiency of this Agreement or for the due execution hereof by the
Depositor or each other hereunder or for the form, character, genuineness,
sufficiency, value or validity of any of the Trust Property or for or in respect
of the validity or sufficiency of the Related Documents, other than (i) with
respect to the Delaware Trustee, the execution by the Delaware Trustee of each
Certificate and (ii) with respect to the Co-Owner Trustee, the certificate of
authentication on a Certificate, and neither the Delaware Trustee, the Co-Owner
Trustee nor the Co-Owner Eligible Lender Trustee shall in any event assume or
incur any liability, duty, or obligation to each other, the Administrator, the
Indenture Trustee, any Noteholder or to any Certificateholder, other than as
expressly provided for herein and in the Related Documents;
(f) neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall be liable for the default or misconduct of each
other, the Administrator, the Indenture Trustee or the Depositor under any of
the Related Documents or otherwise and neither the Delaware Trustee, the
Co-Owner Trustee nor the Co-Owner Eligible Lender Trustee shall have any
obligation or liability to perform the obligations under this Agreement or the
Related Documents that are required to be performed by the Administrator under
the Administration Agreement, by the Indenture Trustee under the Indenture or by
the Master Servicer under the Master Servicing Agreement; and
(g) neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall be under any obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement or any Related Document, at the request, order or direction of the
Instructing Party, unless such Instructing Party has offered to it security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by it therein or thereby. The right of the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee to perform any
discretionary act enumerated in this Agreement or in any Related Document shall
not be construed as a duty, and neither the Delaware Trustee, the Co-Owner
Trustee nor the Co-Owner Eligible Lender Trustee shall be answerable for other
than its own negligence or willful misconduct in the performance of any such
act.
Section 7.2. Furnishing of Documents.
The Co-Owner Trustee shall furnish to the Certificateholder promptly
upon receipt of a written request therefor, duplicates or copies of all reports,
notices, requests, demands, certificates, financial statements and any other
instruments furnished to it under the Related Documents unless such
Certificateholder has previously received such items.
Section 7.3. Representations and Warranties.
(a) The Delaware Trustee hereby represents and warrants to the
Depositor and the Certificateholder that:
(i) It is a national banking association duly organized and
validly existing in good standing under the laws of the United States
of America. It has all requisite
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corporate power and authority and all franchises, grants,
authorizations, consents, orders and approvals from all governmental
authorities necessary to execute, deliver and perform its obligations
under this Agreement and each Related Document to which it, not in its
individual capacity but solely as trustee of the Trust, is a party.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it, not in its individual capacity but
solely as trustee of the Trust, of this Agreement and the Certificate,
and this Agreement has been executed and delivered by one of its
officers who is duly authorized to execute and deliver this Agreement
on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any federal or Delaware law, governmental rule or
regulation governing the banking or trust powers of the Delaware
Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound or result in the creation
or imposition of any lien, charge or encumbrance on the Trust Property
resulting from actions by or claims against the Delaware Trustee
individually which are unrelated to this Agreement or the Related
Documents.
(b) The Co-Owner Trustee hereby represents and warrants to the
Depositor and the Certificateholder that:
(i) It is a national banking association duly organized and
validly existing in good standing under the laws of the United States
of America. It has all requisite corporate power and authority and all
franchises, grants, authorizations, consents, orders and approvals from
all governmental authorities necessary to execute, deliver and perform
its obligations under this Agreement and each Related Document to which
it, not in its individual capacity but solely as trustee of the Trust,
is a party.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement and each Related
Document to which it, not in its individual capacity but solely as
trustee of the Trust, is a party, and this Agreement and each Related
Document will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement and each Related
Document on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any federal or Ohio law, governmental rule or
regulation governing the banking or trust powers of the Co-Owner
Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound or result in the creation
or imposition of any lien, charge or encumbrance on the Trust Property
resulting from
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actions by or claims against the Co-Owner Trustee individually which
are unrelated to this Agreement or the Related Documents.
(c) The Co-Owner Eligible Lender Trustee hereby represents and warrants
to the Depositor and the Certificateholder that:
(i) It is a national banking association duly organized and
validly existing in good standing under the laws of the United States
of America. It has all requisite corporate power and authority and all
franchises, grants, authorizations, consents, orders and approvals from
all governmental authorities necessary to execute, deliver and perform
its obligations under this Agreement and each Related Document to which
it, not in its individual capacity but solely as eligible lender
trustee for the benefit of the Co-Owner Trustee, is a party.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement and each Related
Document to which it, not in its individual capacity but solely as
trustee of the Trust, is a party, and this Agreement and each Related
Document will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement and each Related
Document on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any federal or Ohio law, governmental rule or
regulation governing the banking or trust powers of the Co-Owner
Eligible Lender Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a
party or by which any of its properties may be bound or result in the
creation or imposition of any lien, charge or encumbrance on the Trust
Property resulting from actions by or claims against the Co-Owner
Eligible Lender Trustee individually which are unrelated to this
Agreement or the Related Documents.
(iv) It is and will use its best efforts to remain an
"eligible lender" under the Higher Education Act.
Section 7.4. Reliance; Advice of Counsel.
(a) Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall incur any liability to anyone in acting upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond, or other document or paper believed by it to be genuine
and believed by it to be signed by the proper party or parties. The Delaware
Trustee, the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee may
accept a certified copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the method of the determination of which is
not specifically prescribed herein, the Delaware Trustee, the Co-Owner Trustee
and the Co-Owner Eligible Lender Trustee may for all purposes hereof rely
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on a certificate, signed by the president or any vice president or by the
treasurer or other authorized officers of the relevant party, as to such fact or
matter, and such certificate shall constitute full protection to the Delaware
Trustee, the Co-Owner Trustee and Co-Owner Eligible Lender Trustee,
respectively, for any action taken or omitted to be taken by it in good faith in
reliance thereon.
(b) In the exercise or administration of the trusts hereunder and the
performance of its respective duties and obligations under this Agreement or the
Related Documents, each of the Delaware Trustee, the Co-Owner Trustee and the
Co-Owner Eligible Lender Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with it, and neither the Delaware
Trustee, the Co-Owner Trustee nor the Co-Owner Eligible Lender Trustee shall be
liable for the conduct or misconduct of such agents or attorneys if such agents
or attorneys shall have been selected by it with reasonable care, and (ii) may
consult with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. Neither the Delaware Trustee, the Co-Owner
Trustee nor the Co-Owner Eligible Lender Trustee shall be liable for anything
done, suffered or omitted in good faith by it in accordance with the written
opinion or advice of any such counsel, accountants or other such persons and not
contrary to this Agreement or any Related Document.
Section 7.5. Not Acting in Individual Capacity.
(a) Except as provided in this Article VII, in accepting the trusts
hereby created First Union Trust Company, National Association acts solely as
Delaware Trustee hereunder and not in its individual capacity and all Persons
having any claim against the Delaware Trustee by reason of the transactions
contemplated by this Agreement or any Related Document shall look only to the
Trust Property for payment or satisfaction thereof.
(b) Except as provided in this Article VII, in accepting the trusts
hereby created Firstar Bank, National Association acts solely as Co-Owner
Trustee hereunder and not in its individual capacity and all Persons having any
claim against the Co-Owner Trustee by reason of the transactions contemplated by
this Agreement or any Related Document shall look only to the Trust Property for
payment or satisfaction thereof.
(c) Except as provided in this Article VII, in accepting the trusts
hereby created Firstar Bank, National Association acts solely as Co-Owner
Eligible Lender Trustee hereunder and not in its individual capacity and all
Persons having any claim against the Co-Owner Eligible Lender Trustee by reason
of the transactions contemplated by this Agreement or any Related Document shall
look only to the Trust Property for payment or satisfaction thereof.
Section 7.6. Delaware Trustee Not Liable for Certificate, Notes or
Financed Student Loans.
The recitals contained herein and in each Certificate (other than the
signature of the Delaware Trustee and the signature of the Co-Owner Trustee, as
Authentication Agent, on each Certificate) shall be taken as the statements of
the Depositor, and neither the Delaware Trustee, the Co-Owner Trustee nor the
Co-Owner Eligible Lender Trustee assumes any responsibility for the correctness
thereof. Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
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Eligible Lender Trustee makes any representations as to the validity or
sufficiency of this Agreement, of any Related Document or of the Certificate
(other than representations of the Delaware Trustee regarding the signature of
the Delaware Trustee on the Certificate and representations of the Co-Owner
Trustee, as Authentication Agent, regarding its signature on the certificate of
authentication on the Certificate) or the Notes, or of any Financed Student Loan
or related documents. Neither the Delaware Trustee, the Co-Owner Trustee nor the
Co-Owner Eligible Lender Trustee shall at any time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Financed Student Loan, or the perfection and priority of any security
interest created under the Indenture in any Financed Student Loan or the
maintenance of any such perfection and priority of any such security interest or
the maintenance of any such perfection and priority, or for or with respect to
the sufficiency of the Trust Property or its ability to generate the payments to
be distributed to the Certificateholder under this Agreement or the Noteholders
under the Indenture, including, without limitation: the existence, status and
ownership of any Financed Student Loan; the existence and enforceability of any
insurance or guarantee thereon; the existence and status of any Financed Student
Loan on any computer or other record thereof; the validity of the sale or
assignment of any Financed Student Loan to the Co-Owner Eligible Lender Trustee
or of any intervening sale or assignment; the validity or sufficiency of any
Guarantee; the completeness of any Financed Student Loan; the performance or
enforcement of any Financed Student Loan; the compliance by the Administrator or
the Master Servicer with any warranty or representation made under any Related
Document or in any other related document or the accuracy of any such warranty
or representation or any action of the Indenture Trustee, the Administrator or
the Master Servicer taken in the name of the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee.
Section 7.7. Delaware Trustee, Co-Owner Trustee and Co-Owner Eligible
Lender Trustee May Own Certificate and Notes.
The Delaware Trustee in its individual or any other capacity, the
Co-Owner Trustee in its individual or any other capacity, and the Co-Owner
Eligible Lender Trustee in its individual or any other capacity, or any one of
them, may become the owner or pledgee of a Certificate or Notes and may deal
with the Depositor, the Indenture Trustee, any Guarantee Agency and the Master
Servicer in banking or other transactions with the same rights as it would have
if it were not Delaware Trustee, Co-Owner Trustee or Co-Owner Eligible Lender
Trustee, respectively.
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ARTICLE VIII
COMPENSATION OF Delaware Trustee,
THE CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 8.1. Fees and Expenses of Delaware Trustee, Co-Owner Trustee
and Co-Owner Eligible Lender Trustee.
(a) The Delaware Trustee shall receive as compensation for its services
hereunder such fees as have been separately agreed upon before the date hereof
between the Depositor and the Delaware Trustee, and the Delaware Trustee shall
be entitled to be reimbursed by the Depositor for its other reasonable expenses
hereunder, including the reasonable compensation, expenses and disbursements of
such agents, representatives, experts and counsel as the Delaware Trustee may
reasonably determine are necessary to employ in connection with the exercise and
performance of its rights and its duties hereunder.
(b) The Co-Owner Trustee shall receive as compensation for its services
hereunder such fees as have been separately agreed upon before the date hereof
between the Depositor and the Co-Owner Trustee, and the Co-Owner Trustee shall
be entitled to be reimbursed by the Depositor for its other reasonable expenses
hereunder, including the reasonable compensation, expenses and disbursements of
such agents, representatives, experts and counsel as the Co-Owner Trustee may
reasonably determine are necessary to employ in connection with the exercise and
performance of its rights and its duties hereunder.
(c) The Co-Owner Eligible Lender Trustee shall receive as compensation
for its services hereunder such fees as have been separately agreed upon before
the date hereof between the Depositor and the Co-Owner Eligible Lender Trustee,
and the Co-Owner Eligible Lender Trustee shall be entitled to be reimbursed by
the Depositor for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Co-Owner Eligible Lender Trustee may
reasonably determine are necessary to employ in connection with the exercise and
performance of its rights and its duties hereunder.
Section 8.2. Indemnification.
The Depositor shall be liable as primary obligor for, and shall
indemnify each of the Delaware Trustee in its individual capacity and its
successors, assigns, agents and servants, the Co-Owner Trustee in its individual
capacity and its successors, assigns, agents and servants and any other
co-trustee and the Co-Owner Eligible Lender Trustee in its individual capacity
and its successors, assigns, agents and servants and any other co-trustee
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may, at any time, be imposed on, incurred by, or asserted
against the
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Delaware Trustee, the Co-Owner Trustee, the Co-Owner Eligible Lender Trustee or
any other Indemnified Party in any way relating to or arising out of this
Agreement, the Related Documents, the Trust Property, the administration of the
Trust Property or the action or inaction of the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee hereunder; provided, however,
that the Depositor shall not be liable for or required to indemnify the Delaware
Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee from and
against Expenses arising or resulting from any of the matters described in the
third sentence of Section 7.1 hereof; and, provided further that,
notwithstanding anything in this Agreement to the contrary, the indemnification
provided herein shall be payable solely from the Trust Property. The
indemnification contained in this Section shall survive the resignation or
termination of the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, or any of them, or the termination of this Agreement.
Section 8.3. Non-recourse Obligations.
Notwithstanding anything in this Agreement or any Related Document to
the contrary, each of the Delaware Trustee, the Co-Owner Trustee and the
Co-Owner Eligible Lender Trustee agrees in its individual capacity and in its
respective capacity as Delaware Trustee, Co-Owner Trustee or Co-Owner Eligible
Lender Trustee of the Trust that all obligations under this Agreement to the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee,
individually or as Trustees, respectively, of the Trust shall be recourse to the
Trust Property only and specifically shall not be recourse to the assets of the
Certificateholder.
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ARTICLE IX
TERMINATION
Section 9.1. Termination of the Trust.
(a) Subject to distribution to the Certificateholder by the Co-Owner
Trustee of any amounts deposited or to be deposited in the Certificate
Distribution Account, the respective obligations and responsibilities of the
Depositor, the Delaware Trustee, the Co-Owner Trustee and the Co-Owner Eligible
Lender Trustee created by this Agreement and the Trust created by this Agreement
shall terminate upon the earlier to occur of (i) the maturity or other
liquidation of the last Financed Student Loan (including the auction sale by the
Indenture Trustee of the remaining Financed Student Loans in the Trust as
described in Section 3.02 of the Terms Supplement and the subsequent
distribution of amounts in respect of such auction sale as provided in the
Indenture and the other Related Documents) and (ii) the payment to the
Noteholders of all amounts payable pursuant to the Indenture. In any case, there
shall be delivered to the Delaware Trustee, the Co-Owner Trustee, the Co-Owner
Eligible Lender Trustee and the Indenture Trustee an Opinion of Counsel that all
applicable preference periods under federal, state and local bankruptcy,
insolvency and similar laws have expired with respect to the payments pursuant
to the immediately preceding clause (ii); provided, however, that in no event
shall the trust created by this Agreement continue beyond the defeasance of the
Indenture in accordance with the provisions of Article X thereof; and provided,
further, that the rights to indemnification under Section 8.2 shall survive the
termination of the Trust. The bankruptcy, liquidation, dissolution, termination,
resignation, expulsion, withdrawal, death or incapacity of any
Certificateholder, shall not (x) operate to terminate this Agreement or the
Trust, nor (y) entitle such Certificateholder's legal representatives or heirs
to claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Trust Property nor
(z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Neither the Depositor nor the Certificateholder shall be entitled
to revoke or terminate the Trust.
(c) Within five Business Days of receipt by the Co-Owner Trustee of
notice from the Indenture Trustee given pursuant to Section 5.9 of the Indenture
of final distribution to the Co-Owner Trustee of amounts held under the
Indenture, the Co-Owner Trustee shall mail written notice to the
Certificateholder, specifying (i) the Certificateholder's Distribution Date upon
which final distribution of amounts received hereunder shall be made upon
presentation and surrender of such Certificateholder's Certificate at the office
of the Paying Agent therein specified, (ii) the amount of any such final
payment, and (iii) that the Record Date otherwise applicable to such
Certificateholder's Distribution Date is not applicable, payments being made
only upon presentation and surrender of such Certificate at the office of the
Paying Agent therein specified. The Co-Owner Trustee shall give such notice to
the Certificate Registrar (if different from the Co-Owner Trustee) at the time
such notice is given to such Certificateholder. In the
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event such notice is given, the Co-Owner Trustee shall make deposits into the
Certificate Distribution Account in accordance with Section 5.1(a) hereof. Upon
presentation and surrender of the Certificate, the Paying Agent shall cause to
be distributed to such Certificateholder the amount distributable on such
Certificateholder's Distribution Date pursuant to Section 5.2 hereof.
(d) In the event that the Certificateholder shall not surrender its
Certificate for cancellation within six months after the date specified in the
above-mentioned written notice, the Co-Owner Trustee shall give a second written
notice to such Certificateholder to surrender its Certificate for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice the Certificate shall not have been surrendered for
cancellation, the Co-Owner Trustee may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact such Certificateholder concerning
surrender of its Certificate, and the cost thereof shall be paid out of the
funds and other assets that remain subject to this Agreement. Any funds which
are payable to the Certificateholder remaining in the Trust after exhaustion of
such remedies shall, to the fullest extent permitted by law, be distributed by
the Co-Owner Trustee to the Certificateholder (but only upon termination of this
Agreement), and such Certificateholder, by acceptance of its Certificate, hereby
waives any rights with respect to such funds.
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ARTICLE X
SUCCESSOR DELAWARE TRUSTEES,
CO-OWNER TRUSTEES AND CO-OWNER ELIGIBLE LENDER TRUSTEES
Section 10.1. Eligibility Requirements for Delaware Trustee, Co-Owner
Trustee and Co-Owner Eligible Lender Trustee.
(a) The Delaware Trustee shall at all times be a banking or trust
corporation (i) having its Corporate Trust Office in the State of Delaware, (ii)
authorized to exercise corporate trust powers in the State of Delaware; (iii)
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or State authorities; and (iv) having (or
having a parent which has) a rating of at least Baa3 by Moody's or A-1 by
Standard & Poor's. If such corporation shall publish reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Delaware Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Delaware Trustee
shall resign immediately in the manner and with the effect specified in Section
10.2 hereof.
(b) Each of the Co-Owner Trustee and the Co-Owner Eligible Lender
Trustee shall at all times be a trust company or bank having the powers of a
trust company within the state in which the principal office of the
Administrator is located, organized and doing business under the laws of the
United States of America, any state thereof or the District of Columbia and have
a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or State authorities. In addition, the
Co-Owner Eligible Lender Trustee shall at all times be an "eligible lender"
under the Higher Education Act.
Section 10.2. Resignation or Removal of Delaware Trustee, Co-Owner
Trustee and Co-Owner Eligible Lender Trustee.
(a) The Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the other two Trustees hereunder,
the Certificateholder, the Depositor (if different from the Certificateholder)
and the Indenture Trustee at least 30 days before the date specified in such
instrument. Upon receiving such notice of resignation, the Certificateholder,
with the consent of the non-resigning Trustee hereunder, shall promptly appoint
a successor Delaware Trustee, Co-Owner Trustee or Co-Owner Eligible Lender
Trustee, as applicable (any successor appointed under any provision of this
Section 10.2, solely for purposes of this Section 10.2 and Section 10.3 hereof,
a "Successor Trustee"), meeting the qualifications set forth in Section 10.1(a)
or (b), as applicable, by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
Successor Trustee, provided that the Depositor shall have received written
confirmation from each of the Rating
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Agencies that the proposed appointment will not adversely affect the ratings of
such Rating Agencies on any Outstanding Notes. If no Successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee, either of the
non-resigning Trustees or the Indenture Trustee may petition any court of
competent jurisdiction for the appointment of a Successor Trustee.
(b) If (i) at any time the Delaware Trustee, the Co-Owner Trustee
and/or the Co-Owner Eligible Lender Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1(a) or (b), as applicable, and
shall fail to resign after written request therefor by either of the other
Trustees, the Certificateholder or the Indenture Trustee, (ii) at any time the
Delaware Trustee, the Co-Owner Trustee and/or the Co-Owner Eligible Lender
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Delaware Trustee, the Co-Owner Trustee and/or
the Co-Owner Eligible Lender Trustee, or of the respective property of any of
them, shall be appointed, or any public officer shall take charge or control of
the Delaware Trustee, the Co-Owner Trustee and/or the Co-Owner Eligible Lender
Trustee, or of the respective property or affairs of any one or all of them, for
the purpose of rehabilitation, conservation or liquidation or (iii) the
Certificateholder elects in its sole discretion to remove the Delaware Trustee,
the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee for any reason (in
each case such Trustee for the purposes of this paragraph is hereafter referred
to as a "Disqualified Trustee" and a Trustee not meeting the description of a
Disqualified Trustee, a "Qualified Trustee" ), then either of the Qualified
Trustees, if any, or the Certificateholder may remove such Disqualified Trustee.
If either of the Qualified Trustees or the Certificateholder shall remove the
Disqualified Trustee under the authority of the immediately preceding sentence,
the Certificateholder shall promptly appoint a Successor Trustee meeting the
qualification requirements of Section 10.1 by written instrument, in triplicate,
one copy of which instrument shall be delivered to the Disqualified Trustee so
removed and one copy to the Successor Trustee and Qualified Trustees, if any,
and shall make payment of all fees owed to the outgoing Disqualified Trustee.
(c) Any resignation or removal of the Delaware Trustee, the Co-Owner
Trustee and/or the Co-Owner Eligible Lender Trustee and appointment of a
Successor Trustee pursuant to any of the provisions of this Section shall not
become effective until all fees and expenses, including any indemnity payments,
due to the outgoing Trustee have been paid and until acceptance of appointment
by the Successor Trustee pursuant to Section 10.3.
Section 10.3. Successor Trustee.
(a) Any Successor Trustee appointed pursuant to Section 10.2 hereof
shall execute, acknowledge and deliver to the remaining Trustees, if any, to the
Certificateholder and to its predecessor (solely for purposes of this Section
10.3, the "Predecessor Trustee") an instrument accepting such appointment under
this Agreement and, if the Successor Trustee is the Co-Owner Eligible Lender
Trustee, an eligible lender trust agreement between itself and the Co-Owner
Trustee, and thereupon the resignation or removal of the Predecessor Trustee
shall become effective and such Successor Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties,
and obligations of its Predecessor Trustee under this Agreement, with like
effect as if originally named as Delaware Trustee, Co-Owner Trustee or Co-Owner
Eligible Lender Trustee, as applicable. The Predecessor Trustee shall deliver to
the
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Successor Trustee all documents and statements and moneys, if any, held by it
under this Agreement; and the Certificateholder, the remaining Trustee and the
Predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the Successor Trustee all such rights, powers, duties and
obligations.
(b) No Successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such Successor Trustee shall be
eligible to become the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, as applicable, pursuant to Section 10.1 hereof.
(c) Upon acceptance of appointment by a Successor Trustee pursuant to
this Section, the Certificateholder shall give notice by first class mail of the
name and address and telecopy number of the Successor Trustee to the Indenture
Trustee, the Noteholders and the Rating Agencies. If the Certificateholder shall
fail to mail such notice within 10 days after acceptance of appointment by the
Successor Trustee, the Successor Trustee shall cause such notice to be mailed at
the expense of the Certificateholder.
Section 10.4. Merger or Consolidation of Delaware Trustee, Co-Owner
Trustee or Co-Owner Eligible Lender Trustee.
