<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999
REGISTRATION NO. 333-64283
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------
STUDENT LOAN FUNDING RIVERFRONT LLC
(Originator of the trusts described herein)
(Exact name of registrant as specified in its charter)
Delaware Applied for
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
ONE WEST FOURTH STREET, SUITE 310
CINCINNATI, OHIO 45202
(513) 763-4415
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
THOMAS L. CONLAN, JR.
PRESIDENT
ONE WEST FOURTH STREET, SUITE 310
CINCINNATI, OHIO 45202
(513) 352-4300
(513) 763-4340 (TELECOPY)
(Name, address, including zip code and
telephone number, including area code,
of agent for service)
COPIES TO:
ROBERT A. SELAK
THOMPSON HINE & FLORY LLP
312 WALNUT STREET, SUITE 1400
CINCINNATI, OHIO 45202
(513) 352-6700
(513) 241-4771 (TELECOPY)
AND TO:
PAUL F. SEFCOVIC
SQUIRE, SANDERS & DEMPSEY L.L.P.
41 SOUTH HIGH STREET, SUITE 1300
COLUMBUS, OHIO 43215
(614) 365-2700
(614) 365-2499 (TELECOPY)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Student Loan
Asset-Backed Notes $1,000,000 100% $1,000,000 $295.00
============================================================================================
</TABLE>
(1) Estimated solely for calculating the registration fee.
(2) Previously paid.
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
The information in this prospectus supplement and the attached prospectus is not
complete and may be changed. The issuer may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the attached prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED ______________, 1999
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
$____________ STUDENT LOAN ASSET-BACKED NOTES
STUDENT LOAN FUNDING 1999-A TRUST
ISSUER
STUDENT LOAN FUNDING RIVERFRONT LLC
DEPOSITOR
STUDENT LOAN FUNDING RESOURCES, INC.
MASTER SERVICER AND ADMINISTRATOR
<S> <C> <C> <C> <C> <C>
CONSIDER CAREFULLY THE THE TRUST WILL SERIES 1999A-1 SENIOR SERIES 1999A-2 SERIES 1999B-1 TOTAL
RISK FACTORS BEGINNING ON ISSUE-- LIBOR RATE NOTES SENIOR AUCTION RATE SUBORDINATE LIBOR
PAGE S-7 OF THIS CALLABLE NOTES(1) RATE NOTES(2)
PROSPECTUS SUPPLEMENT.
Principal Amount $_________ $_________ $_________ $_________
The Notes will represent
obligations of the trust Series Interest Rate One-Month LIBOR Auction Rate(3) One-Month LIBOR
only and will not plus [ ]%(3) plus [ ]%(3)
represent interests in or
obligations of the Interest Paid Monthly Each Auction Period Monthly
depositor, the master
servicer, the First Interest [_____] [_____] [_____]
administrator or any of Payment Date
their affiliates. The
Notes are not insured or First Scheduled Principal [_____] [_____] [_____]
guaranteed by any person. Distribution Date
Except as noted in this
document, the underlying Legal Final Maturity ______, __ ______, __ ______, __
accounts and student
loans are not insured or Price to Public __________% __________% __________% $_________
guaranteed by any person
or governmental agency. Underwriting
Discount __________% __________% __________% $_________
This prospectus
supplement may be used to
offer and sell the Notes Proceeds to Issuer __________% __________% __________% $_________
only if accompanied by
the prospectus.
</TABLE>
- ------------------------
(1) The Series 1999A-2 Notes are auction rate notes, subject to a Dutch
auction selling procedure.
(2) The Series 1999B-1 Notes and any exchange counterparties under an interest
rate exchange agreement relating to the Series 1999B-1 Notes are
subordinated to the Series 1999A Notes and any exchange counterparties
under an interest rate exchange agreement relating to the Series 1999A
Notes. Payment of interest on and any interest rate exchange payments
relating to the Series 1999B-1 Notes on any payment date will be made only
after payment of interest on and any interest rate exchange payments
relating to the Series 1999A Notes have been made, and under certain
circumstances, may be deferred. Subordination of the Series 1999B-1 Notes
provides credit enhancement for Series 1999A Notes.
(3) Initially, ___% with respect to the Series 1999A-1 Notes, ___% with
respect to the Series 1999A-2 Notes, and ___% with respect to the Series
1999B-1 Notes. Following the initial interest accrual period, (i) the
Series 1999A-1 Notes and the Series 1999B-1 Notes will be subject to a cap
of the lesser of 18% and the net loan rate and (ii) the Series 1999A-2
Notes will be subject to a cap of the lesser of 17% and the net loan rate.
The Issuer will not list the offered Notes on any national securities exchange
or on any automated quotation system of any registered securities association
such as the Nasdaq Stock Market. Accordingly, there may not be an active or
liquid secondary market for the Notes.
In connection with this offering, the underwriters may overallot or effect
transactions which stabilize or maintain the market price of the Notes at a
level above that which might otherwise prevail in the open market. Such
stabilizing, if commenced, may be discontinued at any time.
TRUST ASSETS:
The trust assets include:
- - student loans with an aggregate principal balance as of ________, ___ of
$______, and proceeds thereof,
- - moneys and investment securities on deposit in the funds and accounts
under the indenture, including a reserve fund, and
- - the issuer's and the eligible lender trustee's rights under certain
contracts, including the master servicing agreement, the servicing
agreements, any interest rate exchange agreements, any interest rate
exchange counterparty guarantees, the guarantee agreements and the student
loan purchase agreements.
UNDERCOLLATERALIZATION:
The principal amount of the Notes exceeds the sum of: (i) the principal amount
of the student loans and accrued interest thereon as of ________, __ and (ii)
the initial reserve fund deposit and the amounts in the other funds and accounts
under the indenture by approximately $__________.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE NOTES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SALOMON SMITH BARNEY
FIFTH THIRD/THE OHIO COMPANY
NATIONSBANC MONTGOMERY SECURITIES LLC
PNC CAPITAL MARKETS, INC.
_______________, 1999
<PAGE> 3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
The issuer provides information to you about your Notes in two
separate documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
your Notes and (b) this prospectus supplement, which describes the specific
terms of your Notes.
If the descriptions of the terms of the Notes vary between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
This prospectus supplement and the accompanying prospectus include
cross-references to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus provide the pages on which these
captions are located.
[The issuer has filed preliminary information regarding the trust
and your Notes with the SEC. The information contained in this document
supersedes all of that preliminary information, which was prepared by the
underwriters for prospective investors.]
Until __________, all dealers that effect transactions in the Notes,
whether or not participating in this offering, may be required to deliver a
prospectus and prospectus supplement. This requirement is in addition to the
dealers' obligation to deliver a prospectus and prospectus supplement when
acting as underwriters with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS.............................................................S-1
The Depositor.............................................................S-1
The Issuer................................................................S-1
The Servicer..............................................................S-1
The Trustees..............................................................S-1
Issue Date ...............................................................S-1
The Day of the Month Scheduled Payments
Are Made...............................................................S-1
Interest..................................................................S-1
Principal.................................................................S-2
Final Maturity............................................................S-3
Subordination.............................................................S-3
Priority of Payments......................................................S-3
Security for the Notes; Trust Assets......................................S-5
Reserve Fund..............................................................S-5
Redemption................................................................S-5
Federal Income Tax Consequences...........................................S-6
ERISA Considerations......................................................S-6
Registration, Clearing and Settlement.....................................S-6
Rating....................................................................S-6
RISK FACTORS.................................................................S-7
THE ISSUER..................................................................S-18
The Trust................................................................S-18
Co-owner Trustee.........................................................S-18
Owner Trustee............................................................S-19
Year 2000................................................................S-19
THE DEPOSITOR...............................................................S-19
Year 2000................................................................S-19
USE OF PROCEEDS.............................................................S-21
THE FINANCED STUDENT LOANS..................................................S-21
Incentive Programs.......................................................S-26
MATURITY AND PREPAYMENT
CONSIDERATIONS...........................................................S-27
THE SERVICERS...............................................................S-28
AFSA Data Corporation....................................................S-29
Great Lakes Higher Education Servicing
Corporation...........................................................S-29
InTuition, Inc...........................................................S-30
Kentucky Higher Education Student Loan
Corporation...........................................................S-30
Pennsylvania Higher Education Assistance Agency..........................S-31
UNIPAC Service Corporation...............................................S-31
USA Group Loan Services, Inc.............................................S-32
THE GUARANTEE AGENCIES......................................................S-32
California Student Aid Commission........................................S-33
Florida Department of Education, OSFA....................................S-34
Georgia Higher Education Assistance
Corporation...........................................................S-35
Great Lakes Higher Education Guaranty
Corporation...........................................................S-36
Kentucky Higher Education Assistance Authority...........................S-38
Nebraska Student Loan Program, Inc.......................................S-40
Pennsylvania Higher Education Assistance
Authority.............................................................S-42
United Student Aid Funds, Inc............................................S-43
EXCHANGE AGREEMENTS.........................................................S-45
DESCRIPTION OF THE NOTES....................................................S-45
Interest.................................................................S-46
Determination of the Auction Rate........................................S-47
Auction Period Adjustment................................................S-49
Auction Period Conversion of and Mandatory
Tender of the Auction Rate Notes......................................S-50
Principal................................................................S-50
Subordination of the Series 1999B-1 Notes................................S-53
REDEMPTION..................................................................S-54
Auction of the Financed Student Loans....................................S-54
Optional Redemption......................................................S-54
Notice of Redemption.....................................................S-55
THE INDENTURE...............................................................S-55
Indenture Trustee........................................................S-55
Eligible Lender Trustee..................................................S-55
Reports to Noteholders...................................................S-56
Acquisition Fund.........................................................S-56
Student Loan Portfolio Fund..............................................S-56
Collection Fund..........................................................S-57
Reserve Fund.............................................................S-60
UNDERWRITING................................................................S-62
LEGAL MATTERS...............................................................S-63
RATING......................................................................S-63
APPENDIX A - Auction Procedures..............................................A-1
APPENDIX B - Settlement Procedures...........................................B-1
ii
<PAGE> 4
SUMMARY OF TERMS
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION ABOUT THE NOTES AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT YOU FIND IMPORTANT IN MAKING YOUR
INVESTMENT DECISION. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
CONTAIN MORE DETAILED TERMS ABOUT THE NOTES BEING OFFERED TO YOU, AS WELL AS
SELECTED BUSINESS INFORMATION AND FINANCIAL DATA. WE URGE YOU TO READ THIS
ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS BEFORE DECIDING
WHETHER TO PURCHASE ANY OF THE NOTES.
EXCEPT AS OTHERWISE REQUIRED BY THE CONTEXT, REFERENCES IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS TO THE "ISSUER," THE "TRUST," "WE" OR
"US" ARE REFERENCES TO STUDENT LOAN FUNDING 1999-A TRUST AND FIRSTAR BANK,
NATIONAL ASSOCIATION, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS CO-OWNER
TRUSTEE OF THE TRUST.
THE DEPOSITOR
Student Loan Funding Riverfront LLC, a Delaware limited liability company, will:
- - organize the trust; and
- - acquire the pool of student loans that will secure the notes.
THE ISSUER
Student Loan Funding 1999-A Trust will issue the notes.
THE SERVICER
Student Loan Funding Resources, Inc., as 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
loans on a day to day basis.
THE TRUSTEES
- - Firstar Bank, National Association, a national banking association, is the
eligible lender trustee. One or more additional eligible lender trustees
may be added or substituted for Firstar Bank, National Association from
time to time;
- - First Union Trust Company, National Association, is the Owner Trustee for
purposes of the trust's beneficial ownership of the student loans;
- - Firstar Bank, National Association, is the Co-owner Trustee for purposes
of the trust's beneficial ownership of the student loans; and
- - Firstar Bank, National Association is the indenture trustee.
ISSUE DATE
Issuance of the notes is scheduled for _________, 1999.
THE DAY OF THE MONTH SCHEDULED PAYMENTS ARE MADE
All payments due on the Series 1999A-1 Notes and the Series 1999B-1 Notes will
be paid on the last business day of each calendar month. All payments due on the
Series 1999A-2 Notes will be paid on the business day following the expiration
of each applicable auction period.
INTEREST
Series 1999A-1 Notes. The initial interest rate on the Series 1999A-1 Notes is
fixed at ____% per annum. Beginning __________, ____, the interest rate will be
an annual rate adjusted monthly to equal the lesser of:
- - one month LIBOR plus ____%; or
- - 18%.
S-1
<PAGE> 5
The adjusted monthly interest rate for each period will be capped, however, at
the net loan rate for that period.
Series 1999A-2 Notes. The initial interest rate on the Series 1999A-2 Notes is
fixed at ____% per annum. Beginning ____________, ____ the interest rate will be
an annual rate adjusted at the beginning of each auction period to equal the
lesser of:
- - the auction rate; or
- - 17%.
The adjusted monthly interest rate for each period will be capped, however, at
the net loan rate for that period.
Series 1999B-1 Notes. The initial interest rate on the Series 1999B-1 Notes is
fixed at ____% per annum. Beginning __________, ____, the interest rate will be
an annual rate adjusted monthly to equal the lesser of:
- - one month LIBOR plus ____%; or
- - 18%.
The adjusted monthly interest rate for each period will be capped, however, at
the net loan rate for that period.
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 payments on the Series 1999A-1 Notes will begin ____________, 1999.
Unless an event of default has occurred, no principal will be paid on the Series
1999A-2 Notes until the Series 1999A-1 Notes have been paid in full. If an event
of default has occurred, principal will be paid pro rata on the Series 1999A-1
Notes and Series 1999A-2 Notes. Principal payments on the Series 1999B-1 Notes
will not begin until the Series 1999A-1 and Series 1999A-2 Notes have been paid
in full.
Series 1999A-1 Notes. Principal will be payable on the Series 1999A-1 Notes:
- - on each monthly payment date in an amount generally equal to the decline
in the principal amount (including capitalized interest) of the student
loans between the end of the second preceding collection period and the
end of the immediately preceding collection period, and
- - to the extent necessary, on each monthly payment date for the Senior
1999A-1 Notes until the parity percentage equals ____%.
Series 1999A-2 Notes. Principal will be payable on the Series 1999A-2 Notes:
- - on each auction period payment date on and after the principal balance of
the Series 1999A-1 Notes has been reduced to zero (or if more than one
auction period payment date occurs in the same calendar month, or the
first auction period payment date in such month) in an amount generally
equal to the decline in the principal amount (including capitalized
interest) of the student loans between the end of the third preceding
collection period and the end of the second preceding collection period,
and
- - to the extent necessary, on each auction period payment date for the
Series 1999A-2 Notes (or if more than one auction period payment date
occurs in the same calendar month, on the first auction period payment
date in such month) until the parity percentage equals ____%.
Series 1999B-1 Notes. Principal will be payable on the Series 1999B-1 Notes:
- - on each monthly payment date on and after the principal balance of the
Series 1999A Notes has been paid in full in an amount generally equal to
the decline in the principal amount (including capitalized interest) of
the student loans between
S-2
<PAGE> 6
the end of the second preceding collection period and the end of the
immediately preceding collection period, and
- - to the extent necessary, on each monthly payment date for the Series
1999B-1 Notes until the parity percentage equals ___%.
These payments of principal will be made to the extent available funds exist on
the applicable payment date. If available funds are not enough to pay any of the
amounts other than parity percentage payments, any shortfall will be added to
the principal payable on the next applicable payment date. Such shortfall will
not constitute an event of default under the indenture unless the shortfall
exists on the maturity date for that series of notes. See "Description of the
Notes -- Principal" in this prospectus supplement.
The parity percentage basically is determined by dividing:
- - the principal amount (including capitalized interest) of the student loans
plus accrued interest, interest subsidies and special allowance payments,
and all amounts in the acquisition fund, the collection fund and the
reserve fund, by
- - the principal balance of all notes plus accrued and unpaid interest and
expenses.
FINAL MATURITY
The final payment of principal and interest will be made no later than
__________ on the Series 1999A-1 Notes, no later than __________ on the Series
1999A-2 Notes, and no later than __________ on the Series 1999B-1 Notes. For
several reasons, the actual maturity of each series is expected to occur sooner.
See "Maturity and Prepayment Considerations" in the prospectus and this
prospectus supplement.
SUBORDINATION
The Series 1999B-1 Notes and any exchange counterparties under an interest rate
exchange agreement relating to the Series 1999B-1 Notes are subordinated to the
Series 1999A Notes and any exchange counterparties under an interest rate
exchange agreement relating to the Series 1999A Notes.
As long as any Series 1999A Notes are outstanding, no principal will be paid on
the Series 1999B-1 Notes.
Payments of interest on the Series 1999B-1 Notes and any interest rate exchange
payments relating to such Series 1999B-1 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 1999A Notes have been made, and if certain
specified conditions exist, payment of interest on and any interest rate
exchange payments relating to the Series 1999B-1 Notes may be deferred. For so
long as any Series 1999A Notes remain outstanding, any shortfall or deferral in
such payment will not constitute an event of default under the indenture unless
the shortfall or deferral exists on the maturity date for the Series 1999B-1
Notes.
See "Priority of Payments" in this Summary of Terms and "The Indenture --
Collection Fund" in this prospectus supplement.
PRIORITY OF PAYMENTS
On each payment date, funds available after paying expenses will be applied
generally in the following priority; provided that, if any moneys are
transferred to the collection account on __________ from the acquisition fund in
an amount equal to or greater than $__________, substantially all such moneys
shall be used solely to pay principal on the Series 1999A-2 Notes on the first
auction period payment date thereafter:
- - First, (i) on each monthly payment date, to pay interest on the Series
1999A-1 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 1999A-2 Notes and any related interest rate
exchange payment owed by the issuer;
- - Second, on each monthly payment date, to pay interest on the Series
1999B-1 Notes and any related interest rate exchange payment owed by the
issuer;
S-3
<PAGE> 7
- - Third, to pay principal on each monthly payment date on the Series 1999A-1
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 1999A-1 Notes until the principal balance of the Series 1999A-1
Notes has been reduced to zero;
- - Fourth, after the principal balance of the Series 1999A-1 Notes has been
reduced to zero, to pay principal on each auction period payment date on
the Series 1999A-2 Notes (or if more than one auction period payment date
occurs in the same calendar month, on the first auction period payment
date in such month) in an amount equal to the reduction in the balance of
the student loans and any shortfall from previous principal distributions
on the Series 1999A-2 Notes until the principal balance of the Series
1999A-2 Notes has been reduced to zero;
- - Fifth, after the principal balance of the Series 1999A-1 Notes and Series
1999A-2 Notes has been reduced to zero, to pay principal on each monthly
payment date on the Series 1999B-1 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 1999B-1 Notes;
- - Sixth, on any monthly payment date, to the reserve fund the amount, if
any, necessary to attain the specified reserve fund balance;
- - Seventh, if the parity percentage is not at least ___%, to pay principal
until the parity percentage equals ___%:
on the Series 1999A-1 Notes on each monthly payment date until the
principal balance thereof has been reduced to zero, then
once the Series 1999A-1 Notes are no longer outstanding, on the
Series 1999A-2 Notes on each auction period payment date (or if more
than auction period payment dates occurs in the same calendar month,
on the first auction period payment date in such month) until the
principal balance thereof has been reduced to zero, and thereafter
once the Series 1999A Notes are no longer outstanding, on the Series
1999B-1 Notes on each monthly payment date;
- - Eighth, to pay interest for prior periods when the applicable interest
rate was capped by the net loan rate, together with interest thereon:
on the Series 1999A-1 Notes for payment on such monthly payment date
until payment in full of all such interest, then
on the Series 1999A-2 Notes for payment on the first auction period
payment date in the succeeding calendar month until payment in full
of all such interest, and thereafter
on the Series 1999B-1 Notes for payment on such monthly payment date
until payment in full of all such interest;
- - Ninth, 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
- - Tenth, 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 ___%. Any amounts so withdrawn will not
be available thereafter to pay principal or interest on the notes. See
"The Indenture -- Collection Fund" in this prospectus supplement.
The above payment order will be modified if, after giving effect to such
payments on any payment date, either:
- - the aggregate principal amount of the Series 1999A Notes would exceed the
sum of the principal amount of the student loans (including capitalized
interest) and amounts in the indenture
S-4
<PAGE> 8
funds and accounts as of the end of the preceding collection period, or
- - 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 these conditions exist, the payment order will be modified
to provide that the Series 1999B-1 Notes will not receive any interest payments
pursuant to clause "Second" above and no interest rate exchange payments
relating to such Series 1999B-1 Notes will be made. As long as any Series 1999A
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 1999B-1 Notes. Where an event of default has occurred, principal
distributions on the Series 1999A Notes will be allocated pro rata among each
series, without preference or priority of any kind. See "The Indenture
- --Collection Fund" in this prospectus supplement.
Notwithstanding the foregoing, principal payments will be made on the Series
1999A-2 Notes only in amounts equal to $50,000 and integral multiples thereof.
SECURITY FOR THE NOTES; TRUST ASSETS
The trust assets are the sole security for the notes. The primary assets of the
trust are student loans with an aggregate principal balance of $_________ as of
________, 19__. The student loans are expected to be acquired by the eligible
lender trustee on behalf of the trust on or about _______________, 19____ in an
amount equal to their principal balance plus accrued interest as of their
purchase date. The student loans consist of certain education loans to students
and parents of students enrolled in accredited institutions of higher education.
See "Description of the FFEL Program" in the prospectus.
The trust assets also include:
- - moneys and investment securities on deposit in certain of the funds and
accounts established under the indenture;
- - rights of the issuer and the eligible lender trustee under the master
servicing agreement, the servicing agreements, any interest rate exchange
agreement, any interest rate exchange counterparty guarantee, the student
loan purchase agreements and the guarantee agreements that relate to the
student loans; and
- - rights of the issuer and the eligible lender trustee under certain other
related contracts.
All of the student loans in the trust are FFELP Loans. As of [_________], no
more than ___% of the student loans in the trust are greater than 30 and less
than 120 days delinquent, and none of the student loans in the trust are more
than 120 days delinquent.
The issuer may substitute additional student loans for those comprising the
initial pool of student loans under certain circumstances, including the
substitution of student loans with similar characteristics, the loss of the
guarantee with respect to a student loan that is guaranteed or the consolidation
of student loans made to the same borrower. See "The Financed Student Loans" in
this prospectus supplement.
RESERVE FUND
The indenture trustee will make an initial deposit of $________ from the
proceeds of the sale of the notes into a reserve fund for the notes. This amount
is the reserve fund's specified reserve fund balance. To the extent necessary,
the initial deposit will be supplemented on each 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 "The Indenture --
Reserve Fund" in this prospectus supplement and "Description of the Notes --
Credit Enhancement" in the prospectus.
REDEMPTION
AUCTION OF THE FINANCED STUDENT LOANS
On or after __________, 20__, 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 as of ______, 1999, the
indenture trustee will offer the
S-5
<PAGE> 9
student loans for sale according to the auction procedures described in this
prospectus supplement. See "Redemption -- Auction of the Financed Student Loans"
in this prospectus supplement.
OPTIONAL REDEMPTION
When the principal balance of the student loans, including capitalized interest,
equals ____% or less of the initial principal balance of the student loans, the
depositor may purchase the student loans for a price equal to their principal
balance, plus all accrued interest and unamortized premiums, if any, but not
less than an amount necessary to pay transaction costs and all amounts due to
all holders of the Notes, including interest for prior periods when the
applicable interest rate was capped by the net loan rate. 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 on which the Series 1999A-1 Notes
have been paid in full, the Series 1999A- 2 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 interest for prior periods when the applicable interest rate
was capped by the net loan rate, provided that after any such redemption, the
parity percentage must be no less than ____% and certain other conditions must
be satisfied. See "Redemption -- Optional Redemption" in this prospectus
supplement.
FEDERAL INCOME TAX CONSEQUENCES
The notes will evidence debt obligations under the Internal Revenue Code of
1986, as amended, and interest paid or accrued on the notes will be taxable
income to holders. Thompson Hine & Flory LLP will provide an opinion that the
notes will be characterized as debt of the depositor for federal income tax
purposes. The notes are [not] expected to be issued with original issue
discount. See "Federal Income Tax Consequences -- Original Issue Discount" in
the prospectus. By acceptance of your note, you will be deemed to have agreed to
treat your 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 your notes and the trust, see "Federal Income Tax Consequences"
in the prospectus.
ERISA CONSIDERATIONS
The notes are expected to be treated as debt obligations without significant
equity features for purposes of the regulations of the Department of Labor set
forth in 29 C.F.R. 2510.3-101. See "ERISA Considerations " in the prospectus.
REGISTRATION, CLEARING AND SETTLEMENT
You will hold your interest in the notes through DTC in the United States or
through Cedel Bank, societe anonyme or the Euroclear System in Europe. You will
not receive a definitive certificate representing your interest in the notes,
except in certain limited circumstances. See "Description of the Notes -- Book
Entry Registration " in the prospectus.
The Series 1999A-1 Notes and Series 1999B-1 Notes will be offered in minimum
denominations of $50,000 and integral multiples of $1,000 in excess thereof.
The Series 1999A-2 Notes will be offered in minimum denominations of $50,000 and
any integral multiples thereof.
RATING
It is a condition to the issuance and sale of the notes that they be rated by
the following rating agencies as follows:
Fitch Moody's
Series 1999A-1 Notes AAA Aaa
Series 1999A-2 Notes AAA Aaa
Series 1999B-1 Notes A A2
See "Risk Factors -- Credit Ratings Address Only a Limited Scope of Investor
Concerns" and "Rating" in this prospectus supplement.
S-6
<PAGE> 10
RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
the notes.
LIMITED ABILITY TO
RESELL YOUR NOTES The notes will constitute a new issue of
securities without any established trading
market. We do not currently intend to list
the 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 notes but they are not required to do
so. A secondary market for any series of
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 notes.
Salomon Smith Barney Inc. has advised us
that it intends to attempt to make a
secondary market in the 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
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, credit enhancement (if any)
and other assets in the trust. See
"Description of the Notes -- Payment of
Available Funds", "The Indentures -- Funds
and Accounts" and "Description of the
Notes -- Credit Enhancement" in the
Prospectus.
FAILURE BY LOAN HOLDERS
OR SERVICERS TO COMPLY
WITH STUDENT LOAN
ORIGINATION AND
SERVICING PROCEDURES The Higher Education Act, including the
implementing regulations thereunder,
requires loan holders and servicers to
follow specified procedures, including due
diligence procedures, to ensure that the
FFELP Loans are properly originated and
serviced. Failure to follow these procedures
may result in:
(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.
S-7
<PAGE> 11
The loss of any such payments may adversely
affect the trust's ability to pay principal
and interest on the notes. See "Description
of the FFEL Program", "Private Loan
Programs" and "Servicing -- Servicing
Procedures" in the Prospectus.
SUBORDINATION The Series 1999B-1 Notes and any exchange
counterparties under an interest rate
exchange agreement relating to the Series
1999B-1 Notes are subordinated to the Series
1999A Notes and any exchange counterparties
under an interest rate exchange agreement
relating to the Series 1999A Notes. Payments
of interest on the Series 1999B-1 Notes and
any interest rate exchange payments relating
to such Series 1999B-1 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
1999A Notes have been made, and if certain
specified conditions exist, payment of
interest on and any interest rate exchange
payments relating to the Series 1999B-1
Notes may be deferred and payment of
principal on the Series 1999B-1 Notes may be
suspended until all Series 1999A Notes have
been paid in full. Consequently, holders of
the Series 1999B-1 Notes will bear losses on
the student loans before such losses are
borne by the holders of the Series 1999A
Notes. In addition, the holders of the
Series 1999B-1 Notes may be limited in the
legal remedies that are available to them
until the holders of the Series 1999A Notes
and any exchange counterparties under any
interest rate exchange agreement on a parity
with the Series 1999A Notes are paid in
full. See "Security for the Notes -- Trust
Assets" in the Prospectus. See "The
Indenture -- Collection Fund" and
"Description of the Notes -- Subordination
of the Series 1999B-1 Notes" herein.
OFFSET BY GUARANTEE
AGENCIES OR THE
DEPARTMENT OF
EDUCATION COULD
REDUCE THE AMOUNT
OF AVAILABLE FUNDS The eligible lender trustee may use a
Department of Education lender
identification number that may also be used
for other student loans held by the eligible
lender trustee on behalf of the 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 your indenture or other indentures,
the Department of Education or the guarantee
agency might seek to collect that liability
by offsetting against payments due the
eligible lender trustee under the trust.
Such offsetting or shortfall of payments due
to the eligible lender trustee with
S-8
<PAGE> 12
respect to the trust could adversely affect
the amount of available funds for any
collection period and the trust's ability to
pay interest and principal on your notes.
Indentures of the depositor, the
administrator and their affiliates prior to
September, 1998 do not contain provisions
for cross-indemnification with respect to
such payments and offsets. The indenture for
your 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 reduction 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 "Description of the
Guarantee Agencies" in the Prospectus.
FINANCIAL HEALTH OF
GUARANTEE AGENCIES
COULD DECLINE The FFELP Loans are not secured by any
collateral of the borrowers. Payments of
principal and interest are guaranteed by
guarantee agencies to the extent described
herein and in the related prospectus.
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 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
trust's ability to pay principal of and
interest on your notes. Although a holder of
FFELP Loans could submit claims for payment
directly to the Department of Education 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 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
"Description of the Guarantee Agencies" in
the Prospectus.
POTENTIAL ADVERSE
CHANGES TO
FFEL PROGRAM The Higher Education Act and other relevant
federal or state laws may be amended or
modified in the future. In particular, the
level of guarantee payments may be adjusted
from time to time. The issuer cannot predict
whether any changes will be adopted or, if
adopted, what impact such changes may have
on the trust or your notes.
S-9
<PAGE> 13
FINANCIAL HEALTH OF
ANY EXCHANGE COUNTERPARTY
OR ANY PROVIDER OF AN
EXCHANGE COUNTERPARTY
GUARANTEE COULD REDUCE
THE AMOUNT OF AVAILABLE FUNDS If any interest rate exchange agreement
relating to the notes is executed, any time
that the exchange rate being paid by an
exchange counterparty is greater than the
exchange rate being paid by the issuer, the
indenture trustee's ability to make
principal and interest payments on 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 "Exchange Agreements" herein
and "Security for the Notes -- Exchange
Agreements" and "The Indentures -- Events of
Default" in the Prospectus.
INCREASED COMPETITION
FROM THE FEDERAL DIRECT
STUDENT LOAN PROGRAM
The Federal Direct Student Loan Program has
been established under the Higher 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"
in the Prospectus.
REINVESTMENT RISK
AND PREPAYMENTS Student loans may be prepaid by borrowers at
any time without penalty. The rate of
prepayments cannot be predicted and may be
influenced by economic and other factors,
such as interest rates, the availability of
other financing and the general job market.
To the extent borrowers elect to borrow
money through consolidation loans, you will
receive as a prepayment of principal the
aggregate principal amount of the loan.
If loan prepayments result in a series of
notes being prepaid before its expected
maturity date, you may not be able to
reinvest your funds at the same yield as the
yield on the notes. The issuer cannot
predict the prepayment rate of any notes,
and
S-10
<PAGE> 14
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
1999A-1 Notes and second on the Series
1999A-2 Notes and, therefore, increase the
reinvestment risk with respect to such
notes. After such notes have been paid in
full, the amount of such prepayments will be
applied to the payment of the principal
balance of the Series 1999B-1 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 and
"Maturity and Prepayment Considerations" in
the Prospectus.
THE MATURITY OF YOUR
INVESTMENT IS
UNCERTAIN Scheduled payments on the student loans and
the maturities of the student loans may be
extended without your consent, which may
lengthen the weighted average life of your
investment. Prepayments of principal on the
student loans, parity percentage payments
and other factors may shorten the life of
your investment. See "Maturity and
Prepayment Considerations" herein and
"Maturity and Prepayment Considerations" in
the Prospectus.
BORROWERS OF STUDENT
LOANS MAY BE SUBJECT
TO A VARIETY OF FACTORS
THAT MAY ADVERSELY
AFFECT THEIR REPAYMENT
ABILITY Collections on the student loans during a
collection period may vary greatly in both
timing and amount from the payments actually
due on the student loan for that collection
period for a variety of economic, social and
other factors, 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 ability to pay principal and
interest on your notes. The effect of such
factors, including the effect on the timing
and amount of available funds for any
collection period and the ability to pay
principal and interest on your notes is
impossible to predict. See "Maturity and
Prepayment Considerations" herein and
"Maturity and Prepayment Considerations" in
the Prospectus.
S-11
<PAGE> 15
THE INTEREST RATE ON
THE NOTES IS SUBJECT
TO LIMITATIONS The interest rate for the Series 1999A-1
Notes and the Series 1999B-1 Notes will be
based on the level of LIBOR. The interest
rate for the Series 1999A-2 Notes will be
based on the outcome of an auction of notes.
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 notes will be
limited by the net loan rate for each series
which will equal the weighted average
effective interest rate of the student loans
in the trust, reduced by the program
operating expenses. For a payment date on
which the net loan rate applies, the
difference between the amount of interest at
the rate described above and the amount of
interest at the net loan rate will be paid
on succeeding payment dates to the extent of
available funds and may never be paid. See
"Description of the Notes -- Interest"
herein.
THE INTEREST RATES ON
STUDENT LOANS AND OTHER
INVESTMENTS MAY BE
INSUFFICIENT TO COVER
INTEREST ON THE NOTES
DUE TO RATE-INDEX
DIFFERENCES The interest rates on your notes are
variable and will fluctuate from one
interest period to another in response to
changes in benchmark rates or general market
conditions. The issuer can make no
representation as to what such rates may be
in the future. As described above, the
interest rates on the Series 1999A-1 Notes
and the Series 1999B-1 Notes will be based
on the level of LIBOR. The interest rates on
the Series 1999A-2 Notes will be based on
the outcome of an auction of notes. The
student loans, however, bear interest at an
effective rate (taking into account any
special allowance payments) equal to the
rate borne by Treasury Bills plus a stated
margin.
As a result of these differences between the
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 those notes may be limited to the net
loan rate or may be deferred to future
periods. There can be no assurance that
sufficient funds will be available in future
periods to make up for any shortfalls in the
current payments of interest on those notes.
Further, if there is a decline in the
interest rates on student loans, the amount
of funds representing interest deposited
into the trust may be reduced and, even if
there is a similar reduction in the interest
rates applicable to any series of notes,
there may not necessarily be a similar
reduction in the other amounts required to
be funded out of 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 structure
such investment agreements to minimize the
risk resulting from differences in the
fluctuation of the interest rates on the
investment agreements and
S-12
<PAGE> 16
your notes, there can be no assurance that
it will be successful. See "Description of
the Notes--Interest" herein and "The
Indentures--Investment" in the Prospectus.
PRINCIPAL BALANCE
OF NOTES EXCEEDS
POOL BALANCE The aggregate principal balance of the notes
exceeds the sum of the aggregate balance of
the student loans and accrued interest
thereon as of ____________, ______, the
initial reserve fund deposit and the amounts
in the other funds and accounts under the
indenture by approximately $__________ or
____% 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
have insufficient 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 1999B-1 Notes and
possibly the holders of the Series 1999A-1
Notes and the holders of the Series 1999A-2
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
HAVE DIFFICULTY LIQUIDATING
FINANCED STUDENT LOANS Generally, during an event of default, the
indenture trustee is authorized to sell the
related 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 PRINCIPAL
DISTRIBUTIONS IS NOT
AN EVENT OF DEFAULT The principal amount required to be paid on
the notes on any payment date under the
indenture generally is limited to amounts
available for payment. Therefore, failure to
pay principal will not result in the
occurrence of an event of default until the
legal final maturity of the notes.
BANKRUPTCY OF DEPOSITOR,
ISSUER OR STUDENT LOAN
FUNDING RESOURCES, INC.
COULD RESULT IN ACCELERATED
PREPAYMENT ON NOTES,
REDUCTIONS IN PAYMENT OR
DELAYS IN PAYMENT The depositor is a limited purpose
subsidiary of Student Loan Funding
Resources, Inc. If the depositor becomes a
debtor in a bankruptcy case, and the assets
and liabilities of the trust are included in
the depositor's bankruptcy estate, the
United States Bankruptcy Code could
materially limit or prevent the enforcement
of the
S-13
<PAGE> 17
issuer's obligations, including, without
limitation, its obligations under the notes.
The depositor's trustee in bankruptcy (or
the depositor itself as debtor-in-
possession) may seek to accelerate
payment on your notes and liquidate the
assets in the trust. If principal on your
notes is declared due and payable, you may
lose the right to future payments and face
the reinvestment risks mentioned above.
Resources, as the 99% membership interest
holder of the depositor, has taken certain
steps in structuring the depositor to reduce
the risk that the depositor would 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 notes or reductions in the
amounts of such payments.
The transactions contemplated hereby also
are intended to reduce the risk that, if
Resources became a debtor in a case under
the United States Bankruptcy Code or other
insolvency laws, as the case may be, the
assets and liabilities of the depositor
would be consolidated 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 a
court would not conclude that the activities
of the depositor were sufficient to warrant
the consolidation of the assets and
liabilities of the depositor 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
even a "true sale" to the depositor would
not be effective to remove the student loans
and other assets from the bankruptcy estate
of Resources and you could experience delays
in payments on your notes or reductions in
the amount of such payments. See "Risk
Factors --Risk of No True Sale" herein.
S-14
<PAGE> 18
CHANGES IN INCENTIVE
AND REPAYMENT
TERMS RESULT IN
YIELD UNCERTAINTIES
FOR INVESTORS Under certain incentive programs, the
depositor and the sellers of the student
loans may terminate or change the terms of
the incentives with respect to any or all of
a borrower's loans. The issuer cannot
predict which borrowers will qualify or
decide to participate in these programs. The
effect of these incentive programs may be to
reduce the yield on the student loans.
CONSUMER PROTECTION
LAWS MAY INCREASE
COSTS AND
UNCERTAINTIES Consumer protection laws impose substantial
requirements upon lenders and 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
MAY LIMIT INVESTORS'
ABILITY TO PARTICIPATE
DIRECTLY AS A HOLDER The notes may be represented by one or more
certificates registered in the name of Cede
& Co., the nominee for DTC, and will not be
registered in the names of the holders of
the notes. You will only be able to exercise
the rights of noteholders indirectly through
DTC and its participating organizations. See
"Description of the Notes -- Book-entry
Registration" in the Prospectus.
CREDIT RATINGS ADDRESS
ONLY A LIMITED SCOPE OF
INVESTOR CONCERNS A rating agency will rate each Note in one
of its four highest rating 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 and "Rating"
in the Prospectus.
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
S-15
<PAGE> 19
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 will acquire 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 each of these transfers of
student loans from its affiliates and third
parties as a "true sale." A selling
affiliate will represent and warrant to the
depositor in the related student loan
purchase agreement that the transfer is a
valid sale. The depositor has taken steps in
structuring its purchase of student loans
from affiliates to increase the likelihood
that each such purchase 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 represents 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 a debtor in a bankruptcy case after
the student loans are transferred to the
depositor. However, a court might also
conclude that these transfers should be
viewed 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.
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 notes could occur.
S-16
<PAGE> 20
If the court ruled in favor of any such
trustee, debtor or creditor, reductions in
the amount of payments on the notes could
occur.
INABILITY OF SELLER TO MEET
ITS REPURCHASE OBLIGATIONS
MAY ADVERSELY AFFECT
YOUR NOTES Under certain circumstances, the eligible
lender trustee on behalf of the issuer, 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
YEAR 2000 ISSUES COULD
RESULT IN REDUCTIONS OR
DELAYS IN PAYMENT 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. If the issuer, the
depositor, Student Loan Funding Resources,
Inc., as the administrator and master
servicer, the servicers, the guarantee
agencies, your indenture trustee, owner
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.
S-17
<PAGE> 21
THE ISSUER
THE TRUST
Student Loan Funding 1999-A Trust (the "issuer" or the "trust") is a common law
trust that will be formed on or prior to the Closing Date under the laws of the
State of Delaware. The trust will not engage in any activity other than (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 trust initially will be capitalized with nominal equity represented by a
trust certificate that initially will be held by the depositor. The equity of
the trust, together with the proceeds from the sale of the Notes, will be used
by the Eligible Lender Trustee in connection with its acquisition, on behalf of
the trust, of the initial Financed Student Loans from the depositor. Upon the
consummation of such transactions, the assets of the trust will 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 Cut-off Date, and (c) all moneys and investments on
deposit in the Collection Account, Note Payment Account, Expense Account and
Reserve Fund. All of the foregoing accounts will be 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 the 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 notes or reductions in the amounts of such payments.
The trust's principal offices are located in the offices of the Co-owner
Trustee, c/o Firstar Bank, National Association, 425 Walnut Street, Cincinnati,
Ohio 45202.
The notes are obligations of the trust only and are payable solely form the
assets of the trust in accordance with the Indenture. See "Security for the
Notes -- The Trust Assets" in the Prospectus.
CO-OWNER TRUSTEE
Firstar Bank, National Association, a national banking corporation, will serve
as Co-owner Trustee of the trust. Its address is 425 Walnut Street, Cincinnati,
Ohio 45202. The trust, the depositor, the administrator or their affiliates may
maintain other banking relationships with Firstar Bank, National Association and
its affiliates from time to time.
S-18
<PAGE> 22
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, National Association and its
affiliates from time to time.
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 Riverfront 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) Student Loan Funding Resources,
Inc. (99% ownership), an Ohio corporation that also acts as the administrator
for the depositor's business activities and the master servicer, and (ii) SLF
Enterprises, Inc. (1% ownership), an Ohio corporation and wholly owned
subsidiary of the administrator.
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 and the depositor are 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 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, the Owner Trustee, the Co-owner 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.
S-19
<PAGE> 23
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, the Owner 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, the Owner
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, the Owner 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 or
Owner 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, the Owner Trustee, each
of the Servicers and each of the Guarantee Agencies in addressing their
respective Year 2000 issues. For information regarding the efforts of DTC in
addressing Year 2000 issues, see "Description of the Notes -- Book-entry
Registration" in the Prospectus.
Firstar Bank, National Association has confirmed to the administrator that it is
utilizing both internal and external resources to identify, correct or
reprogram, and test its information systems for Year 2000 compliance. It is
anticipated that all reprogramming efforts will be completed by June 30, 1999,
allowing adequate time for testing. Firstar Bank, National Association's
management has assessed Year 2000 compliance expense and believes that the
related potential effect on its business, financial condition and results of
operations should be immaterial. Please see the public disclosure of Firstar
Corporation, Firstar Bank, National Association's parent for full Year 2000
disclosure of Firstar Corporation and Firstar Bank, National Association.
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 Office of Management
and Budget'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.
S-20
<PAGE> 24
USE OF PROCEEDS
The proceeds of the sale of the Notes, net of Underwriters' discount of
$____________ (____% of gross proceeds), will be transferred to the Indenture
Trustee for deposit to the credit of the following Funds and Accounts in the
following estimated amounts:
<TABLE>
<CAPTION>
Percentage of
Fund or Account Amount Net Proceeds
--------------- ------ ------------
<S> <C> <C>
Acquisition Fund $ %
Reserve Fund %
Collection Account %
Expense Account %
---------- ---------
Total Uses $ 100%
</TABLE>
THE FINANCED STUDENT LOANS
This section sets forth tables and other information describing certain
characteristics, as of __________, of the Financed Student Loans expected to be
acquired by the Eligible Lender Trustee on behalf of the trust on or about
____________________. 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. As of _______________ (the "Cut-off Date"),
(i) $________ principal amount of the initial Financed Student Loans were
delinquent for up to 30 days; (ii) $________ principal amount of the initial
Financed Student Loans were delinquent between 31 and 60 days; (iii) $________
principal amount of the initial Financed Student Loans were delinquent between
61 and 90 days; (iv) $________ principal amount of the initial Financed Student
Loans were delinquent between 91 and 120 days; and (v) none of the initial
Financed Student Loans was delinquent for more than 120 days. For this purpose,
delinquency refers to the number of days for which any part of a payment is past
due. All of the Financed Student Loans in the trust are FFELP Loans.
Each Financed Student Loan is required to be guaranteed as to principal and
interest by a Guarantee Agency and reinsured by the Department of Education to
the extent provided under the Higher Education Act and eligible for Special
Allowance Payments and, with respect to each Financed Student Loan that is a
subsidized Stafford Loan, Interest Subsidy Payments paid by the Department of
Education. See "Description of the FFEL Program" in the Prospectus.
Additional Student Loans that may be Financed after the Closing Date include (i)
Consolidation Loans Financed by the issuer on or before _________, 19___ that
consolidate one or more of the Financed Student Loans in the trust and Serial
Loans that are serial (i.e., made to the same borrower under the same loan
program and guaranteed by the same Guarantee Agency) to an existing Financed
Student Loan in the trust, both of which shall be financed with Consolidation
Loan prepayments on deposit in the Collection Account provided that in no event
shall the aggregate amount of Financed Student Loans in the trust that are
Consolidation Loans or Serial Loans exceed $__________; and (ii) certain
Financed Student Loans that may be substituted for other Financed Student Loans
in the trust meeting
S-21
<PAGE> 25
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 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. See "The Financed Student
Loan Pool" in the Prospectus.
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.
Set forth below in the following tables is a description of certain additional
characteristics of the initial Financed Student Loans as of the Cut-off Date.
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance................................................................. $
Aggregate Outstanding Accrued Interest..................................................................
Number of Borrowers.....................................................................................
Average Outstanding Principal Balance Per Borrower......................................................
Number of Loans.........................................................................................
Average Outstanding Principal Balance Per Loan..........................................................
Weighted Average Annual Borrower Interest Rate..........................................................
Weighted Average Remaining Term (months) (does not include the months
remaining for the In-School, Grace, Deferment or Forbearance periods)(1)................................
Weighted Average Remaining Term (months) (including the months
remaining for the In-School, Grace, Deferment or Forbearance periods)(1).............................
</TABLE>
- ---------------
(1)Refers to the payment status of the borrower of each Financed Student Loan as
of the Cut-off Date: 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" in the Prospectus.
S-22
<PAGE> 26
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY LOAN TYPE AS OF THE
CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Loan Type Loans Balance Balance
- --------- ----- ------- -------
<S> <C> <C> <C>
Stafford-Subsidized..................................................
Stafford-Unsubsidized................................................
Consolidation........................................................
PLUS.................................................................
SLS..................................................................
Total.......................................................
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY MINIMUM GUARANTEE LEVEL AS
OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Minimum Guarantee Level Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100%...........................................
FFELP Loan Guaranteed 98%............................................
Total............................................................
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY AS OF THE
CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Guarantee Agency Loans Balance Balance
- ---------------- ----- ------- -------
<S> <C> <C> <C>
- ----------------------...............................................
- ----------------------...............................................
Other Guarantee Agencies.............................................
Total............................................................
</TABLE>
S-23
<PAGE> 27
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER INTEREST RATE AS
OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Interest Rate (1) Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than 7.50%..............................................................
7.50% to 7.99% ..............................................................
8.00% to 8.49%...............................................................
8.50% to 8.99%...............................................................
9.00% to 9.49%...............................................................
9.50% or greater.............................................................
Total....................................................................
</TABLE>
(1) Determined using the interest rates applicable to the initial Financed
Student Loans as of the Cut-off Date. However, because 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" in the Prospectus.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY RANGE OF OUTSTANDING
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Principal Balance Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than $1,000.............................................................
$1,000-$1,999................................................................
$2,000-$2,999................................................................
$3,000-$3,999................................................................
$4,000-$4,999................................................................
$5,000-$5,999................................................................
$6,000-$6,999................................................................
$7,000-$7,999................................................................
$8,000-$8,999................................................................
$9,000-$9,999................................................................
$10,000-$10,999..............................................................
$11,000-$11,999..............................................................
$12,000-$12,999..............................................................
$13,000-$13,999..............................................................
$14,000-$14,999..............................................................
$15,000 or greater...........................................................
Total....................................................................
</TABLE>
S-24
<PAGE> 28
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER PAYMENT STATUS
AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Borrower Payment Status Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
In School....................................................................
Grace........................................................................
Repayment....................................................................
Deferment....................................................................
Forbearance..................................................................
Total....................................................................
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY REMAINING TERM TO
SCHEDULED MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Remaining Months Outstanding Outstanding
Until Scheduled Number of Principal Principal
Maturity Loans Balance Balance
- -------- ----- ------- -------
<S> <C> <C> <C>
1 to 12
13 to 24
25 to 36
37 to 48
49 to 60
61 to 72
73 to 84
85 to 96
97 to 108
109 to 120
121 to 180
181 to 240
241 to 300
Over 300
Total....................................................................
</TABLE>
S-25
<PAGE> 29
GEOGRAPHIC DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF
DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Location (1) Loans Balance Balance
- ------------ ----- ------- -------
<S> <C> <C> <C>
Ohio
- ------------
- ------------
Others(2)
Total....................................................................
</TABLE>
(1) Based on the current permanent billing addresses of the borrowers of the
initial Financed Student Loans shown on the Servicer's records.
(2) Consist of locations that include [___] other states, U.S. territories,
possessions and commonwealths, foreign countries, overseas military
establishments, and unknown locations, none of the aggregate principal balance
of the Financed Student Loans relating to which exceeds ___% of the Initial Pool
Balance.
To the extent that states with a large concentration of Financed Student Loans
experience adverse economic or other conditions to a greater degree than other
areas of the country, the ability of such borrowers to repay their Financed
Student Loans may be impacted to a larger extent than if such borrowers were
dispersed more geographically.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY SCHOOL TYPES AS OF THE
CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
School Type Loans Balance Balance
- ----------- ----- ------- -------
<S> <C> <C> <C>
4 Year Public
4 Year Private
2 Year Public
2 Year Private
Proprietary/Vocational
Other/Unknown
Total....................................................................
</TABLE>
INCENTIVE PROGRAMS
The depositor and its affiliates currently make available and may hereafter make
available certain incentive programs to borrowers, including the Jump Start(SM)
Program (the "Jump Start Program"). The Jump Start Program generally applies to
all Stafford Loans and Unsubsidized Stafford Loans originated on or after
January 1, 1997 made to borrowers who are residents of, or who attend eligible
post-secondary educational institutions, in the State of Ohio. Under the Jump
Start Program, the applicable interest on such Jump Start Loan is reduced by
1.25% per annum, effective upon the commencement of repayment status and
continuing for 48 months as long as payments on such Jump Start Loan remain
current, after which time such reduced interest rate becomes permanent. Jump
Start Loans are also eligible for the EasyPay Program (the "EasyPay Program").
The EasyPay Program entitles eligible student borrowers who authorize automatic
payment of student loans from a checking or a savings account to an interest
rate
S-26
<PAGE> 30
on such student loans that is 0.25% less than the rate that would otherwise
apply to such student loans. Although less than [ ]% of the initial Financed
Student Loans are Jump Start Loans, additional Jump Start Loans may be Financed
after the Closing Date.
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 or as a result of
refinancing through Consolidation Loans.
All the Financed Student Loans are prepayable in whole or in part by the
borrowers at any time without penalty (including by means of Consolidation
Loans) and may be prepaid as a result of (i) borrower 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) 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" in the Prospectus. See also "Redemption"
herein regarding the auction by the Indenture Trustee of any Financed Student
Loans remaining in the trust on or after _______________, 20___, if the
outstanding Pool Balance is equal to or less than ____% 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
____% of the Initial Pool Balance, and the issuer's option to redeem the Auction
Rate 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 or as a result of
refinancing through Consolidation Loans to the extent such Consolidation Loans
are sold to the applicable Eligible Lender Trustee on behalf of the issuer as
described above. In that event, the fact that such Consolidation Loans will
likely have longer maturities than the Financed Student Loans they are replacing
may lengthen the remaining term of the Financed Student Loans in the trust and
the average life of the Notes. The rate of payment of principal of the Notes and
the yield on the Notes may also be affected by the rate of defaults resulting in
losses on Financed Student Loans, by the severity of those losses and by the
timing of those losses, which may affect the ability of 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 Noteholders. Such
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time Noteholders
receive payments from the trust than such interest rates and such spreads would
otherwise have been had such prepayments not been made or had such prepayments
been made at a different time.
S-27
<PAGE> 31
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)
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" in
this Prospectus Supplement.
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.
The weighted average lives in the following table were determined assuming that
(i) scheduled payments of principal on the Financed Student Loans are received
in a timely manner and prepayments are made at the percentages of the prepayment
model set forth in the table; (ii) the initial principal balance of the Financed
Student Loans is $________ and such Financed Student Loans have the
characteristics described under the caption "The Financed Student Loans" herein;
(iii) payments are made on the LIBOR Rate Notes on the last Business Day of each
month commencing _____________; (iv) payments are made on the Auction Rate Notes
on the Business Day following the expiration of each Auction Period commencing
____________ (assuming an Auction Period of 28 days with no Auction Period
Adjustments or Auction Period Conversions); (v) the Financed Student Loans in
the trust are auctioned on _______________; and (vii) the 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.
WEIGHTED AVERAGE LIFE OF THE LIBOR RATE NOTES AT THE RESPECTIVE CPRS SET FORTH
BELOW:
<TABLE>
<CAPTION>
Weighted Average Life (years)
0% CPR 3% CPR 5% CPR 7% CPR 9% CPR 15% CPR
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Series 1999A-1 Notes........................
Series 1999B-1 Notes........................
</TABLE>
THE SERVICERS
Student Loan Funding Resources, Inc., in its capacity as the master servicer,
will provide for the servicing of the Financed Student Loans pursuant to the
Master Servicing Agreement, dated as of _________________, 1999 between
S-28
<PAGE> 32
the Co-owner Trustee, on behalf of the issuer, and the master servicer (the
"Master Servicing Agreement"). The master servicer and the Co-owner Trustee, on
behalf of the issuer, have entered or will enter into Servicing Agreements with
various approved Servicers. Initially, [AFSA Data Corporation, Great Lakes
Higher Education Servicing Corporation, InTuition, Inc., Kentucky Higher
Education Student Loan Corporation, Pennsylvania Higher Education Assistance
Agency, UNIPAC Service Corporation and USA Group Loan Services, Inc.] each
service more than 10% of the initial Financed Student Loans (each, a
"Servicer"). The Financed Student Loans will be serviced by Servicers as may be
selected by the master servicer from time to time, and Servicers may be replaced
or added from time to time by the master servicer (all subject to the approval
of the Rating Agencies). Pursuant to a Servicing Agreement, each Servicer has
agreed to service, and perform all other related tasks with respect to, the
Financed Student Loans in compliance with applicable standards and procedures.
See "Servicing" in the Prospectus.
Information relating to the particular Servicers set forth in this Prospectus
Supplement, which is particularly within each Servicer's knowledge, has been
requested of and has been provided by the respective Servicers. 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 Underwriters 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 depositor, the
administrator, the master servicer or any Underwriter.
AFSA DATA CORPORATION
AFSA Data Corporation ("AFSA") acts as a loan servicing agent for the issuer.
AFSA is a for-profit corporation and a wholly-owned subsidiary of Fleet Holding
Corporation, a subsidiary of Fleet National Bank, which in turn is a
wholly-owned subsidiary of Fleet Financial Group of Boston, Massachusetts, a
diversified financial services company. [As of February 28, 1998, AFSA provided
loan servicing for approximately $9.3 billion in FFELP guaranteed student and
parental loans, approximately $2.4 billion in Perkins Loans, Health
Professionals Student Loans, and institutional loans, and $27.0 billion in
Federal Direct Student Loans under contract with the U.S. Department of
Education.] AFSA has its principal offices in Long Beach, California, and a
Regional Processing Center in Utica, NY, which services the guaranteed student
loan and parental loan programs, and a Regional Processing Center in Lombard,
Illinois, which services campus based programs. AFSA's principal office is
located at 2277 E. 220th Street, Long Beach, California 90810-1690; telephone
(313) 513-2700.