Any corporation into which the Delaware Trustee, the Co-Owner Trustee
or the Co-Owner Eligible Lender Trustee, as the case may be, may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as the case may be,
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Delaware Trustee, the Co-Owner Trustee or
the Co-Owner Eligible Lender Trustee, as the case may be, shall be the successor
of the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender
Trustee, as the case may be, hereunder, provided such corporation shall be
eligible pursuant to the applicable provisions of Section 10.1 hereof, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding, and
provided further that the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, as the case may be, shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 10.5. Appointment of Additional Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust Property, including, without limitation, any
Financed Student Loan, may at the time be located, the Administrator and the
Co-Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons to act as co-trustee,
jointly with the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee, as the case may be, or separate trustee or separate trustees, of
all or any part of the Trust Property, and to vest in such Person, in such
capacity, such title to the Trust Property, or any part thereof, and, subject to
the other provisions of this Section, such powers, duties, obligations, rights
and trusts as the
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Administrator and the Co-Owner Trustee may consider necessary or desirable. If
the Administrator shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, the Co-Owner Trustee shall have the
power to make such appointment. No co-trustee or separate trustee under this
Agreement shall be required to meet the terms of eligibility as a successor
trustee pursuant to Section 10.1 hereof and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 10.1
hereof; provided, however, that such co-trustee with or separate trustee from
the Co-Owner Eligible Lender Trustee shall be an "eligible lender" under the
Higher Education Act.
(b) Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties, and obligations conferred or
imposed upon the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, as applicable, shall be conferred upon and
exercised or performed by the Delaware Trustee, the Co-Owner Trustee or
the Co-Owner Eligible Lender Trustee, as applicable, and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender
Trustee, as applicable, joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed, the Delaware Trustee, the Co-Owner Trustee or the
Co-Owner Eligible Lender Trustee, as applicable, shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust Property or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as
applicable;
(ii) no Trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement; and
(iii)the Administrator and the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee, as applicable, acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Delaware Trustee,
the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as applicable,
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall, refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Delaware
Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as
applicable, or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Delaware Trustee, the Co-Owner Trustee
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or the Co-Owner Eligible Lender Trustee, as applicable. Each such instrument
shall be filed with the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, as applicable, and a copy thereof given to the
Administrator and the Certificateholder.
(d) Any separate trustee or co-trustee may at any time appoint the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee,
as applicable, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee, as applicable, to the extent permitted by law, without the
appointment of a new or successor trustee.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Amendment.
(a) This Agreement may be amended by the Certificateholder, the
Delaware Trustee, the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee,
without the consent of the Depositor (if other than the Certificateholder) or
Noteholders, (i) to cure any ambiguity or (ii) to correct, supplement or modify
any provisions in this Agreement; provided, however, that such action shall not,
as evidenced by an Opinion of Counsel, adversely affect in any material respect
the interests of the Certificateholder or any Noteholder.
(b) This Agreement may also be amended from time to time by the
Certificateholder without the consent of the Depositor (if other than the
Certificateholder), the Delaware Trustee, the Co-Owner Trustee and the Co-Owner
Eligible Lender Trustee and, if such amendment materially and adversely affects
the interests of Noteholders, the consent of a majority of the Directing Notes
(which consent of any Noteholder given pursuant to this Section or pursuant to
any other provision of this Agreement shall be conclusive and binding on such
holders and on any holder of any Certificate or Note issued upon the transfer
thereof or in exchange therefor or in lieu thereof whether or not notation of
such consent is made upon the Certificate or Note) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the
Certificateholder or holder of a Note; provided, however, that no such amendment
shall (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the Financed Student Loans or
distributions that shall be required to be made on any Note or (ii) reduce the
aforesaid percentage required to consent to any such amendment or any waiver
hereunder, without the consent of the holders of all the Notes then outstanding.
(c) Prior to the execution of any such amendment or consent, the
Certificateholder shall furnish written notification of the substance of such
amendment or consent to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent, the
Co-Owner Trustee shall furnish written notification of the substance of such
amendment or consent to the Indenture Trustee unless such party has previously
received such notification.
(e) It shall not be necessary for the consent of the Noteholders
pursuant to Section 11.1(b) hereof to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and any
other consents of the Noteholders provided for in this Agreement) and of
evidencing the authorization of the execution thereof by the Certificateholder
shall be subject to such reasonable requirements as the Co-Owner Trustee may
prescribe, including the establishment of record dates.
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(f) Prior to the execution of any amendment to this Agreement, the
Delaware Trustee, the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement and
that all conditions precedent to the execution and delivery of such amendment
have been satisfied. The Delaware Trustee, the Co-Owner Trustee and the Co-Owner
Eligible Lender Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Delaware Trustee's, the Co-Owner Trustee's or the
Co-Owner Eligible Lender Trustee's own rights, duties or immunities under this
Agreement or otherwise.
Section 11.2. No Recourse.
The Certificateholder by accepting a Certificate acknowledges that such
Certificateholder's Certificate represents such Certificateholder's beneficial
interest in the Trust only and does not represent interests in or obligations of
the Depositor, the Administrator, the Master Servicer, the Delaware Trustee, the
Co-Owner Trustee, the Co-Owner Eligible Lender Trustee, the Indenture Trustee or
any affiliate of any of the foregoing and no recourse may be had against such
parties or their assets, except as may be expressly set forth or contemplated in
this Agreement, in each Certificate or in the Related Documents.
Section 11.3. Governing Law.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws thereof and the obligations, rights and remedies of the
parties under this Agreement shall be determined in accordance with such laws;
provided, however, that the parties hereto intend that the provisions hereof
shall control over any contrary or limiting statutory or common law of the State
of Delaware and that, to the maximum extent permitted by applicable law, there
shall not be applicable to the Trust, the Trustees or this Agreement any
provisions of the laws (statutory or common) of the State of Delaware pertaining
to trusts that relate to or regulate in a manner inconsistent with the terms
hereof: (i) the filing with any court or governmental body or agency of trustee
accounts or schedules of trustee fees and charges, (ii) affirmative requirements
to post bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures between income and principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards or responsibilities or limitations on the acts or powers of
trustees that are inconsistent with the limitations on liability or authorities
and powers of the Trustees set forth or referenced in this Agreement. Section
3540 of Title 12 of the Delaware Code shall not apply to the Trust.
(b) Each of the parties hereto agrees (i) that this Agreement involves
at least $100,000, and (ii) this Agreement has been entered into by the parties
hereto in express reliance upon 6 Del. C. Section 2708.
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(c) Each party hereto unconditionally agrees (i) to be subject to the
jurisdiction of the courts of the State of Delaware and of the federal courts
sitting in the State of Delaware and (ii)(A) to the extent that such party is
not otherwise subject to service of process in the State of Delaware, to appoint
and maintain an agent in the State of Delaware as such party's agent for
acceptance of legal process and (B) that service of process may also be made on
such party by prepaid certified mail with a proof of mailing receipt validated
by the United States Postal Service constituting evidence of valid service, and
that service made pursuant to (ii)(A) or (B) above shall have the same legal
force effect as if served upon such party personally within the State of
Delaware. For purposes of implementing the party's agreement to appoint and
maintain an agent for service of process in the State of Delaware, each of the
Co-Owner Trustee and the Co-Owner Eligible Lender Trustee does hereby appoint
the Delaware Trustee as such agent, and the Delaware Trustee hereby accepts such
appointment.
Section 11.4. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of any Certificate or the rights of the Holder thereof.
Section 11.5. Certificate Nonassessable and Fully Paid.
The Certificateholder shall not be personally liable for obligations of
the Trust, the undivided beneficial interest in the assets of the Trust, whether
fractional or whole, represented by a Certificate shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever, and each
Certificate upon execution thereof by the Delaware Trustee and authentication
thereof by the Authentication Agent, in each case pursuant to Section 3.3
hereof, are and shall be deemed fully paid and nonassessable.
Section 11.6. Third-Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Except as
otherwise provided in this Agreement, no other Person shall have any right or
obligation hereunder.
Section 11.7. Counterparts.
For the purpose of facilitating its execution and for other purposes,
this Agreement may be executed simultaneously in any number of counterparts,
each of which counterparts shall be deemed to be an original, and all of which
counterparts shall constitute but one and the same instrument.
Section 11.8. Notices.
All demands, notices and communications under this Agreement shall be
in writing, personally delivered or mailed by certified mail-return receipt
requested, and shall be deemed to have been duly given upon receipt (a) in the
case of the Depositor, at the following address: One
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West Fourth Street, Suite 210, Cincinnati, Ohio 45202, Attention: Chief
Financial Officer, (b) in the case of the Delaware Trustee, the Co-Owner Trustee
and the Co-Owner Eligible Lender Trustee, at their respective Corporate Trust
Office and (c) in the case of the Administrator, One West Fourth Street, Suite
200, Cincinnati, Ohio, Attention: Chief Financial Officer, or at such other
address as shall be designated by any such party in a written notice to the
other parties. Notwithstanding the foregoing, any notice required or permitted
to be mailed to the Certificateholder shall be given by first class mail,
postage prepaid, at the address of such Holder as shown in the Certificate
Register.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers as of the day and year first
above written.
STUDENT LOAN FUNDING LLC,
("Depositor" and sole initial "Certificateholder")
By /s/ BRIAN A. ROSS
_________________________________________________
Brian A. Ross, Senior Vice President and Manager
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
trustee under this Trust Agreement ("Delaware
Trustee")
By /s/ EDWARD L. TRUITT, JR.
_________________________________________________
Edward L. Truitt, Jr., Senior Trust Officer
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
trustee under this Trust Agreement ("Co-Owner
Trustee")
By /s/ ROBERT P. JONES
_________________________________________________
Robert P. Jones, Senior Trust Officer
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
eligible lender trustee under this Trust Agreement
("Co-Owner Eligible Lender Trustee")
By /s/ ROBERT P. JONES
_________________________________________________
Robert P. Jones, Senior Trust Officer
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EXHIBIT A
FORM OF CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF,
BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3) UNDER
THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT, OR (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT.
THIS CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (I)
AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE 1 OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (III) ANY ENTITY
WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY. FURTHER, THIS CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES
PERSON WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE CODE.
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY.
Percentage Interest: 100%
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN ASSET-BACKED TRUST CERTIFICATE
evidencing the undivided beneficial Percentage Interest
set forth above in the Trust, as defined below, the
property of which includes a pool of
student loans transferred to and deposited in the Trust by
Student Loan Funding LLC and Firstar Bank, National
Association, as eligible lender trustee on behalf of
Student Loan Funding LLC
THIS CERTIFIES THAT STUDENT LOAN FUNDING LLC is the registered owner of
the Percentage Interest set forth above in the Student Loan Funding 1998-A/B
Trust (the "Trust"), a common law (as opposed to statutory) trust formed under
the laws of the State of Delaware by Student Loan Funding LLC, (the
"Depositor"). The Trust was created pursuant to a Trust Agreement, dated as of
March 1, 1999 (as amended from time to time, the "Trust Agreement"), among the
Depositor, First Union Trust Company, National Association, Wilmington,
Delaware, not in its individual capacity, but solely in its capacity as owner
trustee under the Trust Agreement (the "Delaware Trustee"), and Firstar Bank,
National Association, Cincinnati, Ohio, not in its individual capacity, but
solely in its capacity as co-owner trustee under the Trust Agreement (the
"Co-Owner Trustee" and collectively with the Delaware Trustee, the "Trustees").
A summary of certain of the pertinent provisions of the Trust Agreement is set
forth below. To the extent not otherwise defined herein, the capitalized terms
used herein shall have the meanings assigned to them in the Trust Agreement. The
rules as to usage set forth in the Trust Agreement shall also be applicable to
this Certificate.
This Certificate is the sole, initial duly authorized Certificate,
designated "Student Loan Funding 1998-A/B Trust - Student Loan Asset-Backed
Trust Certificate" (herein called "this Certificate" or, collectively, with
other Certificates that may be issued upon transfer or exchange of this
Certificate for such other Certificates, whose aggregate Percentage Interest
shall be 100%, the "Certificates") issued under the Trust Agreement, to which
Trust Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is
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bound. The Trust Property includes an initial deposit by the Depositor to the
Certificate Contribution Account, and all property and proceeds thereof of every
description conveyed pursuant to the Transfer and Sale Agreement and
simultaneously with the issuance of this Certificate, including, without
limitation, a pool of student loans (the "Financed Student Loans") and any all
amounts deposited from time to time in the Certificate Distribution Account. The
rights of the Holder of this Certificate to the assets of the Trust are subject
to the rights of the Holders of certain notes (the "Notes") issued under the
Indenture of Trust, as supplemented by the Terms Supplement to the Indenture of
Trust, each dated as of December 1, 1998, as amended and restated by the First
Amended and Restated Indenture of Trust, dated as of ________ 1, 1999, among the
Co-Owner Trustee, Firstar Bank, National Association, not in its individual
capacity but solely in its capacity as eligible lender trustee on behalf of the
Co-Owner Trustee (the "Co-Owner Eligible Lender Trustee") and Firstar Bank,
National Association, not in its individual capacity but solely in its capacity
as Indenture Trustee (the "Indenture Trustee"), as supplemented by the First
Amended and Restated Terms Supplement to the First Amended and Restated
Indenture of Trust, dated as of ________ 1, 1999 (collectively, as amended from
time to time, the "Indenture").
Under the Trust Agreement, distributions will be made on the
Certificate on each Certificateholder's Distribution Date in the manner set
forth in the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate from amounts deposited
in the Excess Surplus Account under the Indenture pending their transfer to the
Certificate Distribution Account are subject to the rights of the Noteholders as
described in the Indenture.
The Certificateholder, by its acceptance of this Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor or the Trustees, or join in any institution against the Depositor
or the Trustees, any bankruptcy, reorganization, arrangement, insolvency,
receivership or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to this Certificate, the Notes, the Trust Agreement or any
of the other Related Documents.
The Holder of this Certificate, by its acceptance of this Certificate,
(i) agrees, for federal, state and local income and franchise tax purposes, to
treat the Trust as a "disregarded entity" (i.e. the Trust will be disregarded as
an entity separate from the Certificateholder), with the assets of the Trust
being the Financed Student Loans and other assets held by the Co-Owner Trustee,
the Notes for such purposes being debt of the Certificateholder which has
elected to disregard the Trust as an entity separate from itself for tax
purposes, and (ii) acknowledges that the Trust will file or cause to be filed
annual or other necessary returns, reports and other forms consistent with the
characterization of the Trust as a "disregarded entity" for federal, state and
local and franchise tax purposes and that the Depositor will not make, or cause
to be made, an election under the provisions of Treasury Regulation Section
301.7701.3 to classify the Trust as an association.
Distributions on this Certificate will be made from the Certificate
Distribution Account as provided in the Trust Agreement by the Co-Owner Trustee
by wire transfer or by check mailed to the Certificateholder of record in the
Certificate Register without the presentation or surrender of this Certificate
or the making of any notation hereon.
This Certificate does not represent an obligation of, or an interest
in, the Depositor, the Master Servicer, the Administrator, the Trustees or the
Indenture Trustee or any affiliates of any of them, and no recourse may be had
against such parties or their assets, except as may be expressly set forth
herein, in the Trust Agreement or in the other Related Documents. In addition,
this Certificate is not guaranteed by any governmental agency or instrumentality
and is limited in right of payment to certain excess collections respecting the
Financed Student Loans, all as more specifically set forth in the Indenture. A
copy of each of the Indenture and the Trust Agreement may be examined during
normal business hours at the principal office of the Depositor, and at such
other places, if any, designated by the Depositor upon request.
The Trust Agreement permits the amendment thereof without the consent
of the Certificateholder or any Noteholders, (i) to cure any ambiguity or (ii)
to correct, supplement or modify any provisions in the Trust Agreement;
provided, however, that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of the
Certificateholder or any Noteholder. The Trust Agreement permits, with certain
exceptions therein provided, but only with the consent of the Certificateholder
and, if such amendment
A-2
<PAGE> 52
materially and adversely affects the interests of Noteholders, with the consent
of a majority of the Directing Notes (as defined in the Indenture) (which
consent of the Certificateholder and Noteholders, if any, given pursuant to the
Trust Agreement shall be conclusive and binding on such holders and on all
future holders of the Certificate or Notes and of any Certificate or Notes
issued upon the transfer thereof or in exchange therefor or in lieu thereof
whether or not notation of such consent is made upon the Certificate or Notes)
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Trust Agreement, or of modifying in any
manner the rights of the Certificateholder or any Noteholder.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer, to the extent permitted herein, of this
Certificate is registrable in the Certificate Register upon surrender of this
Certificate for registration of transfer at the office or agency maintained by
Firstar Bank, National Association, in its capacity as Certificate Registrar, or
by any successor Certificate Registrar, accompanied by a written instrument of
transfer in form satisfactory to the Co-Owner Trustee and the Certificate
Registrar duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee.
This Certificate is issuable only as a Certificate registered in the
name of the Depositor as the initial Certificateholder and in the Percentage
Interest of 100%. As provided in the Trust Agreement and subject to the
provisions of the next succeeding paragraph [and provided that there are no
Notes Outstanding (as defined in the Indenture)](1), the Depositor, as the
initial registered Holder, may transfer, or exchange for other Certificates
aggregating in Percentage Interests 100%, this Certificate upon the surrender of
this Certificate. No service charge will be made for any such registration of
transfer or exchange, but the Co-Owner Trustee or the Certificate Registrar (if
different from the Co-Owner Trustee) may require payment of a sum sufficient to
cover any tax or governmental charge payable in connection therewith.
This Certificate may not be transferred directly or indirectly to (i)
an employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that is subject to the
provisions of Title 1 of ERISA, (ii) a plan described in Section 4975(e)(1) of
the Internal Revenue Code of 1986, as amended (the "Code"), or (iii) any entity
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each, a "Benefit Plan"). By accepting and holding this Certificate,
the Certificateholder thereof shall he deemed to have represented and warranted
that it is not a Benefit Plan.
The Certificate Registrar and any agent of the Certificate Registrar
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and none of the Delaware Trustee, the Co-Owner Trustee
or the Certificate Registrar or any such agent shall be affected by any notice
to the contrary.
This Certificate may not be transferred to any person who is not a U.S.
Person, as such term is defined in Section 7701(a)(30) of the Code.
Each transferee of this Certificate, or any portion thereof, shall be
required, prior to purchasing a Certificate, to execute the Purchaser's
Representation and Warranty Letter in the form attached to the Trust Agreement
as Exhibit B.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the earlier to occur of (i) the
maturity or other liquidation of the last Financed Student Loan (including the
auction sale by the Indenture Trustee of the remaining Financed Student Loans in
the Trust as described in Section 3.02 of the Terms Supplement and the
subsequent distribution of amounts in respect of such auction sale as provided
in the Indenture and the other Related Documents) and (ii) the payment to the
Noteholders of all amounts payable pursuant to the Indenture.
1 To be included only upon direction of the Depositor at the time of issuance of
this Certificate.
A-3
<PAGE> 53
This Certificate shall be construed in accordance with the laws of the
State of Delaware, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Unless the certificate of authentication hereon shall have been
executed by an authorized representative of the Authentication Agent, by manual
signature, this Certificate shall not entitle the Holder hereof to any benefit
under the Trust Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Delaware Trustee, not in its individual
capacity but solely as trustee of the Student Loan Funding 1998-A/B Trust, has
caused this Certificate to be duly executed as of the date set forth below.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
"Delaware Trustee", not in its individual
capacity but solely as trustee of the Student
Loan Funding 1998-A/B Trust
By: _____________________________________________
Authorized Signatory
Date: _______________, 1999
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
FIRSTAR BANK, NATIONAL ASSOCIATION,
Co-Owner Trustee,
not in its individual capacity but solely as Authentication Agent
of the Student Loan Funding 1998-A/B Trust
By:_________________________________________________
Authorized Representative
Date: ________________, 1999
A-4
<PAGE> 54
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE]
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
_____________________________________________________________________ Attorney
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:________________ _____________________________________*
Signature Guaranteed:
_____________________________________
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by an approved eligible guarantor institution, an institution which
is a participant in a Securities Transfer Association recognized signature
guarantee program.
A-5
<PAGE> 55
EXHIBIT B
Form of Purchaser's Representation and Warranty Letter
Student Loan Funding LLC
One West Fourth Street, Suite 210
Cincinnati, OH 45202
Firstar Bank, National Association,
as Certificate Registrar
425 Walnut Street
Cincinnati, OH 45202
RE: STUDENT LOAN FUNDING 1998-A/B TRUST - STUDENT LOAN ASSET
BACKED TRUST CERTIFICATE
Ladies and Gentlemen:
In connection with the proposed purchase by the undersigned of the
Student Loan Asset-Backed Trust Certificate (the "Certificate") issued under the
Trust Agreement related to the Student Loan Funding 1998-A/B Trust, dated as of
March 1, 1999 (the "Agreement"), among Student Loan Funding LLC, as Depositor
(the "Depositor"), First Union Trust Company, National Association, as Delaware
trustee, and Firstar Bank, National Association, in its separate capacities as
co-owner trustee and co-owner eligible lender trustee, the undersigned (the
"Purchaser") represents, warrants and agrees that:
1. It is an institutional "accredited investor" as defined in Rule
501(a)(1)-(3) under the Securities Act of 1933 (the "Securities Act") or a
"qualified institutional buyer" as defined in Rule 144A(a)(1) of the
Securities Act and is acquiring the Certificate for its own institutional
account or for the account of an institutional accredited investor or
qualified institutional buyer.
2. It is not (i) an employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that
is subject to the provisions of Title 1 of ERISA, (ii) a plan described in
Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity.
3. It is a U.S. Person as defined in Section 7701(a)(30) of the Code.
4. It has such knowledge and experience in evaluating business and financial
matters so that it is capable of evaluating the merits and risks of an
investment in the Certificate. It understands the full nature and risks of
an investment in the Certificate and based upon its present and projected
net income and net worth, it believes that it can bear the economic risk of
an immediate or future loss of its entire investment in the Certificate.
5. It understands that the Certificate will be offered in a transaction not
involving any public offering within the meaning of the Securities Act, and
that, if in the future it decides to resell, pledge or otherwise transfer
the Certificate, such Certificate may be resold, pledged or transferred
only (a) to a person who the seller reasonably believes is an institutional
"accredited investor" as defined in Rule 501(a)(1)-(3) under the Securities
Act that purchases for its own account or for the account of another
institutional accredited investor or (b) pursuant to an effective
registration statement under the Securities Act.
6. It understands that the Certificate will bear a legend substantially to the
following effect:
"THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR STATE SECURITIES LAWS.
THE HOLDER
B-1
<PAGE> 56
HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS
CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS
AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE
501(A)(1)-(3) UNDER THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR, OR
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT.
THIS CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY
TO (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE
1 OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR
(III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS
BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. FURTHER, THIS
CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON
WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE CODE.
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY."
7. It is acquiring the Certificate for its own account and not with a view to
the public offering thereof in violation of the Securities Act (subject,
nevertheless, to the understanding that disposition of its property shall
at all times be and remain within its control).
8. It has been furnished with all information regarding the Trust and the
Certificate which it has requested from the Trust and the Depositor.
9. Neither it nor anyone acting on its behalf has offered, transferred,
pledged, sold or otherwise disposed of the Certificate, any interest in
the Certificate or any other similar security to, or solicited any
offer to buy or accept a transfer, pledge or other disposition of the
Certificate, any interest in the Certificate or any other similar
security from, or otherwise approached or negotiated with respect to
the Certificate, any interest in the Certificate or any other similar
security with, any person in any manner or made any general
solicitation by means of general advertising or in any other manner,
which would constitute a distribution of the Certificate under the
Securities Act or which would require registration pursuant to the
Securities Act nor will it act, nor has it authorized or will authorize
any person to act, in such manner with respect to the Certificate.
B-2
<PAGE> 57
10. It is not an "affiliate" (within the meaning of Rule 144 under the
Securities Act) of the Depositor.