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 ensure its systems are
compliant. The Chief Information Officer has been assigned overall
responsibility for Year 2000 compliance. GLHESC has not evaluated any computer
S-29
<PAGE> 33
system, product or procedure of any third party with whom GLHESC exchanges data,
including but not limited to, the U.S. Department of Education, schools or
lenders. Accordingly, GLHESC is unable to provide any assurances regarding the
Year 2000 compliance of any third parties or their effect on GLHESC's ability to
properly perform its activities.
(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.
INTUITION, INC.
InTuition, Inc. ("InTuition") was incorporated in 1991 as a Florida corporation.
InTuition is a wholly owned subsidiary of InTuition Holdings, Inc., a Florida
corporation, which is 50% owned by the administrator and 50% owned by parties
unrelated to the administrator and the issuer. InTuition provides complete
student loan servicing and administration to lending institutions and secondary
markets nationwide. InTuition has approximately 182 employees, all of whom are
in its Jacksonville, Florida office. As of September 30, 1998, InTuition
serviced 481,088 student loan accounts with an outstanding balance of $1.966
billion for 14 lenders and secondary markets nationwide. Approximately 10% 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.
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.
KENTUCKY HIGHER EDUCATION STUDENT LOAN CORPORATION
The General Assembly of the Commonwealth of Kentucky established the Kentucky
Higher Education Student Loan Corporation ("KHESLC") in 1978 to provide a
program of financing, making, purchasing and servicing insured student loans in
the Commonwealth. KHESLC is an independent de jure municipal corporation and
political subdivision of the Commonwealth. KHESLC is authorized to service and
collect educational loans for other lenders, holders and educational
institutions.
KHESLC has a staff of approximately 115 full-time employees as of [May 1, 1998],
most of whom are currently assigned to its ongoing Federal Family Education Loan
Program activities. Its principal office is located at 10180 Linn Station Road,
Post Office Box 24266, Louisville, Kentucky 40224-0266, telephone number
(502) 329-7079.
[As of March 31, 1998], KHESLC serviced approximately $350 million outstanding
principal amount of FFELP loans which are pledged to secure its own obligations
and approximately $100 million of FFELP Loans on behalf of other eligible
lenders pursuant to servicing agreements, including servicing agreements which
provide for the acquisition by KHESLC of the FFELP Loans serviced. KHESLC
currently subcontracts certain FFELP Loan servicing functions such as computer
programming and mailing service.
S-30
<PAGE> 34
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
Pennsylvania Higher Education Assistance Agency ("PHEAA") is a body corporate
and politic constituting a public corporation and government instrumentality
created pursuant to an act of the Pennsylvania Legislature. Under its enabling
legislation, PHEAA is authorized to issue bonds or notes, with the approval of
the Governor of the Commonwealth of Pennsylvania for the purpose of purchasing,
making, or guaranteeing loans. Its enabling legislation also authorizes PHEAA to
undertake the origination and servicing of loans made by PHEAA and others.
PHEAA's headquarters are located in Harrisburg, Pennsylvania with regional
offices located throughout Pennsylvania and additional offices located in
California, Delaware and West Virginia. As of September 30, 1998 it had
approximately 2,300 employees.
As of September 30, 1998, PHEAA has outstanding debt and/or credit facilities
(under which the entire aggregate amount of funds available had not been drawn)
in the amount (including amounts drawn or available under such credit
facilities) of approximately $2.3 billion. As of September 30, 1998, PHEAA owned
approximately $1.7 billion outstanding principal amount of student loans
financed with the proceeds of its long-term debt, and had funds available for
acquisition of student loans in the amount of approximately $249 million.
PHEAA has been guaranteeing student loans since 1964 and has guaranteed a total
of approximately $18.1 billion principal amount of Stafford Loans and
approximately $1.8 billion principal amount of PLUS Loans and SLS Loans under
the Higher Education Act. In addition to guaranteeing loans under the Higher
Education Act, PHEAA also operates certain guarantee programs for which it
receives no federal reinsurance. PHEAA has outstanding guarantee obligations of
such loans in the amount of approximately $42.7 million as of September 30,
1998.
PHEAA's two principal servicing products are its full servicing operation (in
which it performs all student loan servicing functions on behalf of its
customers) and its remote servicing operation (in which it provides only data
processing services to its customers that have their own servicing operations).
As of September 30, 1998, PHEAA was servicing under its full service operation
approximately 1.3 million student loan accounts representing approximately $12.6
billion outstanding principal amount for more than 450 customers and under its
remote servicing operation, approximately 725,000 student loans representing
approximately $4.3 billion outstanding principal amount for 5 customers.
PHEAA has agreed that it will provide a copy of its most recent audited
financial statements to Noteholders upon receipt of a written request directed
to Mr. Tim Guenther, Chief Financial Officer, Financial Management, 1200 North
Seventh Street, Harrisburg, Pennsylvania 17102.
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.
S-31
<PAGE> 35
The following information covers UNIPAC's Year 2000 Plan and provides a status
of UNIPAC's Year 2000 compliance initiative to date. UNIPAC's student loan
servicing system, UNISTAR, has been modified to process dates into the next
century. UNIPAC's Private Loan System (STAR) is written in a combination of SQL
Server version 6.5 and Visual Basic version 4.0. These software programming
languages are believed to be Year 2000 compliant and address Year 2000 dates.
For the last several years (since 1994), UNIPAC has been planning system changes
for the Year 2000. As a result, UNIPAC completed major program changes for its
student loan servicing mainframe system during 1997. As of May 1997, all date
fields, stored in the files and processed in program logic, contain 8 digits for
the expanded century usage. All phases (analysis, design, construction, quality
assurance, testing, and implementation) of the project were completed relative
to the 8 byte dates usage. These processes have been documented as part of
UNIPAC's quality assurance processes. Systems integration testing was completed
in April 1997 and production implementation occurred in May 1997.
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 United Student Aid Funds, Inc., a student loan Guarantee Agency and one of
the issuer's Guarantee Agencies. As of September 30, 1998 (Loan Services' fiscal
year end), Loan Services provided loan servicing for in excess of 3,500,000
student and parent loans with outstanding balances of over $13.4 billion for
approximately 150 different lenders and secondary market corporations. Loan
Services' principal office is located in Indianapolis, Indiana, where, as of
September 30, 1998, it had nearly 800 full-time employees.
Loan Services is aware of concerns relating to the functional effectiveness and
usage of computer systems beyond December 31, 1999 ("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.
THE GUARANTEE AGENCIES
California Student Aid Commission, Florida Department of Education, Office of
Student Financial Assistance, Georgia Higher Education Assistance Corporation,
Great Lakes Higher Education Guaranty Corporation, Kentucky Higher Education
Assistance Authority, Nebraska Student Loan Program, Inc., Pennsylvania Higher
Education Assistance Authority and United Student Aid Funds, Inc. collectively
guarantee in excess of ____% of the initial Financed FFELP Loans. Information
relating to these particular Guarantee Agencies is set forth below.
The information set forth below, 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
S-32
<PAGE> 36
administrator, the master servicer, the Underwriters 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 Underwriter.
CALIFORNIA STUDENT AID COMMISSION
The California Student Aid Commission ("CSAC" or the "Commission") is the
agency of the State of California responsible for that State's Guaranteed
Student Loan Program pursuant to California Education Code Section 69760 et
seq., and Section 426(c) of the Act (the "State Guaranteed Loan Program"). The
State Guaranteed Loan Program was created primarily to provide a source of
credit to assist students in meeting post-secondary education costs while
attending eligible institutions of their choice.
On September 27, 1996 the Governor of California, Pete Wilson, signed
Assembly Bill 3133, which authorized CSAC to establish an auxiliary organization
in the form of a nonprofit public benefit corporation to provide operational and
administrative services related to CSAC's federal loan programs, including its
student loan guaranty programs. The new corporation is known as "EDFUND". EDFUND
is operated as a separate service corporation to CSAC, and, as such, will
operate CSAC's federal student loan programs. CSAC will continue to be the
designated state guaranty agency and will continue its oversight of all
revenues, expenses, and assets related to that status.
CSAC began guaranteeing student loans on April 1, 1979 and, as of September
30, 1997, had cumulative principal guarantees outstanding of approximately $11.4
billion.
As part of the State Guaranteed Loan Program, the Commission has established
the California Guaranteed Loan Reserve Fund (the "State Guaranteed Loan Reserve
Fund") as a reserve for the payment of guaranteed student loans. The sources for
the State Guaranteed Loan Reserve Fund include insurance premiums paid by
borrowers, federal advances, investment earnings, collection fees from defaulted
borrowers and the administrative expense allowance paid by the United States
Department of Education. To underwrite the loan losses for the State Guaranteed
Loan Programs, CSAC may charge an insurance premium to the borrower on each
guaranteed loan disbursed. The premium rate cannot exceed the maximum allowed by
Section 428(b)(1)(H) of the Higher Education Act, which is one percent (1%) of
the principal amount of the loan. As of October 1, 1998, the Commission charges
an insurance premium of 1% of the principal amount of the loan. Administration
costs are paid from the other aforementioned sources of funds. The State of
California has no legal or moral obligation to provide additional funding to
replenish the State Guaranteed Loan Reserve Fund should it become insolvent as a
result of non-reinsured claims paid.
As of June 30, 1997, the State Guaranteed Loan Reserve Fund, including the
amount receivable from the Secretary for reimbursement of defaulted loans, which
fund is currently held by the California State Treasurer, contained
approximately $181,081,649 allocated to meet nonreimbursed defaults on
guaranteed student loans. CSAC's federal reinsurance trigger rates for the
federal fiscal years ended September 30, 1997, 1996, 1995, 1994, and 1993 were
4.49%, 4.45%, 3.41%, 4.12%, and 5.38%, respectively.
CSAC deems "default" to mean a borrower's failure to make an installment
payment when due or to comply with other terms of a note or other written
agreement evidencing a guaranteed student loan, provided the failure has
persisted for either one hundred eighty (180) days in the case of guaranteed
student loans repayable in monthly installments, or for such periods as CSAC
finds it reasonable to conclude that the borrower no longer intends to honor his
or her repayment obligation. When a loan becomes a sixty (60) days past due or
the holder of the loan determines that the borrower cannot be located, the
holder is required to file a preclaims notice with CSAC in order to obtain
assistance in curing the delinquency. When an account becomes more than one
hundred fifty (150) days past due, the holder of a loan is required to make a
final demand for payment of the loan by the borrower. The holder is
S-33
<PAGE> 37
required to continue collection efforts until the loan is one hundred eighty
(180) days past due and thereafter may submit a claim for reimbursement to CSAC.
CSAC is required to notify the lender of its decision to pay or reject all
claims submitted within ninety (90) days of receipt of claims, and to pay all
proper claims (including accrued interest to the date of payment) within ninety
(90) days of receipt of claim. At the time of payment of benefits, the holder
must assign to CSAC all rights accruing to the holder under the note evidencing
the loan.
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 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 (State Board) is the chief policymaking body of public education in
Florida as provided in Chapter 229, Florida Statutes. Section 20.15(l), 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 concern 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.
S-34
<PAGE> 38
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:
<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 11.0%
Four-year 1,192,162,129 81.5%
Proprietary 109,708,171 7.5%
-------------- ------
$1,462,775,618 100.0%
</TABLE>
S-35
<PAGE> 39
NOTE: THE AMOUNT AND PERCENTAGE OF LOANS BY SCHOOL TYPE ARE AN EXTRAPOLATION OF
THE AVERAGE OF FIVE YEARS' GUARANTEES BY SCHOOL TYPE
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.
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 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.)
S-36
<PAGE> 40
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.
<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)
S-37
<PAGE> 41
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> <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.
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,
S-38
<PAGE> 42
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 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 "Trust")
were transferred to KHEAA pursuant to Executive Order 90-433, ratified by the
1992 Kentucky General Assembly. The Trust offers opportunities for families to
save for future college costs. Trust funds are fully segregated from all other
funds managed by KHEAA.
KHEAA is governed by its Board of Directors, which may officially act by a
majority of its voting members. The Board of Directors of KHEAA consists of
seven voting members appointed by the Governor of the Commonwealth for terms of
four years each and the Executive Director of the Council on Postsecondary
Education of the Commonwealth and the Secretary of the Finance and
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 KHEAA 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
S-39
<PAGE> 43
net assets before deducting unearned insurance premiums, which equals the fund
balance plus unearned insurance premiums. Funds available in the Loan Insurance
Fund are restricted by federal regulations and the Higher Education Act.
Outstanding loan guarantee commitments by ACHE, on which no claims had been
filed or paid, were 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.
NEBRASKA STUDENT LOAN PROGRAM, INC. ("NSLP")
During NSLP's most recent fiscal year, which ended September 30, 1997, NSLP paid
default claims, exclusive of claims for death, disability or bankruptcy, in the
approximately amount of $61.0 million. All such claims were paid
S-40
<PAGE> 44
from NSLP resources and reimbursed at the maximum reimbursement rate by the
Department of Education. As of September 30, 1997, NSLP held guarantee reserves
of approximately $24.1 million.
Guaranty Volume. As of September 30, 1997, NSLP guaranteed a total of
$3,444,000,000 aggregate principal amount of federally-reinsured education
loans.
HPG Reserve Ratio. NSLP computes its reserve ratio by dividing (x) its cash and
short term receivables less short term liabilities by (y) the total amount of
loans outstanding that were originally guaranteed by NSLP. NSLP's reserve ratio
for the last five federal fiscal years is as follows:
<TABLE>
<CAPTION>
TOTAL LOANS
BALANCE OUTSTANDING RESERVE
YEAR (IN THOUSANDS) (IN THOUSANDS) RATIO
---- -------------- -------------- -----
<S> <C> <C> <C>
1992* $12,647** $ 667,500 1.90%
1993* $13,927 $ 915,598 1.52%
1994* $16,435 $1,234,720 1.33%
1995* $18,529 $1,447,351 1.28%
1996* $21,165 $1,694,194 1.25%
1997* $24,074 $1,935,909 1.24%
</TABLE>
* NSLP's guarantee reserve ratio calculation excluded HEAF transfers pursuant
to the Higher Education Act.
** Restated to reflect statutory definition of reserves.
Claims Rate. For the first five federal fiscal years of its existence, NSLP was
exempt from the trigger calculation used to determine the federal reimbursement
rate on default claims paid. As such, NSLP was guaranteed 100% reimbursement on
default claims for this period. NSLP's claims rate has not exceeded 5% in any
subsequent year and as a result reinsurance was paid on all NSLP's claims at the
higher allocable rate.
Proprietary Loans. Default rates for students attending proprietary schools have
been much higher than those for students attending two-year and four-year
schools. The following table sets forth the percentage of NSLP's proprietary
school loans.
As of September 30, 1997:
<TABLE>
<CAPTION>
NSLP LOANS
OUTSTANDING* PERCENTAGE OF
TYPE (IN THOUSANDS) LOANS OUTSTANDING
---- -------------- -----------------
<S> <C> <C>
Two-year $ 125,770 4%
Four-year $2,036,749 69%
Proprietary $ 265,560 9%
Other Consolidation $ 540,612 18%
--------- ---
$2,968,691 100%
</TABLE>
* Includes HEAF transfers
S-41
<PAGE> 45
Officers and Directors of NSLP. The officers and directors of NSLP are
identified in the following table:
<TABLE>
<CAPTION>
Name and Position Held: Term Expires:
----------------------- -------------
<S> <C>
Nancy J. Wiederspan, Chair, Director, President 2000
Robert J. Lanik, Director 1999
Jim White, Director 2000
Thomas McDonald, Director 1998
Dr. Sara Boatman, Director 2000
Thomas O'Neill, Director 1998
Randy Heesacker, Vice President, Secretary and Treasurer *
Rick Johnson, Vice President *
Tom Melecki, Vice President *
Bill Kohl, Vice President *
Sharon O'Neal, Assistant Vice President *
</TABLE>
* At the pleasure of the Board of Directors.
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AUTHORITY
Pennsylvania Higher Education Assistance Agency ("PHEAA") is a body corporate
and politic constituting a public corporation and government instrumentality
created pursuant to the Pennsylvania Act of August 7, 1963, P.L. 549, as amended
(the "Pennsylvania Act").
PHEAA has been guaranteeing student loans since 1964. As of June 30, 1998, PHEAA
has guaranteed a total of approximately $18,962,000,000 principal amount of
Stafford Loans and approximately $1,902,000,000 principal amount of PLUS and SLS
Loans and approximately $2,429,000,000 of Consolidation Loans under the Higher
Education Act. Of the total amount of all loans guaranteed, PHEAA estimates that
approximately $13,163,000,000 original principal amount of such loans are
outstanding. PHEAA initially guaranteed loans only to residents of the
Commonwealth of Pennsylvania (the "Commonwealth") or persons who planned to
attend or were attending eligible education institutions in the Commonwealth. In
May 1986, PHEAA began guaranteeing loans to borrowers that did not meet these
requirements pursuant to its national guarantee program. Under the Pennsylvania
Act, guarantee payments on loan under PHEAA's national guarantee program may not
be paid from funds appropriated by the Commonwealth.
PHEAA has adopted a default prevention program consisting of (i) informing new
borrowers of the serious financial obligation incurred by them and stressing the
financial and legal consequences of failure to meet all terms of the loan, (ii)
working with institutions to make certain that student borrowers are enrolled in
sound education programs and that proper individual enrollment records are being
maintained, (iii) assisting lenders with operational programs to ensure sound
lending policies and procedures, (iv) maintaining up-to-date student status and
address records of all borrowers in the guaranty program, (v) initiating prompt
collection actions with borrowers who become delinquent on their loans, do not
establish repayment schedules or "skip," (vi) taking prompt action, including
legal action and garnishment of wages, to collect on all defaulted loans, and
(vii) adopting a general policy that no loan will be automatically "written
off." Since the loan servicing program was initiated in 1974, PHEAA has never
exceeded an annual default claims percentage of 5% and, as a result, federal
reimbursement for default claims has thus far been at the maximum federal
reimbursement level. For the last five years the annual default claims
percentages have been as follows:
S-42
<PAGE> 46
<TABLE>
<CAPTION>
ANNUAL DEFAULT
YEAR CLAIMS PERCENTAGE
---- -----------------
<S> <C>
1994 2.18
1995 1.97
1996 1.58
1997 1.92
1998 1.96
</TABLE>
As of June 30, 1998, PHEAA held guarantee reserves of approximately
$188,818,000. PHEAA's headquarters is located at 1200 North Seventh Street,
Harrisburg, Pennsylvania 17102-1444.
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 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 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%
S-43
<PAGE> 47
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.
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.
S-44
<PAGE> 48
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 1999A Notes (a "Senior Exchange Agreement"), or on a parity with
the Series 1999B-1 Notes (a "Subordinate Exchange Agreement"). If the issuer
enters into 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 and "The Indentures -- Events of Default" in the
Prospectus. 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.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the terms of the Indenture. The following
summary describes certain terms of the Notes. Other terms of the Notes are set
forth in the Prospectus. See "Description of the Notes" in the Prospectus. The
summary does not purport to be complete and is qualified in its entirety by
reference to the provisions of the Notes and the Indenture.
The LIBOR Rate Notes will be available for purchase in denominations of $50,000
and integral multiples of $1,000 in excess thereof in book-entry form only, and
the Auction Rate Notes will be offered in minimum denominations of $50,000 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"). Unless and until
Definitive Notes are issued under the limited circumstances described under
"Description of the Notes -- Definitive Notes" in the Prospectus, no Noteholder
will be entitled to receive a physical certificate representing a Note. All
references herein to actions by Noteholders refer to actions taken by DTC upon
instructions from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Noteholders refer to distributions, notices, reports and statements to DTC or
its nominee, as the registered holder of the Notes, for distribution to
Noteholders in accordance with DTC's procedures with respect thereto. See
"Description of the Notes -- Book-entry Registration" in the Prospectus.
S-45
<PAGE> 49
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 below and will be payable (i) monthly on the last
Business Day of each month on the LIBOR Rate 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 Noteholders as of
the Record Date. The Auction Period Distribution Date is subject to change as
described under the caption "-- Determination of the Auction Rate" in this
Prospectus Supplement. The Record Date for the LIBOR Rate Notes is the second
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 such 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 LIBOR Rate Notes, the
second London Banking Day prior to the first day of the next succeeding Interest
Accrual Period; and (ii) with respect to the Auction Rate Notes, _______________
and each fourth __________ 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
caption "-- Determination of the Auction Rate" herein.
The Series Interest Rate for each Series of Notes for each Interest Accrual
Period will equal the Formula Rate, subject to a cap of the Net Loan Rate for
such Interest Accrual Period.
The Formula Rate for each Interest Accrual Period for the LIBOR Rate Notes will
equal One-Month LIBOR as of the Interest Determination Date for such Interest
Accrual Period plus ____% in the case of the Series 1999A-1 Notes and ____% in
the case of the Series 1999B-1 Notes, but in no event greater than 18.0% per
annum. See "Description of the Notes -- Determination of LIBOR" in the
Prospectus. Interest on the LIBOR Rate 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 1999A-2 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" in this Prospectus Supplement.
The Net Loan Rate will be calculated by the administrator. The Series Interest
Rate for the LIBOR Rate 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 caption "--
Determination of the Auction Rate" in this Prospectus Supplement.
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
S-46
<PAGE> 50
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 LIBOR Rate 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 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 "The Indenture -- 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 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
the likelihood of payment of Carryover Interest. Any reference herein to
"interest" excludes Carryover Interest.
DETERMINATION OF THE AUCTION RATE
The Auction Rate for the Series 1999A-2 Notes will initially be ____% per annum
through ____________. Following such initial period, 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 A 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
on ____________ and each fourth __________ thereafter, 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:
- - 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),
S-47
<PAGE> 51
- - 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
- - 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%.
"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.
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., _______________ and each fourth __________ thereafter)
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 a 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" below and Appendix A, "Auction Procedures -- Changes
in Auction Terms". In addition, at the option of the issuer and as described
below under the caption "-- Auction Period Conversion of and Mandatory Tender of
the Auction Rate Notes", 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 A,
"Auction Procedures -- Changes in the Interest Determination Date".
Notwithstanding the foregoing for each Series of Auction Rate Notes:
(A) 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
(B) 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
S-48
<PAGE> 52
(C) if a proposed Auction Period Conversion has failed, as described below
under the caption "-- Auction Period Conversion of and Mandatory Tender of the
Auction Rate Notes", the Auction Rate on the Auction Rate Notes subject to the
failed Auction Period Conversion will be equal to 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 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
(D) 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
NonPayment 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 Noteholders
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 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
S-49
<PAGE> 53
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 A,
"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 its initial
issuance 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 are not remarketed, or the Indenture Trustee does
not receive the purchase price for such Series of 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 A, "Auction
Procedures".
PRINCIPAL
UNLESS AN EVENT OF DEFAULT HAS OCCURRED, NO PRINCIPAL WILL BE PAID ON THE SERIES
1999A-2 NOTES UNTIL THE SERIES 1999A-1 NOTES HAVE BEEN PAID IN FULL AND NO
PRINCIPAL WILL BE PAID ON THE SERIES 1999B-1 NOTES UNTIL THE SERIES 1999A-1
NOTES AND THE SERIES 1999A-2 NOTES HAVE BEEN PAID IN FULL. FOLLOWING THE
OCCURRENCE OF AN EVENT OF DEFAULT, PRINCIPAL PAYMENTS ON THE SERIES 1999A NOTES
WILL BE MADE PRO RATA, WITHOUT PREFERENCE OR PRIORITY.
Principal payments on the Series 1999A-1 Notes will be made on each Monthly
Distribution Date in an amount generally equal to the Series 1999A Noteholders'
Principal Distribution Amount for such Monthly Distribution Date until the
principal balance of such Notes has been reduced to zero. After the Series
1999A-1 Notes have been paid in full, principal payments on the Series 1999A-2
Notes will be made on the first Auction Period Distribution Date of any month
for such Series in an amount generally equal to the Series 1999A Noteholders'
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 1999A-2 Notes will only be made in amounts equal to $50,000 and
integral multiples thereof. After the Series 1999A-1 Notes and Series 1999A-2
Notes have been paid in full, principal payments on the Series 1999B-1 Notes
will be made on each Monthly Distribution Date in an amount generally equal to
the Series 1999B-1 Noteholders' 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 1999A Notes then receiving principal
payments and thereafter to the Series 1999B-1 Notes) until the Parity Percentage
equals ___%.
S-50
<PAGE> 54
The final payment of principal and interest will be made no later than
__________ on the Series 1999A-1 Notes, __________ on the Series 1999A-2 Notes
and __________ on the Series 1999B-1 Notes (each, a "Legal Final Maturity"). The
actual maturity of one or more Series of Notes is expected to occur sooner as a
result of a variety of factors. See "Maturity and Prepayment Considerations" in
the Prospectus and this Prospectus Supplement.
If Available Funds are insufficient to pay the Series 1999A Principal
Distribution Amount or the Series 1999B-1 Principal Distribution Amount on an
applicable Distribution Date, such shortfall will be added to the principal
payable to such Noteholders 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 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 "The Indenture -- Reserve
Fund" herein.
All principal payments on a Series of LIBOR Rate Notes will be made pro rata
within that Series. In connection with each principal payment on a Series of
LIBOR Rate 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 LIBOR Rate Note of a Series 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 Note. The Principal
Factor for the LIBOR Rate Notes shall be initially 1.0000000 and will thereafter
decline to reflect the reduction in the principal balance of the Notes of that
Series after any payment of principal. The principal balance of any LIBOR Rate
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 1999A-1 Noteholders' 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 1999A-1
Notes on the immediately preceding Monthly Distribution Date after giving effect
to all principal distributions to Holders of Series 1999A-1 Notes on such
preceding Monthly Distribution Date (or, in the case of the first Monthly
Distribution Date, on the Closing Date) and (ii) the Series 1999A-1 Interest
Shortfall for such Monthly Distribution Date; provided that the Series 1999A-1
Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series 1999A-1 Notes.
The "Series 1999A-1 Interest Shortfall" means, with respect to any Monthly
Distribution Date, the excess of (i) the Series 1999A-1 Noteholders' Interest
Distribution Amount on the preceding Monthly Distribution Date over (ii) the
amount of interest actually distributed to the Series 1999A-1 Noteholders on
such preceding Monthly Distribution Date, plus interest on the amount of such
excess interest due to the Series 1999A-1 Noteholders, to the extent permitted
by law, at the related Series Interest Rate borne by the Series 1999A-1 Notes
from such preceding Monthly Distribution Date to the current Monthly
Distribution Date.
The "Series 1999A-2 Noteholders' 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
1999A-2 Notes on the immediately preceding Auction Period Distribution Date
after giving effect to all principal distributions to Holders of Series 1999A- 2
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
1999A-2 Interest Shortfall for such Auction Period Distribution Date; provided
that the Series 1999A-2 Noteholders' Interest Distribution Amount will not
include any Carryover Interest on the Series 1999A-2 Notes.
S-51
<PAGE> 55
The "Series 1999A-2 Interest Shortfall" means, with respect to any Auction
Period Distribution Date, the excess of (i) the Series 1999A-2 Noteholders'
Interest Distribution Amount on the preceding Auction Period Distribution Date
over (ii) the amount of interest actually distributed to the Series 1999A-2
Noteholders on such preceding Auction Period Distribution Date, plus interest on
the amount of such excess interest due to the Series 1999A-2 Noteholders, to the
extent permitted by law, at the related Series Interest Rate from such preceding
Auction Period Distribution Date to the current Auction Period Distribution
Date.
The "Series 1999A Noteholders' Principal Distribution Amount" means, with
respect to any Distribution Date for a Series of Series 1999A Notes, the Series
1999A Principal Distribution Amount for such Distribution Date plus the Series
1999A Principal Shortfall as of the close of the preceding Distribution Date;
provided that the Series 1999A Noteholders' Principal Distribution Amount will
not exceed the outstanding principal balance of the Series 1999A Notes. In
addition, (i) on the Legal Final Maturity of the Series 1999A-1 Notes, the
principal required to be distributed to the Series 1999A-1 Noteholders will
include the amount required to reduce the outstanding principal balance of the
Series 1999A-1 Notes to zero and (ii) on the Legal Final Maturity of the Series
1999A-2 Notes, the principal required to be distributed to the Series 1999A-2
Noteholders will include the amount required to reduce the outstanding principal
balance on the Series 1999A-2 Notes to zero.
The "Series 1999A Principal Distribution Amount" means (i) with respect to the
Series 1999A-1 Notes, an amount equal to the decline in the Pool Balance between
the end of the second Collection Period preceding a Monthly Distribution Date
and the end of the immediately preceding Collection Period and (ii) with respect
to the Series 1999A- 2 Notes on and after the principal balance of the Series
1999A-1 Notes has been paid in full, an amount equal to the decline in the Pool
Balance between the end of the third Collection Period preceding an Auction
Period Distribution Date and the end of the second preceding Collection Period.
The "Series 1999A Principal Shortfall" means, as of the close of any
Distribution Date for a Series of Series 1999A Notes, the excess of (i) the
Series 1999A Principal Distribution Amount on such Distribution Date over (ii)
the amount of principal actually distributed to the Series 1999A Noteholders on
such Distribution Date.
The "Series 1999B-1 Noteholders' 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 1999B-1
Notes on the immediately preceding Monthly Distribution Date after giving effect
to all principal distributions to holders of Series 1999B-1 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 1999B-1 Interest
Shortfall for such Monthly Distribution Date; provided that the Series 1999B-1
Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series 1999B-1 Notes.
The "Series 1999B-1 Interest Shortfall" means, with respect to any Monthly
Distribution Date, the excess of (i) the Series 1999B-1 Noteholders' Interest
Distribution Amount on the preceding Monthly Distribution Date over (ii) the
amount of interest actually distributed to the Series 1999B-1 Noteholders on
such preceding Monthly Distribution Date, plus interest on the amount of such
excess interest due to the Series 1999B-1 Noteholders, to the extent permitted
by law, at the related Series Interest Rate from such preceding Monthly
Distribution Date to the current Monthly Distribution Date.
The "Series 1999B-1 Noteholders' Principal Distribution Amount" means, with
respect to any Monthly Distribution Date, the Series 1999B-1 Principal
Distribution Amount for such Monthly Distribution Date plus the Series 1999B-1
Principal Shortfall as of the close of the preceding Monthly Distribution Date;
provided that the Series 1999B-1 Noteholders' Principal Distribution Amount will
not exceed the outstanding principal balance of the Series 1999B-1 Notes. In
addition, on the Legal Final Maturity of the Series 1999B-1 Notes, the principal
required to be distributed
S-52
<PAGE> 56
to the Series 1999B-1 Noteholders will include the amount required to reduce the
outstanding principal balance on the Series 1999B-1 Notes to zero.
The "Series 1999B-1 Principal Distribution Amount" means, on each Monthly
Distribution Date on and after which the principal balance of the Series 1999A
Notes has been paid in full, an amount equal to the decline 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 1999B-1 Notes by the Series 1999A Noteholders' Principal
Distribution Amount on such Monthly Distribution Date).
The "Series 1999B-1 Principal Shortfall" means, as of the close of any Monthly
Distribution Date, the excess of (i) the Series 1999B-1 Principal Distribution
Amount on such Monthly Distribution Date over (ii) the amount of principal
actually distributed to the Series 1999B-1 Noteholders on such Monthly
Distribution Date.
The "Parity Percentage", as of any Distribution Date or other date, 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 as of the end
of the preceding 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 and unpaid interest thereon and (b) accrued and
unpaid Program Operating Expenses.
A "Collection Period" is each calendar month, except that the first Collection
Period begins on the Closing Date and ends on ____________.
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.
SUBORDINATION OF THE SERIES 1999B-1 NOTES
The rights of the Noteholders of the Series 1999B-1 Notes to receive principal
(under certain circumstances) and interest payments will be subordinated to such
rights of the Noteholders of the Series 1999A 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 Noteholders of the Series 1999A Notes and the
payment of any Senior Issuer Exchange Payments. See "The Indenture -- Collection
Fund" herein.
The rights of the Noteholders of the Series 1999A Notes are on a parity with the
rights of any Exchange Counterparty under any Senior Exchange Agreement. The
rights of the Noteholders of all Series 1999A Notes and Exchange Counterparties
under any Senior Exchange Agreements are superior to the rights of the
Noteholders of the Series 1999B-1 Notes and the rights of any Exchange
Counterparty under any Subordinate Exchange Agreement with respect to the trust.
S-53
<PAGE> 57
The rights of the Noteholders of the Series 1999B-1 Notes are on a parity with
the rights of Exchange Counterparties under any Subordinate Exchange Agreements
with respect to the trust.
REDEMPTION
The Notes will be subject to redemption prior to maturity only as described
below.
AUCTION OF THE FINANCED STUDENT LOANS
On or after __________, 20__, if the then outstanding Pool Balance is 10% or
less of the Initial Pool Balance, the Indenture Trustee will offer the Financed
Student Loans in the trust for sale. The depositor, the administrator, their
affiliates and unrelated third parties may offer bids to purchase 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 Noteholders (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 Noteholders, 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, together with any funds on deposit in the Reserve Fund,
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 Noteholders,
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 is
expected to be $___________.
In addition, on and after the Series 1999A-1 Notes have been paid in full, the
Series 1999A-2 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 from funds deposited by or on behalf of the issuer with the
Indenture Trustee, upon notice given by the Indenture Trustee to the Noteholders
thereof not less than 15 days prior to the redemption date in the form and
manner described below under the caption "-- Notice of Redemption", 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 1999A-2 Notes unless after any such redemption the Parity
Percentage is no less than ____% 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, the Series 1999A-2
Notes to be redeemed will be selected by lot by the Indenture Trustee. No Series
1999A-2 Notes will be subject to redemption in part in an amount less than an
Authorized Denomination thereof, and no portion of the Series 1999A-2 Notes is
to be retained by a Noteholder in an amount less than an Authorized
Denomination.
S-54
<PAGE> 58
In connection with the optional redemption of any Series 1999A Notes, all unpaid
Carryover Interest on such Series must be paid on or before the date of optional
redemption of such Series.
NOTICE OF REDEMPTION
The Indenture Trustee is required to give written notice of redemption of the
Notes to the Noteholders 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 will cease to accrue, and interest on any unpaid
Carryover Interest will cease to accrue.
THE INDENTURE
The Notes will be issued pursuant to an Indenture of Trust, dated as of _______
___, 1999, as supplemented from time to time, and a related Terms Supplement,
dated as of _______ ___, 1999 (collectively, the "Indenture"), among the issuer,
the Eligible Lender Trustee and the Indenture Trustee. On the Closing Date, the
issuer and the Eligible Lender Trustee will pledge the Financed Student Loans
and other moneys received from the net proceeds of the Notes to the Indenture
Trustee under the Indenture.
INDENTURE TRUSTEE
Firstar Bank, National Association, a national banking association organized
under the laws of the United States, is the Indenture Trustee for the Notes. The
Indenture Trustee's corporate trust office is located at 425 Walnut Street,
ML5125, Cincinnati, Ohio 45202, and its telephone number is [(513) 762-8870].
The Indenture Trustee is also acting as the initial Eligible Lender Trustee
under the Indenture, as a Co-owner Trustee of the trust and may serve from time
to time as trustee under indentures or eligible lender trust agreements with the
depositor or its affiliates relating to other issues of securities. In addition,
the issuer, the depositor, the administrator or their affiliates may maintain
other banking relationships with Firstar Bank, National Association and its
affiliates from time to time.
ELIGIBLE LENDER TRUSTEE
Firstar Bank, National Association, 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 _______ ___,
1999, between the Co-owner Trustee and the Eligible Lender Trustee (the
"Eligible Lender Trust Agreement"). The office of the Eligible Lender Trustee is
located at 425 Walnut Street, ML5125, 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.
One or more additional Eligible Lender Trustees may be added or substituted for
the initial Eligible Lender Trustee from time to time subject to certain
conditions set forth in the Indenture. Each such Eligible Lender Trustee must
qualify prior to taking title to Financed FFELP Loans as an eligible lender and
owner of such Financed FFELP Loans for all purposes under the Higher Education
Act and the Guarantee Agreements with respect to such Financed FFELP Loans.
Failure of the Financed FFELP Loans to be owned by an eligible lender would
result in the loss of Guarantee
S-55
<PAGE> 59
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" in the Prospectus.
The issuer, the depositor, the administrator or their affiliates may maintain
other banking relationships with Firstar Bank, National Association and its
affiliates and any other Eligible Lender Trustees and their affiliates from time
to time.
REPORTS TO NOTEHOLDERS
The Indenture Trustee will provide by each Monthly Distribution Date to Rating
Agencies and the applicable Noteholders of record as of the related Record Date,
a statement setting forth substantially the information set forth under the
caption "The Indentures -- Reports to Noteholders" in the Prospectus.
ACQUISITION FUND
In connection with the issuance of the Notes, the Indenture Trustee will
establish an "Acquisition Fund". See "The Indentures -- Funds and Accounts" in
the Prospectus. On the Closing Date, the Indenture Trustee will deposit
$__________ in cash or Eligible Investments into the Acquisition Fund. See "Use
of Proceeds" herein. Such amount will be used to acquire on or about
____________, through the Eligible Lender Trustee, the Financed Student Loans
described under the caption "The Financed Student Loans" herein. There will be
no Pre-Funding Account established under the Indenture.
Any portion of the balances of the Acquisition Fund which has not been, or which
the issuer at any time determines cannot for any reason be, used to Finance
Student Loans prior to ______________ shall, at the written direction of the
issuer, be transferred to the Collection Account and if such balances so
transferred equal or exceed $__________, substantially all of such balances
shall be applied to pay principal on the Series 1999A-2 Notes on the next
succeeding Auction Period Distribution Date for such Series.
STUDENT LOAN PORTFOLIO FUND
In connection with the issuance of the Notes, the Indenture Trustee will
establish a "Student Loan Portfolio Fund". All Financed Student Loans
(including, without limitation, any Financed Student Loans transferred to the
Indenture Trustee for deposit under the Indenture by the trustee under any other
indenture of trust between the depositor or any affiliate and such trustee)
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.
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 the caption "Redemption" herein, and (iv) in connection with the purchase
of the Financed Student Loans by the depositor when the Pool Balance is equal to
____% 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
S-56
<PAGE> 60
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 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. 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.
Any sale, exchange or other disposition of Financed Student Loans described
above that are FFELP Loans will be only to or with one or more eligible lenders
under the Higher Education Act so long as the Higher Education Act requires the
owner or holder of FFELP Loans to be an eligible lender.
COLLECTION FUND
In connection with the issuance of the Notes, the following Accounts will be
established in the Collection Fund: a "Collection Account", a "Note Payment
Account", an "Expense Account" and an "Excess Surplus Account".
Collection Account. 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.
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.
On or before ________, 19___, amounts on deposit in the Collection Account
constituting Consolidation Loan prepayments may be applied for the Financing of
Consolidation Loans by the Eligible Lender Trustee on behalf of the issuer that
consolidate one or more of the Financed Student Loans in the trust and Serial
Loans that are serial to an existing Financed Student Loan in the trust,
provided that in no event shall the aggregate amount of Financed Student Loans
in the trust that are Consolidation Loans or Serial Loans exceed $_________. The
moneys to be so applied will be an amount equal to the full remaining unpaid
principal and accrued and unpaid interest and late charges on all Financed
Student Loans selected by the student borrower for consolidation. Moneys will be
paid to the Sellers of Financed Student Loans or the holders of Student Loans
selected for consolidation upon receipt by the Indenture Trustee of certain
documentation from the issuer as provided in the Indenture. The Eligible Lender
Trustee on behalf of the issuer may only purchase Financed Student Loans
serviced by Servicers and guaranteed by Guarantee Agencies that have been
approved by each Rating Agency at the time of purchase.
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:
S-57
<PAGE> 61
(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 1999A-1 Noteholders'
Interest Distribution Amount for payment on such
Monthly Distribution Date to the Series 1999A-1
Noteholders, and (B) any related Senior Issuer
Exchange Payment with respect to the Series 1999A-1
Notes for payment to the related Senior Exchange
Counterparty; and
(b) an amount up to (A) the Series 1999A-2 Noteholders'
Interest Distribution Amount for payment on each
Auction Period Distribution Date occurring in the
next succeeding calendar month to the Series 1999A-2
Noteholders, and (B) any related Senior Issuer
Exchange Payment occurring in the next succeeding
calendar month with respect to the Series 1999A-2
Notes for payment to the related Senior Exchange
Counterparty;
(iii) to the Note Payment Account, an amount up to (A) the Series
1999B-1 Noteholders' Interest Distribution Amount for payment
on such Monthly Distribution Date to the Series 1999B-1
Noteholders, and (B) any related Subordinate Issuer Exchange
Payment with respect to the Series 1999B-1 Notes for payment
to the related Subordinate Exchange Counterparty;
(iv) to the Note Payment Account:
(a) an amount up to the Series 1999A Noteholders'
Principal Distribution Amount for payment on such
Monthly Distribution Date to the Series 1999A-1
Noteholders until the principal balance thereof has
been reduced to zero, then
(b) once the Series 1999A-1 Notes are no longer
Outstanding, an amount up to the Series 1999A
Noteholders' Principal Distribution Amount for
payment on the next succeeding Auction Period
Distribution Date to the Series 1999A-2 Noteholders
until the principal balance thereof has been reduced
to zero.
(v) after the Series 1999A Notes are no longer Outstanding, to the
Note Payment Account, an amount up to the Series 1999B-1
Noteholders' Principal Distribution Amount for payment on such
Monthly Distribution Date to the Series 1999B-1 Noteholders;
(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 caption "-- 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 Series 1999A-1 Noteholders on such
Monthly Distribution Date until the principal balance
thereof has been reduced to zero, then
(b) once the Series 1999A-1 Notes are no longer
Outstanding, for payment to the Series 1999A-2
Noteholders on the next succeeding Auction Period
Distribution Date until the principal balance thereof
has been reduced to zero, then
S-58
<PAGE> 62
(c) once the Series 1999A Notes are no longer
Outstanding, for payment to the Series 1999B-1
Noteholders 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 Series 1999A-1 Noteholders for payment
on such Monthly Distribution Date, and upon payment
of all Carryover Interest due to the Series 1999A-1
Noteholders, then
(b) to the Series 1999A-2 Noteholders for payment on the
next succeeding Auction Period Distribution Date, and
upon payment of all Carryover Interest due to the
Series 1999A-2 Noteholders, then
(c) to the Series 1999B-1 Noteholders for payment on such
Monthly 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 1999A 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 1999B-1 Noteholders' Interest Distribution Amount and the
Series 1999B-1 Noteholders' Principal Distribution Amount will not be paid to
the Series 1999B-1 Noteholders pursuant to clauses (iii) and (v) above and no
Subordinate Issuer Exchange Payments will be made. For so long as any Series
1999A Notes remain Outstanding, such deferral in the payment of the Series
1999B-1 Noteholders' Interest Distribution Amount, Series 1999B-1 Noteholders'
Principal Distribution Amount or Subordinate Issuer Exchange Payments (except
with respect to the Legal Final Maturity of the Series 1999B-1 Notes) 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
1999A Noteholders' Principal Distribution Amount will be allocated and paid pro
rata among each Series of Series 1999A Notes, without preference or priority of
any kind. See "The Indentures -- Event of Default" in the Prospectus.
Notwithstanding the foregoing, principal payments will be made to the Series
1999A-2 Noteholders only in amounts equal to $50,000 and integral multiples in
excess thereof. If the amount in the Note Payment Account otherwise required to
be applied as a payment of principal either (i) is less than $50,000 or (ii)
exceeds an even multiple of $50,000, then, in the case of (i), such entire
amount or, in the case of (ii), such excess amount, will not be paid as
S-59
<PAGE> 63
principal on the upcoming Auction Period Distribution Date, but will be retained
in the Note Payment Account until the amount therein available for payment of
principal equals $50,000.
With respect to the Series of Auction Rate Notes entitled to receive payments of
principal, the actual Notes of such Series that will receive payments of
principal on each applicable Auction Period Distribution Date will be selected
no later than five 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 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
Noteholder appearing on the registration books. Any defect in or failure to give
such mailed notice shall not affect the validity of proceedings for the payment
of any other Notes not affected by such failure or defect. All notices of
payment are to state: (i) the applicable Auction Period Distribution Date, (ii)
the amount of principal to be paid, and (iii) the Series of the Auction Rate
Notes to be paid.
Note Payment Account. On each Distribution Date, following the transfers to the
Note Payment Account described above, the Indenture Trustee will distribute to
the applicable Noteholders 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 caption "-- Collection Account" herein.
Expense Account. A portion of the proceeds from the offering of the Notes will
be deposited into the Expense Account. See "Use of Proceeds" herein. Funds will
also be deposited into the Expense Account, as described herein, from the
Collection Account and from the Reserve Fund. See "-- Collection Account" herein
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.
Excess Surplus Account. On each Monthly Distribution Date, any Available Funds
remaining after all required distributions are made on such Monthly 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 ___%. 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 Notes, the Indenture Trustee will
establish a Reserve Fund for the Notes. See "Description of the Notes -- Credit
Enhancement" in the Prospectus. On the Closing Date, the Indenture Trustee will
deposit $__________ in cash or Eligible Investments into the Reserve Fund which
is equal to its Specified Reserve Fund Balance.
S-60
<PAGE> 64
The "Specified Reserve Fund Balance" on any Distribution Date for the Reserve
Fund is equal to the greater of ____% of the outstanding principal balance of
the Notes on such Distribution Date after giving effect to payments on such
Distribution Date, or $__________, but not in excess of the outstanding
principal balance of the Notes.
At any time the balance of the Reserve Fund is below 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.
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 caption "-- 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 interest or Carryover
Interest on the Series 1999B-1 Notes or any Subordinate Issuer
Exchange Payment when the payment of such interest or
Subordinate Issuer Exchange Payment is deferred as described
under the caption "--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
caption "-- 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 caption "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.
The Reserve Fund is intended to enhance the likelihood of timely receipt by the
Noteholders 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
S-61
<PAGE> 65
when the Notes are to be redeemed in whole and to decrease the likelihood that
the Noteholders will experience losses. In certain circumstances, however, the
Reserve Fund could be depleted. If the amount required to be withdrawn from the
Reserve Fund to cover shortfalls in the amount of Available Funds exceeds the
amount of cash in the Reserve Fund, a temporary shortfall in the amount of
principal and interest distributed to the Noteholders could result. This
shortfall could, in turn, increase the average life of the Notes. Moreover,
amounts on deposit in a Reserve Fund other than amounts in excess of the related
Specified Reserve Fund Balance will not be available to cover any aggregate
unpaid Carryover Interest.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement dated
_________ ___, 19___ (the "Underwriting Agreement"), among the issuer, Salomon
Smith Barney Inc., Fifth Third/The Ohio Company, NationsBanc Montgomery
Securities LLC and PNC Capital Markets, Inc. (collectively, the "Underwriters"),
the issuer has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase from the issuer, the principal balance of each Series of
Notes set forth below its name on the following chart:
<TABLE>
<CAPTION>
NationsBanc
SERIES OF NOTES Salomon Smith Fifth Third/ Montgomery PNC Capital
Barney Inc. The Ohio Company Securities LLC Markets, Inc.
<S> <C> <C> <C> <C>
Series 1999A-1 Notes................
Series 1999A-2 Notes................
Series 1999B-1 Notes ...............
Total............. --------- ----------- ---------- ----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby, if any Notes are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the non-defaulting Underwriter may be increased or
purchase commitments of all Underwriters may be terminated. The issuer has been
advised by the Underwriters that the Underwriters propose initially to offer the
Notes to the public at the public offering price with respect to each Series set
forth on the cover page of this Prospectus Supplement. After the initial public
offering, the public offering price may be changed.
The Underwriting Agreement provides that the issuer will indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof. Such indemnification is limited to the assets of the
trust.
The Notes are new issues of securities with no established trading market. The
issuer has been advised by the Underwriters that the Underwriters intend to make
a market in the Notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Notes.
In the ordinary course of their business, the Underwriters and certain of their
affiliates have in the past, and may in the future, engage in commercial and
investment banking activities with the issuer, the depositor, the administrator
and their affiliates.
S-62
<PAGE> 66
The issuer may, from time to time, invest the funds in the Funds and Accounts in
Eligible Investments acquired from the Underwriters.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specific maximum.
Syndicate covering transactions involve purchases of the Notes in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Notes originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Notes to be higher than
it would otherwise be in the absence of such transactions.
LEGAL MATTERS
Certain legal matters relating to the issuer, 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 Underwriters by
Squire, Sanders & Dempsey L.L.P. Each of these firms has performed legal
services for the depositor and the administrator in the past, and it is expected
that they will continue to perform such services in the future.
RATING
It is a condition to the issuance and sale of each Series of Series 1999A Notes
that they each be rated "AAA" by Fitch and "Aaa" by Moody's. It is a condition
to the issuance of the Series 1999B-1 Notes that they be rated at least "A" by
Fitch and at least "A2" by Moody's. A securities rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency. The ratings of the Notes address the
likelihood of the ultimate payment of principal of and interest on the Notes
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 and Prospectus Supplement. 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.
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
Underwriters have undertaken no responsibility either to bring to the attention
of the Noteholders any proposed change in or withdrawal of any rating of the
Notes or to oppose any such change or withdrawal.
S-63
<PAGE> 67
APPENDIX A
AUCTION PROCEDURES
General
The following description of the Auction Procedures applies separately to each
Series of Auction Rate Notes (to the extent set forth in the Prospectus
Supplement). The term "Note," as used in this Appendix, refers to each Series of
Auction Rate Notes, and the term "Noteholder" refers to Noteholders holding
Auction Rate Notes.
Definitions
Capitalized terms used herein and not otherwise defined have the meanings
ascribed in the accompanying Prospectus and Prospectus Supplement. Additionally,
the following terms have the meanings ascribed to them:
"Interest Determination Date" means, with respect to each series of Auction Rate
Notes, the Initial Interest Determination Date, and thereafter, the Business Day
immediately preceding the commencement of each Auction Period, other than: (i)
an Auction Period which commences on an Auction Period Conversion Date; (ii)
each Auction Period commencing after the ownership of such series of Auction
Rate Notes is no longer maintained in book-entry form; (iii) each Auction Period
commencing after and during the continuance of a Payment Default; or (iv) any
Auction Period commencing less than two Business Days after the cure or waiver
of a Payment Default. Notwithstanding the foregoing, the Interest Determination
Date for one or more Auction Periods may be changed as described below under
"Changes in Auction Terms".
Auction Participants.
EXISTING NOTEHOLDERS AND POTENTIAL NOTEHOLDERS. Participants in each
Auction will include: (i) "Existing Noteholders", 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 Noteholder 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 and (ii) "Potential Noteholders", which
will mean any Person (including an Existing Noteholder) 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 Noteholder 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 Noteholder 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 Noteholder 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 A; (vi) that a Bid placed by a Potential Noteholder will constitute an
irrevocable
A-1
<PAGE> 68
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 A; 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 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 Noteholders of at least 66-2/3
% of the aggregate principal amount of the Auction Rate Notes then Outstanding,
by an instrument signed by such Noteholders 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.
A-2
<PAGE> 69
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 Noteholders and Potential Noteholders may
participate in Auctions only by submitting orders (in the manner described
below) through a "Broker-Dealer", including __________________________________
as the sole initial Broker-Dealer or any other broker or dealer (each as defined
in the Securities Exchange Act of 1934, as amended), commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer set
forth below which (i) is a Participant or an affiliate of a Participant, (ii)
has been selected by the issuer and (iii) has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective, in which the
Broker-Dealer agrees to participate in Auctions as described in the Auction
Procedures, as from time to time amended or supplemented.
The Broker-Dealers are entitled to a Broker-Dealer Fee, which is
payable by the Auction Agent from moneys received from the Indenture Trustee, on
each Auction Period Distribution Date. Such Broker-Dealer Fee is payable as
provided in the Indenture and the Broker-Dealer Agreement. Broker-Dealers may
submit Orders in Auctions for their own accounts. Any Broker-Dealer submitting
an Order for its own account in any Auction might have an advantage over other
Bidders in that it would have knowledge of other Orders placed through it in
that Auction, but it would not have knowledge of Orders submitted by other
Broker-Dealers. The Broker-Dealer Agreements provide that a Broker-Dealer shall
handle its customers' Orders in accordance with their respective duties under
applicable securities laws and rules. Any entity that is an affiliate of the
issuer and becomes a Broker-Dealer must submit a Sell Order covering any Auction
Rate Notes held for its own account.
CALCULATION AGENT. Under the Calculation Agent Agreement, and in
connection with the Auction Rate Notes, the "Calculation Agent", initially
Salomon Smith Barney Inc., will act solely as agent of the issuer and will not
assume any obligation or relationship of agency or trust for or with any of the
Noteholders 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 caption "Description of the Notes --
Determination of the Auction Rate" in the Prospectus Supplement, by application
of the Auction Procedures described herein and in the Indenture.
A-3
<PAGE> 70
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
Noteholders 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 Noteholder 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 Noteholder, 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 Noteholder of Auction Rate Notes may submit to a
Broker-Dealer by telephone or otherwise information as to: (i) the principal
amount of Outstanding Auction Rate Notes, if any, held by such Existing
Noteholder which such Existing Noteholder 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 Noteholder 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 Noteholder (a "Bid"); and/or (iii) the principal
amount of Outstanding Auction Rate Notes, if any, held by such Existing
Noteholder which such Existing Noteholder 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 Noteholders to
determine the principal amount of Auction Rate Notes which each such Potential
Noteholder offers to purchase, if the Series Interest Rate for the
A-4
<PAGE> 71
next succeeding Auction Period will not be less than the rate per annum
specified by such Potential Noteholder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order". Each Existing
Noteholder and each Potential Noteholder placing an Order is referred to as a
"Bidder".
Subject to the provisions described below under "Validity of Orders", a
Bid by an Existing Noteholder 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 Noteholder 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 Noteholder 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 Noteholder: (a) the principal amount of Auction Rate
Notes, if any, subject to any Hold Order placed by such Existing Noteholder; (b)
the principal amount of Auction Rate Notes, if any, subject to any Bid placed by
such Existing Noteholder 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 Noteholder; and (iv) to the extent such Bidder is a Potential
Noteholder, the rate specified in such Potential Noteholder'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 Noteholder 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 Noteholder covering the principal amount of
Outstanding Auction Rate Notes held by such Existing Noteholder 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 Noteholder or Potential Noteholder.
A-5
<PAGE> 72
An Existing Noteholder 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 Noteholder. An Existing Noteholder that offers to
purchase additional Auction Rate Notes is, for purposes of such offer, treated
as a Potential Noteholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will (i)
be treated as a Sell Order if submitted by a Existing Noteholder and (ii) not be
accepted if submitted by a Potential Noteholder.
VALIDITY OF ORDERS. If any Existing Noteholder 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 Noteholder, 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 Noteholder, 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 Noteholder, 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 Noteholder.
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
Noteholder 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
Noteholder 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 Noteholder, 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 Noteholder 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 Noteholder 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 Noteholder, 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 Noteholder 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 Noteholder 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").
A-6
<PAGE> 73
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
Noteholders specifying one or more rates equal to or lower than the Maximum
Auction Rate exceeds or is equal to the sum of (i) the aggregate principal
amount of Outstanding Auction Rate Notes subject to Submitted Bids by Existing
Noteholders 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 Noteholders 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 Noteholders
specifying such lowest rate and all other Submitted Bids from Existing
Noteholders specifying lower rates were rejected (thus entitling such
Existing Noteholders to continue to hold the principal amount of
Auction Rate Notes subject to such Submitted Bids); and
(ii) each such Submitted Bid from Potential Noteholders
specifying such lowest rate and all other Submitted Bids from Potential
Noteholders specifying lower rates, were accepted,
the result would be that such Existing Noteholders 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 Noteholders
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
A-7
<PAGE> 74
(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 Noteholders will continue
to hold the principal amount of Auction Rate Notes that are subject to Submitted
Hold Orders. If the Net Loan Rate for the Auction Rate Notes is equal to or
greater than the Bid Auction Rate and if Sufficient Clearing Bids, as described
above under "Determination of Sufficient Clearing Bids and Bid Auction Rate",
have been received by the Auction Agent, the Bid Auction Rate will be the
Auction Rate, and Submitted Bids and Submitted Sell Orders will be accepted or
rejected and the Auction Agent will take such other action as set forth below.