Dated:_____________
Very truly yours,
__________________________________
[Name of Purchaser]
By:_______________________________
Name:_____________________________
Title:____________________________
NOTE: To be executed by an executive officer
B-3
<PAGE> 1
Exhibit 8.1
[Thompson Hine & Flory LLP Letterhead]
March 5, 1999
Student Loan Funding 1998 - A/B Trust
Student Loan Funding LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1998 - A/B Trust Registration Statement on Form
S-4 (No. 333-______)
Ladies and Gentlemen:
We have acted as special tax counsel for Student Loan Funding 1998 - A/B Trust,
a Delaware common law trust (the "Issuer"), and Student Loan Funding LLC, a
Delaware limited liability company (the "Depositor"), in connection with the
above-referenced Registration Statement (together with the exhibits and any
amendments thereto, the "Registration Statement"), filed by the Issuer with the
Securities and Exchange Commission in connection with the registration by the
Issuer of (1) $400,000,000 in principal amount of Senior Asset-Backed Notes,
Series 1998A1-3 (LIBOR Floating Rate) (the "A1-3 Notes"); (2) $93,300,000 in
principal amount of Senior Asset-Backed Callable Notes, Series 1998A1-4 (Auction
Rate) (the "A1-4 Notes"); (3) $90,000,000 in principal amount of Senior
Asset-Backed Callable Notes, Series 1998A1-5 (Auction Rate) (the "A1-5 Notes");
(4) $90,000,000 in principal amount of Senior Asset-Backed Callable Notes,
Series 1998A1-6 (Auction Rate) (the "A1-6 Notes"); and (5) $54,500,000 in
principal amount of Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)
(the "B Notes") (the A1-3 Notes, A1-4 Notes, A1-5 Notes, A1-6 Notes, and B
Notes, collectively, the "New Notes"), which are being offered pursuant to an
exchange offer (the "Exchange Offer") in exchange for the Depositor's
outstanding (a) Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate)
(the " Old A-3 Notes"); (b) Senior Asset-Backed Callable Notes, Series 1998A-4
(Auction Rate) (the "Old A-4 Notes"); (c) Senior Asset-Backed Callable Notes,
Series 1998A-5 (Auction Rate) (the "Old A-5 Notes"); (d) Senior Asset-Backed
Callable Notes, Series 1998A-6 (Auction Rate) (the "Old A-6 Notes"); and (e)
Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate) (the "Old B Notes")
(the Old A-3 Notes, Old A-4 Notes, Old A-5 Notes, Old A-6 Notes, and Old B
Notes, collectively, the "Old Notes"), originally issued and sold in reliance
upon an exemption from registration under the Securities Act of 1933.
<PAGE> 2
Student Loan Funding 1998 - A/B Trust
Student Loan Funding LLC
March 5, 1999
We are familiar with the proceedings to date in connection with the proposed
Exchange Offer and issuance of the New Notes and in order to express our opinion
hereinafter stated, (a) we have examined copies of the forms of (i) the Eligible
Lender Trust Agreement, (ii) the Trust Agreement; (iii) the Indenture, (iv) the
New Notes filed as exhibits to the Registration Statement (collectively the
"Operative Documents") and (v) the Servicing Agreements and (b) we have examined
such other records and documents and such matters of law, and we have satisfied
ourselves as to such matters of fact, as we have considered relevant for
purposes of this opinion.
The opinions set forth in this letter concerning federal income tax matters are
based upon the applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated and proposed thereunder,
current positions of the Internal Revenue Service (the "IRS") including those
contained in published Revenue Rulings and Revenue Procedures, and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set forth under the caption "Federal Income Tax Consequences" in
the Prospectus which constitutes a part of the Registration Statement.
Based on the foregoing and assuming that the Operative Documents are executed
and delivered in substantially the form we have examined, we hereby confirm our
opinions with respect to the federal income tax consequences of the exchange of
the Old Notes for the New Notes, the federal income tax characterization of the
New Notes, and the federal income tax treatment of the issuance of such New
Notes set forth under the caption "Federal Income Tax Consequences" in the
Prospectus. In our opinion, there will be no federal income tax consequences to
a holder who exchanges an Old Note for a New Note pursuant to the Exchange Offer
and any such holder will have the same adjusted tax basis and holding period in
the New Note as it had in the Old Note immediately before the exchange. In
addition, in our opinion, for federal income tax purposes, the New Notes will be
characterized as debt. However, if the IRS were to assert successfully that the
New Notes were not characterized as debt for federal income tax purposes, in our
opinion the Issuer would not be taxable as a corporation even though the Issuer
might be treated as a publicly traded partnership. Moreover, in our opinion, for
federal income tax purposes, the Issuer will not be treated as an entity
separate from the Depositor and thus will not be classified as a separate entity
that is an association (or a publicly traded partnership) taxable as a
corporation. However, if the IRS were to assert successfully that the Issuer
should be treated as an entity separate from the Depositor for federal income
tax purposes, it is our opinion that the Issuer would not be subject to federal
income tax as a publicly traded partnership taxable as a corporation. Our
opinion that neither the Depositor nor the Issuer would be taxable as a
corporation is based upon the representation by both the Depositor and the
Issuer that for 1999 and for any subsequent taxable year 90% or more of the
gross income of the Depositor, and the Issuer if treated as a separate entity,
for such taxable year will consist of interest income attributable to loans
acquired by either the Depositor or the Issuer and not attributable to loans
originated by either the Issuer or the Depositor or by an affiliate of either
the Issuer or the Depositor. We do not intend nor do we undertake any
2
<PAGE> 3
Student Loan Funding 1998 - A/B Trust
Student Loan Funding LLC
March 5, 1999
obligation to verify whether or not the representation described in the
immediately preceding sentence is met for any taxable year. Moreover, we are of
the opinion that the statements set forth in the Prospectus under the captions
"Summary of the Exchange Offer -- Federal Income Tax Considerations," "Summary
of Terms of the New Notes -- Federal Income Tax Considerations" and "Federal
Income Tax Consequences" are a fair and accurate summary of the material tax
consequences of the exchange of the Old Notes for the New Notes and the issuance
and holding of the New Notes. There can be no assurance, however, that the legal
conclusions presented therein will not be successfully challenged by the
relevant administrative authorities, or significantly altered by new
legislation, changes in administrative positions, or judicial decisions, any of
which challenges or alterations may be applied retroactively with respect to
completed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus under
the captions "Federal Income Tax Consequences" and "Legal Matters."
Very truly yours,
/s/ THOMPSON HINE & FLORY LLP
3
<PAGE> 1
EXHIBIT 10.4
ELIGIBLE LENDER TRUST AGREEMENT
This trust agreement (the "Agreement") is entered into as of March 1,
1999 (the "Effective Date"), between FIRSTAR BANK, NATIONAL ASSOCIATION, not in
its individual capacity, but solely as Co-owner Trustee (the "Co-owner Trustee")
under the Trust Agreement dated as of March 1, 1999 (the "Trust Agreement")
acting on behalf of Student Loan Funding 1998-A/B Trust (the "Trust") and
FIRSTAR BANK, NATIONAL ASSOCIATION, as eligible lender trustee (the "Eligible
Lender Trustee") on behalf of the Co-owner Trustee.
WITNESSETH:
WHEREAS, the Eligible Lender Trustee is an "eligible lender" under the
Higher Education Act; and
WHEREAS, the Co-owner Trustee desires the Eligible Lender Trustee to
hold all right, title and interest in and to certain Financed Student Loans in
trust for the benefit of the Co-owner Trustee; and
WHEREAS, in order to consummate the transactions contemplated by the
Trust Agreement, the parties hereto desire and intend to create the trusts set
forth herein and the Eligible Lender Trustee agrees to be charged with and
accept its trusts and duties set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein the parties hereto hereby agree as follows:
ARTICLE I
Creation of Trust for Benefit of Co-owner Trustee and the Trust
Authority to Enter Into and
Execute Documents; Acceptance of Trust
Section 1.1. Purpose. The trust created by Article I of this Agreement
is formed, entered into and intended by the Co-owner Trustee and the Eligible
Lender Trustee to create a trust for the purpose of (a) the Eligible Lender
Trustee holding all right, title and interest to Financed Student Loans for the
benefit of the Co-owner Trustee (b) the Eligible Lender Trustee entering into,
and complying with, the terms of any agreement, document or certificate required
under the Trust Agreement and this Agreement and (c) the Eligible Lender Trustee
complying with the requirements of the Higher Education Act, if applicable.
Section 1.2. Creation and Acceptance of Trust for the Benefit of the
Co-owner Trustee. The Co-owner Trustee may from time to time cause title to
Financed Student Loans to be conveyed to the Eligible Lender Trustee; which
Financed Student Loans shall be held, administered and pledged and the proceeds
thereof distributed by the Eligible Lender Trustee for the benefit of the
Co-owner Trustee as set forth in the Trust Agreement and herein. At the request
<PAGE> 2
of the Co-owner Trustee hereunder, the Eligible Lender Trustee hereby agrees to
accept and hold title to such Financed Student Loans (without liability or
responsibility at acceptance for the condition or validity of such right, title
and interest) in trust, as hereinafter set forth for the use and benefit of the
Co-owner Trustee and the Trust.
Section 1.3. Authority to Enter Into and Execute Documents.
(a) The Co-owner Trustee hereby authorizes and directs the Eligible
Lender Trustee to enter into, execute and deliver any and all agreements,
documents and certificates which may be required in connection with performing
its duties and obligations with respect to Financed Student Loans under this
Agreement.
(b) The Co-owner Trustee hereby authorizes and directs the Eligible
Lender Trustee to enter into, execute and deliver, from time to time as the
Co-owner Trustee may request, any and all agreements, documents or certificates
which may be required in connection with the Trust Agreement, including without
limitation Transaction Documents, Servicing Agreements or Federal Loan Program
Documents, with respect to the Financed Student Loans held on behalf of the Co-
owner Trustee under this Agreement.
Section 1.4. Duties of the Eligible Lender Trustee. The Eligible Lender
Trustee, by the execution hereof, covenants, represents and agrees that:
(a) it shall accept and hold as herein set forth all such
right, title and interest to the Financed Student Loans that are
transferred and assigned to it at the request of the Co-owner Trustee;
(b) it is, and shall be, an "eligible lender" as defined in 20
U.S.C. Section 1085(d) under the Higher Education Act;
(c) it shall enter into and maintain a Contract of Guarantee
with each Guarantor where it acts on behalf of the Co-owner Trustee;
(d) if requested by the Co-owner Trustee (with respect to
Financed Student Loans held on behalf of the Co-owner Trustee under
this Agreement) in a reasonably detailed writing that sets forth
sufficient information and instructions, it shall execute, deliver and
perform Federal Loan Program Documents, Servicing Agreements,
Transaction Documents, and all other agreements, documents or
certificates required under the Trust Agreement and any other
agreements, instruments, or documents relating, directly or indirectly,
to the making, acquisition or consolidation of Financed Student Loans
or the servicing, administration, sale, exchange, assignment or
transfer of Financed Student Loans;
-2-
<PAGE> 3
(e) it shall sell, exchange or otherwise deal with such
Financed Student Loans in accordance with the Trust Agreement;
(f) it shall enter into, and thereafter comply with the terms
thereof, any agreement or other document relating to the Trust
Agreement and take such actions as are necessary and reasonably
requested to convey, transfer, assign, pledge and grant a lien on and a
security interest in all of its right, title and interest in and to the
Financed Student Loans in accordance with the Trust Agreement;
(g) it shall take such actions, at the request of the Co-owner
Trustee as are necessary or appropriate in order for the Co-owner
Trustee to obtain the full value and benefits of the Financed Student
Loans under this Agreement and the Trust Agreement;
(h) it shall hold all data, materials and information
pertaining to the Financed Student Loans confidential, and it agrees
not to use such data, materials or information for any purpose other
than for the limited purpose of performing its obligations under this
Agreement; and
(i) following the discharge or other termination of the
transactions contemplated by the Trust Agreement, it shall (i) continue
to hold all right, title and interest in and to the Financed Student
Loans for the benefit of the Co-owner Trustee pursuant to the terms and
conditions of this Agreement until otherwise directed by the Co-owner
Trustee and (ii) shall execute such agreements and documents as
requested by the Co-owner Trustee providing for the administration of
and receipt by the Co-owner Trustee of the cash flows and other
interests in such Financed Student Loans.
Section 1.5. Duties of the Co-owner Trustee. The Co-owner Trustee, by
the execution hereof, covenants, represents and agrees that:
(a) it shall accept, hold and maintain the beneficial interest in each
Financed Student Loan free of any claims, liens or encumbrances, except the
rights of the Eligible Lender Trustee and any trustee or other secured party
under the Indenture (as defined in Section 2.3);
(b) it shall promptly take all necessary actions to perform its
obligations hereunder and to support the Eligible Lender Trustee, in the prompt
and full performance of its obligations hereunder.
Section 1.6. Acceptance of Duties. The Eligible Lender Trustee accepts
the trusts hereby created and agrees to perform the duties and only the duties
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into the trust created hereby against the Eligible
Lender Trustee. The Eligible Lender Trustee shall not be answerable or
accountable under any circumstances except for its gross negligence or willful
misconduct.
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<PAGE> 4
Section 1.7. Reliance on Certain Documents, Other Persons. The Eligible
Lender Trustee shall not incur any liability in acting upon any signature,
instrument, notice, resolution, request, consent, order, certificate, report,
opinion, bond or other document or paper believed by it to be genuine and
believed by it to be signed by the proper party or parties. In the
administration of its duties hereunder, the Eligible Lender Trustee may execute
any of the trusts or powers hereof and perform its powers and duties hereunder
directly or through other agents or attorneys and may, at the expense of the
Co-owner Trustee seek advice of counsel, accountants and other skilled persons
to be selected and employed by it, and the Eligible Lender Trustee shall not be
liable for anything done, suffered or omitted in good faith by it in accordance
with the advice or opinion of any such counsel, accountants or other skilled
persons.
Section 1.8. Security for Action. No provision hereof shall require the
Eligible Lender 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.
Section 1.9. Capacity. In accepting the trust hereby created, the
Eligible Lender Trustee acts solely as trustee hereunder and not in its
individual capacity.
Section 1.10. Compensation. The Co-owner Trustee shall pay to the
Eligible Lender Trustee from time to time reasonable compensation for all
services rendered by it hereunder with respect to Financed Student Loans held on
behalf of the Co-owner Trustee under this Agreement, and also all of 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 trust hereby created with respect to Financed Student Loans
held on behalf of the Co-owner Trustee under this Agreement.
Section 1.11. Qualification. The Eligible Lender Trustee, including any
successor, shall at all times (a) be a trust company or bank having the powers
of a trust company within the state in which it is located, (b) be an "eligible
lender" as defined in 20 U.S.C. Section 1085(d) under the Higher Education Act
of 1965, as amended, and (c) have entered into, and maintain in force, a
Contract of Guarantee with each Guarantor.
Section 1.12. Successors. (a) The Eligible Lender Trustee or any
successor thereto may resign at any time without cause by giving at least 90
days prior written notice, such resignation to be effective upon the acceptance
of the trusts created by Article I hereunder by any successor Eligible Lender
Trustee meeting the requirements of Section 1.11 hereof and payment in full of
all amounts due the Eligible Lender Trustee. In addition, the Co-owner Trustee
may at any time remove the Eligible Lender Trustee with or without cause by an
instrument in writing delivered to the Eligible Lender Trustee, such removal to
be effective upon the acceptance of the trusts hereunder by a successor Eligible
Lender Trustee meeting the requirements of Section 1.11 hereof and payment in
full of all amounts due the Eligible Lender Trustee. If no successor Eligible
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<PAGE> 5
Lender Trustee has been appointed within 90 days after notice of resignation or
removal, as the case may be, the Eligible Lender Trustee may request a court of
competent jurisdiction to (i) require the Co-owner Trustee to appoint a
qualified successor Eligible Lender Trustee meeting the requirements of Section
1.11 hereof within 3 days of the receipt of citation or notice by the court, or
(ii) appoint a successor Eligible Lender Trustee meeting the requirements of
Section 1.11 hereof;
(b) Any successor Eligible Lender Trustee shall execute and deliver to
the predecessor Eligible Lender Trustee an instrument accepting such appointment
and, in cooperation with the Eligible Lender Trustee, shall take such further
actions to ensure (i) that title to the Financed Student Loans has been assigned
to such successor Eligible Lender Trustee and (ii) that the beneficial interest
of the Co-owner Trustee in the Financed Student Loans is maintained; thereupon
such successor Eligible Lender Trustee, without further act, shall become vested
with all the estates, properties, rights, powers, duties and trusts of the
predecessor Eligible Lender Trustee in the trusts hereunder with like effect as
if originally named as the Eligible Lender Trustee herein;
(c) Any bank, corporation or other entity into which the Eligible
Lender Trustee may be merged or converted or with which it may be consolidated,
or any bank, corporation or other entity resulting from any merger, conversion
or consolidation to which the Eligible Lender Trustee shall be a party, or any
bank, corporation or other entity to which substantially all the corporate trust
business of the Eligible Lender Trustee may be transferred, shall be the
Eligible Lender Trustee under this Agreement without any further act, provided
the resulting bank, corporation or other entity meets the qualification
requirements of Section 1.11 hereof.
Section 1.13. Servicing of Financed Student Loans. The Co-owner Trustee
acknowledges that pursuant to the Federal Loan Program, due diligence must be
used in the origination, servicing and collection of Financed Student Loans and
collection practices must be used no less extensive and forceful than those
generally in use among financial institutions with respect to other consumer
debt. The Co-owner Trustee acknowledges that the Eligible Lender Trustee is not
required to monitor the actions taken by the Servicers. The Co-owner Trustee
will cause an annual certification to be provided to the Eligible Lender Trustee
that servicing of the Financed Student Loans by the Servicers has been conducted
in accordance with the terms of the respective agreements that the Co-owner
Trustee has with each Servicer.
Section 1.14. Indemnification by the Co-owner Trustee of the Eligible
Lender Trustee. The Co-owner Trustee hereby agrees and does hereby indemnify and
hold harmless the Eligible Lender Trustee from and against any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, expenses or disbursements (including legal fees and expenses) of any kind
and nature whatsoever which may be imposed on, incurred by or asserted against
the Eligible Lender Trustee in any way relating to or arising out of this
Agreement or any document, or the performance or enforcement of any of the terms
of any provision thereof, or in any way relating to or arising out of the
administration of the trust estate or the action or inaction of the Eligible
Lender Trustee hereunder, except only in the case of willful misconduct or gross
negligence on
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<PAGE> 6
the part of the Eligible Lender Trustee in the performance of its duties
hereunder; provided, however, that the Co-owner Trustee's indemnification with
respect to each Financed Student Loan shall be limited to the period of time
that the Eligible Lender Trustee holds such Financed Student Loans in trust on
behalf of the Co-owner Trustee.
Section 1.15. Termination. This Agreement and the trusts created hereby
shall terminate with respect to the Co-owner Trustee, upon the sale, transfer,
final disposition, maturity, final payment or assignment of all Financed Student
Loans held by the Eligible Lender Trustee on behalf of the Co-owner Trustee.
ARTICLE II
Miscellaneous
Section 2.1. Definitions. Capitalized terms used herein shall have the
same meaning given below:
"Consolidation Loans" shall mean Financed Student Loans
authorized under Section 428C of the Higher Education Act of 1965, as
amended, or any successor provision.
"Contract of Guarantee" shall mean a contract with a Guarantor
providing for, or a certificate or other evidence of, the guarantee of
Financed Student Loans.
"Federal Loan Program" shall mean a program that makes moneys
available for Federal Loans.
"Federal Loan Program Documents" shall mean any agreement,
document or certificate relating to the terms and conditions of the
Federal Loans under a particular Federal Loan Program, including but
not limited to any Contract of Guarantee, and any amendments or
supplements thereto.
"Federal Loans" shall mean Stafford Loans, PLUS Loans or
Consolidation Loans.
"Financed Student Loans" shall mean Student Loans which become
subject to this Agreement.
"Guarantee" or "Guaranteed" shall mean, with respect to a
Federal Loan, the guarantee by the applicable Guarantor of the
principal of and accrued interest on such Federal Loan and the coverage
of such Federal Loan by a federal reinsurance agreement providing,
among other things, for reimbursement to the Guarantor for losses
incurred by it on defaulted Federal Loans guaranteed by the Guarantor
as provided by the Higher Education Act from time to time.
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<PAGE> 7
"Guarantor" shall mean any guarantee agency as is agreed to in
writing by the Co-owner Trustee and the Eligible Lender Trustee with
respect to Financed Student Loans held in trust by the Eligible Lender
Trustee.
"Higher Education Act" shall mean the Higher Education Act of
1965, as amended from time to time, and all regulations and directives
promulgated thereunder from time to time.
"PLUS Loans" shall mean Financed Student Loans authorized
under Section 428B of the Higher Education Act of 1965, as amended, or
any successor provision.
"Servicer" shall mean a servicing entity selected to provide
servicing of Financed Student Loans, including but not limited to
application review, disbursement, collection, due diligence and claims
services.
"Servicing Agreement" shall mean an agreement with a Servicer
for the servicing of Financed Student Loans.
"Stafford Loans" shall mean Financed Student Loans authorized
under Section 427 and 428 of the Higher Education Act of 1965, as
amended, or any successor provision, including Unsubsidized Stafford
Loans, but not including PLUS Loans.
"Student Loans" shall mean loans made to or for the benefit of
students for the purpose of financing part or all of the costs of
higher education.
"Transaction Documents" shall mean any agreement, document or
certificate relating to the terms and conditions of the Trust
Agreement, including but not limited to an indenture of trust, security
agreement, bailment agreement, UCC financing statements, and any
amendments or supplements thereto.
"Unsubsidized Stafford Loans" shall mean student loans
authorized under Section 428H of the Higher Education Act of 1965, as
amended, or any successor provision.
Section 2.2. Notices. All notices shall be in writing, mailed by
regular mail, postage prepaid, (i) if to the Eligible Lender Trustee, addressed
to Firstar Bank, National Association, 425 Walnut Street, ML5125; P.O. Box 1118;
Cincinnati, Ohio 45201-1118, Attention: Corporate Trust Division, or to such
other address as may have been filed in writing with the Co-owner Trustee; and
(ii) if to Firstar, addressed to 425 Walnut Street, ML5125; P.O. Box 1118;
Cincinnati, Ohio 45201-1118, Attention: Corporate Trust Division, or to such
other address as may have been filed by the Co-owner Trustee in writing.
Section 2.3. Lender Identification Number. The parties acknowledge that
Lender Identification Number [829626] shall be used in connection with Student
Loans financed under the Indenture of Trust dated as of December 1, 1998 by and
among Student Loan Funding LLC,
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<PAGE> 8
Firstar Bank, National Association, as eligible lender trustee, and Firstar
Bank, National Association, as indenture trustee (the "Indenture") as the same
may be amended from time to time.
Section 2.4. Partial Invalidity. Any provisions of this Agreement which
are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 2.5. Amendment. No term or provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party or other person against whom enforcement of the
change, waiver, discharge or termination is sought; and any waiver of the terms
hereof shall be effective only in the specific instance and for the specific
purpose given.
Section 2.6. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 2.7. Trust Binding Upon Successors and Assigns. All covenants
and agreements contained herein shall be binding upon, and inure to the benefit
of, the Co-owner Trustee and its successors and assigns and the Eligible Lender
Trustee and its successors and assigns.
Section 2.8. Headings. The headings of the various articles and
sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 2.9. Governing Law and Place of Enforcement. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Ohio and all suits and actions arising out of this Agreement shall be instituted
in a court of competent jurisdiction in the State of Ohio.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer as of the date first above written.
<TABLE>
<S> <C>
Firstar Bank, National Association, Firstar Bank, National Association,
as Co-owner Trustee under the Not in its individual capacity, but solely
Trust Agreement dated as of as Eligible Lender Trustee
March 1, 1999 regarding Student
Loan Funding 1998-A/B Trust
By: /s/ ROBERT P. JONES By: /s/ ROBERT P. JONES
--------------------------- -------------------------------
Robert P. Jones Robert P. Jones
Senior Trust Officer Senior Trust Officer
</TABLE>
-9-
<PAGE> 1
EXHIBIT 10.5
FLORIDA DEPARTMENT OF EDUCATION
OFFICE OF STUDENT FINANCIAL ASSISTANCE
FLORIDA GUARANTEED LOAN PROGRAM
LENDING INSTITUTION PARTICIPATION AGREEMENT
This Agreement is entered into for the purpose of participation in the Florida
Guaranteed Loan Programs.
WHEREAS, Star Bank, N.A. as Trustee for Student Loan Funding hereinafter
referred to as the "Lender", wishes to be able to secure loan insurance on
loans made to or on behalf of students pursuing programs of postsecondary
education pursuant to Title IV, Part B, of the Higher Education Act of 1965, as
amended, hereinafter referred to as the "Act", and
WHEREAS, The Florida Department of Education, hereinafter referred to as the
"Department", has qualified for reinsurance of such loans and having found the
Lender qualifies as an eligible lender under the provisions of the Act, the
applicable parts of Title 34 of the Code of Federal Regulations (hereinafter
referred to as "Federal Regulations"), Florida Statutes and the Rules of the
State Board of Education (hereinafter referred to as "SBE Rules"), wishes to
encourage the purchase of or origination of such loans by the Lender.
NOW, THEREFORE, it is agreed that:
1. Within such limits as may be set by the Act, Federal Regulations,
Florida Statutes and SBE Rules, the Department shall fully guarantee all
loans purchased or originated by the lender which are reinsurable under
Act and Federal Regulations. The Act, the applicable Federal
Regulations, the applicable Florida Statutes and SBE Rules are a part of
this Agreement.
2. In making or servicing guaranteed loans to or on behalf of eligible
borrowers, the Lender will assist them in securing such reductions in
their obligations to pay interest on loans made by the Lender as they
may be eligible to receive under the Act and Federal Regulations.
3. Due diligence in making, servicing, and collecting Florida guaranteed
loans will be provided by the Lender as specified by Federal Regulations
and SBE Rules.
<PAGE> 2
Page 2 of 4
4. The Lender will maintain transaction records and reports in such
form and containing such information as the Department requires, and
will afford access thereto as the Department or its authorized
representatives may find necessary to assure correctness and to verify
such records and reports.
5. The Department will supply the Lender with all forms and
informational materials as are necessary to perform the requirements set
forth by this Agreement. Any addition, substitution or alteration of
forms provided by the Department must be approved, in advance of their
use, by the Department.
6. The Lender will provide notification to the Department when it
acquires a loan for which the Department has issued a notice of loan
guarantee. Regarding a guarantee loan already held by the Lender, in
order for a loan account to remain subject to the Department's guarantee
obligation, the loan may be transferred only to another approved lender
or eligible holder of Florida Guaranteed loans.
7. Payment of a note may be extended in whole or in part, and the
provisions of the note may be modified without notice to and without
affecting the liability of the Department, if such extension or
modification complies with the requirements for notes under this
Agreement, Federal Regulations and SBE Rules.
8. The Lender will notify the Department of any servicing or
management of the Lender's guaranteed loan portfolio performed by an
agent(s) other than the holder of record.
9. Whenever any guaranteed note shall be in default, or upon the
death or total and permanent disability of a borrower, or upon
adjudication in bankruptcy, the Department will, upon receipt of a
properly documented claim from the Lender, purchase the total amount of
principal and interest then due and owing to the Lender, in accordance
with Federal Regulations and SBE Rules.
10. The Department shall maintain on deposit with the State Treasurer
of Florida or State Board of Administration funds of negotiable
securities representing no less than two percent (2%) of the total
unpaid principal amount of all guarantees issued by the Department or
the guaranteed portion of unpaid principal of all notes previously
guaranteed by the Department exclusive of such portion as may have been
reinsured or guaranteed by the United States of America or an agency,
department, or
<PAGE> 3
Page 3 of 4
instrumentality thereof. A statement of such funds and securities as of
the close of the latest state fiscal year shall be furnished to the
Lender upon request.
11. The Lender represents that the Lender is not currently the object of
any directive issued by the U.S. Department of Education or any state
or federal agency which has the potential to limit, suspend or
terminate the Lender's eligibility to participate in the guaranteed
loan programs. Further, the Lender will notify the Department on the
same day it receives any such directives while this Agreement is in
effect.
12. The Lender will not enter into any formal or informal agreement with
any school regarding the availability of Florida guaranteed loans, and
will not provide to or accept financial inducements from any school for
making Florida guaranteed loans available to students attending a
school.
13. The Lender shall not discriminate nor deny equal opportunity on the
basis of race, religion, sex, creed, national origin, marital status,
or veteran status in any decision material to participation in the
Florida Guaranteed Loan Programs, such as but not limited to, loan
eligibility determinations, or approval of deferments, forbearances,
repurchases and loan consolidation or refinancing.
14. As a condition to the obligation of the Department herein, the Lender
agrees to comply with all laws, rules, and regulations, currently in
effect and as may be amended during the term of this Agreement, that are
applicable to the transactions and loans which are to be guaranteed.
15. This Agreement shall apply only to loans made after the date of
execution by the Department and may be terminated by the Lender by
providing written notice to the Department thirty (30) days in advance
of the termination date. If the Department intends to terminate this
Agreement, the Department will establish the termination date in
accordance with the provisions set forth in Federal Regulations and SBE
Rules. The termination of this agreement shall not affect the coverage
of loans guaranteed prior to such termination.
16. The Lender shall provide to the Department a Secretary's or Cashier's
Certificate and a Certificate of Incumbency and Authenticity of
Signatures, in the formats set out in Attachments 1 and 2, which are
incorporated in and made a part of this Agreement by reference, or in a
substantially equivalent format.
<PAGE> 4
Page 4 of 4
IN WITNESS WHEREOF, the parties have caused this instrument)which
constitutes the entire Agreement of the parties and which shall not be amended
except in writing or as stated herein) to be executed by their duly authorized
officers.
FOR THE LENDER
As an officer of this lending institution, I agree that this institution and
its representatives will comply with all laws, program regulations and rules
under this Agreement.
/s/ Brian J. Gardner 4/27/98
- -------------------------------- -------------------------
Signature of Official Date
Brian J. Gardner
- --------------------------------
Typed name of Official
FOR THE DEPARTMENT
/s/ Noah M. Powers 5/11/98
- -------------------------------- -------------------------
Administrator, Federal Programs Date
Office of Student Financial Assistance
Florida Department of Education
<PAGE> 5
ADDENDUM TO LENDING INSTITUTION PARTICIPATION AGREEMENT
FLORIDA GUARANTEE LOAN PROGRAMS
INDEMNIFICATION AGREEMENT
The Star Bank, N.A. as Trustee for Student Loan Funding, hereinafter referred
to as the "Lender", and the Florida Department of Education, hereinafter
referred to as the Department, agree the Lending Institution Participation
Agreement between the Lender and the Department is amended as follows:
1. When a document required by Rules 6A-20.109 of the Florida
Administrative Code to be included in a claim package submitted by the
Lender to the Department is lost or destroyed, the Lender agrees to
submit in the claim package, in lieu of the required document, the
substituted documentation prescribed below:
a. Borrower's Application. An affidavit describing the circumstances
that resulted in the loss or destruction of the borrower's
application.
b. Original promissory note signed by the borrower. A certified copy
of the original promissory note signed by the borrower and an
affidavit describing the circumstances that resulted in the loss or
distribution of the original promissory note. If neither the
original nor a certified copy of the original promissory noted
signed by the borrower can be provided, the Lender shall also
include in the claim package, in addition to the affidavit, copies
of the front and back of the loan disbursement check(s).
c. Copy of the Notice of Loan Guarantee or Notice of Loan Statement
and Disclosure Statement. An affidavit describing the
circumstances that resulted in the loss or destruction of the
Notice of Loan Guarantee or Notice of Loan and Guarantee and
Disclosure Statement.
d. Copy of Repayment Schedule and Disclosure Statement. A record, in
a format approved by the Department, of the repayment terms as they
were disclosed to the borrower.
e. Copy of a deferment form. A record of the deferment granted, in a
format approved by the Department and an affidavit describing the
circumstances that resulted in the loss or destruction of the
deferment form.
f. Copy of the borrower signed forbearance form. A record of the
forbearance granted, in a format approved by the Department and an
affidavit describing the circumstances that resulted in the loss or
destruction of the forbearance form.
2. The Lender, its successors and assignees shall hold the Department
harmless from any losses directly resulting from claims paid pursuant to
paragraph one (1) of this agreement where the underlying loan is
declared invalid by a court of law or not reinsured by the United States
Department of Education because of the lack of the required document.
3. For circumstances to which paragraph two (2) may apply, the Department
will notify the Lender in writing and permit the Lender to enter an
appearance or take the appropriate action to establish the validity of
the debt. Upon receiving such notice the Lender will have ten days to
enter an appearance or take other action. In event the Lender does not
<PAGE> 6
respond to the notice within ten days, the Department shall presume that
the Lender does not intend to enter an appearance and shall be entitled
to indemnification as provided in paragraph two (2).
4. The Lender agrees that the affidavit submitted in lieu of a required
document pursuant to paragraph one (1) of this agreement shall be
substantially similar to Attachment A. The affidavit shall be signed by
an authorized official of the Lender or its agent.
5. Provided the Lender complies with the provisions of paragraphs one (1)
through four (4) of this agreement, the Department agrees to waive the
requirement specified in 6A-10.109 of the Florida Administrative Code
for each document that the Lender cannot submit.
6. This waiver is limited to situations where the Lender affirms by
affidavit that a diligent search has been made to locate the document(s)
and that if the document is subsequently found by the Lender, it will be
promptly forwarded to the Department.
7. The Lender and the Department agree that this waiver will not be
applicable in situations where the Department determines that the loss
or destruction of the required document is the result of negligence by
the Lender or a failure of the Lender to perform reasonable diligence in
maintaining the required document.
8. This agreement may be terminated by the Lender by providing written
notice to the Department thirty (30) days in advance of the termination
date. The termination of this agreement by the Lender shall not affect
such termination. This agreement may be terminated by the Department by
providing a written notice to the Lender that specifies the affective
date of the termination. The termination of this agreement by the
Department shall not affect claims paid pursuant to paragraph one (1) of
this agreement prior to the date the Department issues such a
termination notice.
For the Lender
As an officer of this institution, I agree that this institution and its
representatives will comply with the conditions specified in this agreement
/s/ Brian J. Gardner 4/27/98
- ----------------------------------- --------------------------------
Signature of Official Date
Brian J. Gardner, Senior Trust Officer
- --------------------------------------------------------------------------
Typed Name and Title of Official
For the Department
/s/ Noah M. Powers 5/11/98
- ---------------------------------------- --------------------------------
Noah M. Powers, Director Date
Office of Student Financial Assistance
Florida Department of Education
<PAGE> 7
LENDING INSTITUTION
SUPPLEMENTAL PARTICIPATION AGREEMENT
FLORIDA GUARANTEED LOAN PROGRAMS
This Agreement sets out the procedures, responsibilities, and liabilities
of the parties arising from the transmittal in machine readable form of Florida
Guaranteed Loan Programs tape. This agreement supplements the Lending
Institution Participation Agreement entered in to between the Office of Student
Financial Assistance, Florida Department of Education, and the Lender on June 1,
1998.
Section A. The Parties
The parties to this Agreement are the Office of Student Financial
Assistance (Office), Florida Department of Education, 255 Collins Building,
Tallahassee, Florida 32399-0400 and Star Bank, N.A. as Trustee for Student Loan
Funding hereinafter called the Lender.
Section B. Term
This Agreement shall be effective on June 1, 1998 and shall remain in
effect unless amended by written agreement executed in the same manner as the
Supplemental Participation Agreement, or terminated by either party upon sixty
days written notice sent by certified U.S. Mail, return receipt requested,
addressed to the other party at the address set out in Section A above.
Section C. Duties of the Institution
The Institution agrees to:
1. Prepare and transmit, either electronically or by magnetic tape,
Florida Guaranteed Loan Programs application data in a format
specified by the Office. In performing this duty, the Lender shall
exercise care to ensure that the information contained in each
transmission is identical to the information contained in
application documents, and warrants that it maintains procedures
reasonably adapted to avoid error in the information transmitted.
2. Verify application date to the extent required by prevailing federal
statute and regulation.
3. Maintain the official copy, as prescribed by federal statute and
regulation, of any documents containing Florida Guaranteed Loan
Program application information transmitted to the Office
electronically or by magnetic tape.
<PAGE> 8
4. Promptly furnish a copy of any documents maintained pursuant to the
immediately preceding paragraph, at the request of authorized
parties. Authorized parties include the educational institution,
any subsequent holder of the loan, the U.S. Department of
Education, and the Office.
5. Cooperate in the resolution of any difficulties or problems which
arise in the processing of application information under this
Agreement.
Section D. Violation of This Agreement by the Institution
In the event information transmitted to the Office by the Lender differs
from the information listed on a borrower's loan application documents and that
error causes, directly or indirectly, a loan to be made to a student who is
ineligible for such loan, the Office shall have a right to:
1. Deny any insurance claim submitted by the Lender for that loan; and
2. Require the Lender to reimburse any holder of the loan, including
the Office for any loss incurred on that loan.
Section E. Duties of the Office
The Office agrees to:
1. Exercise reasonable care to ensure that the information maintained
in its files is identical to the information transmitted in machine
readable format, either electronically or by magnetic tape, from the
Lender.
2. Prescribe application data items, specifications and formats to be
used by the Lender in performing its duties.
3. Approve the format of documents which are required to be maintained
by the Institution pursuant to Section C.3.
4. Promptly furnish the Lender with any amendment or other changes in
the data items specifications, or formats approved by the Office for
the transmission of data in machine readable format, electronically
or by magnetic tape.
5. Cooperate in the resolution of any difficulties or problems which
may arise from the processing of application information under this
Agreement.
<PAGE> 9
SIGNATURE PAGE FOR THE
SUPPLEMENTAL PARTICIPATION AGREEMENT
FLORIDA GUARANTEED LOAN PROGRAMS
LENDING INSTITUTIONS
In witness whereof, the parties hereto have signed this Agreement this 11th day
of May, 1998.
Star Bank, N.A. as Trustee for
Student Loan Funding
- ------------------------------ Office of Student Financial Assistance
Name of Institution Florida Department of Education
/s/ Brian J. Gardner /s/ Noah M. Powers
- ------------------------------ --------------------------------------
Signature of Official Signature of Official
Brian J. Gardner Noah M. Powers
- ------------------------------ --------------------------------------
Name of Official Name of Official
Senior Trust Officer Director
- ------------------------------ --------------------------------------
Title of Official Title of Official
425 Walnut St., ML5125, P.O. Box 1118 5/11/98
- ------------------------------ --------------------------------------
Street Address Date of Signature
Cincinnati, OH 45201-1118
- ------------------------------
City/State/Zip
829626, 830631, 831008, 831299, 831455,
831640, 831692, 831785, 833361, 833207
- ------------------------------
Federal Lender Code Number
4/27/98
- ------------------------------
Date of Signature
<PAGE> 10
FLORIDA DEPARTMENT OF EDUCATION
OFFICE OF STUDENT FINANCIAL ASSISTANCE
PRE-APPROVED LENDER PROGRAM PROCEDURES
Program Description
The Florida Office of Student Financial Assistance (OSFA) offers the Pre-
Approved Lender Program to lending institutions that participate in the Florida
Guaranteed Student Loan Programs (FGSLP). The program provides for the
completion of the Lender's section of the FGSL Application/Promissory Note,
approval of the loan, and disbursement of loan proceeds on the Lender's behalf
by OSFA's contract servicer. The program is intended to streamline the
application process and reduce the Lender's workload in loan origination. OSFA
shall be responsible for all acts or omissions by its contract servicer. The
Lending Institution Participation Agreement between (*See below) (Lender) and
OSFA of June 1, 1998 (Date of Agreement) shall remain in full force and effect.
Explanation of Services
Lenders participating in FAST (Florida Automated System Technology) through a
personal computer system to mainframe or mainframe to mainframe transmission,
or Lenders who process applications manually may participate in the
Pre-Approved Lender Program. The following services are available to the
Lender regardless of the Lender's chosen processing system.
1. OSFA will receive application information for Lender, and the
Lender section of the Application/Promissory Note will be electronically
entered and certified on the Lender's behalf by OSFA or its servicer
using information supplied electronically to OSFA by the school or
otherwise.
2. If school and borrower data is complete and accurate, applications for
Pre-Approved Lenders will be issued a guarantee within 24 hours which
together with loan information will be transmitted to the Lenders.
3. OSFA will send a notice to the applicant that the loan has been
guaranteed including the expected disbursement dates.
General Requirements
1. The Lender must sign a Pre-Approved Lender Agreement and submit it to
the Office of Student Financial Assistance.
2. The Lender must utilize this service for all FGSL loans processed after
the effective date authorized in the Pre-Approved Lender Agreement.
3. The Lender, for those loans it chooses to make, must disburse all FGSL
loans in accordance with the Notice of Loan Guarantee and Disclose
Statement and as permitted by Federal Regulations.
4. Nothing in the Pre-Approved Lender Program Agreement or the Lending
Institution Participation Agreement signed by the Lender requires the
Lender to make any particular loan or number of loans.
*Star Bank, N.A. as Trustee for Student Loan Funding
<PAGE> 11
5. Applications received by OSFA with incomplete or inaccurate information,
or for borrowers deemed "ineligible" due to exceeding loan limits,
delinquency or default, will be reported to the Lender by means of a
reject report which will be mailed or transmitted electronically toe the
Lender promptly, normally within 24 hours of receipt of the application
data.
Standards for Completion of applications
1. Loan Disbursement Dates
a. Loan disbursement dates will be scheduled according to the school's
recommended disbursements dates provided these dates comply with
federal requirements.
b. If the school's recommended disbursement date(s) do not meet
federal requirements, disbursements will be scheduled as follows:
1) The first disbursement will be set to either the current date
(guaranteed date) to 15 days prior to the loan period begin
date, whichever is later.
2) The second disbursement date will be in chronological order
and set appropriately to either 15 days prior to the second
term begin date, or one-third of the loan period.
3) Third and fourth disbursements will be in chronological order
and set according to the school's recommended disbursement
dates provided they are not earlier than the second
disbursement date.
4) The Lender may disburse on a date other than the scheduled
disbursement date(s) provided such a disbursement is in
compliance with the Higher Education Act of 1965, as amended.
2. Loan Amount
The borrower's loan amount will not exceed the maximum annual limits
specified in the Higher Education Act of 1965, as amended.
3. Interest Rate
The interest rate will be determined by using the loan history disclosed
in the student section of the application as well as verifying this
information against the system database.
<PAGE> 12
The foregoing is agreed to:
Star Bank, N.A. as Trustee for
Student Loan Funding Florida Department of Education
- ------------------------------ Office of Student Financial
Name of Institution Assistance
/s/ Brian J. Gardner /s/ Noah M. Powers
- ------------------------------ ------------------------------------
Signature Signature
Brian J. Gardner Noah M. Powers
- ------------------------------ ------------------------------------
Typed Name Typed Name
Senior Trust Officer Director
- ------------------------------ ------------------------------------
Title Title
4/27/98 5/11/98
- ------------------------------ ------------------------------------
Date Date
829626, 830631, 831008, 831299, 831455
831640, 831692, 831785, 833361, 833207
- -------------------------------
Lender Code Number
<PAGE> 13
FLORIDA OFFICE OF STUDENT FINANCIAL ASSISTANCE
PRE-APPROVED LENDER PROGRAM AGREEMENT
I authorize the Office of Student Financial Assistance, Department of Education
and its contract servicer, to process loans in accordance with the terms and
conditions described in this Agreement and the attached Pre-Approved Lender
Program Procedures, for the Guaranteed Student Loan Pre-Approved Lender Program
as specified below.
The Pre-Approved Lender Program will be used for Florida Guaranteed Student
Loans with the annual loan volume not to exceed $ No Limit. (If no limit, write
"No Limit")
/s/ Brian J. Gardner 4/27/98
- --------------------------------- -------------------------------
SIGNATURE DATE
Brian J. Gardner, Senior Trust Officer
- -------------------------------------------------------
NAME AND TITLE (Please type or print)
Star Bank, N.A. as Trustee for Student Loan Funding
- -------------------------------------------------------
NAME OF LENDING INSTITUTION
829626, 830631, 831008, 831299, 831455
831640, 831692, 831785, 833361 833207
- ----------------------
LENDER CODE NUMBER
425 Walnut Street, ML 5125
- -------------------------------------------------------
P.O. Box 1118
- -------------------------------------------------------
ADDRESS
Cincinnati, Oh 45201-1118
- -------------------------------------------------------
CITY STATE ZIP
Approved by:
Florida Department of Education
Office of Student Financial Assistance
/s/Noah M. Powers 5/11/98
- -------------------------------------------------------
SIGNATURE
Noah M. Powers, Director
- -------------------------------------------------------
NAME AND TITLE
<PAGE> 14
[ LOGO ]
FLORIDA DEPARTMENT OF EDUCATION
Frank T. Brogan
Commissioner of Education
FLORIDA FEDERAL FAMILY EDUCATION LOAN PROGRAM
FEDERAL CONSOLIDATION LOANS
LENDER PARTICIPATION AGREEMENT
WHEREAS, Star Bank, N.A. as Trustee for Student Loan Funding, hereinafter
referred to as the "Lender," wishes to participate in a program of Federal
Consolidation Loans for eligible borrowers under Title IV, Part B, of the Higher
Education Act of 1965, as amended, and
WHEREAS, the Florida Department of Education, Office of Student Financial
Assistance, hereinafter referred to as the "Department," having found that the
eligible lender qualifies under the provisions of such Act and State Board of
Education Rules.
THEREFORE, it is agreed by the Department and the Lender as follows:
(1) The Lender is currently an eligible lender and/or holder with the United
States Department of Education for Federal Stafford Loans (formerly
called Guaranteed Student Loans) and/or Federal PLUS loans, and Federal
Supplemental Loans for Students.
(2) Within such limits as may be set by it, the Department shall insure all
Federal Consolidation Loans made by the eligible lender which are
eligible for such reinsurance under such Acts and Regulations issued
thereunder, which Acts and Regulations, as they may from time to time be
amended, are made a part of this agreement.
(3) An eligible lender must verify that an eligible borrower has no other
application pending for a Federal Consolidation Loan and the lender must
hold at least one of a borrower's eligible loans for consolidation, or
obtain a certification that the borrower has been unable to obtain a
consolidation loan with income-sensitive repayment terms from the
holder(s) of his/her outstanding loans selected for consolidation. At
least one loan to be consolidated must be a loan guaranteed by the
Department.
(4) The Lender must meet the applicable guidelines set forth in the Higher
Education Act of 1965, as amended.
(5) The proceeds of the Federal Consolidation Loan will be paid by the
eligible lender to the holder(s) of the loans selected for consolidation
to discharge the liability of such loans.
(6) The Lender agrees to follow such other published terms and conditions as
the Secretary of Education and the Department specifically require to
carry out the Federal Consolidation Loan Program.
(7) If the eligible lender no longer intends to make Federal Consolidation
Loans under this agreement, the agreement shall be terminated sixty (60)
days after receipt of the request. This agreement may also be terminated
by the Department in a manner provided by law. The termination of this
agreement shall not affect the coverage of loans under guarantee issued
prior to such termination.