If the Net Loan Rate for the Auction Rate Notes is greater than the
Auction Rate, the Series Interest Rate shall be the Auction Rate. If the Net
Loan Rate for the Auction Rate Notes is less than the Auction Rate, the Series
Interest Rate will be the Net Loan Rate for the Auction Rate Notes. If the
Auction Rate and the Net Loan Rate for the Auction Rate Notes are both greater
than 17%, the Series Interest Rate shall be equal to 17%. If the Auction Agent
has not received Sufficient Clearing Bids as described above under
"Determination of Sufficient Clearing Bids and Bid Auction Rate" (other than
because all of the Outstanding Auction Rate Notes are subject to Submitted Holds
Orders), the Series Interest Rate will be the lesser of the Maximum Auction Rate
or the Net Loan Rate for the Auction Rate Notes, but in no event greater than
17%. In any of the cases described above in this paragraph, Submitted Orders
will be accepted or rejected and the Auction Agent will take such other action
as 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 Noteholders' Submitted Bids specifying any rate that is
higher than the Series Interest Rate will be accepted, thus requiring each such
Existing Noteholder to sell the aggregate principal amount of Auction Rate Notes
subject to such Submitted Bids;
(b) Existing Noteholders' Submitted Bids specifying any rate that is
lower than the Series Interest Rate will be rejected, thus entitling each such
Existing Noteholder to continue to hold the aggregate principal amount of
Auction Rate Notes subject to such Submitted Bids;
(c) Potential Noteholders' Submitted Bids specifying any rate that is
lower than the Series Interest Rate will be accepted;
(d) Each Existing Noteholder's Submitted Bid specifying a rate that is
equal to the Series Interest Rate will be rejected, thus entitling such Existing
Noteholder 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
A-8
<PAGE> 75
Auction Rate Notes subject to Submitted Bids described in subparagraphs (b) and
(c) above, in which event such Submitted Bid of such Existing Noteholder will be
rejected in part and such Existing Noteholder 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 Noteholder 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
Noteholders that specified a rate equal to the Series Interest Rate;
(e) Each Potential Noteholder'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 Noteholders that specified a rate equal to the
Series Interest Rate; and
(f) Each Potential Noteholder's Bid specifying a rate that is higher
than the Series Interest Rate will be rejected.
Insufficient Bids. If Sufficient Clearing Bids have not been made
(other than because all of the Outstanding Auction Rate Notes are subject to
Submitted Hold Orders) or if the Net Loan Rate for the Auction Rate Notes is
less than the Bid Auction Rate (in which case the Series Interest Rate shall be
the Net Loan Rate for the Auction Rate Notes), or if the Series Interest Rate
would be greater than 17%, subject to the denomination requirements described
below, Submitted Orders will be accepted or rejected as follows in the following
order of priority:
(a) Existing Noteholders' Submitted Bids specifying any rate that is
equal to or lower than the Series Interest Rate will be rejected, thus entitling
such Existing Noteholders to continue to hold the aggregate principal amount of
Auction Rate Notes subject to such Submitted Bids;
(b) Potential Noteholders' 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 Noteholder's Submitted Bid specifying any rate that
is higher than the Series Interest Rate and the Submitted Sell Order of each
Existing Noteholder will be accepted, thus entitling each Existing Noteholder
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 Noteholder 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.
A-9
<PAGE> 76
Authorized Denominations Requirement. If, as a result of the procedures
described above regarding Sufficient Clearing Bids and Insufficient Bids, any
Existing Noteholder would be entitled or required to sell, or any Potential
Noteholder 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 Noteholder or Potential Noteholder so that the principal amount of
Auction Rate Notes purchased or sold by each Existing Noteholder or Potential
Noteholder will be equal to an Authorized Denomination. If, as a result of the
procedures described above regarding Insufficient Bids, any Potential Noteholder
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
Noteholders so that only Auction Rate Notes in an Authorized Denomination are
purchased by any Potential Noteholder, even if such allocation results in one or
more of such Potential Noteholders 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
Noteholders and Existing Noteholders on whose behalf each Broker-Dealer
submitted Bids or Sell Orders and, with respect to each Broker-Dealer, to the
extent that such aggregate principal amount of Auction Rate Notes to be sold
differs from such aggregate principal amount of Auction Rate Notes to be
purchased, determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer will deliver, or from which Broker-
Dealers acting for one or more sellers such Broker-Dealer will receive, as the
case may be, Auction Rate Notes.
Neither the issuer nor any affiliate of the issuer may submit an Order
in any Auction.
Any calculation by the Auction Agent (or the administrator or the
Indenture Trustee, if applicable) of the Series Interest Rate, the Applicable
LIBOR Rate, the Maximum Auction Rate, the All Hold Rate, the Net Loan Rate for
the Auction Rate Notes and the Non-Payment Rate will, in the absence of manifest
error, be binding on all other parties.
SETTLEMENT PROCEDURES. The Auction Agent is required to advise each
Broker-Dealer that submitted an Order in an Auction of the Series Interest Rate
for the next Interest Accrual Period and, if such Order was a Bid or Sell Order,
whether such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., eastern time, on the Interest Determination
Date, if the Series Interest Rate is the Auction Rate, or 4:00 p.m., eastern
time, on the Interest Determination Date, if the Series Interest Rate is the Net
Loan Rate for the Auction Rate Notes. Each Broker-Dealer that submitted an Order
on behalf of a Bidder is required to then advise such Bidder of the Series
Interest Rate for the next Interest Accrual Period and, if such Order was a Bid
or a Sell Order, whether such Bid or Sell Order was accepted or rejected, in
whole or in part, confirm purchases and sales with each Bidder purchasing or
selling Auction Rate Notes as a result of the Auction and advise each Bidder
purchasing or selling Auction Rate Notes as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
such Auction Rate Notes or to deliver such Auction Rate Notes against payment
therefor, as appropriate. Pursuant to the Auction Agent Agreement, the Auction
Agent will record each transfer of Auction Rate Notes on the Existing
Noteholders 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
A-10
<PAGE> 77
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 Noteholder 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 Noteholder, Existing Noteholder 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 B, "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.
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
A-11
<PAGE> 78
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
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.
A-12
<PAGE> 79
APPENDIX B
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 Noteholder or
Potential Noteholder 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 Noteholder,
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 Noteholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Noteholder, 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
Noteholder;
(v) if the aggregate amount of Auction Rate Notes to be sold
by all Existing Noteholders 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 Noteholders 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 Noteholders on whose behalf such Seller's
Broker-Dealer acted by one or more Potential Noteholders 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 Noteholders on whose behalf such Buyer's
Broker-Dealer submitted a Bid exceeds the amount of Auction Rate Notes
to be sold by all Existing Noteholders 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 Noteholders on whose behalf such Buyer's Broker-Dealer acted
by one or more Existing Noteholders 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 Noteholder or Potential Noteholder
will:
B-1
<PAGE> 80
(i) advise each Existing Noteholder and Potential Noteholder
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 Noteholder on whose behalf such
Buyer's Broker-Dealer submitted a Bid that was accepted, in whole or in
part, to instruct such Potential Noteholder's Participant to pay to
such Buyer's Broker-Dealer (or its Participant) through the Depository
the amount necessary to purchase the principal amount of the Auction
Rate Notes to be purchased pursuant to such Bid against receipt of such
Auction Rate Notes;
(iii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Noteholder 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 Noteholder'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 Noteholder on whose behalf such
Broker-Dealer submitted an Order and each Potential Noteholder on whose
behalf such Broker-Dealer submitted a Bid of the Series Interest Rate
for the next Interest Accrual Period;
(v) advise each Existing Noteholder on whose behalf such
Broker-Dealer submitted an Order of the next Interest Determination
Date; and
(vi) advise each Potential Noteholder 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 Noteholders, if any, on whose behalf such Broker-Dealer
submitted Bids, the Existing Noteholders, 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 Noteholder and Existing Noteholder 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 Noteholder 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
B-2
<PAGE> 81
(iii) each Buyer's Broker-Dealer that is not a Participant in
the Depository will instruct its Participant to pay through the
Depository to Seller's Broker-Dealer (or its Participant) identified
following such Auction pursuant to (a)(vi) above the amount necessary
to purchase the Auction Rate Notes to be purchased pursuant to (b)(ii)
above against receipt of such Auction Rate Notes.
(e) On the Business Day following each Interest Determination Date:
(i) each Participant for a Bidder in the Auction on such
Interest Determination Date referred to in (d)(i) above will instruct
the Depository to execute the transactions described under (b)(ii) or
(b)(iii) above for such Auction, and the Depository will execute such
transactions;
(ii) each Seller's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in (d)
(ii) above for such Auction, and the Depository will execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(iii) above for such Auction, and the Depository will execute such
transactions.
(f) If an Existing Noteholder 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 Noteholder 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 Noteholder. 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 Noteholder, Existing
Noteholder 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.
B-3
<PAGE> 82
PROSPECTUS
STUDENT LOAN FUNDING TRUSTS
STUDENT LOAN FUNDING RIVERFRONT LLC
DEPOSITOR
STUDENT LOAN FUNDING RESOURCES, INC.
MASTER SERVICER AND ADMINISTRATOR
STUDENT LOAN ASSET-BACKED NOTES
<TABLE>
<S> <C>
- -----------------------------
CONSIDER CAREFULLY THE EACH TRUST:
RISK FACTORS IN THE
ACCOMPANYING PROSPECTUS * may issue student loan asset-backed notes in one or more series with one
SUPPLEMENT. or more levels of payment priority that are secured by and payable only
from the related trust;
The Notes will represent
obligations of a trust * will use the proceeds of the Notes to pay the purchase price of student
only and will not loans that will be acquired as part of the trust. A separate trust will be
represent interests in or established for each issuance of Notes under a separate trust indenture
obligations of the securing the payment of principal and interest on the Notes of that issue;
depositor, the master and
servicer, the
administrator or any of * will include:
their affiliates. The
Notes are not insured or * student loans;
guaranteed by any person.
Except as noted in this * money and investments held under the related indenture; and
document, the underlying
accounts and student * other property described on the cover page of the accompanying
loans are not insured or prospectus supplement.
guaranteed by any person
or governmental agency. THE NOTES:
This prospectus may be * will be secured by and will be paid only from their related trust assets;
used to offer and sell
any series of Notes only * will be rated in one of the four highest rating categories by at least one
if accompanied by the nationally recognized rating organization;
prospectus supplement for
that series, and this * may have one or more forms of credit enhancement; and
prospectus along with
that prospectus * will be issued as part of a designated series that may be senior to, on a
supplement will parity with, or subordinate to any other series issued by the same trust.
constitute the prospectus
for that series. THE NOTEHOLDERS:
* will receive interest and principal payments from collections on the
student loans and the other assets in the related trust; and
* are entitled to receive payments from collections on student loans and
other assets held under the related indenture and securing their series of
Notes, but have no entitlement to payments from student loans or other
assets held under other indentures and securing other series of Notes.
- -----------------------------
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE NOTES OR DETERMINED
THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________, 1999
<PAGE> 83
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
The issuer provides information to you about the Notes in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to a particular series
of Notes, including your series, and (b) the accompanying prospectus supplement,
which will describe the specific terms of your series of Notes, including:
- the timing of interest and principal payments;
- financial and other information about the student loans;
- information about credit enhancement for each series;
- the ratings for each series; and
- the method for selling the Notes.
IF THE TERMS OF A PARTICULAR SERIES OF NOTES VARY BETWEEN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. The issuer has not authorized anyone to provide you with different
information. The Notes are not offered in any state where the offer is not
permitted.
The issuer has included cross-references in this prospectus and in the
accompanying prospectus supplement to captions in these materials where you can
find further related discussions. The following table of contents and the table
of contents included in the accompanying prospectus supplement provide the pages
on which these captions are located.
<PAGE> 84
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FORMATION OF THE TRUSTS................................................................................................... 1
The Trusts........................................................................................................... 1
The Administrator and Master Servicer................................................................................ 1
THE DEPOSITOR............................................................................................................. 3
THE FINANCED STUDENT LOAN POOL............................................................................................ 4
MATURITY AND PREPAYMENT
CONSIDERATIONS....................................................................................................... 5
DESCRIPTION OF THE FFEL PROGRAM........................................................................................... 6
Loan Terms........................................................................................................... 9
Contracts with Guarantee Agencies.................................................................................... 17
Federal Special Allowance Payments................................................................................... 21
Education Loans Generally Not Subject to Discharge in Bankruptcy..................................................... 22
Direct Loans......................................................................................................... 22
DESCRIPTION OF THE GUARANTEE
AGENCIES............................................................................................................. 23
Federal Agreements................................................................................................... 24
Effect of Annual Claims Rate......................................................................................... 25
THE PRIVATE LOAN PROGRAMS................................................................................................. 25
TRANSFER AND SALE AGREEMENTS.............................................................................................. 26
SERVICING................................................................................................................. 28
Servicing Procedures................................................................................................. 29
Servicer Covenants................................................................................................... 29
Servicing Compensation............................................................................................... 30
DESCRIPTION OF THE NOTES.................................................................................................. 30
Payment of Available Funds........................................................................................... 31
Interest............................................................................................................. 33
Principal............................................................................................................ 35
Determination of LIBOR............................................................................................... 35
Determination of the T-Bill Rate Index............................................................................... 36
Auction Procedures................................................................................................... 37
Credit Enhancement................................................................................................... 39
Book-entry Registration.............................................................................................. 40
Definitive Notes..................................................................................................... 45
List of Noteholders.................................................................................................. 45
Reports to Noteholders............................................................................................... 45
REDEMPTION................................................................................................................ 47
SECURITY FOR THE NOTES.................................................................................................... 47
The Trust Assets..................................................................................................... 47
Exchange Agreements.................................................................................................. 48
THE INDENTURES............................................................................................................ 48
Indenture Trustee.................................................................................................... 49
Eligible Lender Trustee.............................................................................................. 49
Funds and Accounts................................................................................................... 49
Advances............................................................................................................. 52
Investment........................................................................................................... 52
Covenants of the Issuer.............................................................................................. 53
Events of Default.................................................................................................... 54
Amendment and Supplemental Indentures................................................................................ 58
Defeasance........................................................................................................... 60
Nonpresentment....................................................................................................... 61
Removal of an Indenture Trustee; Resignation; Successors............................................................ 62
FEDERAL INCOME TAX CONSEQUENCES........................................................................................... 63
Characterization of the Notes as Indebtedness........................................................................ 63
Characterization of the Trust........................................................................................ 64
Original Issue Discount.............................................................................................. 65
Variable Rate Notes.................................................................................................. 68
Anti-Abuse Rule...................................................................................................... 70
Market Discount...................................................................................................... 71
Amortizable Premium.................................................................................................. 72
Gain or Loss on Disposition.......................................................................................... 72
Miscellaneous Tax Aspects............................................................................................ 73
STATE TAX CONSIDERATIONS.................................................................................................. 74
USE OF PROCEEDS........................................................................................................... 74
ERISA CONSIDERATIONS...................................................................................................... 74
AVAILABLE INFORMATION..................................................................................................... 75
REPORTS TO NOTEHOLDERS.................................................................................................... 75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................... 75
PLAN OF DISTRIBUTION...................................................................................................... 76
RATING.................................................................................................................... 76
GLOSSARY OF PRINCIPAL DEFINITIONS......................................................................................... A-1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES............................................................ B-1
</TABLE>
ii
<PAGE> 85
FORMATION OF THE TRUSTS
THE TRUSTS
Each Trust will be formed under the laws of the jurisdiction set forth in the
related Prospectus Supplement pursuant to a Trust Agreement for the transactions
described in this Prospectus and each Prospectus Supplement. Each Trust will be
a common law trust. A Trust will not engage in any activity other than (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.
A Trust initially will be capitalized with a nominal cash payment. The right to
receive any amounts remaining after payment of the Notes will be represented by
the trust certificate which initially will be held by the depositor. The equity
of the trust, together with the proceeds from the sale of each Series of Notes,
will be used by the related Eligible Lender Trustee in connection with its
acquisition, on behalf of the trust, of the Financed Student Loans from the
depositor pursuant to the Transfer and Servicing Agreement. Upon the
consummation of each such transaction, the assets of a Trust will 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 collected in respect
thereof on or after the applicable Cut-off Date, (c) all moneys and investments
on deposit in the Collection Account, the Note Payment Account, the Expense
Account, the Excess Surplus Account, the Reserve Fund and the Pre-Funding
Account and (d) any other property specified in the related Prospectus
Supplement. The Notes will be secured by certain property of the related Trust.
The Collection Account, the Note Payment Account, the Expense Account, the
Excess Surplus Account, the Reserve Fund and the Pre-Funding Account will be
maintained with and in the name of the Indenture Trustee. To facilitate
servicing and to minimize administrative burden an expense, the related Servicer
will be appointed custodian of the promissory notes representing the Financed
Student Loans by the Eligible Lender Trustee. Certain responsibilities of a
Trust under the related Indenture will be undertaken on behalf of the trust by
the administrator. See "The Administrator and Master Servicer" herein.
A Trust's principal offices will be located at the address of the applicable
Eligible Lender Trustee set forth in the related Prospectus Supplement. For
information regarding the Eligible Lender Trustee, see "The Indentures --
Eligible Lender Trustee" herein.
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 the 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.
1
<PAGE> 86
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 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>
The principal executive officers of Resources are:
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 Bachelors 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 non-profit
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.
2
<PAGE> 87
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 Bachelors of Arts from Hope
College, Holland, Michigan.
THE DEPOSITOR
Student Loan Funding Riverfront 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) Student Loan Funding Resources,
Inc. (99% ownership), an Ohio corporation, and (ii) SLF Enterprises, Inc. (1%
ownership), an Ohio corporation and wholly owned subsidiary of Student Loan
Funding Resources, Inc.
The depositor is governed by a five-member Management Committee, which consists
of the following individuals: Christopher P. Chapman, Thomas L. Conlan, Jr.,
Brian A. Ross, Kathryn A. Widdoes and Sandra K. Zimmerman. Mr. Conlan, Mr.
Chapman and Mr. Ross are officers and employees of Student Loan Funding
Resources, Inc. and Ms. Widdoes and Ms. Zimmerman are independent members of the
Management Committee. The depositor has no full-time employees. Student Loan
Funding Resources, Inc. ("Resources") acts as administrator for the depositor's
business activities (in such role, the "administrator") and as master servicer
(in such role, the "master servicer"). The principal executive offices of the
depositor are located at One West Fourth Street, Suite ______, Cincinnati, Ohio
45202. The telephone number of such offices is (513) ____________.
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 the trusts and trust estates established by the depositor and proceeds
therefrom, (ii) issuing one or more Series of Notes or other debt obligations
under one or more indentures, (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.
The transactions contemplated hereby have been structured to prevent any
voluntary or involuntary application for relief by Resources under any
Insolvency Law 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 the United
States Bankruptcy Code or other insolvency laws, as the case may be ("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 Insolvency Law.
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
3
<PAGE> 88
and other procedures related to maintaining its separate identity. However,
there can be no assurance that a court would not conclude that the assets and
liabilities of the depositor should be consolidated with those of Resources. If
a court were to reach such a conclusion, or a filing were made under any
Insolvency Law by or against the depositor, or if an attempt were made to
litigate any of the foregoing issues, delays in distributions on the Notes 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 issuer, the Financed Student Loans and other assets constituting
a Trust may be liquidated. The proceeds from any such liquidation would be
treated as collections on such assets and deposited in the Funds and Accounts
under the related 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 such Indenture would be sufficient to pay the Notes issued
under such Indenture in full.
THE FINANCED STUDENT LOAN POOL
The Notes are secured by and payable solely from their related Trust. Each Trust
will include: (i) a pool of Financed Student Loans and moneys payable with
respect thereto after their respective dates of acquisition or origination from
moneys under the related Indenture; (ii) money and investment securities in the
Funds and Accounts held by the Indenture Trustee under the related 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 Assets" in this
Prospectus. "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 Notes or moneys in the Acquisition
Fund, the Pre-Funding Account, if any, or the Collection Account, or upon the
exchange of Financed Student Loans pursuant to an Indenture, and included in the
related Student Loan Portfolio Fund. The pool of Financed Student Loans will
include the Student Loans to be Financed by the issuer or the applicable
Eligible Lender Trustee on behalf of the issuer from time to time as of the
applicable Cut-off Date and, if set forth in the related Prospectus Supplement,
any additional Student Loans to be Financed by the issuer or the applicable
Eligible Lender Trustee on behalf of the issuer after the Cut-off Date as
described in the related Prospectus Supplement.
The Financed Student Loans will include FFELP Loans and Private 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 or the applicable Private Loan Program,
as the case may be, to, or on behalf of, a student who has graduated or is
expected to graduate from an accredited institution of higher education, a
for-profit educational institution or to, or on behalf of, a student who is
enrolled in private primary or secondary schools, (ii) bears interest at the
maximum interest rate permitted under the applicable program, or such lesser
rate of interest as is approved by the Rating Agencies in accordance with the
related Indenture, (iii) contains terms in accordance with those required by the
applicable program, the Guarantee Agreements and other applicable requirements,
and (iv) is not more than 59 days past due as of the related Cut-off Date. The
relative percentages of each type of Financed Student Loan to be included in the
pool of Financed Student Loans will be determined from time to time in
accordance with the related Indenture. See "Description of the FFEL Program,"
"Description of the Guarantee Agencies" and "The Private Loan Programs" herein.
In addition to the criteria described in the preceding paragraphs, a provider of
Credit Enhancement may require certain other characteristics for additional
Financed Student Loans in the related Trust. However, following each acquisition
of additional Financed Student Loans into a Trust by the issuer or an Eligible
Lender Trustee on behalf of the issuer, the aggregate characteristics of the
entire pool of Financed Student Loans in the trust, including the composition
and type of the Financed Student Loans, the distribution by weighted average
interest rate and the distribution by principal amount to be described in tables
included in each Prospectus Supplement, may vary significantly from those of the
Financed Student Loans, if any, acquired by the issuer or the Eligible Lender
Trustee
4
<PAGE> 89
on behalf of the issuer and constituting a portion of such Trust as of the
applicable Cut-off Date. In addition, the distribution by weighted average
interest rate applicable to the Financed Student Loans in such Trust on any date
following the related Cut-off Date may vary significantly from that set forth in
the tables included in the related Prospectus Supplement as a result of
variation in the effective rates of interest applicable to the Financed Student
Loans. Moreover, the information included in the related Prospectus Supplement
with respect to the original term to maturity and remaining term to maturity of
Financed Student Loans as of the related Cut-off Date may vary significantly
from the actual term to maturity of any of the Financed Student Loans as a
result of the granting of deferral and forbearance periods with respect thereto.
Each Prospectus Supplement will set forth, as of the related Cut-off Date,
various information with respect to the initial Financed Student Loans in the
related Trust. Such information may include the composition of the Financed
Student Loans, the distribution by loan type, the distribution by interest
rates, the distribution by outstanding principal balance, the distribution by
geography, the distribution by insurance or guarantee level, the distribution by
school type, the distribution by Guarantee Agency or Private Loan Program, the
distribution by remaining term to scheduled maturity and the distribution by
borrower payment status. See "The Financed Student Loans" in the accompanying
Prospectus Supplement. Each Prospectus Supplement will also contain information
with respect to other Financed Student Loans constituting the related Trust.
Each of the FFELP Loans provides or will provide for the amortization of the
outstanding principal balance of 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. Private Loans may
contain different amortization provisions.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the Notes and the yield on the Notes will be
affected by (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 payment on the
Financed Student Loans resulting from defaults, Grace Periods, Deferment Periods
and, under certain circumstances, Forbearance Periods or as a result of
refinancing through Consolidation Loans.
All the Financed Student Loans are prepayable in whole or in part by the
borrowers at any time (including by means of Consolidation Loans as discussed
below) and may be prepaid as a result of (i) borrower 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 (including for the purpose payments by any guarantor or escrow
fund
5
<PAGE> 90
under a Private Loan Program), and (iv) Financed Student Loans being repurchased
by the respective Seller 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.
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 or as a result of
refinancing through Consolidation Loans to the extent such Consolidation Loans
are sold to the applicable Eligible Lender Trustee on behalf of the issuer as
described above. In that event, the fact such Consolidation Loans will likely
have longer maturities than the Financed Student Loans they are replacing may
lengthen the remaining term of the Financed Student Loans in the related Trust
and the average life of the related Notes. The rate of payment of principal of
the Notes and the yield on the Notes may also be affected by the rate of
defaults resulting in losses on Financed Student Loans, by the severity of those
losses and by the timing of those losses, which may affect the ability of
Guarantee Agencies to make Guarantee Payments with respect to Financed Student
Loans.
The rate of prepayment on the Financed Student Loans cannot be predicted, and
any reinvestment risks resulting from a faster or slower incidence of prepayment
of Financed Student Loans will be born entirely by the Noteholders. Such
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time Noteholders
receive payments from the related 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.
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 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.
6
<PAGE> 91
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 "Description of 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 Servicers and other parties 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 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
7
<PAGE> 92
Program that were scheduled to become effective on July 1, 1998. For loans made
during the period July 1, 1998 through September 30, 1998, the borrower interest
rate for Stafford Loans and Unsubsidized Stafford Loans is reduced to a rate of
91-day Treasury Bill Rate plus 2.30% (1.70% during school, grace and deferment),
subject to a maximum rate of 8.25%. As described below, the formula for Special
Allowance Payments on Stafford Loans and Unsubsidized Stafford Loans is
calculated to produce a yield to the loan holder of 91-day Treasury Bill rate
plus 2.80% (2.20% during school, grace and deferment).
1998 Reauthorization Bill. On October 7, 1998, President Clinton signed into law
the 1998 Reauthorization Bill, which enacted significant reforms in the FFEL
Program. The major provisions of the 1998 Reauthorization Bill include the
following:
- All references to a "transition" to full implementation of the Federal
Direct Student Loan Program were deleted from the FFEL Program statute.
- Guarantee Agency reserve funds were restructured so that Guarantee
Agencies are provided with additional flexibility in choosing how to
spend certain funds they receive.
- Additional recall of reserve funds by the Secretary of Education was
mandated, amounting to $85 million in fiscal year 2002, $82.5 million
in fiscal year 2006, and $82.5 million in fiscal year 2007. However,
certain minimum reserve levels are protected from recall.
- The administrative cost allowance was replaced by two new payments, a
Student Loan processing and issuance fee equal to 65 basis points (40
basis points for loans made on or after October 1, 2003) paid at the
time a loan is guaranteed, and an account maintenance fee of 12 basis
points (10 basis points for fiscal years 2001-2003) paid annually on
outstanding guaranteed Student Loans.
- The percentage of collections on defaulted Student Loans a Guarantee
Agency is permitted to retain is reduced from 27% to 24% (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.
- Federal reinsurance provided to Guarantee Agencies is reduced from 98%
to 95% for Student Loans first disbursed on or after October 1, 1998.
- The delinquency period required for a loan to be declared in default is
increased from 180 days to 270 days for loans on which the first day of
delinquency occurs on or after the date of enactment of the 1998
Reauthorization Bill.
- Interest rates charged to borrowers on Stafford Loans, and the yield
for Stafford Loan holders established by the 1998 Amendments, were made
permanent.
- Federal Consolidation Loan interest rates were revised to equal the
weighted average of the loans consolidated rounded up to the nearest
one-eighth of 1%, capped at 8.25%. When the 91-day Treasury Bill Rate
plus 3.1% exceeds the borrower's interest rate, Special Allowance
Payments are made to make up the difference.
- The lender-paid offset fee on Federal 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.
8
<PAGE> 93
- The Federal Consolidation Loan interest rate calculation was revised to
reflect the rate of Federal Consolidation Loans, and will be effective
for loans on which applications are received on or after February 1,
1999.
- 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.
- 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.