PAGE 1 OF 2
325 West Gaines Street - Tallahassee, Florida 32399-0400
An affirmative action/equal opportunity employer
<PAGE> 15
IN WITNESS THEREOF, The Florida Department of Education, Office of Student
Financial Assistance has executed this agreement in Tallahassee, Florida.
Noah M. Powers, Director
- --------------------------------------------------------------------------
Name and Title of Department Official
/s/ Noah M. Powers 5/11/98
- --------------------------------------------- -------------------------
Signature of Department Official Date
The above agreement accepted this 11th day of May 1998
Exact Corporate Title:
Name Star Bank, N.A. as Trustee for Student Loan Funding
-----------------------------------------------------------------
Address 425 Walnut Street, ML 5125, P.O. Box 1118
-----------------------------------------------------------------
Cincinnati, OH 45201-1118
- --------------------------------------------------------------------------
Federal EI No. 31-0841368 DE Federal Vendor No. (Lender Code) 829626, 830631,
831008, 831299,
831455, 831640,
831692, 831785,
833361, 833207
Name and Title of Officer Brian J. Gardner, Senior Trust Officer
------------------------------------------------
Signature of Officer /s/ Brian J. Gardner
----------------------------------------------------
(1996)
PAGE 3 OF 2
<PAGE> 16
[ LOGO ]
FLORIDA DEPARTMENT OF EDUCATION
FRANK T. BROGAN
Commissioner of Education
CERTIFICATE OF COMPREHENSIVE INSURANCE
(For Federal Consolidation Loans made in accordance with Title IV,
Part B of the Higher Education Act of 1965, as amended)
The Florida Department of Education, Office of Student Financial Assistance,
hereinafter referred to as the "Department," authorizes that all consolidation
loans made in conformity with the requirements of Part B of Title IV of the
Higher Education Act of 1965, as amended, by (*See below) hereinafter referred
to as the "Lender," are fully insured against loss of principal and interest by
the Department provided:
1. The lender has determined to its satisfaction, in accordance with
reasonable and prudent business practices, for each loan being consolidated
that:
(a) the loan is a legal, valid, and binding obligation of the borrower;
(b) each such loan was made and serviced in compliance with applicable
laws including federal regulations and State Board Rule; and
(c) the insurance on each Part B loan is in full force and effect.
2. That the consolidation loan(s) will be made on or after June 1, 1998 but
no later than provided for in the Higher Education Act of 1965, as amended.
3. That the total unpaid principal amount of all consolidation loans made
under this certificate is equal to or not to exceed $20,000,000.00.
4. That this certificate will be updated and renewed as determined by the
lender.
5. That the lender will meet reporting requirements established by the
Department in a timely manner.
6. That the lender structures a repayment schedule with the eligible
borrower pursuant to the requirements stated in the Higher Education Act of
1965, as amended regarding Federal Consolidation Loans.
7. That, if the lender, prior to the expiration of this certificate no
longer wishes to make Federal Consolidation Loans, the lender will so notify
the Department in order that the certificate may be terminated. Such
termination shall not affect the insurance on any Federal Consolidation loan
made prior to such termination.
*Star Bank, N.A. as Trustee for Student Loan Funding
325 West Gains Street - Tallahassee, Florida 32399-0400
An affirmative action/equal opportunity employer
<PAGE> 17
8. The lender's Federal Consolidation Loan Program practices are subject to
the Department's Federal Family Education Loan Program lender Participation,
Limitation, Suspension or Termination procedures. The insurance on any Federal
Consolidation loan(s) made under this certificate prior to the Department's
imposition of a limitation, suspension or termination action shall not be
affected by such action.
The Florida Department of Education, Office of Student Financial Assistance, is
designated as the office which will process claims and perform other related
administrative functions.
IN WITNESS THEREOF, The Florida Department of Education, Office of Student
Financial Assistance has executed this agreement in Tallahassee, Florida.
Noah M. Powers, Director
- --------------------------------------------------------------------------
Name and Title of Department Official
/s/ Noah M. Powers 5/11/98
- ------------------------------------------ ---------------------------
Signature of Department Official Date
The above agreement accepted this 11th day of May 1998
Exact Corporate Title:
Name Star Bank, N.A. as Trustee for Student Loan Funding
------------------------------------------------------------------
Address 425 Walnut Street, ML 5125, P.O. Box 1118
------------------------------------------------------------------
Cincinnati, OH 45201-1118
- --------------------------------------------------------------------------
Federal EI No. 31-0841368 DE Federal Vendor No. (Lender Code) 829626, 830631,
831008, 831299,
831455, 831640,
831692, 831785,
833361, 833207
Name and Title of Officer Brian J. Gardner, Senior Trust Officer
------------------------------------------------
Signature of Officer /s/ Brian J. Gardner
----------------------------------------------------
(Revised 1996)
<PAGE> 1
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 2
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 3
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
829626
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 4
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 5
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 6
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
830631
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 7
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 8
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 9
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
831008
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 10
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 11
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 12
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
831299
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 13
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 14
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 15
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
831445
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 16
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 17
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 18
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
831640
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 19
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 20
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 21
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
831692
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 22
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 23
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 24
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
831785
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 25
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 26
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 27
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
833207
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 28
EXHIBIT 10.6
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this 1st day of June, 1998 by and between the
Georgia Higher Education Assistance Corporation (GHEAC) a public non-profit
Corporation, and Star Bank, N.A. as Trustee for Student Loan Funding (the
Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loans(s), Federal Parent Loan to
Undergraduate Students(PLUS) loans(s), or the Federal Consolidation Loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously guaranteed
by GHEAC upon the transfer from the originator to any subsequent eligible loan
holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not been invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of and any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 29
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one
hundred percent (100%) of any proven loss incurred by the Holder due to the
default, death, permanent and total disability, or bankruptcy of the borrower
of any loan held by the eligible holder and guaranteed by GHEAC. Where the
maximum allowable reimbursement percentage is otherwise defined, or reduced by
statute or regulation, that reimbursement percentage shall prevail. If the
guarantor's reinsurance coverage is reduced as provided for by the Secretary,
the reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other Participation
Agreement between GHEAC and Holder, or Holder's prior originator, or prior
eligible loan holder, shall be a condition of GHEAC's obligation to reimburse
the Holder for loss as noted in section 3. of this Agreement. The Holder will be
responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This Agreement may be terminated by the Holder, GHEAC or the Secretary of
Education at any time, however, termination of this Agreement by either party
shall not affect the rights and obligations of the respective parties incurred
or accrued prior to the effective date of the termination unless the parties
shall expressly otherwise agree in writing.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has been
requested, and delivery has been attempted to the other party at the address
designated below, or at such other address as the parties may designate
periodically.
2
<PAGE> 30
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first written
above.
Star Bank, N.A. as Trustee for Georgia Higher Education Assistance
Student Loan Funding Corporation
- -------------------------------------- 2082 East Exchange Place
Name of Lending Institution Tucker, Georgia 30084
425 Walnut Street, ML 5125 /s/ E. Glenn Newsome 4/29/98
P.O. Box 1118 ------------------------------------
- -------------------------------------- E. Glenn Newsome, Executive Director
Address
Cincinnati, OH 45201-1118
- --------------------------------------
City/State Zip
31-0841368
- --------------------------------------
Federal Tax Identification Number
833361
- --------------------------------------
Federal Code Number
Brian J. Gardner, Senior Trust Officer
- --------------------------------------
Name/Title of Authorized Officer
/s/ Brian J. Gardner (SEAL)
- --------------------------------------
Signature of Authorized Officer
3
<PAGE> 1
EXHIBIT 10.7
AGREEMENT TO GUARANTEE LOANS
THIS AGREEMENT is entered into as of the 1st day of June, 1998, by and between
UNITED STUDENT AID FUNDS, INC., a private nonprofit corporation organized under
the General Corporation Law of the State of Delaware ("USA Funds") and Star
Bank, N.A. as Trustee for Student Loan Funding ("Lender").
WITNESSETH:
WHEREAS, USA Funds, a non profit corporation with objectives and purposes which
are exclusively educational and charitable, has entered into agreements with the
U.S. Secretary of Education pursuant to the Act; and
WHEREAS, the Lender is desirous of lending money to encourage education through
the Loan program of USA Funds in the manner described in this Agreement; and
WHEREAS, the Lender has full legal power and authority to contract for the
performance of such guarantee services, qualifies as an "eligible lender" under
the Act and is prepared to engage in the transactions contemplated by this
Agreement; and
WHEREAS, USA Funds is desirous of making its Loan Program and related services
available to the Lender, subject to the terms and conditions set forth herein;
NOW, THEREFORE, inconsideration of the initial loan which the Lender makes,
causes to be made or acquires, and in further consideration of the foregoing
premises and the mutual covenants contained in this Agreement, and of other good
and valuable consideration, the receipt of which is hereby acknowledged, USA
Funds and the Lender agree as follows:
ARTICLE I DEFINITIONS
As used herein, the following words have the meanings respectively indicated:
"Act" means Title IV of the Higher Education Act of 1965 (20 U.S.C. Section 1071
et seq.) As amended and in effect from time to time, or any successor enactment
thereto, and the effective regulations promulgated thereunder and any binding
directives issued by the U.S. Department of Education.
"Agreement" means this Agreement to Guarantee Loans between USA Funds and the
Lender.
"Borrower" means an individual who is the maker of a Note and who obtains a Loan
from the lender in accordance with the Act and the Loan Program.
"Default" means with respect to any Note, the occurrence of any event that
constitutes a default under the terms of the Act.
"Educational Institution" means any institution of postsecondary education that
is an "eligible institution" under the Act and is eligible under the Loan
Program.
"Federal Reinsurance" means the obligation assumed by the Federal government as
set forth in the Act and contracts between USA Funds and the U.S. Department of
Education.
"Guarantee" means a commitment by USA Funds to pay the Lender a percentage of
the unpaid principal balance plus accrued unpaid interest of a Loan upon
submission by the Lender of a valid claim and supporting documentation in
accordance with the Act, the Loan Program, and the Policies.
"Guarantee Fee" means a charge based upon the principal Loan amount which charge
is collected from the Lender by USA Funds. The Lender may cause this charge to
be passed on to the Borrower.
"Guarantee Reserve" means an account maintained by USA Funds for the Guarantee
of Loans and
<PAGE> 2
payment of claims in accordance with the terms of this Agreement.
"Limitation" means an action taken by USA Funds that restricts the Lender's
participation in the Loan Program.
"Loan" means a disbursement(s) of money, contingent upon an agreement to repay,
made by the Lender pursuant to the Act, the Loan program, and the Policies.
"Loan Application" means the application for a Loan on a form approved by the
U.S. Department of Education and USA Funds, which form must be executed by an
applicant, certified by an Educational Institution, and accepted by a Lender in
accordance with the Policies.
"Loan Program" means the procedures and policies for implementing and
maintaining a Loan Guarantee under the provisions of the Act, Policies,
applicable law, and regulations, and as otherwise agreed to by and between the
Lender and USA Funds.
"Note" means a promissory note of a Borrower for a Loan set forth upon the
appropriate form approved by USA Funds, which note meets the criteria set forth
by the Policies and the Act.
"Policies" mean the policies adopted and issued by USA Funds describing the
administration of the Loan Program, including any subsequently issued written
notices.
"Special Allowance" means those sums which are payable by the U.S. Department of
Education to the Lender under the Act.
"Student" means an "eligible student" as described in the Act.
"Suspension" means the temporary ineligibility of the Lender from participation
in the Loan Program.
"Termination" means the removal of the Lender from participation in the Loan
Program.
ARTICLE II PROGRAM ADMINISTRATION
A. By this Agreement USA Funds and the Lender hereby agree to
participate in the Loan Program as follows:
1. The Lender agrees to make Loans or cause Loans to be made
to eligible Borrowers pursuant to the terms of the Loan Program;
2. USA Funds agrees to Guarantee Loans originated and
maintained in accordance with the terms of the Loan Program; and
3. USA Funds agrees to provide certain administrative services
in connection with each Loan Guarantee as required by the Loan Program and the
Act.
B. Loans may be originated only on behalf of Students attending
Educational Institutions.
C. Administrative services that USA funds shall provide for the Lender
under the Loan Program in accordance with this Agreement and the Policies are as
follows:
1. Processing Loan Applications to determine if such Loan
Applications are eligible for Guarantee;
2. Recording Borrower status from time to time as reported by
the Lender and Educational Institutions;
-2-
<PAGE> 3
3. Providing certain management and information reports for
the Lender and Educational Institutions; and
4. Providing preclaims assistance and claims processing for
delinquent and defaulted Loans.
D. The lender agrees that, in respect of all Loans made or acquired by
it under the Loan Program of USA Funds and all Notes held or acquired by the
Lender from time to time, it will:
1. Comply with the Act;
2. Cause reasonable care and diligence to be exercised in the
making, servicing and collection of Loans, as prescribed in the Policies;
3. Use the Loan Application, Note and such other forms
developed or otherwise approved by USA Funds;
4. Cause a Guarantee Fee to be paid to USA Funds in accordance
with the requirements of the Loan Program and Article IV of this Agreement;
5. Comply with all procedures, policies and conditions on its
part to be performed as set forth in this Agreement and the Policies; except
when the provisions of this Agreement of the Policies are inconsistent with the
Act as a result of changes to the Act, in which case the Act is controlling;
6. Comply with all Federal and state laws and regulations
applicable to the Loan program, including but not limited to applicable portions
of the Federal Consumer Credit Protection Act and the Equal Credit Opportunity
Act; and
7. Provide promptly to USA Funds such information and reports
as may from time to time be reasonably requested by USA Funds.
E. The Lender shall cause all Loan disbursements to be made by check or
draft requiring the personal endorsement of the Borrower or by electronic funds
transfer. Except as expressly provided in the Act, the Lender will not accept
authorization of anyone, even by power of attorney, to endorse a check or draft
on behalf of the Borrower. The Lender shall cause the Loan to be disbursed
jointly to the Borrower and the Educational Institution if so required by the
terms of the Loan Program.
F. USA Funds will in accordance with the Act continue its Guarantee of
a Loan if an extension of the maturity date is required as a result of the
Borrower's eligibility under the Act for a deferment or forbearance; provided,
however, that such continuance of USA Funds' Guarantee of a Loan shall be only
for so long as an extension of the maturity date is in accordance with the Act
and the Loan Program.
G. The Lender will pursuant to the direction of USA Funds repay or
cause the repayment of any Special Allowance received by the Lender under the
Act to which the Lender is not rightfully entitled.
H. Subject to the prior written approval of the Lender, which approval
shall not be unreasonably withheld, USA Funds may transfer the Guarantee of
Loans to any other guarantor which has given to USA Funds its prior written
approval of such transfer.
I. By this Agreement, USA Funs and the Lender agree that upon the
filing of a claim by the Lender, such claim will be processed in the following
manner:
1. In the event of a Default in respect of a Loan, the lender
will follow (or cause to be followed) the procedure set forth in the Policies.
USA Funds does not guarantee payment by the Borrower of any delinquency charges
imposed for late payments and will not accept a Default claim based solely on
non-payment of such charges. Upon receipt by USA Funds from the Lender (or
Servicer) of a
-3-
<PAGE> 4
Default notice together with the Notice (assigned to USA Funds), the Loan
Application, and evidence satisfactory to USA Funds that the Loan evidenced by
such Note was originated and serviced, and collection efforts were made, in
accordance with applicable laws and regulations and with the Policies, USA Funds
will pay to the Lender the amount of the unpaid balance of principal and
interest due on such Note under the terms of the Act and the Policies (other
than any portion of such interest payable by the U.S. Department of Education
under the Act), provided the Lender has complied in all material respects with
the requirements of the Loan Program, this Agreement, and the Policies in
respect of such Note. USA Funds will thereupon succeed to all the rights of the
Lender under such Note. No claim submitted to USA Funds by the Lender with
respect to a Loan that has been Guaranteed will be paid by USA Funds unless USA
Funds has received from the Lender (or Servicer) the appropriate documentation.
2. Upon bankruptcy, death, or permanent and total disability,
as defined in the Act, of the Borrower USA Funds will pay to the Lender the
amount of the unpaid balance of principal and interest due on such Loan under
the terms of the Act and the Policies (other than any portion of such interest
payable by the U.S. Department of Education under the Act), provided the Lender
has complied in all material respects with the requirements of the Loan Program,
this Agreement and the Policies in respect of such Loan.
J. Nothing contained in this Agreement shall obligate the Lender to
make, certify, cause to certify or acquire any particular Loan or number of
Loans under this Loan Program.
K. The Lender will permit the U.S. Secretary of Education or USA Funds
or both to examine during normal business hours all Loan records and files, upon
reasonable notice and at reasonable intervals, for the purpose of verifying the
accuracy of information provided by the Lender under the Act an din order to
conduct an audit and compliance review.
L. If USA Funds determines that the Lender has violated the terms of
this Agreement or the Loan Program, USA Funds shall take such action as is
necessary to protect its interests. This action may include but not be limited
to implementation o the Limitation, Suspension, or Termination procedures set
out in the Policies.
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE LENDER
The Lender represents and warrants to, and covenants with, USA Funds that:
A. The Lender is a duly authorized "eligible lender" under the Act in
every state in which it is originating Loans under the Act as well as the state
in which it is organized and incorporated and has authorized the execution and
delivery of this Agreement.
B. The Lender is and will continue to qualify at all times during the
term of this Agreement as an "eligible lender" under the Act.
C. The Lender will, at all times, conform its actions, policies and
procedures t the Act, this Agreement and all applicable Federal and state laws
and regulations.
ARTICLE IV GUARANTEE FEE AND GUARANTEE RESERVE
A. As partial payment for the administrative services provided by USA
Funds for the Lender and in order for USA Funds to maintain a Guarantee Reserve
sufficient to Guarantee Loans in accordance with this Agreement USA Funds will
charge to the Lender and the Lender may charge each Borrower a Guarantee Fee
which fee shall not exceed the amount allowable under the Loan Program.
B. The Lender shall be billed monthly by USA Funds with an itemized
statement listing each Loan Application Guaranteed and the Guarantee Fee. USA
Funds will automatically place the Lender on the Guarantee Fee billing system.
The Lender must pay any Guarantee Fee due within thirty (30) days of
-4-
<PAGE> 5
billing. The Lender will be charged interest at the rate of one percent (1%) per
month, twelve percent (12%) per annum, for past due Guarantee Fee bills. If the
Guarantee Fee for a Loan is not paid within one hundred twenty (12) calendar
days the Guarantee on that Loan will be canceled.
C. So long as the Lender is current in its payment of Guarantee Fee
billings USA Funds will Guarantee each new Loan made to a Borrower, or purchased
or acquired that such loan was Guaranteed by USA Funds at the time for such
purchase or acquisition) by the Lender pursuant to this Agreement; provided,
however, that USA Funds shall not be obligated to Guarantee any such Loan if:
1. Such Guarantee would cause the aggregate amount of unpaid
principal and interest of all Notes to exceed the Guarantee capacity of USA
Funds for the Loan Program or the Educational Institution allocation for which
the Guarantee is to be issued, or
2. USA Funds in its sole discretion determines that the
procedures and requirements of the Act and other applicable law and regulations,
this Agreement, or the Policies have not been complied with in respect to such
Loan.
D. The Guarantee Reserve of USA Funds will be held, maintained, and
invested solely in accordance with the prevailing standards of prudent
management in the disposition of funds required for fiduciaries by Title 12,
Section 3302 of the Delaware Code of 1953, as amended. By execution hereof,
Lender consents to the management of said funds pursuant to the investment
policies and procedures adopted by USA Funds from time to time.
ARTICLE V TERMINATION
Except with respect to Loans that have been Guaranteed by USA Funds and continue
to be outstanding under this Agreement, this Agreement may be terminated by
either party with or without cause upon not less than ninety (90) calendar days
written notice to the other party. Such termination will not affect any Notes
that are outstanding or duties arising prior to the effective date of the
termination.
ARTICLE VI LIMITATION OF LIABILITY AND INDEMNIFICATION
A. If the Lender violates or fails to comply with any applicable law or
governmental regulations in respect of a Loan or participation in the Loan
Program, then the Lender agrees to assume liability for, and does hereby
indemnify, protect, and keep harmless USA Funds, its successors and assigns,
from and against, any and all liabilities, losses, and claims, imposed on,
incurred by or asserted against USA Funds, relating to or arising out of such
violation or failure by the Lender to comply, regardless of whether USA Funds
purchased such Loan from the Lender.
B. The liability of USA Funds under this Agreement shall be limited to
payment of the Guarantee under Paragraph I of Article II of this Agreement and
this shall constitute its sole liability under this Agreement. USA Funds shall
not be liable for any indirect, incidental or consequential damages (including
but not limited to lost profits, lost revenue, or failure to realize expected
savings) regardless of the form of the action and whether such damages are
foreseeable.
ARTICLE VII MISCELLANEOUS
A. ASSIGNMENT/SUBCONTRACT. This Agreement will inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns; provided, however, that:
1. This Agreement may not be assigned in whole or in part by
USA Funds without the prior express written consent of Lender, which consent
will not be reasonably withheld; provided, however, that USA Funds shall have
the right without the consent of Lender to assign its rights and obligations
hereunder to any affiliate or any transferee of all or substantially all of the
assets of USA
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<PAGE> 6
Funds, which contracts with the U.S. Department of Education (or its successors)
under the Act, or to subcontract its obligations to any person.
2. Lender shall not assign any rights or obligations under the
Agreement in whole or in part without the prior express written consent of USA
Funds, which consent will not be unreasonably withheld; provided, however, that
Lender shall have the right without the consent of USA Funds to assign its
rights and obligations hereunder to any affiliate or any transferee of all or
substantially all of the assets of Lender, or to subcontract its obligations to
any person.
B. AMENDMENT. Except as otherwise provided in this Agreement, this
Agreement may not be varied by oral agreement, but only as agreed to in writing
by all parties.
C. WAIVER OF RIGHTS. No failure by any party to exercise, or any delay
in exercising, and no course of dealing with respect to any right of such party
or any obligation of any other party under this Agreement will operate as a
waiver, unless, and only to the extent, agreed to in writing by all parties. Any
single or partial exercise by any party of its rights shall not preclude such
party from any other or further exercise of such right or the exercise of any
other right. Any single or partial waiver by any party of any obligation of any
other party under this Agreement will constitute a waiver of such obligation
only as specified in such waiver and will not constitute a waiver of any other
obligation.
D. COMMUTATIVE REMEDIES. Except as otherwise provided in this
Agreement, no remedy by the terms of this Agreement conferred upon or reserved
to a party is intended to be exclusive of any other remedy, but each and every
such remedy shall be cumulative and in addition to every other remedy given
under this Agreement or existing at law or in equity or by statute on or after
the date of this Agreement including without limitation, the right to such
equitable relief by way of injunction to prevent the breach or threatened breach
of any of the provisions of this Agreement or to enforce the performance.
E. SEVERABILITY. Any provision of this Agreement that is held to be
prohibited, unenforceable, or not authorized by any court of competent
jurisdiction will, as to such jurisdiction, be ineffective to the extent of such
prohibition, unenforceability, or non-authorization without invalidating the
remaining provisions or affecting the validity, enforceability, or legality of
such provision in any other jurisdiction.
F. GOVERNING LAW; VENUE; ENTIRE AGREEMENT. Except to the extent that
this Agreement may be governed by Federal law, this Agreement is governed by,
interpreted, construed and enforced in accordance with the laws of the State of
Indiana, without reference to its principles of conflict of laws. A lawsuit
under this Agreement shall only be brought in a court of competent jurisdiction
located within the State of Indiana.
This Agreement constitutes the entire agreement between the parties and
supersedes any and all prior agreements, written or oral, not incorporated
herein, with respect to the subject matter of this Agreement. All prior
writings, correspondence, memoranda, agreements, representations, statements,
warranties, covenants, negotiations, and undertakings, express or implied, of
any kind or character whatsoever with respect to the subject matter of this
Agreement are superceded.
G. NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed to have been given if send by first class mail,
overnight carrier, facsimile, ro personal delivery, addressed (i) if to USA
Funds, to the attention of General Counsel, Legal Division, at 30 South Meridian
Street, Indianapolis, Indiana 46204, (ii) if to the Lender, at the address
indicated in this Agreement, or (iii) at such other address as the party to be
notified has designated upon reasonable notice. Notices made pursuant to this
paragraph by facsimile, overnight carrier, ro personal delivery will be deemed
to be effective upon receipt. Notices made pursuant to this paragraph by first
class mail will be deemed to be effective no later than the fifth business day
following the mailing of such notice.
H. CONFIDENTIAL/PROPRIETARY MATERIALS. The terms and conditions of this
Agreement shall be considered confidential All materials, procedures, written
instruments, files, and records developed by either party specifically pursuant
to this Agreement are and shall be treated as proprietary in nature. Each
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<PAGE> 7
party to this Agreement has developed or may develop materials, procedures,
written instruments, files, or records which may be similar to those involved in
this Agreement. Neither party to this Agreement shall have or acquire any
proprietary or any other right whatsoever in any such materials, procedures,
written instruments, files, or records developed by the other party. Neither
party to this Agreement may benefit from, deal in, sell, license, publish, use,
or otherwise exploit for any purpose those materials, procedures, written
instruments, files, ro records developed by the other party except as expressly
provided in this Agreement. This Agreement shall not in any way restrict the
right of each party, for its own exclusive benefit, to deal in, sell, license,
publish, use, or otherwise exploit for all purposes those materials, procedures,
written instruments, files, or records developed by it.
I. NO RECOURSE. No recourse under or upon this Agreement or any claim
based thereon shall be had against any incorporator, member, officer, employee,
or trustee, as such, past, present, or future, of a party or of any successor
organizations, either directly or through a party or any successor
organizations. This Agreement is solely a corporate obligation and no personal
liability against any incorporator, member, officer, employee, or trustee, past,
present or future of the parties shall attach through a party or any successor
corporations, because of this Agreement.
J. EXECUTION. This Agreement will not be binding on either party until
it has been executed and delivered by both parties. Delivery may be by
facsimile. This Agreement may be executed in any number of counter party, each
of which shall be an original, but which together constitute one and the same
instrument.
K. INTERPRETATION/CONSTRUCTION. In this Agreement unless the context
otherwise requires:
Any headings preceding the tests of the several articles and
sections of this Agreement, and any table of contents or marginal notes
appending to copies, shall be solely for convenience of reference and shall not
constitute a party of this Agreement, nor shall they affect its meaning,
construction or effect.
L. AUTHORITY. The parties represent that the undersigned are duly
authorized representatives of the parties.
M. INDEPENDENT PARTIES. The parties agree that no legal relationship of
an kind exists as a result of this Agreement, other than the covenants expressly
contained herein. This Agreement shall not constitute, create, give effect to or
otherwise imply a joint venture, partnership or business organization of any
kind. The parties to this Agreement are independent parties and the personnel of
one party shall not deemed the personnel of the other. Nothing in this Agreement
shall grant to either party any right to make commitments of any kind or to
create any obligation for or on behalf of the other without the prior written
consent of the other party, except to the extent stated herein.
N. FORCE MAJEURE. If a party is delayed from competing performance of
any or all of its obligations under this Agreement by an act of God or any other
occurrence beyond its reasonable control, then performance shall be excused for
as long as it is reasonably necessary to complete performance.
O. LITIGATION COSTS AND ATTORNEYS FEES. If any action, at law or
equity, including an action for declaratory relief, is brought to enforce or
interpret this Agreement, then the prevailing party shall be entitled to recover
its reasonable costs, expenses, and attorney fees from the other party, in
addition to other relief that maybe awarded.
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<PAGE> 8
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this Agreement to Guarantee Loans to be executed by their respective
authorized officers and to take effect on the date first above written.
______________________________________ UNITED STUDENT AID FUNDS, INC.
Lender
By:___________________________________ By:______________________________
Authorized Signature Authorized Signature
Brian J. Gardner, Senior Trust Officer
- ----------------------------------------- ______________________________
Printed Name, Title Printed Name, Title
425 Walnut Street, ML5125, P.O. Box 1118
- -----------------------------------------
Address
Cincinnati, Ohio 45201-1118
- -----------------------------------------
City, State, Zip
31-0841368
- -----------------------------------------
Federal Identification Number
829626, 830631, 831008, 831299, 831455,
831640, 831692, 831785, 833361, 833207
- -----------------------------------------
ED Lender Code Number
-8-
<PAGE> 9
CONSOLIDATION LOAN PROGRAM
AGREEMENT TO GUARANTEE CONSOLIDATION LOANS
THIS AGREEMENT is entered into as of the 1st day of June, 1998, by and between
UNITED STUDENT AID FUNDS, INC., a private nonprofit corporation organized under
the General Corporation Law of the State of Delaware ("USA Funds") and Star
Bank, N.A. as Trustee for Student Loan Funding ("Lender").
WITNESSETH:
WHEREAS, USA Funds, a non profit corporation with objectives and purposes which
are exclusively educational and charitable, has entered into a reinsurance
agreement with the U.S. Secretary of Education pursuant to the Act; and
WHEREAS, USA Funds maintains facilities for the provision of guarantee services
with respect to approved loans made to Eligible Borrowers for the consolidation
of their objections with respect to Eligible Student Loans; and
WHEREAS, USA Funds is desirous of making its consolidation loan guarantee
program and related services available to Lender, subject to the term sand
conditions set forth herein; and
WHEREAS, the Lender has full legal power and authority to contract for the
performance of such guarantee services, qualifies as an "eligible lender" under
the Act for the making of Consolidation Loans and is prepared to engage in the
transactions contemplated by this Agreement; and
NOW, THEREFORE, inconsideration of the initial Consolidation Loan which the
Lender makes hereunder, and in further consideration of the foregoing premises
and the mutual covenants contained in this Agreement, and of other good and
valuable consideration, the receipt of which is hereby acknowledged, USA Funds
and the Lender agree as follows:
ARTICLE I DEFINITIONS
As used herein, the following words have the meanings respectively indicated:
"Act"means Title IV of the Higher Education Act of 1965 (20 U.S.C. Section 1071
et seq.) As amended and in effect from time to time, or any successor enactment
thereto, and the effective regulations promulgated thereunder and any binding
directives issued by the U.S. Department of Education.
"Agreement" means this Agreement to Guarantee Consolidation Loans between USA
Funds and the Lender and any amendments thereto.
"Borrower" means an Eligible Borrower who is the maker of a Note and who obtains
a Consolidation Loan from the Lender in accordance with the Act, the
Certificate, and this Agreement.
"Certificate" means the instrument of comprehensive insurance coverage issued by
USA Funds in accordance with the Act and executed by the Lender.
"Consolidation Loan" means disbursement of money, contingent upon an agreement
to repay, made by the Lender pursuant to Section 428C of the Act (20 U.S.C.
Section 1078.3), or any successor enactment thereto, the Policies, and this
Agreement.
"Consolidation Loan Program" means the procedures and policies for implementing
and maintaining each Consolidation Loan guaranteed under the provisions of the
Act, applicable law and regulations, the Policies, and as otherwise agreed to by
and between the Lender and USA Funds in accordance with this Agreement.
<PAGE> 10
"Default" means with respect to any Note, the occurrence of any event that
constitutes a default under the terms of the Act.
"Eligible Borrower" means as "eligible borrower" of a Consolidation Loan as
described in the Act and the Policies.
"Eligible Student Loan" means an education loan eligible for consolidation as
described in the Act.
"Federal Reinsurance" means the risk assumed by the Federal government as set
forth in the Act.
"Guarantee" means a commitment by USA Funds to pay the Lender a percentage of
the unpaid principal balance plus accrued unpaid interest of a Consolidation
Loan, as provided by the Act and the Policies, upon submission by the Lender of
a valid claim and supporting documentation in accordance with the Act, the
Consolidation Loan Program, the Certificate, and the Policies.
"Limitation" means an action taken by USA Funds that restricts the Lender's
participation in the Consolidation Loan Program.
"Note" means a promissory note of a Borrower for a Consolidation Loan set forth
upon the appropriate form approved by USA Funds, which note meets the criteria
set forth by the Policies and the Act.
"Policies" mean the policies adopted and issued by USA Funds describing the
administration of the Consolidation Loan Program, including any subsequently
issued written notices.
"Suspension" means the temporary ineligibility of the Lender from participation
in the Consolidation Loan Program.
"Termination" means the removal of the Lender from participation in the
Consolidation Loan Program.
ARTICLE II PROGRAM ADMINISTRATION
A. By this Agreement USA Funds and the Lender hereby agree to
participate in the Consolidation Loan Program as follows:
1. The Lender agrees to make Consolidation Loans or cause
Consolidation Loans to be made only to Eligible Borrowers pursuant to the terms
of the Consolidation Loan Program;
2. USA Funds agrees to provide for the Guarantee of
Consolidation Loans which have been processed in accordance with the terms of
the Consolidation Loan Program; and
3. USA Funds agrees to provide administrative services for the
continued maintenance of each Consolidation Loan Guaranteed as required by the
Consolidation Loan Program and the Act.
B. A Consolidation Loan may be Guaranteed only if the Lender fully
complies with the Policies and the terms and conditions for Consolidation Loans
as set forth in the Act.
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<PAGE> 11
C. Administrative services that USA Funds will provide for the Lender
under the Consolidation Loan Program are as follows:
1. The provision of management and information reports for the
Lender;
2. The provision of preclaims assistance and claims
processing; and
3. The provision of all other services and duties required to
be performed by a guarantor under the Act with respect to Consolidation Loans
under the Consolidation Loan Program,
D. The Lender agrees that, with respect to all Consolidation Loans made
or acquired under the Consolidation Loan Program of USA Funds and all Notes held
or acquired by the Lender from time to time:
1. It will exercise or cause to be exercised reasonable care
and diligence in the making, servicing, and collection thereof, as prescribed in
this Agreement, the Certificate, and the Policies;
2. It will originate a Consolidation Loan to an Eligible
Borrower (on request of that Borrower) only if The Eligible Borrower certifies
that he or she has no other application pending for a Consolidation Loan and (i)
it holds an outstanding Eligible Student Loan of that Eligible Borrower that has
been selected by the Eligible Borrower for consolidation, or (ii) the Eligible
Borrower certifies that he or she has sought and has been unable to obtain a
Consolidation Loan with income-sensitive repayment terms acceptable to the
Eligible Borrower from the holders of the Eligible Student Loans (which are so
selected for consolidation) of that Eligible Borrower.
3. It will make use of the Note and such other forms approved
by USA Funds;
4. It will cause each Consolidation Loan originated by R to
bear interest on the unpaid principal balance of such Consolidation Loan at an
annual rate that is less than or equal to the rate specified by the Act;
5. It will cause each Consolidation Loan originated by it to
be subject to repayment in accordance with the terms of the Certificate and the
Act;
6. It will cause each Consolidation Loan originated by it to
be made in an amount which is equal to the sum of the unpaid principal, accrued
unpaid interest, collection charges, and late charges of all Eligible Student
Loans received by the Borrower and selected for consolidation, and which is not
less than the minimum amount required for the eligibility of the Borrower under
the Act;
7. It will cause the proceeds of each Consolidation Loan
originated by the Lender to be paid by the Lender to the holder or holders of
the Eligible Student Loans received by the Borrower and selected for
consolidation in order to discharge the liability of the Borrower on such
Eligible Student Loans;
8. It will offer a choice of repayment schedules, established
by the Lender in accordance with the Act, to the Borrower;
9. It will comply with all Federal and state laws and
regulations, and the Policies, applicable thereto, including but not limited to
the Federal Fair Credit Reporting Act and the Equal Credit Opportunity Act; and
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<PAGE> 12
10. It will provide promptly to USA Funds such information and
reports as may from time to time be reasonably requested by USA Funds.
E. The Lender will, pursuant to the direction of USA Funds, repay or
cause the repayment to the US Department of Education of any special allowance
(as described in the Act) received by the Lender under the Act to which the
Lender is not rightfully entitled.
F. By this Agreement, USA Funds and the Lender agree that upon the
filing of a claim by the Lender, such claim shall be processed in the following
manner:
1. In the event of a Default, the Lender will follow (or cause
to be followed) the procedure set forth in The Policies and the Act. USA Funds
does not Guarantee payment by the Borrower of any delinquency charges imposed
for late payments and will not pay the Lender any such delinquency charges. Upon
receipt by USA Funds from the Lender (or servicer) of a request for claim
reimbursement form together with the Note (assigned to USA Funds) and evidence
satisfactory to USA Funds that the Consolidation Loan evidenced by such Note was
originated and serviced, and collection efforts were made, in accordance with
applicable laws, regulations and with the Policies, USA Funds will pay to the
Lender the percentage of the amount of the unpaid balance of principal and
interest due on such Note under the terms of the Act and the Policies (other
than any portion of such interest payable by the U.S. Department of Education
under the Act) provided the Lender has complied in all material respects with
the requirements of the Consolidation Loan Program, the Certificate. this
Agreement. and the Policies. USA Funds will succeed to all the rights of the
Lender under such Note.
2. Upon the filing of a valid claim, other than a Default
claim, as defined in the Act and the Policies, USA Funds will pay to the Lender
the percentage of the amount of the unpaid balance of principal and interest due
on such Note under the terms of the Act and the Policies (other than any portion
of such interest payable by the U.S. Department of Education under the Act)
provided the Lender has complied in all material respects with the requirements
of the Consolidation Loan Program, the Certificate, this Agreement, and @
Policies.
G. USA Funds reserves the right, upon ninety (90) calendar days written
notice, to charge to the Lender a fee, or increase any fee charged the Lender,
to cover the costs io USA Funds of guaranteeing new Consolidation Loans pursuant
to this Agreement and the Certificate.
H. Nothing contained in this Agreement will obligate the Lender to
make, certify, cause to certify or acquire any particular Consolidation Loan or
number of Consolidation Loans under the Consolidation Loan Program.
I. The Lender will permit the U.S. Secretary of Education or USA Funds
or both to examine during normal business hours all Consolidation Loan records
and files, upon reasonable notice and at reasonable intervals, for the purpose
of verifying the accuracy of information provided by the Lender under the Act
and in order to conduct an audit and compliance review.
J. If USA Funds determines that the Lender has violated the terms of
this Agreement or the Consolidation Loan Program, USA Funds may take such action
as is necessary to protect its interests. This action may include but not be
limited to implementation of the Limitation, Suspension, or Termination
procedures set out in the Policies.
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<PAGE> 13
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE LENDER
The Lender represents and warrants to, and covenants with, USA Funds that:
A. The Lender is a duly authorized 'eligible lender' under the Act in
every state in which it is originating Consolidation Loans under the Act as well
as the state in which it is organized and incorporated and has authorized the.
execution and delivery of this Agreement.
B. The Lender is and will continue to qualify at all times during the
term of this Agreement as an "eligible lender" under the Act.
C. The Lender will, at all times, conform its actions, policies and
procedures to the Act, this Agreement, all applicable Federal and state laws and
regulations, and the Policies.
ARTICLE IV TERMINATION
Except with respect to Consolidation Loans that have been Guaranteed by USA
Funds and continue to be outstanding under this Agreement, this Agreement may be
terminated by either party with or without cause upon not less than ninety (90)
calendar days written notice to the other party. Such termination will not
affect any Notes that are outstanding or duties arising prior to the effective
date of the termination.
ARTICLE V LIMITATION OF LIABILITY AND INDEMNIFICATION
A. If the Lender violates or fails to comply with any applicable law or
governmental regulations in respect of a Consolidation Loan or participation in
the Consolidation Loan Program, then the Lender agrees to assume liability for,
and does hereby indemnify, protect, and keep harmless USA Funds, its successors
and assigns, from and against, any and all liabilities, losses, and claims,
imposed on, incurred by, or asserted against USA Funds, relating to or arising
out of such violation or failure by the Lender to comply, regardless of whether
USA Funds purchased such Consolidation Loan from the Lender.
B. The liability of USA Funds under this Agreement shall be limited to
payment of the Guarantee under Paragraph F of Article 11 of this Agreement and
this shall constitute its sole liability under this Agreement. USA Funds shall
not be liable for any indirect, incidental or consequential damages (including
but not limited to lost profits, lost revenue, or failure to realize expected
savings) regardless of the form of the action and whether such damages are
foreseeable.
ARTICLE VI MISCELLANEOUS
A. Assignment/Subcontract. This Agreement will inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns; provided, however, that:
1. This Agreement may not be assigned in whole or in part by
USA Funds without the prior express written consent of Lender, which consent
will not be unreasonably withheld; provided, however, that USA Funds shall have
the right without the consent of Lender to assign its rights and obligations
hereunder to any affiliate or any transferee of all or substantially all of the
assets of USA Funds, which contracts with the U.S. Department of Education (or
its successors) under the Act or to subcontract its obligations to any person.
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<PAGE> 14
2. Lender shall not assign any rights or obligations under the
Agreement in whole or in part without the prior express written consent of USA
Funds, which consent will not be unreasonably withheld; provided, however, that
Lender shall have the right without the consent of USA Funds to assign its
rights and obligations hereunder to any affiliate or any transferee of all or
substantially all of the assets of Lender, or to subcontract is obligations to
any person.
B. Amendment. Except as otherwise provided in this Agreement. this
Agreement may not be varied by oral agreement, but only by an instrument in
writing executed by both parties.
C. Waiver of Rights. No failure by any party to exercise, or any delay
in exercising, and no course of dealing with respect to any right of such party
or any obligation of any other party under this Agreement will operate as a
waiver thereof, unless, and only to the extent, agreed to in writing by all
parties hereto. Any single or partial exercise by any party of its rights shall
not preclude such party from any other or further exercise of such right or the
exercise of any other right. Any single or partial waiver by any party of any
obligation of any other party under this Agreement will constitute a waiver of
such obligation only as specified in such waiver and will not constitute a
waiver of any other obligation.
D. Cumulative Remedies. Except as otherwise provided in this Agreement,
no remedy by the terms of this Agreement conferred upon or reserved to a party
is intended to be exclusive of any other remedy, but each and every such remedy
shall be cumulative and in addition to every other remedy given under this
Agreement or existing at law or in equity or by statute on or after the date of
this Agreement including, without limitation, the right to such equitable relief
by way of injunction, mandatory or prohibitory, to prevent the breach or
threatened breach of any of the provisions of this Agreement or to enforce the
performance hereof.
E. Severability. Any provision of this Agreement which is held to be
prohibited, unenforceable. or not authorized by any court of competent
jurisdiction will, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability, or non-authorization without invalidating
the remaining provisions hereof or affecting the validity, enforceability, or
legality of such provision in any other jurisdiction.
F. Governing Law; Venue; Entire Agreement. Except to the extent that
this Agreement may be governed by Federal law, this Agreement is governed by,
interpreted, construed and enforced in accordance with the laws of the State of
Indiana, without reference to its principles of conflict of laws. A lawsuit
under this Agreement shall only be brought in a court of competent jurisdiction
located within the State of Indiana.
This Agreement constitutes the entire agreement between the
parties and supersedes any and all prior agreements, written or oral, not
incorporated herein, with respect to the subject matter of this Agreement. All
prior writings, correspondence, memoranda, agreements, representations,
statements, warranties, covenants, negotiations, and undertakings, express or
implied, of any kind or character whatsoever with respect to the subject matter
of this Agreement are superseded hereby.
G. Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed to have been given if sent by first class mail,
overnight carrier, facsimile, or personal delivery, addressed (i) if to USA
Funds, to the attention of General Counsel, Legal Division, at 30 South Meridian
Street, Indianapolis, Indiana 46204, (ii) it to the Lender, at the address
indicated in this Agreement, or (iii) at such other address as the party to be
notified has designated upon reasonable notice. Notices made pursuant to this
paragraph by facsimile, overnight carrier, or personal delivery will be deemed
to be effective upon receipt. Notices made pursuant to this paragraph by first
class mail will be deemed to be effective no later than the fifth business day
following the mailing of such notice.
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<PAGE> 15
H. Confidential/Proprietary Materials. The terms and conditions of this
Agreement shall be considered confidential. All materials, procedures, written
instruments, files, and records developed by either party specifically pursuant
to this Agreement are and shall be treated as proprietary in nature. Each party
to this Agreement has developed or may develop materials, procedures, written
instruments, files, or records which may be similar to those involved in this
Agreement. Neither party to this Agreement shall have or acquire any proprietary
or any other right whatsoever in any such materials, procedures, written
instruments, files, or records developed by the other party. Neither party to
this Agreement may benefit from, deal in, sell, license, publish, use, or
otherwise exploit for any purpose those materials, procedures, written
instruments, files, or records developed by the other party except as expressly
provided in this Agreement. This Agreement shall not in any way restrict the
right of each party, for its own exclusive benefit, to deal in, sell, license,
publish, use, or otherwise exploit for all purposes those materials, procedures,
written instruments, files, or records developed by it.
1. No Recourse. No recourse under or upon this Agreement or
any claim based thereon or in respect thereof shall be had against any
incorporator, member, officer, employee, or trustee, as such, past, present, or
future, of a party or of any successor organizations, either directly or through
a party or any successor organizations. This Agreement is solely a corporate
obligation and no personal liability against any incorporator, member, officer,
employee, or trustee, past, present, or future of the parties shall attach
through a party or any successor corporations, because of this Agreement.
J. Execution. This Agreement will not be binding on either party until
it has been executed and delivered by both parties. Delivery may be by
facsimile. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but which together constitute one and the same
instrument.
K. Interpretation/Construction. In this Agreement unless the context
otherwise requires:
Any headings preceding the texts of the several articles and
sections of this Agreement, and any table of contents or marginal notes
appending to copies hereof, shall be solely for convenience of reference and
shall not constitute a part of this Agreement, nor shall they affect its
meaning, construction or effect.
The parties agree that each party and its counsel reviewed
this Agreement and that this Agreement shall be construed as a whole according
to its fair meaning and not strictly for or against any party.
L. Authority. The parties represent that the undersigned are duly
authorized representatives of the parties.
M. Independent Parties. The parties agree that no legal relationship of
any kind exists as a result of this Agreement, other than the covenants
expressly contained herein. This Agreement shall not constitute, create, give
effect to or otherwise imply a joint venture, partnership or business
organization of any kind. The parties to this Agreement are independent parties
and the personnel of one party shall not be deemed the personnel of the other.
Nothing in this Agreement shall grant to either party any right to make
commitments of any kind or to create any obligation for or on behalf of the
other without the prior written consent of the other party, except to the
extent stated herein.
N. Force Majeure. If a party is delayed from completing performance of
any or all of its obligations under this Agreement by an act of God or any other
occurrence beyond its reasonable control, then performance shall be excused for
as long as it is reasonably necessary to complete performance.
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<PAGE> 16
0. Litigation Costs and Attorney Fees. if any action, at law or equity,
including an action for declaratory relief, is brought to enforce or interpret
this Agreement, then the prevailing party shall be entitled to recover its
reasonable costs, expenses, and attorney fees from the other party, in addition
to any other relief that may be awarded.
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this Agreement to Guarantee Loans to be executed by their respective
authorized officers and to take effect on the date first above written.
STAR BANK, N.A. as Trustee for UNITED STUDENT AID FUNDS, INC.