- Federal Consolidation Loan lending restrictions are revised to allow
lenders who do not hold one of the borrower's underlying FFELP Loans to
issue a Federal Consolidation Loan to a borrower whose underlying FFELP
Loans are held by multiple holders.
- Inducement restrictions were revised to permit Guarantee Agencies and
lenders to provide assistance to schools comparable to that provided to
schools by the Secretary of Education under the Federal Direct Student
Loan Program.
- The Secretary of Education is now required to pay off Student Loan
amounts owed by borrowers due to failure of the borrower's school to
make a tuition refund allocable to the Student Loan.
- Discharge of FFELP Loans and 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 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
9
<PAGE> 94
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
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 students'
parents were unable to obtain a Plus Loan and were also unable to provide such
students' expected family contribution. Except as described in clause (c),
eligibility was determined without regard to need.
Consolidation Loans. To be eligible for a Consolidation Loan a borrower must (a)
have outstanding indebtedness on student loans made under the FFEL Program
and/or certain other federal student loan programs, 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.
10
<PAGE> 95
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 U.S. Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.25% per annum (but not to
exceed 10% per annum); or
(e) for a loan made on or after October 1, 1992 shall be adjusted
annually, and for any 12-month period commencing on a July 1 shall be equal
to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the
final auction prior to the preceding June 1, plus 3.1 % per annum (but not
to exceed 9% per annum).
For a Stafford Loan made prior to July 1, 1994, the applicable interest
rate for a borrower who, on the date the promissory note evidencing the
loan was signed, had an outstanding balance on a previous loan made,
insured or guaranteed under the FFEL Program (a "Repeat Borrower"):
(f) for a loan made prior to July 23, 1992 is the applicable interest
rate on the previous loan or, if such previous loan is not a Stafford Loan,
8% per annum, or
(g) for a loan made on or after July 23, 1992 shall be adjusted
annually, and for any twelve month period commencing on a July 1 shall be
equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned
at the final auction prior to the preceding June 1, plus 3.1 % per annum
but not to exceed:
11
<PAGE> 96
(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 U.S. 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;
(b) made on or after October 1, 1981, but before November 1, 1982, is
14% per annum;
(c) made on or after November 1, 1982, but before July 1, 1987, is 12%
per annum;
(d) made on or after July 1, 1987, but before October 1, 1992 shall be
adjusted annually, and for any 12-month period beginning on July 1 shall be
equal to the bond equivalent rate of 52-week U.S. Treasury bills auctioned
at the final auction prior to the preceding June 1, plus 3.25% per annum
(but not to exceed 12% per annum);
(e) made on or after October 1, 1992, but before July 1, 1994, shall be
adjusted annually, and for any 12- month period beginning on July 1 shall
be equal to the bond equivalent rate of 52-week U.S. Treasury bills
12
<PAGE> 97
auctioned at the final auction prior to the preceding June 1, plus 3.1% per
annum (but not to exceed 10% per annum);
(f) made on or after July 1, 1994, but before July 1, 1998, is the same
as that described in clause (e) above, except that such rate shall not
exceed 9% per annum; or
(g) made on or after July 1, 1998, but before July 1, 2003, shall be
adjusted annually, and for any 12-month period beginning on July 1 shall be
equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned
at the final auction prior to the 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.
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
13
<PAGE> 98
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 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
14
<PAGE> 99
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
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
15
<PAGE> 100
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.
As described under the caption "-- 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.
16
<PAGE> 101
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 "Description of
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 reduced
the maximum reinsurance rate to Guarantee Agencies from 98% to 95% for loans
made on or after October 1, 1998. 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
17
<PAGE> 102
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 "Description of 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 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
18
<PAGE> 103
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.
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 1, 1998) if it is repayable in monthly installments or 270 days
19
<PAGE> 104
(or 330 days for loans on which the first day of delinquency occurs on or after
October 1, 1998) 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
"Description of the Guarantee Agencies -- Federal Agreements," whereby the
Secretary of Education agrees to pay Interest Subsidy Payments to the holders of
eligible guaranteed loans for the benefit of students meeting certain
requirements, subject to the holders' compliance with all requirements of the
Higher Education Act. Only Stafford Loans, and Consolidation Loans for which the
application was received on or after January 1, 1993, are eligible for Interest
Subsidy Payments. Consolidation Loans made after August 10, 1993 are eligible
for Interest Subsidy Payments only if all loans consolidated thereby are
Stafford Loans, except that Consolidation Loans for which the application is
received by an eligible lender on or after November 13, 1997 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
20
<PAGE> 105
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.
FEDERAL SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for the payment by the Secretary of Education
of additional subsidies, called Special Allowance Payments, to holders of
qualifying student loans. The amount of the Special Allowance Payments, which
are made on a quarterly basis, is computed by reference to the average of the
bond equivalent rates of the 91-day Treasury bills auctioned during the
preceding quarter (the "T-Bill Rate"). The quarterly rate for Special Allowance
Payments for Student Loans made on or after October 1, 1981, and generally
before November 16, 1986, is computed by subtracting the applicable interest
rate on such loans from the T-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 3.25% 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 disbursed on or after July 1, 1998, the 1998 Amendments
substitute 2.2% for 2.5% 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.
21
<PAGE> 106
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 --
(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 1997-1998 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.
22
<PAGE> 107
DESCRIPTION OF THE GUARANTEE AGENCIES
The Financed Student Loans in a Trust may be guaranteed by any one or more
Guarantee Agencies identified in the related Prospectus Supplement. The
following discussion relates to Guarantee Agencies under the FFEL Program. The
particular arrangements of a guarantor or escrow fund with respect to a Private
Loan Program will be described in the Prospectus Supplement for that issuance,
as applicable.
A Guarantee Agency guarantees loans made to students or parents of students by
lending institutions such as banks, credit unions, savings and loan
associations, 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). 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 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".
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
23
<PAGE> 108
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.
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.
Information relating to the particular Guarantee Agencies guaranteeing the
Financed Student Loans will be set forth in the Prospectus Supplement. Such
information, which is particularly within each respective Guarantee Agency's
knowledge, will be requested of and provided by the respective Guarantee
Agencies. Such information and information included in the reports referred to
therein will not be verified by or independently confirmed by the issuer, the
depositor, the administrator, the master servicer, the Underwriters or their
respective counsel, and will comprise all information in request of each such
Guarantee Agency that the issuer obtains after a reasonable request and inquiry.
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".
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
24
<PAGE> 109
entitles the holders of eligible loans guaranteed by the Guarantee Agency to
receive Interest Subsidy Payments from the Secretary of Education on behalf of
certain students while the student is in school, during a six to twelve month
Grace Period after the student leaves school, and during certain Deferment
Periods, subject to the holders' compliance with all requirements of the Higher
Education Act. See "Description of the FFEL Program -- Contracts with Guarantee
Agencies -- Federal Interest Subsidy Payments" for a more detailed description
of the Interest Subsidy Payments.
United States Courts of Appeals have held that the federal government, through
subsequent legislation, has the right unilaterally to amend the contracts
between the Secretary of Education and the Guarantee Agencies described herein.
Amendments to the Higher Education Act 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.
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 on or after October 1, 1993, if the Claims Rate remains equal to or below
5% within a given federal fiscal year (October 1 through September 30), the
Secretary of Education is obligated to provide 98% reimbursement; if and when
the Claims Rate exceeds 5% and until 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 on or after October 1, 1993, each
Guarantee Agency is entitled to at least 78% reimbursement from the Secretary of
Education on default claims that it purchases, regardless of its Claims Rate.
The reimbursement percentages for loans made on or after October 1, 1998 are
reduced from 98%, 88% and 78% to 95%, 85% and 75%, respectively. See
"Description of the FFEL Program" herein.
THE PRIVATE LOAN PROGRAMS
To the extent described in the Prospectus Supplement for a Series, a Trust may
include Financed Private Loans issued under one or more Private Loan Programs.
The Private Loan Programs will be specifically identified in the
25
<PAGE> 110
Prospectus Supplement with respect to such Series. The Prospectus Supplement for
a Series may specify a maximum percentage of Financed Private Loans that may
comprise part of the related Trust. This summary identifies characteristics
common to most Private Loan Programs but is qualified by the specific disclosure
set forth in the related Prospectus Supplement.
Private Loans made under most Private Loan Programs are based on the credit of
the borrower or his or her parents or co-borrowers. In general, applicants are
required to have a minimum annual income and a monthly debt burden, including
the Financed Student Loan, of no greater than a specified percentage of their
monthly income. In determining whether a student or co-borrower is creditworthy,
a credit bureau report is obtained for each applicant, including the student.
The various Private Loan Programs have different standards as to what
constitutes a satisfactory credit history.
Eligible post-secondary borrowers of a Private Loan often are required to be
engaged in a course of study at a qualifying educational institution, which may
include two-year colleges, four-year colleges and for-profit schools. Certain
Private Loan Programs are specifically designed for graduate or professional
students, or for students attending elementary or secondary private schools. The
institutions generally must be located in the United States or Canada. Often,
the borrower (or a co-applicant) must be a citizen or resident of the United
States. Some Private Loans may be a consolidation of existing Private Loans.
The amount that may be borrowed under a Private Loan Program varies based upon
the Private Loan Program. Typically, borrowers must borrow at least a minimum
amount with respect to any academic year, and may not borrow more than a maximum
amount per academic year, or a maximum amount under the Private Loan Program.
However, the amount of the Private Loan plus other financial aid received by a
student, normally may not exceed the cost of education, as determined by the
school.
A guarantee fee or origination fee typically is deducted from the Private Loan
proceeds. Depending on the Private Loan Program, all or a portion of this fee is
either paid to the agency that has established the Private Loan Program and that
guarantees the repayment of all or a substantial portion of the Private Loan
under certain specified circumstances or deposited into an escrow fund to repay
all or a substantial portion of the Private Loan under certain specified
circumstances. The obligation to guarantee or the right to receive payment from
an escrow fund is typically dependent upon the proper servicing of such Private
Loan by the Servicer thereof.
The interest rate on a Private Loan varies based upon the Private Loan Program
and can either be fixed or variable. Floating rates may be based upon the prime
rate or the T-Bill Rate Index, or some other objective standard. Interest
typically accrues at a rate equal to the index plus a margin, but subject to a
maximum rate per annum, with the interest rate being adjusted periodically.
Repayment of a Private Loan usually is required to commence within 45 to 90 days
following the borrowing. However, certain Private Loan Programs permit a
borrower to defer the repayment of principal while the student is in school
(often up to a maximum number of years). In such event, principal repayments
typically begin promptly following graduation. Most Private Loan Programs permit
prepayment of the Private Loan at any time without penalty. Borrowers typically
may schedule repayment over a 10 to 25-year period, subject to a minimum monthly
payment obligation.
TRANSFER AND SALE AGREEMENTS
On the Closing Date for any Series of Notes, the depositor will cause its
eligible lender trustee to contribute and assign to the Eligible Lender Trustee
on behalf of the related Trust, without recourse, its entire interest in the
26
<PAGE> 111
Financed Student Loans described in the Transfer and Sale Agreement and all
collections received and to be received with respect thereto for the period on
or after the Cut-off Date.
Conveyance of Financed Student Loans; Representations and Warranties. The
depositor will make certain representations and warranties with respect to the
Financed Student Loans to the related Trust, including, among other things, that
(i) each Financed Student Loan, at the time of transfer to the trust, is 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 is true and correct in all material respects as of the
Cut-off Date; and (iii) each Financed Student Loan, at the time it was
originated, complied and, at the Closing Date, complies in all material respects
with applicable federal and state laws (including, without limitation, the
Higher Education Act, consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws) and applicable restrictions imposed by (A) the
FFEL Program or under any Guarantee Agreement with respect to FFELP Loans and
(B) any related Private Loan Program with respect to Private Loans.
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 (including for this purpose any
guarantor under a Private Loan Program) to make a Guarantee Payment to the
Eligible Lender Trustee, the depositor will purchase 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 issuer to which the issuer was not entitled due to
ineligibility of such Financed Student Loan; and (4) any unamortized premium.
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 and setting forth the reason therefor. Any Financed
Student Loan returned to the depositor which has been endorsed to the Eligible
Lender Trustee on behalf of the trust shall be endorsed by the Eligible Lender
Trustee on behalf of the trust to the depositor's eligible lender trustee.
Under certain circumstances, the depositor also has the right to repurchase, or
transfer a Subsequent Financed Student Loan in exchange for, a Financed Student
Loan for which it has a repurchase obligation as described above. The repurchase
and reimbursement obligations of the depositor will constitute, together with
the right to receive certain amounts from Credit Enhancement, if any, the sole
remedy available to or on behalf of such Trust, the Certificateholders or the
Noteholders for any such uncured breach. The depositor's repurchase and
reimbursement obligations are contractual obligations pursuant to the Transfer
and Sale Agreement that may be enforced against the depositor, but the breach of
which will not constitute an Event of Default under the Notes.
Subsequent Finance Period and Subsequent Financed Student Loans. During a period
from the Closing Date for a Series to a subsequent date identified in the
related Prospectus Supplement (the "Subsequent Finance Period"), the depositor
may, at its option but subject to the conditions set forth in the Transfer and
Sale Agreement, transfer to the Eligible Lender Trustee on behalf of the related
Trust, Subsequent Financed Student Loans, and direct the Eligible Lender Trustee
and the Indenture Trustee to apply Consolidation prepayments on deposit in the
Collection Account to pay the purchase price for such Subsequent Financed
Student Loans. Subsequent Financed Student Loans that may be so transferred by
the depositor include (i) Consolidation Loans, provided, however, that in no
event shall the aggregate amount of Subsequent Financed Student Loans that are
Consolidation Loans transferred into the related Trust exceed any maximum amount
identified in the Prospectus Supplement; (ii) Serial Loans that are serial
(i.e., made to the same borrower under the same loan program and guaranteed by
the same Guarantee Agency) to an existing Financed Student Loan owned by the
related Trust, provided that each such Subsequent Financed Student
27
<PAGE> 112
Loan entitles the holder thereof to receive interest based on the same interest
rate index as the Financed Student Loan to which it is serial, and provided
further, that in no event shall the aggregate amount of Subsequent Financed
Student Loans that are Serial Loans transferred into the related Trust exceed
any maximum amount identified in the Prospectus Supplement; and (iii) similar
consolidation or serial loans under applicable Private Loan Programs.
In addition, during the Subsequent Finance Period for any Series, subject to the
conditions set forth in the related Transfer and Sale Agreement, the depositor
may, at its option, in lieu of reimbursing certain lost interest payments and
Special Allowance Payments or depositing into the Collection Account the
Purchase Amount of a Financed Student Loan which has become ineligible for lost
interest payments or Special Allowance Payments (see "Transfer and Sale
Agreements -- Conveyance of Financed Student Loans; Representations and
Warranties"), the depositor may transfer to the Eligible Lender Trustee on
behalf of the related Trust, a Subsequent Financed Student Loan which satisfies
the following criteria (or such other criteria as may be set forth in the
Prospectus Supplement for a Series): (A) the Subsequent Financed Student Loan
was originated under the same loan program as the Financed Student Loan for
which it is being exchanged and entitles the holder thereof to receive interest
based on the same interest rate index as the Financed Student Loan for which it
is being exchanged, (B) the Subsequent Financed Student Loan will not, at any
level of such interest rate index, have an interest rate that is less than the
Financed Student Loan for which it is being exchanged and (C) the average
principal balance per borrower of the Subsequent Financed Student Loans that are
being transferred into the related Trust and the existing Financed Student Loans
for which they are being exchanged is within 10% (plus or minus) of the average
principal balance per borrower of the Financed Student Loans being transferred
to the depositor. If the aggregate outstanding principal balance of the
Subsequent Financed Student Loans is less than that of the Financed Student
Loans for which they are being exchanged, the depositor shall deposit the
difference in the Collection Account concurrently with such transfer. If the
aggregate outstanding principal of the Subsequent Financed Student Loans is
greater than that of the Financed Student Loans for which they are being
exchanged, the depositor shall be entitled to the difference from amounts on
deposit in the Collection Account. In either case, such payments are referred to
herein as "Adjustment Payments."
The Trust may not acquire Subsequent Financed Student Loans at any time that an
Event of Default under the Indenture or an administrator Default under the
Administration Agreement has occurred and is continuing.
Amendment. Each Transfer and Sale Agreement may be amended by the parties
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 a Transfer and Sale Agreement or of modifying in any manner the rights of
Noteholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments with respect to the Financed Student Loans or
distributions that are required to be made for the benefit of the Noteholders 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.
SERVICING
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 provide for the servicing of the Financed Student Loans. Under
the terms of the Master Servicing Agreement between the master servicer and the
issuer, the master servicer has agreed to provide, arrange for and maintain the
continuous servicing and administration of the Financed Student Loans with one
or more approved Servicers. The master servicer is obligated to assure that
adequate arrangements exist at all times to provide for servicing of the
Financed Student Loans. The master servicer and the issuer have entered or will
enter into one or more Servicing Agreements 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
28
<PAGE> 113
Agreement but will have liability for its own wilful 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 Program Operating Expenses, as described in
the related Prospectus Supplement. The form of Master Servicing Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. 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.
Information relating to the initial Servicers for a particular pool of Financed
Student Loans will be set forth in the related Prospectus Supplement. Such
information, which is particularly within each respective Servicer's knowledge,
will be provided by the respective Servicers. Such information and information
included in the reports referred to therein will not be verified by or
independently confirmed by the issuer, the depositor, the administrator, the
master servicer, the Underwriters or their respective counsel, and will comprise
all information in respect of each such Servicer that the issuer obtains after a
reasonable request and inquiry.
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, all regulations and agreements
respecting Private Loans 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, with respect to Financed FFELP Loans, any Guarantee
Payments, Interest Subsidy Payments and Special Allowance Payments and guarantee
or escrow fund payments with respect to Private Loans; 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 related 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 (including for this purpose any guarantor or escrow fund
under a Private Loan Program) 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 and
program requirements for Private Loans in connection with servicing the Financed
29
<PAGE> 114
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 (including for this purpose any guarantor or
escrow fund under a Private Loan Program) 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.
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, as
described in the related Prospectus Supplement.
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 and
guarantee or escrow fund payments by guarantors of Financed Private Loans,
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.
DESCRIPTION OF THE NOTES
The Notes are payable solely from the assets of a Trust. A separate Trust will
be established for each issuance of Notes under an Indenture entered into in
connection with that issuance of Notes. The Notes of any Series will be issued
pursuant to the terms of an Indenture. Each Indenture will be substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summary describes the material terms of the
Notes. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Notes, the related Indentures and
the Prospectus Supplement, which provisions are incorporated by reference
herein.
It is expected that each Series of the Notes will initially be represented by
one or more Notes registered in the name of the nominee of The Depository Trust
Company ("DTC", and together with any successor depository selected by the
issuer, the "Depository"). Notes generally will be available for purchase in
denominations of $50,000 and integral multiples of $1,000 in excess thereof in
book-entry form. The authorized denominations of each Series of Notes in an
issuance will be set forth in the related Prospectus Supplement. The issuer has
been informed by DTC that DTC's nominee will be Cede & Co. Accordingly, Cede &
Co. is expected to be the holder of record of the Notes. Unless and until
Definitive Notes are issued under the limited circumstances described herein or
in the accompanying Prospectus Supplement, no Noteholder will be entitled to
receive a physical certificate representing his Note. All references herein to
actions by Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein to
distributions, notices, reports and statements to Noteholders refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the Notes, for distribution to Noteholders in accordance
with DTC's procedures with respect thereto. See "-- Book-entry Registration"
and "-- Definitive Notes" herein.
30
<PAGE> 115
Each Series of Notes will evidence the interests specified in the related
Prospectus Supplement, which may (i) include the right to receive payments
allocable only to principal, only to interest or to any combination thereof;
(ii) include the right to receive payments only of prepayments of principal
throughout the lives of the Notes or during specified periods; (iii) be
subordinated in its right to receive distributions of scheduled payments of
principal, prepayments or principal, interest or any combination thereof to one
or more other Series of Notes and any Exchange Counterparties under any Senior
Exchange Agreement, throughout the lives of the Notes or during specified
periods or may be subordinated with respect to certain losses or delinquencies;
(iv) include the right to receive such payments only after the occurrence of
events specified in the Prospectus Supplement; (v) include the right to receive
payments in accordance with a schedule or formula or on the basis of collections
from designated portions of the assets in the related Trust; (vi) include, as to
Notes entitled to payments allocable to interest, the right to receive interest
at a fixed rate or an adjustable rate; (vii) include the right to have interest
accrue but not be paid until the occurrence of a specified event or the passing
of time; and (viii) include, as to Notes entitled to payments allocable to
interest, the right to payments allocable to interest only after the occurrence
of events specified in the related Prospectus Supplement.
One or more Series of Notes of a Trust ("Subordinate Notes") may be subordinated
to other Series of Notes in that Trust ("Senior Notes"). If so provided in the
related Prospectus Supplement, principal payments on the Subordinate Notes
generally will not begin until the related Senior Notes are repaid. In addition,
if so provided in the related Prospectus Supplement, interest payments on any
Distribution Date on Subordinate Notes generally will be made only after each
related Series of Senior Notes has received its interest entitlement on that
Distribution Date and after each Senior Exchange Payment to be made under a
Senior Exchange Agreement, if any, is made, and sometimes will be made only
after each related Series of Senior Notes has received its Principal
Distribution Amount on such Distribution Date. See "-- Payment of Available
Funds" and "Security for the Notes -- The Trust Assets" herein. The specific
terms of any Senior Notes and Subordinate Notes in an issuance will be described
in the related Prospectus Supplement.
PAYMENT OF AVAILABLE FUNDS
On each Distribution Date with respect to an issuance of Notes, moneys in the
related Collection Account will be disbursed by the related Indenture Trustee
from Available Funds for each Collection Period as set forth in the related
Prospectus Supplement.
For purposes hereof, "Available Funds" for each issuance of Notes means, with
respect to any Collection Period, the excess of (A) the sum, without
duplication, of the following amounts with respect to such Collection Period:
(i) all collections received by the Indenture Trustee on the Financed Student
Loans (including any Guarantee Payments (including payments received from any
guarantor or escrow fund under any Private Loan Program) received with respect
to the Financed Student Loans) 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 the
related Collection Period; (vi) the aggregate amounts, if any, received from the
issuer or the Indenture Trustee as reimbursement of non-guaranteed or uninsured
interest amounts (which shall not include, with respect to Financed FFELP Loans,
the portion of such interest amounts for which the Guarantee Agency did not have
an obligation to make a Guarantee Payment), or lost Interest Subsidy Payments
and Special Allowance Payments, with respect to the Financed Student Loans;
(vii) Counterparty Exchange Payments; (viii) Advances received; (ix) Investment
Earnings for such Collection Period; and (x) any other sums identified in the
related Prospectus Supplement over (B) amounts received by the issuer in
connection with balance reconciliations required
31
<PAGE> 116
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 depositor for Advances
or any other amounts advanced by the depositor on a voluntary basis with respect
to Guarantee Payments (including payments from any guarantor or escrow fund
under any Private Loan Program) or Interest Subsidy Payments applied for but not
received as of the end of the Collection Period immediately preceding the date
such Advance is made, (3) payments by a bond insurance company or other surety,
credit enhancer or guarantor who is obligated to pay debt service on a
particular Series of Notes, and (4) amounts which are paid to the issuer
pursuant to the Indenture.
Prior to making payments to the Note Payment Account established under the
Indenture, the Indenture Trustee will, if and to the extent provided in the
Prospectus Supplement for a Series, transfer from the Collection Account
established under the Indenture to the Expense Account established under the
Indenture an amount sufficient to pay the Program Expense Requirement calculated
as of such Distribution Date. On each Distribution Date for a Series of Notes
(other than those relating to Accrual Notes during the related Accrual Period),
the Indenture Trustee will, subject to the amount of Available Funds, transfer
from the Collection Account to the Note Payment Account an amount equal to the
Noteholders' Interest Distribution Amount for such Series and any related Issuer
Exchange Payment, as described in the related Prospectus Supplement. For each
Distribution Date during the related Accrual Period relating to a Series of
Accrual Notes, the related Noteholders' Interest Distribution Amount will be
added to the principal amount of such Series of Notes and any related Issuer
Exchange Payment will be transferred to the Note Payment Account. On each
Distribution Date on which a principal distribution is to be made on the Notes,
the Indenture Trustee will, subject to the amount of Available Funds, transfer
from the Collection Account to the Note Payment Account an amount equal to the
appropriate Noteholders' Principal Distribution Amount, as described in the
related Prospectus Supplement. The order and priority and timing for payment of
interest, principal distributions and Issuer Exchange Payments as between each
Series of Senior Notes and Senior Exchange Agreements and each Series of
Subordinate Notes and Subordinate Exchange Agreements in an issuance will be
described in the related Prospectus Supplement for such issuance.
The "Program Expense Requirement" means, with respect to an issuance of Notes
and 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 related
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 such Indenture.
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, any Auction Agent,
Broker-Dealers, market agent or other agent in connection with any Notes issued
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 (including for this purpose any agreement with a
guarantor or relating to an escrow fund under a Private Loan Program) 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 depositor.
32
<PAGE> 117
Following the payment of all required amounts due on the Notes on any
Distribution Date (and deposit of any required amounts in any Reserve Fund), the
Indenture Trustee will, if and to the extent provided in the Prospectus
Supplement for a Series, transfer from the Collection Account to the Note
Payment Account, to the extent of Available Funds, an amount equal to Parity
Percentage Payments, if any, to be made on such Distribution Date. If any
Available Funds are available after such transfer, the Indenture Trustee will,
if and to the extent provided in the Prospectus Supplement for a Series,
transfer from the Collection Account to the Note Payment Account, to the extent
of Available Funds, the amount of any Carryover Interest.
Following the payment of all required amounts as described above, the Indenture
Trustee will, if and to the extent provided in the Prospectus Supplement for a
Series, transfer from the Collection Account to an Exchange Counterparty the
amount, if any, owed an Exchange Counterparty in respect of an early termination
payment or damages for early termination by, or as a result of a default by, the
issuer under any Exchange Agreement.
On each applicable Distribution Date as described in the related Prospectus
Supplement, if and to the extent specified in the related Prospectus Supplement,
the Indenture Trustee will, after making all required transfers to the Expense
Account, Note Payment Account, the Reserve Fund and to any Exchange
Counterparties as described above, transfer to the Excess Surplus Account
established under the Indenture any remaining Available Funds. Any amounts
withdrawn by the issuer from the Excess Surplus Account will not thereafter be
available to make payments on the Notes. See "The Indentures -- Funds and
Accounts" herein.
On each Distribution Date, the Indenture Trustee will pay to the Noteholders of
the applicable Series as of the related Record Date and any related Exchange
Counterparties all amounts transferred to the Note Payment Account as set forth
above and in the related Prospectus Supplement.
Notwithstanding the foregoing, if: (a) the Outstanding principal amount of all
Senior Notes issued under the Indenture would exceed the sum of the related Pool
Balance plus the aggregate balance on deposit in the Funds and Accounts under
the Indenture (exclusive of the balance of the Student Loan Portfolio Fund) at
the end of the immediately preceding Collection Period less all distributions to
be made on such Distribution Date or (b) a payment Event of Default has occurred
(but prior to the acceleration of the maturity of the Notes issued under the
Indenture), then until the applicable conditions described in clauses (a) and
(b) no longer exist, Noteholders of Subordinate Notes issued under the Indenture
will not be entitled to any payments of principal or interest and no Subordinate
Issuer Exchange Payments will be made. For so long as any related Senior Notes
are Outstanding, any such deferral in the payment of principal or interest on
the Subordinate Notes or in the payment of Subordinate Issuer Exchange Payments
(except with respect to the Legal Final Maturity of a related Series of
Subordinate Notes) will not constitute an Event of Default under the Indenture.