Student Loan Funding
By:___________________________________ By:______________________________
Authorized Signature Authorized Signature
Brian J. Gardner, Senior Trust Officer
- ------------------------------------------ ---------------------------------
Printed Name, Title Printed Name, Title
425 Walnut Street, ML5125, P.O. Box 1118
- -----------------------------------------
Address
Cincinnati, Ohio 45201-1118
- -----------------------------------------
City, State, Zip
31-0841368
- -----------------------------------------
Federal Identification Number
829626, 830631, 831008, 831299, 831455,
831640, 831692, 831785, 833361, 833207
- -----------------------------------------
ED Lender Code Number
-8-
<PAGE> 17
CONSOLIDATION LOAN PROGRAM
CERTIFICATE OF COMPREHENSIVE GUARANTEE COVERAGE
THIS CERTIFICATE is entered into as of the 1st day of June, 1998, by and between
UNITED STUDENT AID FUNDS, INC., a private nonprofit corporation organized under
the General Corporation Law of the State of Delaware ("USA Funds") and Star
Bank, N.A. as Trustee for Student Loan Funding ("Lender") for certain
Consolidation Loans made pursuant to Part B of Title IV of the Higher Education
Act of 1965 (20 U.S.C. Section 1071 et seq.) As amended and in effect from time
to time.
USA Funds and the Lender agree and certify as follows:
1. As used herein, the following words have the meanings respectively
indicated:
"Agreement" means the Agreement to Guarantee Consolidation Loans between USA
Funds and the Lender, and any amendments thereto.
"Certificate" means this Certificate of Comprehensive Guarantee Coverage issued
by USA Funds to the Lender in accordance with the Act.
2. In this Certificate, unless the context or this Certificate
otherwise requires, all definitions and other provisions of the Agreement are
controlling. This Certificate is hereby incorporated into the Agreement and made
a part thereof.
3. If the Lender complies with the requirements of the Act, the
Policies, the Agreement, and this Certificate, USA Funds will make its Guarantee
available to the Lender to partially insure the Lender against loss of principal
and interest on Consolidation Loans made or acquired by the Lender. The
aggregate amount of such Guarantee shall at no time exceed $200,000,000;
provided, however, that upon receipt of a written request of the Lender, USA
Funds may increase the aggregate amount of such Guarantee.
4. The issuance by USA Funds of Guarantees for Consolidation Loans
originated by the Lender under the Consolidation Loan Program is made in
reliance on the representations of the Lender contained in this Certificate and
the Agreement. The continuance of Guarantees issued by USA Funds for
Consolidation Loans is conditioned upon continued compliance by each and every
holder of such Consolidation Loan with applicable laws and regulations, and the
Policies. The delegation of one or more functions to a servicing agency or
another party does not relive the Lender of its responsibilities in
administering Consolidation Loans.
5. No Consolidation Loan originated by the Lender will be covered by
USA Funds' Guarantee unless and until the Lender has determined, in accordance
with reasonable and prudent business practice, with respect to each Eligible
Student Loan being consolidated (i) that each such Eligible Student Loan is a
legal, valid, and binding obligation; (ii) that each such Eligible Student Loan
was originated and serviced in compliance with applicable laws and regulations;
and (iii) with respect to all Eligible Student Loans made, insured, or
guaranteed under the Act, that the insurance or guarantee on each such Eligible
Student Loan is in full force and effect.
6. The Lender will at all times be subject to the reporting
requirements identified in the Policies and the Limitation, Suspension and
Termination procedures set out in the Policies (provided, however, that any such
Limitation, Suspension, or Termination shall not affect the Guarantee of any
Consolidation Loan originated by the Lender prior to the initiation of such
Limitation, Suspension, or Termination).
7. All claims on Consolidation Loans Guaranteed pursuant to this
Certificate and all related administrative functions to be performed by USA
Funds pursuant to this Certificate, the Agreement, or the Policies shall be
processed or performed by USA Funds or its contractors at offices located in
Fishers, Indiana or at such other office of USA Funds or its contractors as may
be designated by USA Funds.
<PAGE> 18
8. The Lender may offer to the Eligible Borrower and establish such
alternative repayment terms on a Consolidation Loan as will promote the
objectives of the Consolidation Loan Program; provided, however, that such
alternative repayment terms are in accordance with the Act, the Policies, and
the Agreement.
9. This Certificate shall be in effect, subject to the Act, the
Agreement, and the Policies, from the date first above written until expiration
of the authority in the Act to make or Guarantee Consolidation Loans, but no
later than December 31, 2005. Termination of the Agreement terminates this
Certificate.
10. Except with respect to Consolidation Loans that have been
Guaranteed by USA Funds and continue to be outstanding under this Certificate,
this Certificate may be terminated by either party with or without cause upon
not less than ninety (90) calendar days prior express written notice to the
other party. Such termination will not affect any Notes which are outstanding or
duties undertaken prior to the effective date of the termination. If the Lender,
prior to the expiration of this Certificate, not longer makes Consolidation
Loans, the Lender will so notify USA Funds.
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this Comprehensive Guarantee Coverage to be executed by their respective
authorized officers and to take effect on the date first above written.
_____________________________________ UNITED STUDENT AID FUNDS, INC.
Lender
By:__________________________________ By:_______________________________
Authorized Signature Authorized Signature
Brian J. Gardner, Senior Trust Officer
- ------------------------------------------ ----------------------------------
Printed Name, Title Printed Name, Title
31-0841368
- -----------------------------------------
Federal Identification Number
829626, 830631, 831008, 831299, 831455,
831640, 831692, 831785, 833361, 833207
- -----------------------------------------
ED Lender Code Number
-2-
<PAGE> 1
EXHIBIT 10.8
Kentucky Higher Education Assistance Authority
Lender Participation Agreement
and
Contract of Insurance
Federal Family Education Loan (FFEL) Programs
Federal Subsidized Stafford Loans
Federal Unsubsidized Stafford Loans
Federal Parent Loans for Undergraduate Students
Federal Consolidation Loans
The parties to this contract are Star Bank, N.A. as Trustee for Student
Loan Funding (hereinafter known as Lender) and the Kentucky Higher Education
Assistance Authority (hereinafter known as Authority).
The Lender certifies that it is an Eligible Lender in accordance with
Section 435 (20 U.S.C. Section 1085) of the Federal Act. The Lender and the
Authority hereby agree that the Lender is authorized to participate as an
Eligible Lender in the Authority's Insured Student Loan Program for purposes of
making or holding the following types of loans;
<TABLE>
<CAPTION>
Making: Holding:
<S> <C>
Federal Consolidation Loans Federal Stafford Loans (Subsidized and Unsubsidized)
- --------------------------- ----------------------------------------------------
Federal SLS
-----------
Federal PLUS
------------
Federal Consolidation Loans
---------------------------
</TABLE>
Nothing contained in this contract shall obligate the Lender to
certify, acquire, or make any particular loan or number of loans under the
insured student loan programs.
In consideration of the mutual promises contained herein, the Authority
hereby agrees and covenants to reimburse the Lender in the amount of one hundred
percent of any proven loss incurred by the Lender arising out of or resulting
from default, death, permanent and total disability, closed school, false
certification or, under specified conditions, filing of a petition in bankruptcy
of a borrower on any loan held by the Lender and insured pursuant to the terms
of this contract. Notwithstanding the foregoing sentence, the reimbursement rate
applicable to default on loans made or held by the Lender (other than on a
"Lender-of-Last-Resort" arrangement with the Authority or with respect to an
Exceptional Lender designation under the Federal Act), on which the first
disbursement is made on or after October 1, 1993, shall be not less than
ninety-eight percent. The Lender hereby agrees and covenants to pay an insurance
premium as designated herein, and to abide by and comply with the terms and
conditions of this contract and state and federal statutes and regulations
applicable to the Federal Family Education Loan Programs. The Authority hereby
agrees and covenants to abide by and comply with the terms and conditions of
this contract, and to perform its obligations under this contract according to
terms established in the Act, regulations, and the Authority's policies and
procedures, and in compliance with all other applicable federal and state laws
and regulations.
Terms and Conditions
Incorporation of Law
This contract is subject to, and hereby incorporates by reference, the
current provisions of, and subsequent amendments to, Title 20 United States Code
(U.S.C.) Section 1071 et seq. (the "Federal Act"); Title 34 Code of Federal
Regulations (CFR) Part 668 and Part 682; Kentucky Revised Statutes (KRS) Chapter
164.740 et seq.; Title 11 of the Kentucky Administrative Regulations (KAR)
Chapter 3; and all other federal law applicable to the Lender under this
contract including, but not limited to Title IX of the Education Amendments of
1972 (20 U.S.C. 1681-1683); Section 504 of the Rehabilitation Act of 1973 (29
U.S.C. 794); the Age Discrimination Act (42 U.S.C. 6101 et seq.); the Americans
with Disabilities Act of 1990 (42 U.S.C. 12101); and the Equal Credit
Opportunity Act (15 U.S.C. Section 1691 et seq.), as amended. Unless generalized
or discretionary provisions of the above cited material are made specific by the
following paragraphs, including but not limited to items such as time, amount,
rate, place, or manner of performance, nothing in this contract is intended to
abrogate, modify, or limit the applicability of any of the above cited material.
The terms and conditions set forth
<PAGE> 2
in this contract shall be subject to automatic modification and revision from
time to time by the process of amendment and revision of the above cited laws
and regulations.
Electronically Transmitted Data
To the extent that the Lender participates in the process of
electronically transmitting data to the Authority in order to expedite the
processing of Authority-insured loans, the following shall apply:
1) Equipment
A) The Lender may, at its sole expense, acquire, use, and
maintain equipment (computer hardware) that is suitable for
electronic transmission of data to the Authority. If the
Authority purchases and makes available to the Lender, at the
Authority's expense, computer equipment identified herein, for
electronic transmission of data to the Authority, title and
ownership of the equipment shall remain with the Authority,
and replacement or substitution of the equipment shall be at
the Authority's sole discretion. Repair and maintenance of the
equipment shall be the responsibility of the Authority.
B) The Lender shall safeguard all equipment provided by the
Authority from damage and provide adequate security and
control to limit the use of the equipment exclusively to the
proper transmission of data for purposes of the Authority's
insured loan programs by authorized personnel and to assure
that the equipment remains functional.
C) The computer equipment provided by the Authority pursuant to
paragraph 1 is listed on Attachment A.
2) Certification of Data
A) The Lender hereby represents and warrants absolutely that any
and all data transmitted electronically to the Authority for
each loan is true, accurate, and complete to the best
knowledge of the Lender and the designated Loan Program
Officer.
B) The Lender has and shall retain all documentation necessary to
verify the data transmitted through this procedure and shall
provide access to such documentation by the Authority or its
agents.
Federal Consolidation Loans
To the extent that the Lender participates in the Authority's program
of Federal Consolidation Loans for eligible borrowers under Title IV, Part B of
the Federal Act, and in that the Authority has found that the Lender qualifies
under the provisions of such Federal Act and KRS 164.740, then it is agreed by
the parties as follows:
1) The Lender shall obtain from the eligible borrower certification that
no other application is pending for a Federal Consolidation Loan. The
Lender must hold at least one of a borrower's eligible loans for
consolidation or obtain from the borrower a certification that the
borrower has been unable to obtain a Federal Consolidation Loan with
income-sensitive repayment terms from the holders of his/her
outstanding loans selected for consolidation.
2) The Lender must meet the applicable guidelines set forth in the Federal
Act, as amended.
3) The proceeds of the Federal Consolidation Loan will be paid by the
Lender to the holder(s) of the eligible loans selected for
consolidation to discharge the liability of such loans.
4) The Lender shall offer an income-sensitive or graduated repayment
schedule, established by the Lender in accordance with the regulations
of the Secretary of the U.S. Department of Education ("Secretary"), to
the borrower of any Federal Consolidation Loan made by the Lender on or
after July 1, 1994.
5) The Lender agrees to follow such other published terms and conditions
as the Secretary or the Authority specifically requires to carry out
the Federal Consolidation Loan Program.
6) If the Lender no longer intends to make Federal Consolidation Loans
under this contract, the Lender's participation in the Authority's
Federal Consolidation Loan Program shall be terminated 20 days after
receipt of the Lender's written request. The Lender's participation in
the Authority's Federal Consolidation Loan Program under this contract
may also be terminated by the Authority in a manner provided for by
regulation. The termination of the Lender's participation in the
Authority's Federal Consolidation Loan Program under this contract
shall not affect the coverage of loans under guarantees issued prior to
such termination.
<PAGE> 3
Certificate of Comprehensive Insurance
For any Federal Consolidation Loans made by the Lender and insured by
the Authority against loss of principal and interest, in accordance with the
Federal Act, as amended, the following provisions apply:
1) That this certificate of comprehensive insurance shall be effective and
shall expire in accordance with the paragraph of this contract entitled
Effective Date. The Federal Consolidation Loan(s) will be made on or
after April 7, 1986, but no later than provided for in the Federal Act,
as amended;
2) That the total unpaid principal amount of all Federal Consolidation
Loans made under this certificate is equal to or less than
$20,000,000.00;
--------------
3) That the Lender shall establish repayment terms which shall include the
establishment of graduated or income-sensitive repayment schedules in
accordance with the regulations of the Secretary;
4) That, if the Lender, prior to the expiration of this certificate, no
longer proposes to make Federal Consolidation Loans, the Lender will so
notify the Authority in order that the certificate may be terminated.
Such terminations shall not affect the insurance on any Federal
Consolidation Loan made prior to such termination;
5) That the Lender's loan consolidation program practices are subject to
the Authority's Insured Student Loan Program Limitation, Suspension or
Termination procedures as set forth in 11 KAR 4:020. The insurance on
any Federal Consolidation Loan(s) made under this certificate prior to
the Authority's imposition of a limitation, suspension or termination
action shall not be affected by such action; and,
6) That the Lender complies with the Authority's reporting requirements.
The Authority's office at 1050 U.S. 127 South, Frankfort, Kentucky, is
designated as the office which will process claims and perform other
related administrative functions.
Forms
Where particular forms pertaining to the performance of obligations
imposed by this contract are approved by the Authority or by the Secretary of
the U.S. Department of Education as common forms, only those forms shall be used
by the Lender. Any addition, substitution, or alteration of these forms without
express written permission of the Authority shall be grounds for avoidance by
the Authority of any insurance obligation that would otherwise be imposed by
this contract. Except as otherwise provided herein, the Lender may use such
additional forms as it deems appropriate for its own purposes, provided that use
of said forms does not violate state or federal law, and further provided that
said forms shall be maintained with the borrower's records in accordance with
retention schedules prescribed by applicable law.
Premium
The Lender shall pay to the Authority a per-loan premium, which will be
billed on a pro rata basis upon each disbursement of each loan, for the
insurance coverage extended by the Authority on loans, other than Federal
Unsubsidized Stafford Loans insured prior to July 1, 1994, and Federal
Consolidation Loans. The Lender may be required to pay, as specified by the
Authority in writing, a fee to cover the costs of increased or extended
liability with respect to Federal Consolidation Loans permitted by Section
682.401(b)(12) provided, however, that the Lender shall receive reasonable prior
written notice of its obligation to pay any such fee and that any such fee shall
only be prospective in effect from the established effective date of such fee.
The insurance premium rate on any loan insured hereunder shall not exceed the
amount specified in the Federal Act (20 U.S.C. 1078(b)(1)(H) and 1078-8(f)) and
shall be specified in writing by the Authority. The Authority shall notify the
Lender in writing of any change in the insurance premium rate prior to the
effective date of such rate change, unless the change is mandated by an
amendment of the Federal Act. The premium for each loan insured under this
contract shall be paid by or on behalf of the Lender to the Authority.
Nonpayment of the premium as billed will be grounds for the avoidance by the
Authority of any insurance obligation that would otherwise be imposed pursuant
to this contract.
Promissory Note
Loans insured under this contract shall be evidenced by a promissory
note provided or approved by the Authority or approved by the Secretary of the
U.S. Department of Education. Interest on any loan insured hereunder shall be
charged to the borrower at a rate which does not exceed the maximum applicable
rate per annum prescribed by the Federal Act and/or regulations governing the
Federal Family Education Loan Programs.
<PAGE> 4
Insurability
For all loans, the Lender shall assure, and the Authority shall have
determined to its satisfaction, in accordance with reasonable and prudent
business practices, for each loan that: the loan is a legally valid, and binding
obligation of the borrower; each such loan was made and serviced in compliance
with applicable laws and regulations; and the insurance on such loan is in full
force and effect.
A Lender shall comply with due diligence requirements established by
the U.S. Department of Education and the Authority in making, disbursing,
servicing, and collecting loans insured pursuant to this contract. Failure to
exercise such due diligence, with regard to any loan insured hereunder, may,
without precluding other remedies, constitute grounds for avoidance by the
Authority of its insurance obligation on that loan. This Lender warrants that it
has and will continue to maintain itself or by contract, sufficient present
capacity to exercise due diligence in the making, servicing, and collection of
student loans and the maintenance of records pertaining thereto.
Compliance by the Lender with the terms and conditions of this contract
and applicable laws and regulations shall be deemed a condition precedent to the
insurance obligation imposed upon the Authority hereunder.
The Authority agrees that its insurance on any loan disbursed hereunder
will remain in full force and effect if the loan becomes ineligible for federal
reinsurance due to the Authority's acts or omissions in performing its
obligations under this contract. If, at any time, any loan is determined to be
either ineligible for reinsurance or legally unenforceable due to the Lender's
acts or omissions in performing its obligations under the applicable law or this
contract, then the Authority's insurance shall be voided and revoked and the
Authority may require the Lender to repurchase the loan.
Records
The Lender shall keep complete and accurate records of each loan
guaranteed under this contract.
The Lender shall, upon reasonable written request, pursuant to a
program review, make available to the Authority, the Secretary, or their duly
designated representative, for inspection and copying, any and all books,
records, documentation (including, but not limited to, memoranda,
correspondence, and computer printouts) necessary to assure compliance with this
contract and any applicable law. Except as otherwise provided below, such books,
records, and documentation shall be available during regular office hours of any
working day, no later than ten (10) working days after the request for
inspection. The Lender shall provide to the Authority loan records of individual
borrowers necessary to respond to borrower disputes, appeals, or inquiries,
within five (5) working days of written request. The material may be made
available in whatever form retained (microfilm, computer data, or print).
Notwithstanding the foregoing, in the event that the Authority or the
Secretary shall have reasonable cause to believe that there exists a potential,
substantial impairment of the interests of the Commonwealth, the Authority, the
United States Government, or any eligible student, then the Authority, acting
through its Executive Director or his designee, and the Secretary reserve the
right, upon demand, of immediate inspection of such books, records,
documentation, or other materials as may pertain or be relevant to the accuracy
and completeness of the Lender's records and reports and the Lender's compliance
with the terms and conditions of this contract.
Termination and Other Remedies
Unless otherwise provided herein, this contract may be terminated or
suspended by either party upon not less than twenty (20) days written notice,
although such termination or suspension by the Authority shall be for cause and
in accordance with the Federal Act, regulations promulgated thereunder, and the
Authority's policies and procedures, and shall not become final until the Lender
is afforded adequate notice and an opportunity for hearing on the merits of the
Authority's claims and contentions pursuant to the Federal Act and 11 KAR 4:020.
However, the Authority shall have the power to take emergency action in
accordance with 11 KAR 4:020 to suspend operation of this contract, pending the
outcome of said hearing, if the Authority determines that such action is
necessary to prevent substantial harm to the interest of the Commonwealth, the
Authority, the United States Government, or any eligible student. Termination by
either party shall not affect the obligations incurred under this contract prior
to the effective date of the termination.
In the event that the Authority shall have probable cause to believe
that any of the assurances or representations made by the Lender are incomplete,
inaccurate, or misleading and deceptive, or that there has been a failure by the
Lender to comply with the terms and conditions of this contract or applicable
laws or regulations, in any material respect, then short of termination or
suspension, the Executive Director of the Authority or his designee shall have
the right to take any reasonable action necessary including, but not limited to:
litigation, withholding of payments, probation, or limitation of participation,
or requiring reimbursement of any funds expended or obligated to be expended by
the Authority as the result of reliance upon such assurances, representations,
or anticipation of compliance. In the event that the Secretary has assumed the
Authority's functions, and if the Secretary determines that this contract
includes an impermissible transfer of the reserve funds or assets, then the
Secretary may terminate this contract upon 30 days notice.
<PAGE> 5
Unless otherwise provided, any material noncompliance with the terms
and conditions of this contract shall subject the noncomplying party to any and
all forms of remedial action, legal and equitable. No choice of remedies shall
be required of the injured party.
Assignment
Except as otherwise specified below, the Lender may, without prior
consent of the Authority, sell, assign, pledge, or otherwise transfer rights,
title, and interests, including specifically the right to receive any insurance
claim payment from the Authority for loans insured pursuant to this contract, to
an Eligible Lender or Holder, as defined in 34 CFR 682.200 and KRS 164.740, that
has in force a Contract of Insurance with the Authority. If the transferee does
not have a Contract of Insurance in place with the Authority, then said transfer
may be made only with the prior written consent of the Authority, which consent
shall not be unreasonably withheld, and in accordance with the Federal Act and
regulations thereunder. If the Lender effects a transfer of title or of other
interests in such loans that include the right to receive insurance payments
from the Authority, the Lender shall give the Authority written notice of having
done so not later than the fifteenth (15) day of the second month of the
calendar quarter that begins after said transfer as a precondition of the
Authority's insurance obligation.
Except as specified above, the Lender may transfer or assign rights
accruing under this contract, including particularly the rights to participate
in the Authority's program of Insured Student Loans and to make new loans
insurable under this contract, only to another Eligible Lender, as defined in
Section 435 (20 U.S.C. 1085) of the Federal Act, 34 CFR 682.200 and KRS 164.740,
and only with the prior written consent of the Authority.
The terms and conditions of this agreement shall be binding upon the
heirs and successors in interest of the respective parties as though original
parties to this agreement.
Warranty
The Lender hereby warrants and covenants that all assurances and
representations, except those specified in applicable regulations on which the
Lender is given the right to rely in good faith, made by the Lender regarding
any transactions, including, but not limited to, the application for and
disbursement and servicing of Insured Student Loans, pursuant to this contract
are complete and accurate statements of fact at the time of making those
assurances and representations. Any assurances or representations made by the
Lender, unless amended, shall be binding upon and against the Lender as a
precondition of the insurability of any Insured Student Loan for the duration
of the period of insurance coverage provided for herein.
Designated Representative
Unless otherwise designated at any time over the duration of this
contract, the person(s) signing this contract on behalf of each party shall be
deemed to be the proper person(s) to whom notices and any other communications
shall be directed.
Subrogation
Upon filing of a claim for reimbursement, and as a condition precedent
to reimbursement under the terms of this contract, the Lender shall assign to
the Authority all rights and responsibilities accruing to the Lender under the
Insured Student Loan promissory note, and the Authority shall he deemed fully
subrogated to the rights and responsibilities of the Lender pursuant to that
note and to this contract as it pertains to that note.
Procedures
Subject to this contract, the specific procedures for making,
disbursing, servicing, and collecting loans insured under this contract, as well
as filing claims for insurance reimbursement on such loans are delineated in 34
CFR Part 682.
Paragraphs and Defined Terms
The paragraph headings contained in this document are included for the
sole purpose of facilitating the reading of this document and shall have no
binding, substantive effect.
<PAGE> 6
Capitalized terms herein shall indicate defined terms. The definition
of terms shall have the meaning specified in 20 U.S.C. Section 1085 and Section
1088, 34 CFR Section 668.2 and Section 682.200, KRS 164.740, and 11 KAR 3:001,
unless otherwise specified in this contract.
Modification
Unless otherwise provided herein, any modification of the terms and
conditions of this contract shall not be effective unless evidenced by a writing
signed by both parties.