INTEREST
Interest will accrue on the principal balance of each Series of Notes at a rate
per annum (calculated as provided below or in the related Prospectus Supplement)
equal to the related Series Interest Rate. Interest is expected to accrue
initially from and including the Closing Date on which the related Series was
issued through and including the date set forth in the related Prospectus
Supplement and, thereafter, as set forth in the related Prospectus Supplement,
for periods (each, an "Interest Accrual Period") consisting of (i) with respect
to LIBOR Rate Notes, generally a one-month or three-month period beginning and
ending on the dates set forth in the related Prospectus Supplement, (ii) with
respect to T-Bill Rate Index Notes, generally a three-month period beginning and
ending on the dates set forth in the related Prospectus Supplement, (iii) with
respect to Auction Rate Notes, as set forth in the related Prospectus
Supplement, or (iv) with respect to Notes accruing interest based on some other
method, the period set forth in the related Prospectus Supplement. Interest on
each Series of Notes will be payable (or with respect to Accrual Notes
33
<PAGE> 118
during the related Accrual Period, added to the principal amount thereof) on the
Distribution Dates described in the applicable Prospectus Supplement.
Generally, the Series Interest Rate on each Series of Notes will equal the
lesser of (i) the interest rate and applicable margin, if any, and (ii) a cap
specified in the related Prospectus Supplement (the "Formula Rate"); provided
that it will not exceed the Net Loan Rate for such Series when it is required to
be determined.
If on any Interest Determination Date, an Auction for a Series of Auction Rate
Notes is not held for any reason, then the Series Interest Rate for such Series
of Notes will be the Net Loan Rate or such other rate as may be described in a
Prospectus Supplement. The Series Interest Rate on each Series of Notes bearing
interest based upon a method other than LIBOR, T-Bill Rate Index or Auction Rate
will be described in the related Prospectus Supplement.
With respect to Auction Rate Notes, the issuer may, from time to time, change
the length of one or more Auction Periods to conform with then current market
practice or accommodate other economic or financial factors that may affect or
be relevant to the length of the Auction Period or any Series Interest Rate (an
"Auction Period Adjustment"). An Auction Period Adjustment will not cause an
Auction Period to be less than 7 days nor more than one year and will not be
allowed unless certain conditions described in the Auction Procedures in an
Appendix to the related Prospectus Supplement are satisfied. If an Auction
Period Adjustment is made, the intervals between Distribution Dates will be
adjusted accordingly.
Payment of Interest. Payments of interest will be made on each applicable
Distribution Date, as specified in the accompanying Prospectus Supplement.
Interest payments may include interest accrued on the assets of the related
Trust during one or more Interest Accrual Periods. Interest payments on the
Notes will generally be funded from Available Funds and Advances (and, when
applicable, amounts on deposit in any Reserve Fund, Capitalized Interest Account
or such other account as may be set forth in a Prospectus Supplement) remaining
after the deposit of the Program Expense Requirement in the Expense Account, as
specified in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, if insufficient funds are available to pay the applicable
Series Interest Rate on a Distribution Date, such shortfall will be paid from
draws on the applicable forms of Credit Enhancement to the extent described in
the related Prospectus Supplement. If so provided in the related Prospectus
Supplement, interest payments on Subordinate Notes and Subordinate Issuer
Exchange Payments may be deferred or otherwise affected in certain
circumstances. For so long as any related Senior Notes are Outstanding, any such
deferral in the payment of interest on the Subordinate Notes (except with
respect to the Legal Final Maturity of the Subordinate Notes) or in the payment
of Subordinate Issuer Exchange Payments will not constitute an Event of Default
under the related Indenture.
Carryover Interest. If set forth in a Prospectus Supplement, with respect to any
Series of Notes for any Interest Accrual Period, the LIBOR Rate, T-Bill Rate
Index, Auction Rate or other applicable interest rate plus the applicable margin
exceeds the Net Loan Rate for such Series, the applicable Series Interest Rate
for such Interest Accrual Period will be the Net Loan Rate, and the excess of
the amount of interest on such Series of Notes that would have accrued at a rate
equal to the LIBOR Rate, T-Bill Rate Index, Auction Rate or other applicable
interest rate plus any applicable margin, over the amount of interest on such
Series actually accrued at the Net Loan Rate will accrue as the Carryover
Interest with respect to such Series of Notes. Such determination of the
Carryover Interest will be made separately for each Series of Notes. The
Carryover Interest on any Series of Notes will bear interest at a rate equal to
the Formula Rate, or the rate set forth in the related Prospectus Supplement,
from the Distribution Date for the Interest Accrual Period for which the
Carryover Interest was calculated until paid.
Carryover Interest will be paid as described in the related Prospectus
Supplement.
34
<PAGE> 119
PRINCIPAL
All payments of principal of Notes of a Series will be made in an aggregate
amount determined as set forth in the related Prospectus Supplement and will be
paid at the times and will be allocated among the Series of Notes in an issuance
in the order and amounts, all as specified in the related Prospectus Supplement.
Principal will be paid pro rata to the Noteholders of any Series, as described
in the related Prospectus Supplement.
As described herein, several Series of Notes may be issued by a Trust under an
Indenture. Any issuance of Notes may contain one or more Series of Senior Notes
with a payment priority higher than one or more other Series of Subordinate
Notes or any Exchange Counterparties under any Subordinate Exchange Agreement.
In such event, the Series of Subordinate Notes may receive limited or no
payments of principal until each related Series of Senior and other parties with
a higher payment priority have been paid to the extent set forth in the
Prospectus Supplement.
The aggregate outstanding principal amount of each Series of Notes will be
payable in full on the Distribution Date identified in the related Prospectus
Supplement (the "Legal Final Maturity"). The actual date on which the aggregate
outstanding principal and accrued interest of any Series of Notes are paid may
be, and in some cases will be expected to be, earlier than its respective Legal
Final Maturity, based on a variety of factors, including those described under
"Maturity and Prepayment Considerations" herein.
Realized Losses. The issuer may experience losses with respect to the Financed
Student Loans. Realized Losses may result in the inability to pay the Notes of a
Series in full.
With respect to each Financed FFELP Loan submitted to a Guarantee Agency for a
Guarantee Payment, a "Realized Loss" means the excess, if any, of (i) the unpaid
principal balance of such Financed FFELP 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 FFELP 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.
With respect to each Private Loan, a "Realized Loss" generally will mean the
excess, if any, of (i) the unpaid principal balance of such Private Loan at the
time of default, plus accrued and unpaid interest thereon, if any, at such time
over (ii) all amounts received on or with respect to the liquidation of such
Private Loan. The Prospectus Supplement for any Series of Notes containing
Private Loans will describe the particular procedures with respect to the
realization of Realized Losses on the Private Loans of such Series.
DETERMINATION OF LIBOR
Pursuant to the related Prospectus Supplement, for each Interest Accrual Period
after the initial Interest Accrual Period, the Calculation Agent will determine
the applicable LIBOR rate for purposes of calculating the Series Interest Rate
on the LIBOR Rate Notes for each given Interest Accrual Period on the date which
is two London Banking Days preceding the commencement of each Interest Accrual
Period (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
35
<PAGE> 120
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 T-BILL RATE INDEX
Pursuant to the related Prospectus Supplement, for each Interest Accrual Period
after the initial Interest Accrual Period, the Calculation Agent will determine
the T-Bill Rate Index for purposes of calculating the Series Interest Rate on
each Series of T-Bill Rate Index Notes for each given Interest Accrual Period on
the related Interest Determination Date.
"T-Bill Rate Index" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
direct obligations of the United States with a maturity of thirteen weeks
("91-day Treasury Bills") sold at the most recent 91-day Treasury Bill auction
prior to such date, as reported by the U.S. Department of the Treasury. In the
event that the results of the auctions of 91-day Treasury Bills cease to be
reported as provided above, or that no such auctions is held in a particular
week, then the T-Bill Rate Index in effect as a result of the last such
publication or report will remain in effect until such time, if any, as the
results of auctions of 91-day Treasury Bills shall again be reported or such an
auction is held, as the case may be. The T-Bill Rate Index will be subject to a
Lock-In Period.
"Lock-In Period" means a period of six Business Days preceding any Distribution
Date during which the Series Interest Rate in effect on the first day of such
period will remain in effect until the end of the Interest Accrual Period
related to such Distribution Date.
Accrued interest on any Series of Notes from and including the Closing Date or
the preceding Distribution Date, as applicable, to but excluding the current
Distribution Date is calculated by multiplying the principal amount of such
Notes by an "accrued interest factor". This factor is calculated by adding the
interest rates applicable to each day on which each such Notes has been
Outstanding since the Closing Date or the preceding Distribution Date, as
applicable, and dividing the sum by 365 (or by 366 in the case of accrued
interest which is payable on a Distribution Date in a leap year) and rounding
the resulting number to nine decimal places.
The following table sets forth the accrued interest factors that would have been
applicable to any Note bearing interest at the indicated rates, assuming a
365-day year:
36
<PAGE> 121
<TABLE>
<CAPTION>
ACCRUED
INTEREST ACCRUED
RATE ON INTEREST
DAYS THE RECEIVABLE
SETTLEMENT DATE OUTSTANDING NOTES FACTOR
- --------------- ----------- ------------ ---------------
<S> <C> <C> <C>
1st........................................................ 0 5.50000% 0.000000000
2nd........................................................ 1 5.50000 0.000150685
3rd........................................................ 2 5.50000 0.000301370
4th........................................................ 3 5.50000 0.000452055
5th*....................................................... 4 5.65000 0.000606849
6th........................................................ 5 5.65000 0.000761644
7th........................................................ 6 5.65000 0.000916438
8th........................................................ 7 5.65000 0.001071233
9th........................................................ 8 5.65000 0.001226027
10th....................................................... 9 5.65000 0.001380822
</TABLE>
* interest rate adjustment (91-day Treasury Bills are generally
auctioned weekly).
The numbers in this table are examples given for information purposes only
and are in no way a prediction of interest rates on any Notes.
AUCTION PROCEDURES
Any issuance of Notes may contain one or more Series of Auction Rate Notes. The
following discussion summarizes certain procedures that will be used in
determining the interest rates on the Auction Rate Notes. If any Auction Rate
Notes are issued, the related Prospectus Supplement will contain a more detailed
description of these procedures. Prospective investors in the Auction Rate Notes
should read carefully the following summary, along with the more detailed
description in the Prospectus Supplement.
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;
37
<PAGE> 122
(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
(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>
38
<PAGE> 123
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units. All
winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next Interest Accrual Period. Multiple orders at the
winning rate are allocated units on a pro rata basis. Notwithstanding the
foregoing, in no event will the interest rate exceed the lesser of the Net Loan
Rate or the Maximum Auction Rate for such Auction Rate Notes as described in the
related Prospectus Supplement.
The above example assumes that a successful auction has occurred (i.e., all Sell
Orders and all Bid/Hold Orders below the new interest rate were fulfilled). In
certain circumstances, there may be insufficient Potential Bid Orders to
purchase all the Auction Rate Notes offered for sale. In such circumstances, the
interest rate for the upcoming Interest Accrual Period will equal the lesser of
the Net Loan Rate and the Maximum Auction Rate for such Auction Rate Notes as
described in the related Prospectus Supplement. Also, if all the Auction Rate
Notes are subject to Hold Orders (i.e., each holder of Auction Rate Notes wishes
to continue holding its Auction Rate Notes, regardless of the interest rate) the
interest rate for the upcoming Interest Accrual Period will equal the lesser of
the Net Loan Rate and the rate at which all investors are willing to hold the
Notes.
CREDIT ENHANCEMENT
The amounts and types of Credit Enhancement arrangements and the provider
thereof, if applicable, with respect to any issuance or Series of Notes will be
set forth in the related Prospectus Supplement. If specified in the applicable
Prospectus Supplement, Credit Enhancement for any Series of Notes may cover one
or more other Series of Notes, and, accordingly, may be exhausted for the
benefit of a particular Series and thereafter be unavailable to such other
Series. Further information regarding any provider of Credit Enhancement,
including financial information when material, will be included or incorporated
by reference in the related Prospectus Supplement. If and to the extent provided
in the related Prospectus Supplement, "Credit Enhancement" may include one or
more of the following or any combination thereof:
Reserve Fund. A Reserve Fund may be created with respect to any series of Notes,
and on each Closing Date the depositor may deposit cash or Eligible Investments
in an amount, if any, equal to or less than the Specified Reserve Fund Balance
identified in the related Prospectus Supplement. 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 may be
augmented on certain Distribution Dates, as set forth in the related Prospectus
Supplement, 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 as described in the related Prospectus Supplement, provided, however,
that, if set forth in the related Prospectus Supplement, such Available Funds
may be applied as an additional principal distribution. 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, if so provided
in the related Prospectus Supplement, applied as an additional principal
distribution. Amounts on deposit in the Reserve Fund exceeding the Specified
Reserve Fund Balance will be distributed as set forth in the related Prospectus
Supplement.
39
<PAGE> 124
A Reserve Fund is intended to enhance the likelihood of timely receipt by the
Noteholders of the full amount of interest due them on each Distribution Date
and principal due them on the Legal Final Maturity of the related Notes or a
date when the related Notes are to be redeemed in whole and to decrease the
likelihood that the Noteholders will experience losses. In certain
circumstances, however, a Reserve Fund could be depleted. Further, amounts
otherwise required to be deposited into a Reserve Fund may, with the consent of
any provider of Credit Enhancement for the related Series of Notes, if any, 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
Noteholders could result. This shortfall could, in turn, increase the average
life of the Notes. Moreover, amounts on deposit in a Reserve Fund other than
amounts in excess of the related Specified Reserve Fund Balance will not be
available to cover any aggregate unpaid Carryover Interest.
Subordination. The rights of the Noteholders of a Series of Notes may be
subordinated to the rights of more senior Noteholders and to Exchange
Counterparties under any Senior Exchange Agreement, to the extent described
herein and in the related Prospectus Supplement. In some instances, the rights
of the Noteholders of a Series of Notes may also be subordinated to the rights
of Noteholders of other Subordinate Notes, and to Exchange Counterparties under
any Subordinate Exchange Agreement, to the extent described herein and in the
related Prospectus Supplement.
Surety Bonds. A Surety Bond with respect to one or more Series of Notes may be
obtained by the issuer in favor of the Indenture Trustee solely on behalf of the
Noteholders of the related issuance. As and to the extent provided below or in a
Prospectus Supplement, a Surety Bond may provide for coverage of timely payment
of all interest and ultimate payment of all principal due on the related Series
of Notes; provided, however, that Surety Bonds will not ensure payment of any
Carryover Interest.
The amount required to be paid to the issuer of each Surety Bond will be
described in the applicable Prospectus Supplement.
Other Forms of Credit Enhancement. If and to the extent specified in the related
Prospectus Supplement, Credit Enhancement with respect to any issuance or Series
of Notes may also include overcollateralization, letters of credit, liquidity
facilities, interest rate cap agreements, Exchange Agreements, currency swap
agreements, insurance policies, spread accounts, one or more series of
subordinate securities, derivative products or other forms of credit enhancement
including but not limited to third party guarantees (collectively, "Credit
Enhancement"). The Credit Enhancement with respect to any Series of Notes may be
structured to provide protection against delinquencies and/or losses on the
Financed Student Loans, against changes in interest rates, or other risks, to
the extent and under the conditions specified in the related Prospectus
Supplement. Any form of Credit Enhancement will have certain limitations and
exclusions from coverage thereunder, which will be described in the related
Prospectus Supplement.
BOOK-ENTRY REGISTRATION
The description which follows of the procedures and record keeping with respect
to beneficial ownership interests in a Series of Notes, payment of principal of
and interest on the Notes to DTC Participants, Cedel Participants and Euroclear
Participants or to purchasers of the Notes, confirmation and transfer of
beneficial ownership interests in the Notes, and other securities-related
transactions by and between DTC, Cedel, Euroclear, DTC Participants, Cedel
Participants, Euroclear Participants and Note Owners, is based solely on
information furnished by DTC, Cedel and Euroclear and has not been independently
verified by the issuer, the depositor, the administrator, the master servicer or
the Underwriters.
40
<PAGE> 125
If specified in the accompanying Prospectus Supplement, Noteholders may hold
their certificates through DTC (in the United States) or Cedel or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
DTC will hold the global Notes. Cedel and Euroclear will hold omnibus positions
on behalf of the Cedel Participants and the Euroclear Participants,
respectively, through customers securities accounts in Cedel's and Euroclear's
names on the books of their respective depositories (collectively, the
"Depositories") which in turn will hold such positions in customers' securities
accounts in the Depositories' names on the books of DTC.
DTC is a limited purpose trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. 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.
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.
41
<PAGE> 126
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 Notes, See Appendix B hereto.
Day traders that use Cedel or Euroclear and that purchase the globally offered
Notes from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades may fail on the sale side unless
affirmative actions are taken. Participants should consult with their clearing
system to confirm that adequate steps have been taken to assure settlement.
Purchases of Notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual owner of a Note (a "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 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
42
<PAGE> 127
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 Noteholders. 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 underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the underwriters of any Series of Notes. Indirect
access to Cedel is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants of
the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may 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"), under contract with Euroclear Clearance System,
Societe Cooperative, a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Cooperative. The Cooperative Board establishes policy for the
Euroclear System. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of any Series of Notes. Indirect
access to the Euroclear System is also available to other firms that maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
43
<PAGE> 128
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 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 Noteholder under
the Agreement on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depository's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Neither the issuer, the depositor, the administrator, the Underwriters nor any
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 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 or
Noteholders should be read to include the person for whom the Participant
44
<PAGE> 129
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 Noteholders by the issuer or the Indenture Trustee will be given only
to DTC.
DEFINITIVE NOTES
If set forth in the accompanying Prospectus Supplement, Notes of any Series will
be issued in fully registered, certificated form (the "Definitive Notes") to
Note Owners or their nominees rather than to DTC or its nominee, if (i) the
issuer advises the Indenture Trustee for such Series in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to such Series of Notes, and the issuer is unable to locate a
qualified successor, (ii) the issuer, at its option, advises the Indenture
Trustee for such Series 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 an Indenture, Noteholders representing
not less than 50% of the Outstanding principal balance of the Directing Notes
advise the related 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 Noteholders, or as set forth
in the Prospectus Supplement.
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 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 Noteholders under the Indenture.
Distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Noteholders of Definitive Notes in accordance with
the procedures set forth in the related Indenture. Interest payments and any
principal payments on each Distribution Date will be made to Noteholders 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 Noteholders. The Indenture
Trustee will provide such notice to registered Noteholders 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.
LIST OF NOTEHOLDERS
By written request to the related Indenture Trustee, a Noteholder may obtain
access to the list of all Noteholders of Notes issued under the related
Indenture that is maintained by the Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
Indenture or the Notes. The Indenture Trustee may elect not to afford the
requesting Noteholders access to the list of Noteholders if it agrees to mail
the desired communication or proxy, on behalf and at the expense of the
requesting Noteholders, to all Noteholders of Notes issued under the related
Indenture.
REPORTS TO NOTEHOLDERS
For each Trust, on the dates as set forth in the related Prospectus Supplement,
the Indenture Trustee will provide to the Rating Agencies and applicable
Noteholders of record as of the related Record Date, a statement setting forth
at
45
<PAGE> 130
least the following information regarding such Notes with respect to the
preceding Collection Period or Collection Periods, to the extent applicable:
(a) if applicable for a Series of Notes, the Principal Factor for
each Series of 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 in the related issuance 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 for the related Trust as of the close of business
on the last day of the preceding Collection Period;
(f) the aggregate outstanding principal amount of each Series of Notes
as of the related Distribution Date after giving effect to
distributions allocated to principal on such Distribution Date;
(g) the estimated amount to be allocated to Program Operating
Expenses on the upcoming 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 in the
related Trust for which a Realized Loss was previously allocated;
(i) the amount of the distribution attributable to amounts in any
Reserve Fund, Acquisition Fund, Pre-Funding Account or other
account identified in the related Prospectus Supplement, the
amount of any other withdrawals from such funds or accounts for
the related 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 related Trust during the preceding Collection
Period;
(k) [during a Subsequent Finance Period only, the Adjustment Payments,
stated separately, for the preceding Collection Period;]
(l) the following information as reported to the Indenture Trustee by
the issuer or Servicer: the number and principal amount of
Financed Student Loans, as of the end of the preceding Collection
Period, that are (A) 31 to 60 days delinquent, (B) 61 to 90 days
delinquent, (C) 91 to 120 days delinquent, (D) more than 120 days
delinquent and (E) for which claims have been filed with the
appropriate Guarantee Agency, guarantor or escrow fund and which
are awaiting payment; and
(m) any other information specified in the related Prospectus
Supplement.
46
<PAGE> 131
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 Noteholder
and received any payment thereon, a statement containing certain information for
the purposes of such Noteholder's preparation of federal income tax returns. See
"Federal Income Tax Consequences" herein.
REDEMPTION
Each Series of Notes may be subject to optional or mandatory redemption in whole
or in part. Each Prospectus Supplement will set forth various information with
respect to the redemption provisions for each Series of Notes.
SECURITY FOR THE NOTES
THE TRUST ASSETS
Each issuance of Notes, together with all 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 related
Trust. The property of each Trust includes: all Available Funds derived from
amounts in that Trust; the balances of all Funds and Accounts established under
the related Indenture, whether derived from proceeds of sale of the Notes, from
Available Funds, or from any other source; all rights of the issuer and the
related Eligible Lender Trustee in and to the Financed Student Loans, the
Guarantee Agreements with respect to the Financed Student Loans (including for
this purpose any agreements with a guarantor or relating to an escrow fund under
a Private Loan Program); any Spread Guaranty Agreement; the Eligible
Investments, any Exchange Agreement and any Exchange Counterparty Guarantee, the
Purchase Agreements, the Master Servicing Agreement and the Servicing Agreements
with respect to Financed Student Loans serviced thereunder, including all rights
of the issuer under the warranties of each Seller, master servicer or Servicer,
as the case may be, thereunder; and any proceeds thereof. Any Subordinate Notes
in a Trust will be secured on a basis junior and subordinate to any Senior Notes
in the trust.
To secure payment of principal, interest and Carryover Interest, if any, on an
issuance of Notes and payment of any related Issuer Exchange Payment, the issuer
and each Eligible Lender Trustee in the related Indenture, subject to the lien
of the Indenture Trustee and each Eligible Lender Trustee, each grants a first
priority perfected security interest in, and pledges and assigns to the related
Indenture Trustee all of the issuer's and the Eligible Lender Trustee's rights
in, the related Trust for the equal and ratable benefit first, of the holders of
the Senior Notes issued under the Indenture and the Exchange Counterparties
under any related Senior Exchange Agreement subject to the provisions of the
Indenture permitting their application for the purposes and on the terms and
conditions set forth in the Indenture, and 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.
Each Indenture provides for the above-described pledge of and grant of a lien on
and security interest in the related Trust; however, such pledge, lien or
security interest will only be effective to the extent that (i) such Trust
consists of assets as to which a pledge, lien or security interest can be
created or perfected under law by either (a) the due filing of appropriate
Uniform Commercial Code financing statements, or (b) the related Indenture
Trustee's possession or constructive possession of 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 related Indenture
Trustee.
47
<PAGE> 132
In order to create, perfect and maintain a security interest in the related
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 such 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 in such 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 such Trust.
EXCHANGE AGREEMENTS
Under an Indenture, the issuer will have 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 Senior Notes issued under the Indenture, if any (a "Senior Exchange
Agreement"), or on a parity with the Subordinate Notes issued under the
Indenture, if any (a "Subordinate Exchange Agreement"). If the issuer enters
into such an agreement with an Exchange Counterparty, such Exchange Counterparty
will agree to pay the related Indenture Trustee on each applicable Distribution
Date a fixed or variable exchange rate on a notional amount, which may be equal
to, greater or less than the principal amount of any Series of Notes issued
under the Indenture; the issuer will agree to pay on each applicable
Distribution Date, by causing the related 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" in the applicable Prospectus Supplement and "The Indentures
- -- Events of Default" herein. Each Indenture requires that prior to the date
that the issuer enters into an Exchange Agreement, the issuer must obtain
written evidence from each Rating Agency then rating any of the Notes issued
under the Indenture that the execution and delivery of the Exchange Agreement
will not adversely affect such Rating Agency's rating on such Notes.
THE INDENTURES
Each issuance of Notes will be issued pursuant to a separate Indenture entered
into by and among the issuer, one or more Eligible Lender Trustees and the
related Indenture Trustee, as supplemented from time to time. Provisions
applicable to, including but not limited to, any Event of Default under any
Indenture are not applicable to and will not constitute or cause an Event of
Default under any another Indenture. The following is a summary of certain
provisions of each Indenture, as supplemented from time to time, pursuant to
which each issuance of Notes will be issued. The summary does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
actual Indenture, which provisions are incorporated by reference herein, and the
related Prospectus Supplement. Each Indenture will be substantially in the form
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
48
<PAGE> 133
INDENTURE TRUSTEE
The Indenture Trustee with respect to an issuance of Notes will be the entity
named in the related Prospectus Supplement. On the Closing Date for an issuance
of Notes, the issuer and the Eligible Lender Trustee will pledge the Financed
Student Loans and other moneys received from the net proceeds of the Notes to
the Indenture Trustee under the related Indenture. The Indenture Trustee may
serve from time to time as an trustee under indentures or eligible lender trust
agreements with the issuer or its affiliates relating to other issues of their
securities. In addition, the issuer, the depositor, the administrator or their
affiliates may maintain other banking relationships with any Indenture Trustee
and its affiliates from time to time.
ELIGIBLE LENDER TRUSTEE
The Eligible Lender Trustee will be the entity or entities named in the
applicable Prospectus Supplement and will acquire and hold on behalf of the
issuer legal title to all Financed FFELP Loans (and, if so provided in the
related Prospectus Supplement, all Financed Private Loans) acquired by the
related Trust from time to time pursuant to one or more related Eligible Lender
Trust Agreements (each, an "Eligible Lender Trust Agreement"). The Eligible
Lender Trustee on behalf of the issuer will enter into a Guarantee Agreement
with each of the Guarantee Agencies with respect to such Financed FFELP Loans.
One or more additional Eligible Lender Trustees may be added or substituted for
one or more of the initial Eligible Lender Trustees from time to time subject to
certain conditions set forth in the related Indenture. Each Eligible Lender
Trustee qualifies, or prior to taking title to the Financed FFELP Loans for
which additional qualifications are necessary, will qualify, as an eligible
lender and owner of Financed FFELP Loans for all purposes under the Higher
Education Act and the Guarantee Agreements with respect to such 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" herein.
The issuer, the depositor, the administrator or their affiliates may maintain
from time to time other banking relationships with any Eligible Lender Trustee
and its affiliates.
FUNDS AND ACCOUNTS
Each Indenture will establish several Funds and Accounts to be held by the
related Indenture Trustee for the benefit of the related Noteholders. Any funds
and accounts to be established with respect to a Trust, including any Reserve
Fund, will be described in the related Prospectus Supplement. Each Indenture
will provide for the balances of these Funds and Accounts to be applied as
described in the related Prospectus Supplement.
Acquisition Fund
An Acquisition Fund will be established for each Trust. To the extent necessary
or appropriate, the issuer and the Indenture Trustee may establish Accounts
within the Acquisition Fund and subaccounts within such Accounts. On the Closing
Date with respect to an issuance of Notes, there will be deposited into the
Acquisition Fund the amount specified in the related Prospectus Supplement.
Moneys transferred to the Acquisition Fund shall be used to Finance, directly or
indirectly through the Eligible Lender Trustee, the initial Financed Student
Loans as described in the related Prospectus Supplement.
If a Pre-Funding Account has been established with respect to a Trust, on the
Closing Date, the Indenture Trustee will make deposits to the related
Pre-Funding Account a portion of the proceeds of the Notes as described in the
Prospectus Supplement (a "Pre-Funded Amount"). From the related Closing Date
until a specified date set forth in the related Prospectus Supplement (the
"Pre-Funding Period"), moneys in the Pre-Funding Account will be applied
49
<PAGE> 134
by the Indenture Trustee as described in the related Prospectus Supplement for
the Financing by the issuer, directly or indirectly through the Eligible Lender
Trustee, of Student Loans. The Financed Student Loans may include FFELP Loans
and/or Private Loans in such amounts as may be set forth in the Indenture and
satisfying any conditions imposed by the Rating Agencies and any provider of
Credit Enhancement, if applicable. Any amounts remaining in the Pre-Funding
Account at the end of the related Pre-Funding Period will be distributed to the
Noteholders as an additional principal distribution, as set forth in the related
Prospectus Supplement.