Severability
Should any provision of this contract be found to be inapplicable or
otherwise not binding on the parties, it is the intention of the parties that
the remainder of the contract shall remain in full force and effect upon the
respective rights and obligations of the parties hereto.
It is hereby stated as the intention of the parties hereto that all
prior contracts, both written and oral, consistent and inconsistent, are
hereinafter superseded, except as specified below. No prior understanding,
agreement, contract, or representation shall be effective against either panty
unless henceforth made a part of this contract as evidenced by this writing.
Assurances and representations heretofore warranted by the Lender in any prior
contract of insurance respecting the eligibility of the Lender and the
insurability of any loan heretofore insured under such prior contract of
insurance are consolidated into the terms and conditions of this contract as
expressed in this document. Any contract of insurance between the parties hereto
outstanding at the time of execution of this contract is herewith terminated and
simultaneously replaced with this contract so as to allow for continued
participation in the Authority's Insured Student Loan program.
Notwithstanding the foregoing, the terms of the Kentucky Higher
Education Assistance Authority Holder Contract of Insurance Addendum dated June
21, 1996 between the Authority and the Lender relating to student loans subject
to a Guarantee Commitment by the Alabama Commission on Higher Education (ACHE),
which Addendum is attached hereto as Attachment B, are hereby incorporated by
reference herein.
Restrictions
In accordance with the Federal Act and regulations thereunder, the
Lender shall not accept any financial inducement by any educational institution
to make available Authority insured loans to its students.
<PAGE> 7
Effective Date and Signatures
This contract shall be effective from the date of execution by the
Authority. Unless otherwise terminated in accordance with the terms and
conditions set forth heretofore, this contract shall remain effective until and
shall expire upon the expiration of authorization to make Insured Student Loans
under the Federal Act.
<TABLE>
<S> <C>
Star Bank, N.A. as Trustee for Student
/s/ Londa L. Wolanin --------------------------------------
- ---------------------------------------- Lender Loan Funding
Authorized Representative
Kentucky Higher Education Assistance Authority
June 1, 1998 Brian J. Gardner
- ---------------------------------------- --------------------------------------
Effective Date Authorized Representative (Type or Print)
/s/ Brian J. Gardner
--------------------------------------
Authorized Representative Signature
Senior Trust Officer
--------------------------------------
Title
425 Walnut Street, ML 5125, P.O. Box 1118
Cincinnati, OH 45201-1118
--------------------------------------
Address
829626, 830631, 831008, 831299, 831455,
831640, 831692, 831785, 833361, 833207
--------------------------------------
Lender Identification Number
Sally Wagner
--------------------------------------
Designated Lender Representative
Manager, KHESLC Loan Servicing
--------------------------------------
Title
--------------------------------------
Other Authorized Signatory
--------------------------------------
Other Authorized Signatory
--------------------------------------
Other Authorized Signatory
Branch Offices Included in This Contract:
Office Address Designated Lender Representative*
Linda Arnest, Portfolio Manager
- ------------------------------------ --------------------------------------
Student Loan Funding
One W. 4th Street, Suite 200
- ------------------------------------ --------------------------------------
Cincinnati, OH 45202
*Please forward all newsletters and
policy notices to:
</TABLE>
<PAGE> 8
[LOGO]
LENDER PARTICIPATION
AGREEMENT AND
CONTRACT OF INSURANCE
Attachment A
The computer equipment provided by the Kentucky Higher Education Assistance
Authority to the lender is as follows:
N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I acknowledge receipt of the above listed equipment from the Authority.
For the Lender:
/s/ Brian J. Gardner
- ----------------------------------------
Designated Lender Representative
Star Bank, NA as Trustee for Student Loan Funding
- ----------------------------------------
Lender Name
829626, 830631, 831008, 831299, 831455, 831640, 831692, 831785 833361, 833207
- ----------------------------------------
Lender ID
June 1, 1998
- ----------------------------------------
Effective Date
<PAGE> 9
[LOGO]
LENDER PARTICIPATION
AGREEMENT AND
CONTRACT OF INSURANCE
KHEAA ADDENDUM
Whereas, the Authority and Lender are parties to a Lender Participation
Agreement and Contract of Insurance (hereafter known as the "Agreement"); and
Whereas, the Authority has heretofore undertaken to issue a Loan Guarantee on
Insured Student Loans made and/or held by Lender that were disbursed on or after
June 2, 1995; and
Whereas, the Authority and the Alabama Higher Education Commission (ACHE) have
entered into a Document of Understanding dated February 23, 1995, between
themselves and the U.S. Department of Education providing for the transfer of
Guarantee Commitments from ACHE to the Authority; and
Whereas, pursuant to 20 U.S.C. Section 1078(b)(2)(E) and 34 C.F.R. Section
682.401(b)(18), the Authority and Lender desire to provide for a transfer of
Guarantee Commitments by the ACHE Alabama Guaranteed Student Loan Program to
the Authority;
The Authority and Lender hereby agree to amend the Agreement as follows:
DEFINITIONS
For purposes of this Addendum, the following terms shall have the specified
meanings:.
1) "Guarantee Commitments" means the insurance obligation of ACHE on
Insured Student Loans made or held by Lender pursuant to a Loan
Guarantee Agreement between ACHE and the Lender.
2) "Insured Student Loan" shall have the meaning specified in KRS
164.740(12).
3) "Loan Guarantee" shall have the meaning specified in KRS 164.740(14).
4) "Loan Guarantee Agreement" shall mean one or more of the following
agreements executed and in force as of December 1, 1995, between ACHE's
Alabama Guaranteed Student Loan Program ("AGSLP") and the Lender:
A) Unsubsidized Federal Stafford Loan Guarantee Agreement
B) Federal Stafford Loan Guarantee Agreement
C) Federal Parents Loans to Undergraduate Students (PLUS)
Guarantee Agreement
D) Federal Supplemental Loans for Students Guarantee Agreement
E) Consolidation Loans Lender Participation Agreement
5) "Outstanding Insured Student Loans" shall mean Insured Student Loans on
which:
A) The loans were initially insurable by ACHE under a Loan
Guarantee Agreement(s) and reinsurable by the U.S. Secretary
of Education;
B) The borrower owes a balance of principal or interest;
C) An insurance claim has not been paid by the Authority or ACHE,
except for loans on which a previous default has been
rehabilitated in accordance with 34 C.F.R. Section 682.405;
and
<PAGE> 10
D) The Guarantee Commitment by ACHE remains in force and
reinsurance by the U.S. Secretary of Education remains in
force or may be reinstated in accordance with procedures
prescribed in Appendix D to 34 C.F.R. Part 682.
INSURANCE OF PRIOR INSURED STUDENT LOANS
Notwithstanding the paragraph of the Agreement entitled "Effective
Date", the Authority hereby promises to insure, in accordance with the terms and
conditions of the Agreement, all Insured Student Loans made or held by Lender
upon which the Authority has issued a Loan Guarantee between June 2, 1995, and
the effective date of the Agreement, if:
A) The loans were disbursed in accordance with the federal act
and applicable regulations;
B) The Lender has paid to the Authority the Premium specified in
the Agreement pertaining to the Insured Student Loans;
C) The borrower owes a balance of principal or interest;
D) An insurance claim has not been paid by the Authority on the
loan, except for loans on which a previous default has been
rehabilitated in accordance with 34 C.F.R. Section 682.405;
and
E) The reinsurance by the U.S. Secretary of Education remains in
force or may be reinstated in accordance with procedures
prescribed in Appendix D to 34 C.F.R. Part 682.
ASSUMPTION BY AUTHORITY OF LOAN GUARANTEE COMMITMENTS OF ACHE
The Authority hereby agrees to assume, as of December 1, 1995, subject
to the tenns and conditions of the Agreement and the Federal Act and applicable
regulations, the obligation of the ACHE for Guarantee Commitments issued prior
to December 1, 1995, by ACHE Guaranteed Student Loan Program under the Federal
Act and a Loan Guarantee Agreement(s) on Outstanding Insured Student Loans held
by the Lender. Pursuant to 20 U.S.C Section 1078(b)(2)(E), the Lender hereby
consents to this transfer of said Guarantee Commitments.
<TABLE>
<S> <C>
LENDER:
By: /s/ Brian J. Gardner
/s/ Londa L. Wolanin Brian J. Gardner
- ----------------------------------------------- ----------------------------------------------------------
Authorized Representative Name
Kentucky Higher Education Assistance Authority
07/27/98 Senior Trust Officer
- ----------------------------------------------- ----------------------------------------------------------
Date Title
829626, 830631, 831008, 831299, 831455,
831640, 831692, 831785, 833361, 833207
----------------------------------------------------------
Lender Identification Number
Star Bank, NA as Trustee for Student Loan
Funding
----------------------------------------------------------
Lender Name
425 Walnut Street, ML 5125
P.O. Box 1118
----------------------------------------------------------
Address
----------------------------------------------------------
Cincinnati, OH 45201-1118
----------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.9
<TABLE>
<S> <C>
[LOGO] GREAT LAKES HIGHER EDUCATION GUARANTY CORPORATION 2401 INTERNATIONAL LANE, MADISON, WI 53704-3192
</TABLE>
STUDENT LOAN GUARANTY
(For Loans to Students and Parents Under Title IV Part B of the
Higher Education Act of 1965 as amended)
DEFINITIONS: The term GUARANTOR used herein shall mean the Great Lakes Higher
Education Guaranty Corporation. CORPORATION shall mean Great Lakes Higher
Education Guaranty Corporation. LENDER shall include the undersigned and any
eligible lender who becomes the assignee, pursuant to applicable statutes and
regulations, of loans to students and parents granted under Title IV, Part B of
the Higher Education Act of 1965, as amended (the "Act").
APPLICABILITY. The benefits provided under this guaranty are applicable to any
loan guaranteed under the Act. Within such limits as may be established herein
and/or within such limits as the guarantor shall from time to time establish,
the guarantor agrees to pay, upon proper notice of death, permanent and total
disability or default, the outstanding principal and interest due to the lender
upon any student or parent loan covered by this guaranty.*
LIMITATIONS. This guaranty is subject to all applicable federal statutes and
administrative regulations. This guaranty is further subject to such limitations
and procedures as are, or may be, established by Rules and Regulations of the
Great Lakes Higher Education Guaranty Corporation (the "Corporation Rules and
Regulations"). All applicable federal statutes and regulations and Corporation
Rules and Regulations as they may from time to time be amended are made a part
of this guaranty and incorporated herein.
The obligations of the lender as set forth in this guaranty shall constitute
conditions precedent to any obligation on the part of the guarantor.
OBLIGATIONS OF THE LENDER:
(a) The lender shall be an eligible lender under the Act and federal
regulations.
(b) The lender shall exercise due diligence as defined under the Act and
federal regulations and within the meaning of the Corporation Rules and
Regulations.
(c) The lender shall comply with all applicable federal statutes and
regulations.
(d) The lender shall notify the Corporation promptly of any change of name
by the lender, or assignment of the lender's interest under this
guaranty.
(e) Any assignments of any interest of the lender under this guaranty shall
be only to appropriate eligible lenders and shall be in compliance with
all applicable provisions of federal statutes and regulations and
Corporation Rules and Regulations.
(f) The lender shall cooperate with the Corporation, the department of
education and any other appropriate federal agency in the collection of
any defaulted student or parent loan.
(g) The lender shall assist eligible borrowers in securing reductions on
obligations to pay interest on loans made by, or assigned to, the
lender which reductions the borrowers may be eligible to receive under
applicable federal statutes and regulations and the Corporation Rules
and Regulations.
TERMINATION. This guaranty may be terminated by the lender as to any loans made
by the lender following not less than thirty days written notice to the
Corporation. This guaranty may be terminated by the Great Lakes Higher Education
Guaranty Corporation in the manner provided for by the Corporation Rules and
Regulations. The termination of this guaranty shall not affect the coverage of
any loans subject to this guaranty which were made prior to the date of
termination.
* Notwithstanding the foregoing, default claims with respect to loans first
disbursed on or after October 1, 1993, shall be paid at ninety-eight percent
(98%) of the outstanding principal and interest due to the lender, or such
lesser rate, if any, as may be provided in Section 428(b)(1)(G) of the Higher
Education Act of 1965, as amended. Specifically, and without limitation, this
guaranty shall not apply to any loan which is not eligible for reinsurance as a
result of school based defenses or other defenses to enforceability under State
or federal law. Payment hereunder is expressly limited to monies constituting
the guarantor's Guaranty Reserve Fund as established in accordance with the
regulations governing the Federal Family Education Loan Program as found in 34
CFR 682.410(a)(1) or as provided under Title IV, Part B, Section 432(o) of the
Higher Education Act of 1965, as amended.
<TABLE>
<S> <C>
Great Lakes Higher Education Guaranty Corporation
By: Richard F. George 6-1-98
---------------------------------- ------------
Authorized Officer Date
</TABLE>
The above Guaranty is hereby accepted this 1st day of June, 1998
---- ---- ----
Exact Corporate Title Star Bank, N.A. as Trustee for Student Loan Funding
---------------------------------------------------
<TABLE>
<S> <C>
By Brian J. Gardner /s/ Brian J. Gardner Title of Officer Senior Trust Officer
------------------------------------- ------------------------
Employer Identification Number 31-0841368 Lender Number 829626
------------ ---------------------------
</TABLE>
<PAGE> 2
AGREEMENT WITH RESPECT TO MAKING CONSOLIDATION LOANS
UNDER SECTION 428C OF THE HIGHER EDUCATION ACT OF 1965
STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING, (the "Lender"),
Lender Numbers 833361, 833081, 829626, 831008, 831692, 830631, 831785, 831640,
831299, 833207 and 831455, hereby enters into an agreement with GREAT LAKES
HIGHER EDUCATION GUARANTY CORPORATION ("Guarantor") for the purpose of making
consolidation loans as authorized under Section 428C of the Higher Education Act
of 1965, as amended (the "Act").
In the performance of their respective obligations under Section 428C
of the Act, the Guarantor and Lender agree as follows:
1. Lender shall exercise reasonable care and diligence in the making and
collection of consolidation loans, and shall comply with the
requirements of Section 428C of the Act, applicable regulations issued
by the U.S. Department of Education, and applicable regulations issued
by the Guarantor.
2. Lender will make a consolidation loan to an eligible borrower (on
request of the borrower) only if the borrower certifies that the
borrower has no other application pending for a loan under Section 428C
of the Act; and
(a) Lender holds an outstanding loan of that borrower which is
selected by the borrower for consolidation under Section 428C
of the Act, or
(b) the borrower certifies that the borrower has sought and has
been unable to obtain a consolidation loan with
income-sensitive repayment terms from the holders of the
outstanding loans of that borrower (which are so selected for
consolidation).
3. Each consolidation loan made by Lender will bear interest, and be
subject to repayment, in accordance with the provisions of Section
428C, subsection (c) of the Act.
4. Each consolidation loan will be made by Lender, notwithstanding any
other provision of Part B of Title IV of the Act limiting the annual or
aggregate principal amount for all insured loans made to a borrower, in
an amount
(a) which is not less than the minimum amount required for
eligibility of the borrower under Section 428C, subsection
(a)(3) of the Act, and
(b) which is equal to the sum of unpaid principal and accrued
unpaid interest and late charges of all eligible student loans
received by the eligible borrower which are selected by the
borrower for consolidation.
5. The proceeds of each consolidation loan will be paid by Lender to the
holder or holders of the loans selected for consolidation to discharge
the liability on such loans.
6. The Lender shall offer an income-sensitive repayment schedule,
established by the Lender in accordance with the regulations
promulgated by the Secretary, to the borrower of any consolidation loan
made by the Lender on or after July 1, 1994.
7. Guarantor shall, following execution of this Agreement, issue to Lender
in accordance with paragraph (b)(2) of Section 428C of the Act a
Certificate of Comprehensive Insurance for Consolidation Loans
("Certificate"). The Certificate shall be effective for the period and
limited to the amount stated therein, each as determined in the sole
discretion of the Guarantor.
<PAGE> 3
8. Lender will reach agreement with the Guarantor for the periodic
transmittal to the Guarantor of appropriate master file data with
respect to consolidation loans in addition to the normal reporting
requirements for loans insured under the Federal Family Education Loan
Program have been established by the Guarantor. Lender will have and
report master file data with respect to the separate balances of the
particular loans consolidated at the time of consolidation.
9. Section 423(c)(2) of the Act contains references to "other student
loans". For purposes hereof, "other student loans" shall mean loans
made under a public or private student loan program by an institutional
lender to the borrower that (a) are granted exclusively for the purpose
of financing the borrower's post-secondary education, (b) are set forth
in the application/promissory note signed by the borrower when applying
to Lender for a consolidation loan, and (c) may be verified as having
been granted for the stated purpose.
10. The Guarantor acknowledges that if a borrower selects for consolidation
one or more loans made under Section 428B as in effect prior to the
enactment of the Higher Education Amendments of 1986, whether or not
owned by Lender, Lender will first refinance such loans at the rate
authorized under Section 427(c)(4) of the Act and will use such rate
for purposes of determining the interest rate on such borrower's
consolidation loan.
11. Lender hereby certifies (a) that loans selected for consolidation are
legal, valid, and binding obligations that were made in compliance with
all applicable laws and regulations and that the insurance on such
loans is in full force and effect, and (b) that the consolidation loans
made by Lender are legal, valid, and binding obligations that were made
in compliance with all applicable laws and regulations. Lender agrees
to repurchase from the Guarantor any consolidation loan insured
hereunder (a) for which the Guarantor is denied federal reinsurance or
is required at any time to reimburse the federal government for federal
reinsurance previously paid on a consolidation loan in either case,
solely as a result of any failure of Lender or its servicer to comply
with the requirements of paragraph 1 hereof, or (b) in the event that a
consolidation loan is determined to be unenforceable by a court of
competent jurisdiction solely as a result of any action or inaction of
Lender or its servicer; provided, however, that the Guarantor has
notified Lender of such denial of federal reinsurance, claim for
reimbursement, or court action and has given Lender an opportunity to
assist in its resolution. The repurchase price shall be the amount of
the Guarantor's claim payment to Lender on any such loan.
12. The terms of the Certificate of Comprehensive Insurance for
Consolidation Loans are incorporated herein and made a part hereof as
if set forth in their entirety.
<TABLE>
<S> <C>
STAR BANK, N.A. AS TRUSTEE FOR GREAT LAKES HIGHER EDUCATION GUARANTY
STUDENT LOAN FUNDING CORPORATION
By: /s/ Brian J. Gardner By: /s/ David H. Harmon
------------------------------------- ----------------------------------
Name: Brian J. Gardner Name: David H. Harmon
------------------------------------- -------------------------------
Title: Senior Trust Officer Title: Executive Vice President
---------------------------------- -------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Effective Date: June 1, 1998
Certificate Amount: $15,000,000
Lender ID Numbers: 833361, 833081, 829626, 831008, 831692, 830631, 831785, 831640, 831299, 833207 and 831455
</TABLE>
CERTIFICATE OF COMPREHENSIVE INSURANCE FOR CONSOLIDATION LOANS
WHEREAS, STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING (the
"Lender"), wishes to secure insurance on consolidation loans made pursuant to
Section 428C of Title IV, Part B of the Higher Education Act of 1965, as
amended, (the "Act"), and
WHEREAS, the Great Lakes Higher Education Guaranty Corporation (the
"Guarantor") is authorized by the Act to provide such loan insurance through
the issuance of a certificate of comprehensive insurance coverage under the
provisions of Section 428(b)(2) of the Act,
NOW THEREFORE, to evidence its intent to guarantee, Guarantor does
issue, as of the Effective Date shown above, this Certificate of Comprehensive
Insurance ("Certificate"), upon the following terms and conditions:
1. Within the limits established by the provisions of this certificate and
without further action by the Guarantor, all consolidation loans which
are eligible for insurance under the Act and are made in conformity
with Section 428C of the Act and the agreement entered into by the
Guarantor and Lender pursuant to such section of the Act shall, if
designated by Lender to be subject to this certificate, be insured from
the time of disbursement against the loss of interest and principal by
the Guarantor.
Notwithstanding the foregoing, default claims with respect to loans
first disbursed on or after October 1, 1993, shall be paid at
ninety-eight percent (98%) of the outstanding principal and interest
due to the lender, or such other rate, if any, as may be provided in
Section 428(b)(1)(G) of the Higher Education Act of 1965, as amended.
Specifically, and without limitation, this guaranty shall not apply to
any consolidation loan or any consolidation loan which consolidates a
loan which is not eligible for reinsurance as a result of school based
defenses or other defenses to enforceability under state or federal
law. Payment hereunder is expressly limited to monies constituting the
guarantor's Guaranty Reserve Fund as established in accordance with the
regulations governing the Federal Family Education Loan Program as
found in 34 CFR 628.410(a)(1) or as provided under Title IV, Part B,
Section 432(o) of the Higher Education Act of 1965, as amended.
2. A consolidation loan will not be insured under this certificate unless
Lender has determined, to its satisfaction, in accordance with
reasonable and prudent business practices, for each loan being
consolidated (a) that the loan is a legal, valid and binding obligation
of the borrower; (b) that each such loan was made and serviced in
compliance with applicable laws and regulations; and (c) in the case of
loans made under Part B of the Act, that the insurance on such loan is
in full force and effect.
3. This Certificate shall have effect with respect to Federal
Consolidation Loans made by Lender for the period from the Effective
Date shown above until March 1, 2000, provided that the aggregate
Initial Principal Amount of such Federal Consolidation Loans does not
exceed the Certificate Amount shown above and, provided further, that
this Certificate shall not have effect with respect to any Federal
Consolidation Loan which has not been made by Lender in accordance with
all of the terms of the Agreement and on a promissory note form
provided or approved by Guarantor.
4. With respect to loans insured under this certificate, Lender shall
submit such reports (a) to the Guarantor as it may reasonably require
to carry out its responsibilities under the Act and (b) to the U. S.
Secretary of Education as it may require.
5. All claims submitted by Lender under this certificate will be directed
to:
Great Lakes Higher Education Guaranty Corporation
2401 International Lane
Madison, WI 53704
<PAGE> 5
6. All administrative and procedural matters related to loans issued under
certificate will be directed to:
Great Lakes Higher Education Guaranty Corporation
2401 International Lane
Madison, WI 53704
7. Repayment terms offered to borrowers will include both level and
graduated payment schedules. For consolidation loans made after July 1,
1994, income-sensitive repayment schedules shall be offered in
accordance with regulations promulgated by the Secretary. Graduated
payment schedules may provide for an initial period of interest only
payments. Loans will be made for up to the maximum period provided by
law and the interest rate will be equal to or less than the applicable
rate.
8. If at any time prior to the expiration of this certificate, Lender no
longer proposes to make consolidation loans insured hereunder, it shall
notify the Guarantor and this certificate may be terminated on a
mutually agreed upon date.
No loans made under this certificate prior to its expiration, or the
termination thereof under this provision, shall be affected by such
expiration or termination.
9. The Guarantor may, for any reason, terminate Lender's authority to make
insured loans hereunder upon 90 days written notice prior to the
effective date of the termination.
This guaranty may also be terminated by Great Lakes Higher Education
Guaranty Corporation in the manner provided for by the Corporation
Rules and Regulations.
Loans made prior to the date of any such termination will not be
affected by the action of the Guarantor provided they are otherwise
insurable.
10. The terms of the Agreement between Lender and Great Lakes Higher
Education Guaranty Corporation With Respect to Making Consolidation
Loans under Section 428C of the Higher Education Act of 1965 are
incorporated herein and made a part hereof as if set forth herein in
their entirety.
GREAT LAKES HIGHER EDUCATION GUARANTY CORPORATION
By: /s/ David H. Harmon
----------------------------------------
Name: David H. Harmon
--------------------------------------
Title: Executive Vice President
------------------------------------