The moneys to be applied from the Acquisition Fund or a Pre-Funding Account 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 related Expense Account, in any case not exceeding the
amount permitted by law. Upon request by the issuer, moneys in the Acquisition
Fund or a Pre-Funding Account 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 depositor or its
affiliates and such indenture trustee or from the depositor or its affiliates
for Student Loans financed by the depositor or its affiliates with funds not
subject to an indenture of trust, in either case at a price not in 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 or a Pre-Funding
Account, the issuer may only Finance Student Loans serviced by Servicers and
guaranteed by Guarantee Agencies (including for this purpose any guarantor or
escrow fund under a Private Loan Program) that have been approved by each Rating
Agency at the time of purchase.
On the date specified in the related Prospectus Supplement with respect to the
Acquisition Fund, or at the end of the Pre-Funding Period with respect to the
Pre-Funding Account, any portion of the balances of such Acquisition Fund or
Pre-Funding Account which is not, or which the issuer at any time determines
cannot for any reason be, used to Finance Student Loans shall, at the written
direction of the issuer, be transferred to the Collection Account.
Student Loan Portfolio Fund
A Student Loan Portfolio Fund will be established for each Trust. 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. All Financed Student Loans in the related Trust shall be included in
the balances of that Indenture's Student Loan Portfolio Fund, as described in
the Prospectus Supplement. As described in the Prospectus Supplement, 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
related 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.
The Indenture Trustee may permit the sale or exchange of Financed Student Loans
selected by the issuer in the Student Loan Portfolio Fund subject to any
conditions imposed under the related Indenture as set forth in the related
Prospectus Supplement.
50
<PAGE> 135
Collection Fund
The Collection Fund consists of specific Accounts established for an issuance of
Notes as described in the related Prospectus Supplement. To the extent necessary
or appropriate, the issuer and the Indenture Trustee may establish Accounts
within the Collection Fund and subaccounts within such Accounts. The issuer
will, and will cause each Seller and Servicer in accordance with the applicable
Purchase Agreement and Servicing Agreement to, transfer all Available Funds
received by it to the Indenture Trustee. The Indenture Trustee will, upon
receipt of any Available Funds, immediately deposit and credit such Available
Funds to the Collection Fund as described in the related Prospectus Supplement.
To the extent described in the related Prospectus Supplement, certain issuances
of Notes may permit the application of principal payments to be used for the
Financing of additional Financed Student Loans for a specified period of time
before such payments are distributed to the Noteholders of such issuance.
Collection Account. A "Collection Account" will be established in the Collection
Fund, as described in the related Prospectus Supplement. On each applicable
Distribution Date for a Series of Notes, moneys in the Collection Account will
be disbursed by the Indenture Trustee from Available Funds for each Collection
Period as set forth in the related Prospectus Supplement. The order and priority
for moneys to be disbursed from the Collection Account will be described in the
related Prospectus Supplement.
Note Payment Account. A "Note Payment Account" will be established in the
Collection Fund, as described in the related Prospectus Supplement. On each
applicable Distribution Date for a Series of Notes, following the transfers to
the Note Payment Account from the Collection Account, the Indenture Trustee will
distribute to the related Noteholders as of the related Record Date and Exchange
Counterparties, if any, the amounts transferred to the Note Payment Account,
together with any amounts transferred from any Reserve Fund and any Advances, as
described in the related Prospectus Supplement.
Expense Account. An "Expense Account" will be established in the Collection
Fund, as described in the related Prospectus Supplement. Funds will be deposited
into the Expense Account as described in the related Prospectus Supplement.
Funds in the Expense Account will be applied to pay Program Operating Expenses
and Costs of Issuance, as described in the Indenture.
Excess Surplus Account. An "Excess Surplus Account" will be established in the
Collection Fund, as described in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement for a Series of Notes,
on certain Distribution Dates, 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 a certain specified level as set forth in the
related Prospectus Supplement. 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, if so provided in the related Prospectus Supplement,
will be available for transfer by the Indenture Trustee to the Reserve Fund, if
any, if, and to the extent that, a deficiency in such Reserve Fund remains after
transfers from the Collection Account. The issuer may also direct in writing
that the Indenture Trustee transfer amounts on deposit in the Excess Surplus
Account as described in the related Prospectus Supplement.
51
<PAGE> 136
ADVANCES
If the issuer or the Eligible Lender Trustee on behalf of the issuer has applied
for a Guarantee Payment from a Guarantee Agency (including for this purpose a
payment from a guarantor or escrow fund under a Private Loan Program) or an
Interest Subsidy Payment or a Special Allowance Payment from the Department of
Education, and the issuer or the Eligible Lender Trustee, as applicable, has not
received the related payment prior to the end of the Collection Period
immediately preceding the Distribution Date on which such amount would be
required to be distributed as a payment of interest, the depositor may, no later
than the third Business Day before such Distribution Date, deposit into the Note
Payment Account an amount up to the amount of such payments applied for but not
received (such deposits by the depositor are referred to herein as "Advances").
Such Advances are recoverable by the issuer, (i) first, from 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
depositor for prior Advances are excluded from Available Funds and, accordingly,
repayment of Advances have priority over all other payments under the related
Indenture. The depositor will have no obligation, legal or otherwise, to make
any Advance, and a determination by the depositor to make an Advance will not
create any obligation of the depositor, legal or otherwise, to make any future
Advances.
INVESTMENT
Pending application of moneys in the Funds and Accounts in accordance with an
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);
52
<PAGE> 137
(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
(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
related Indenture Trustee for the purposes intended. Except as otherwise
provided in an Indenture, any earnings on or income from such Eligible
Investments will be treated as collections of interest on the related Financed
Student Loans and will be deposited in the Collection Account.
COVENANTS OF THE ISSUER
The issuer covenants under each Indenture that: it will require the depositor to
administer the depositor's program of Financing Student Loans pursuant to such
Indenture (the "Program") in accordance with the Higher Education Act, to the
extent applicable; it will maintain or cause to be maintained proper books of
record and account and will permit those to be inspected by the Indenture
Trustee and by Noteholders of more than 10% of the aggregate principal amount of
the Notes issued under such Indenture, as provided in such Indenture; it will
diligently cause to be collected all principal and interest payments on each
Financed Student Loan and any grants, subsidies, donations, Guarantee Payments
(including for this purpose payments from any guarantor or escrow fund under a
Private Loan Program), Interest Subsidy Payments and Special Allowance Payments
with respect to each Financed Student Loan;
53
<PAGE> 138
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 trust except as provided in or
permitted by the Indenture.
The issuer also covenants that it will file with the related Indenture Trustee a
projection of Program Operating Expenses for each calendar year 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.
EVENTS OF DEFAULT
Under an 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 Senior Notes are
Outstanding under the Indenture, any
shortfall on a Distribution Date other than
the Legal Final Maturity of any Series of
Subordinate Notes if Available Funds are
insufficient to pay the Noteholders'
Interest Distribution Amount on such Series
of Subordinate Notes on such date, and
(c) for so long as any Senior Notes are
Outstanding under the Indenture, any
deferral in the payment of interest on the
Subordinate Notes on a Distribution Date
other than the Legal Final Maturity of any
Series of Subordinate Notes, or
(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 Senior Notes are
Outstanding under the Indenture, any
shortfall on a Distribution Date other than
the Legal Final Maturity of any Series of
Subordinate Notes if Available Funds are
insufficient to pay any Subordinate Issuer
Exchange Payments relating to such Series of
Subordinate Notes on such date, and
(c) for so long as any Senior Notes are
Outstanding under the Indenture, any
deferral in the payment of Subordinate
Issuer Exchange Payments;
2. Failure by the issuer in the observance and performance of any
covenants or agreements made in the Indenture and the
continuation of such failure for a period of 30 days after
written notice thereof is given to the issuer from the
Indenture Trustee or from the Noteholders of at least a
majority of the aggregate principal amount of the Outstanding
Notes;
3. Certain events of bankruptcy, insolvency, receivership or
liquidation with respect to the issuer; and
54
<PAGE> 139
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:
(a) a lien or charge on the Available Funds or the trust
equal or superior to the lien granted under the
Indenture for the benefit of the Noteholders of the
Senior Notes,
(b) if no Senior Notes are Outstanding under the
Indenture, a lien or charge on the Available Funds or
the trust equal or superior to the lien granted under
the Indenture for the benefit of the Noteholders of
the Subordinate Notes, or
(c) which materially and adversely affects the ownership,
control or operation of the Program.
Acceleration of the Notes
If an Event of Default described in clause (1) above should occur and be
continuing, the Indenture Trustee may, and upon written direction by the
Noteholders 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
Noteholders 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
Noteholders 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 Senior Notes if Senior Notes are Outstanding, or
55
<PAGE> 140
(b) the Subordinate Notes if no Senior Notes are
Outstanding, and
(ii) the reasonable and proper charges, expenses and liabilities
of the Indenture Trustee, any Exchange Counterparty and the
Noteholders and their respective agents and attorneys, and
all other sums then payable by the issuer under the
Indenture (except the principal of and interest accrued
since the next preceding Distribution Date on the Notes due
and payable solely by virtue of such declaration),
then, the Noteholders 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 Noteholders 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 Noteholders 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 Noteholders 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 Noteholders 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
Noteholders 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 trust or otherwise for the benefit or for the
account of Noteholders 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 Noteholders other than the issuer, the
depositor, the administrator or their affiliates) will be applied first to the
payment of the reasonable and proper fees and expenses of the Indenture Trustee
and other expenses as are necessary in the judgment of the Indenture Trustee to
prevent loss of Available Funds and to protect the interests of the Noteholders
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 Senior Notes, with interest on overdue principal at the rates borne
by such Senior 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;
56
<PAGE> 141
Second, to the payment of the unpaid Noteholders' Principal
Distribution Amount and/or principal due and unpaid on the Senior Notes
at the time of such payment, such 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 Subordinate Notes, with interest on overdue principal at the rates
borne by such Subordinate 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 Noteholders' Principal
Distribution Amount and/or principal due and unpaid on the Subordinate
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 Senior 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 Subordinate Notes and all Subordinate Issuer Exchange
Payments then due, such payments to be made ratably to the parties
entitled thereto without discrimination or preference;
Third, to the payment of all Carryover Interest due and unpaid on
the Senior Notes, such payments to be made ratably to the parties
entitled thereto without discrimination or preference; and
Fourth, to the payment of all Carryover Interest due and unpaid on
the Subordinate 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 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 trust to
any party who is not an eligible lender under the Higher Education Act.
57
<PAGE> 142
If an Event of Default has happened and is continuing, then the Indenture
Trustee, either in its own name, as trustee of an express trust, as
attorney-in-fact for the related Noteholders 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 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 Noteholders
and/or each such Exchange Counterparty under such 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 Noteholders 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
such Indenture Trustee, the Noteholders and any related Exchange Counterparty
allowed in any equity, receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization or other similar proceedings.
An Indenture Trustee, at the written request of Noteholders 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 Noteholders, 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 Noteholder 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 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
Noteholders 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
such Indenture.
AMENDMENT AND SUPPLEMENTAL INDENTURES
Without Consent of Noteholders. The issuer, each related Eligible Lender Trustee
and the related Indenture Trustee, and, except with respect to item (13) below,
with written confirmation from each Rating Agency then rating the Notes issued
under an Indenture that execution of the proposed Supplemental Indenture will
not adversely affect the rating of such Rating Agency on such Notes, from time
to time and at any time without the consent or concurrence of any Noteholder,
may execute a Supplemental Indenture for any one or more of the following
purposes:
58
<PAGE> 143
(1) To make any changes or corrections in the Indenture as are
required for the purpose of curing or correcting any ambiguity or
defective or inconsistent provision or omission or mistake or manifest
error contained in the Indenture or to insert in the Indenture 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 Noteholders 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 Noteholders 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 Noteholders 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 provide for the issuance of Credit Enhancement, including,
but not limited to, a policy or policies of bond insurance with respect to
the Notes;
59
<PAGE> 144
(13) To add any additional Eligible Lender Trustee or replace any
existing Eligible Lender Trustee; and
(14) To make any other amendment which, in the judgment of the
Indenture Trustee, is not to the material prejudice of the Indenture
Trustee, the Noteholders or any Exchange Counterparty.
The issuer, each related Eligible Lender Trustee and the related Indenture
Trustee, from time to time and at any time without the consent or concurrence of
any Noteholder 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 Noteholders and Exchange Counterparties. The issuer, each
related Eligible Lender Trustee and the related Indenture Trustee from time to
time and at any time may execute a Supplemental Indenture, with the prior
consent of the Noteholders of not less than a majority in aggregate principal
amount of the Directing Notes then Outstanding under an Indenture (or, with
respect to any change affecting only certain Series of Notes, the Holders of a
majority in aggregate principal amount and 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, such 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 Noteholders of Notes then
Outstanding under such Indenture; provided, however, that, without the specific
consent of the Noteholder 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 Noteholders of which
are required to consent to any Supplemental Indenture amending or
supplementing the provisions of such Indenture;
(3) except as shall otherwise be provided in such Indenture, give to
any Note any preference over any other Note secured thereby; or
(4) except as shall otherwise be provided in such Indenture,
authorize the creation of any pledge of the related Trust prior, superior
or equal to, or deprive the Noteholders 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 an Indenture and the liens, pledges,
security interests, charges, trusts, assignments, covenants and agreements of
the issuer and each related Eligible Lender Trustee therein made or provided
for, will be fully discharged and satisfied as to (a) any Note issued under such
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 (provided, however, that such Indenture shall not
deemed to be defeased unless and until all of the following shall have
occurred):
(i) when such Note has been canceled;
60
<PAGE> 145
(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 related 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 related Indenture Trustee, each related
Eligible Lender Trustee and the Authenticating Agent when they
have been paid or the payment thereof provided for to the
satisfaction of the related Indenture Trustee;
(iv) in the case of payment of any related 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 related
Indenture Trustee, or
(b) all amounts held in the related Funds and Accounts
under such Indenture which are available pursuant to
the provisions of such 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 such
Indenture to make payment of Carryover Interest.
NONPRESENTMENT
If any Note issued under an Indenture 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
61
<PAGE> 146
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 such 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 such Indenture
Trustee remaining unclaimed by the Noteholders of such Notes for four 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 related Indenture, and all liabilities of
such Indenture Trustee with respect to such moneys and/or Eligible Investments
will cease. In such event, the Noteholders 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 AN INDENTURE TRUSTEE; RESIGNATION; SUCCESSORS
An Indenture Trustee may be removed at any time with or without cause by the
written direction or upon affirmative vote of the Noteholders of a majority in
aggregate principal amount of the Directing Notes then Outstanding under the
related Indenture or their attorneys-in-fact duly authorized.
In case at any time any of the following occurs:
(1) an 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 related Series after written
request therefor by the issuer or any Noteholder of such
Series who has been a bona fide Noteholder of a Note of such
Series for at least 6 months,
(2) an Indenture Trustee ceases to be eligible in accordance with
the provisions of the related Indenture and thereafter fails
to resign after written request therefor has been given to
such Indenture Trustee by the issuer or by any related
Noteholder, or
(3) an Indenture Trustee becomes incapable of acting, or is
adjudged a bankrupt or insolvent or a receiver of such
Indenture Trustee or of its property is appointed, or any
public officer takes charge or control of such Indenture
Trustee or of its property or affairs for the purpose of
reorganization, conservation or liquidation,
then, the issuer may remove such Indenture Trustee by an instrument in writing,
or, subject to certain provisions of the Trust Indenture Act of 1939, any
Noteholder of Notes issued under such Indenture may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of such 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 such Indenture Trustee.
An Indenture Trustee may resign by giving not less than 60 days' written notice
to the issuer and all Noteholders under the related Indenture.
A successor trustee may be appointed by the Noteholders of not less than a
majority in aggregate principal amount of the Directing Notes then Outstanding
under the related Indenture by an instrument or concurrent instruments in
writing signed by such Noteholders or their attorneys-in-fact duly authorized;
provided, however, that in case at any time there will be a vacancy in the
office of an Indenture Trustee, the issuer, by an instrument in writing, will
appoint
62
<PAGE> 147
a successor to fill such vacancy until a new Indenture Trustee is appointed by
the Noteholders of the Notes as described above. Any successor trustee must meet
the qualifications set forth in the related Indenture.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of material federal income tax consequences of the
purchase, ownership and disposition of the 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 material to
Noteholders. 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 Noteholders that are insurance companies, regulated
investment companies or dealers in securities. This discussion focuses primarily
on investors who will hold Notes as "capital assets" (generally held for
investment) within the meaning of Section 1221 of the 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 Notes. Consequently, it is suggested that potential
purchasers of Notes consult their own tax advisors concerning the federal, state
or local tax consequences to them of the purchase, holding, and disposition of
the Notes.
Payments received by Noteholders on the Notes will be accorded the same tax
treatment under the Code as payments received on other taxable debt instruments.
Except as described below for Notes issued with original issue discount,
acquired with market discount, or issued or acquired at a premium, interest paid
or accrued on a Note will be treated as ordinary income to the Noteholder and a
principal payment on a Note will be treated as a return of capital. Interest
paid to Noteholders who report their income on the cash receipts and
disbursements method should be taxable to them when received. Interest earned by
Noteholders who report their income on the accrual method will be taxable when
accrued, regardless of when it is actually received. The Indenture Trustee will
report annually to the IRS and to Noteholders of record with respect to interest
paid or accrued, and original issue discount and market discount, if any,
accrued, on the Notes.
One or more Series of Notes may be subordinated to one or more other Series of
Notes issued under the same Indenture. Such subordination will not affect the
federal income tax treatment of either the subordinated or the senior 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 Note. See "ERISA Considerations" herein and
"Summary of Terms -- ERISA Considerations" in the accompanying Prospectus
Supplement.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based upon the representations of the depositor and the trust and the
assumptions set forth in the following sentence, in the opinion of Thompson Hine
& Flory LLP, the Notes will be characterized as debt for federal income tax
purposes. The representations and assumptions 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
63
<PAGE> 148
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 Notes, and the Servicing Agreements are executed and delivered in
substantially the form as attached hereto as exhibits; (3) there are no changes
to the terms of the Notes; and (4) the depositor, the trust and the Noteholders
treat the Notes as indebtedness of the depositor for federal income tax
purposes. Such opinion will not be binding on the courts or the IRS. The
depositor, the trust and such Noteholders, by accepting the Notes have agreed to
treat the Notes as indebtedness of the depositor for federal income tax
purposes. Both the depositor and the trust intend to treat this transaction as a
financing reflecting the Notes as indebtedness for tax and financial accounting
purposes.
Contrary to the opinion of Thompson Hine & Flory LLP, the IRS might assert that
the Notes do not represent debt for federal income tax purposes, but rather the
Notes should be treated as equity interests in the trust. Even if the IRS were
to assert successfully that the Notes should not be characterized as debt for
federal income tax purposes, in the opinion of Thompson Hine & Flory LLP based
upon the representation of the depositor described in the following sentence,
although the trust might be treated as a publicly traded partnership, it would
not be taxable as a corporation. The depositor will represent that for 1999 and
for any subsequent taxable year 90% or more of the gross income of the
depositor, and the trust if treated as a separate entity, will be interest
income attributable to loans acquired by either the depositor or the trust and
not attributable to loans originated by either the depositor or the trust or an
affiliate of either of them. Nonetheless, treatment of the 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.
CHARACTERIZATION OF THE TRUST
In the opinion of Thompson Hine & Flory LLP, for federal income tax purposes,
the trust established under each Indenture will not be treated as an entity
separate from the depositor and thus will not be classified as a separate entity
that is an association (or a publicly traded partnership) taxable as a
corporation. However, the 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 might be treated as a partnership among the related
Noteholders, and, possibly, the depositor as well. In the opinion of Thompson
Hine & Flory LLP based upon the representation of the depositor described in the
immediately preceding paragraph that certain qualifying income tests would be
met, the resulting partnership would not be subject to federal income tax as a
publicly traded partnership taxable as a corporation. Rather, each Noteholder
would be taxed individually on their respective distributive shares of the
partnership's income, gain, loss, deductions and credits. Such opinion will not
be binding on the courts or the IRS. The amount and timing of items of income
and deduction of the Noteholders may differ if the 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 related Noteholders. Cash
payments to such Noteholders would be treated as dividends for tax purposes to
the extent of such publicly traded partnership's or corporation's earnings and
profits.
64
<PAGE> 149
ORIGINAL ISSUE DISCOUNT
Notes issued at a price less than their stated principal amount ("Discount
Notes"), Notes upon which interest is accrued and is compounded and added to the
principal balance thereof periodically ("Accretion 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 Noteholders 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 Noteholder'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 Noteholder 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 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 other than an Accretion Note, the stated
redemption price at maturity generally will equal the total amount of all Deemed
Principal Payments due on that Note. Because an Accretion Note generally does
not require unconditional payments of interest at least annually, the stated
redemption price at maturity of such a Note will equal the aggregate of all
payments due, whether designated as principal, accrued interest, or current
interest. 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 Noteholder 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
Noteholder makes an "All OID Election" (as defined below).
65
<PAGE> 150
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 Note is the greater of (i) the excess of the stated
principal amount of the Note 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 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 a Series may be subject to optional redemption by the issuer before
their Legal Final Maturities. Under the OID Regulations, the issuer will be
presumed to exercise its option to redeem for purposes of computing the accrual
of original issue discount if, and only if, by using the optional redemption
date as the maturity date and the optional redemption price as the stated
redemption price at maturity, the yield to maturity of the Notes is lower than
it would be if the Notes were not redeemed early. If the issuer is presumed to
exercise its option to redeem the Notes, original issue discount on 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
66
<PAGE> 151
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 Noteholder 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 (as
described below under "-- Market Discount"), de minimis market discount that
accrues on the Note, and unstated interest (as reduced by any amortizable
premium, as described below under "Amortizable Premium," 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, as described in "-- Market
Discount" below. 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. Noteholders 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.
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.
If the interval between the issue date of a Note that pays interest at the
Series Interest Rate on a current basis (a "Current Interest Note") and the
first Distribution Date (the "First Distribution Period") contains more days
than the number of days of stated interest that are payable on the first
Distribution Date, the effective interest rate received by the Noteholder during
the first Distribution Period will be less than the Note's stated interest rate
making such Note a Teaser Note. If the amount of original issue discount on the
Note measured under the expanded de minimis test exceeds the de minimis amount
of original issue discount allowable on the Note, the amount by which the stated
interest on the Note exceeds the interest that would be payable on the Note at
the effective rate of interest for the First Distribution Period (the
"Nonqualified Interest Amount") would be treated as part of the Note's stated
redemption price at maturity. Accordingly, the holder of a Teaser Note may be
required to recognize ordinary income arising from original issue discount
attributable to the First Distribution Period in addition to any qualified
stated interest that accrues in that period.
Similarly, if the First Distribution Period is shorter than the interval between
subsequent Distribution Dates, the effective rate of interest payable on a Note
during the First Distribution Period will be higher than the stated rate of
interest if a Noteholder receives interest on the first Distribution Date based
on a full accrual period. Unless the "Pre-
67
<PAGE> 152
Issuance Accrued Interest Rule" described below applies, such Note (a "Rate
Bubble Note") would be issued with original issue discount unless the amount of
original issue discount is de minimis. The amount of original issue discount on
a Rate Bubble Note attributable to the First Distribution Period would be the
amount by which the interest payment due on the first Distribution Date exceeds
the amount that would have been payable had the effective rate for that Period
been equal to the stated interest rate. However, under the Pre-Issuance Accrued
Interest Rule, if (i) a portion of the initial purchase price of a Rate Bubble
Note is allocable to interest that has accrued under the terms of the Note prior
to its issue date ("Pre-Issuance Accrued Interest") and (ii) the Note provides
for a payment of stated interest on the first payment date within one year of
the issue date that equals or exceeds the amount of the Pre-Issuance Accrued
Interest, the Note's issue price may be computed by subtracting from the issue
price the amount of Pre-Issuance Accrued Interest. If the Noteholder opts to
apply the Pre-Issuance Accrued Interest Rule, the portion of the interest
received on the first Distribution Date equal to the Pre-Issuance Accrued
Interest would be treated as a return of such interest and would not be treated
as a payment on the Note. Thus, where the Pre-Issuance Accrued Interest Rule
applies, a Rate Bubble Note will not have original issue discount attributable
to the First Distribution Period, provided that the increased effective interest
rate for that Period is attributable solely to Pre-Issuance Accrued Interest, as
typically will be the case. The Tax Administrator intends to apply the
Pre-Issuance Accrued Interest Rule to each Rate Bubble Note for which it is
available if the Note's stated interest otherwise would be qualified stated
interest. If, however, the First Distribution Period of a Rate Bubble Note is
longer than subsequent Distribution Periods, the application of the Pre-Issuance
Accrued Interest Rule typically will not prevent disqualification of the Note's
stated interest because its effective interest rate during the First
Distribution Period typically will be less than its stated interest rate. Thus,
a Note with a long First Distribution Period typically will be a Teaser Note, as
discussed above. The Pre-Issuance Accrued Interest Rule will not apply to any
amount paid at issuance for such a Teaser Note that is normally allocable to
interest accrued under the terms of such Note before its issue date. All amounts
paid for such a Teaser Note at issuance, regardless of how designated, will be
included in the issue price of such Note for federal income tax accounting
purposes.
In view of the complexities and current uncertainties as to the manner of
inclusion in income of original issue discount on the Notes, 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
68
<PAGE> 153
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.
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
69
<PAGE> 154
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 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.
Notes of certain Series may provide for the payment of interest at a rate
determined as the difference between two interest rate parameters, one of which
is a variable rate and the other of which is a fixed rate or a different
variable rate ("Inverse Floater Notes"). The Inverse Floater Notes are expected
to bear interest at objective rates. Consequently, if the interest rates of such
Notes meet the test for qualified stated interest, the income on such Notes will
be accounted for under the rules applicable to VRDIs described above.
The OID Regulations contain provisions (the "Contingent Payment Regulations")
that address the federal income tax treatment of debt obligations with one or
more contingent payments ("Contingent Payment Obligations"). Under the
Contingent Payment Regulations, any variable rate debt instrument that is not a
VRDI is classified as a Contingent Payment Obligation. However, the Contingent
Payment Regulations, by their terms, do not apply to debt instruments that are
subject to Section 1272(a)(6) of the Code. In the absence of further guidance,
the Tax Administrator will account for Notes that are Contingent Payment
Obligations in accordance with Code Section 1272(a)(6). Income will be accrued
on such Notes based on a constant yield that is derived from a projected payment
schedule as of the Closing Date. The projected payment schedule will take into
account the Pricing Payment Assumptions and the interest payments that are
expected to be made based on the value of any relevant indices on the issue
date. To the extent that actual payments differ from projected payments for a
particular taxable year, appropriate adjustments to interest income and expense
accruals will be made for that year.
The method described in the foregoing paragraph for accounting for Notes that
are Contingent Payment Obligations is consistent with Code Section 1272(a)(6)
and the legislative history thereto. Because of the uncertainty with respect to
the treatment of such Notes under the OID Regulations, however, there can be no
assurance that the IRS will not assert successfully that a method less favorable
to Noteholders will apply. In view of the complexities and the current
uncertainties as to income inclusions with respect to Notes that are Contingent
Payment Obligations, it is suggested that potential investors consult their own
tax advisors to determine the appropriate amount and method of income inclusion
on such Notes for federal income tax purposes.
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
70
<PAGE> 155
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.
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 Noteholder 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 Noteholder 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 Noteholder 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
71
<PAGE> 156
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 (1) the original yield-to-maturity of the debt instrument plus 5
percentage points or (2) 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 Noteholder takes the qualified
stated interest into account under the Noteholder's regular accounting method.
Moreover, such Treasury Regulations generally provide that in the case of Notes
subject to optional redemption, the Noteholder is deemed to exercise or not
exercise such option in the manner that maximizes the Noteholder's yield on the
Note while the issuer generally is deemed to exercise or not exercise such
option in the manner that minimizes the Noteholder's yield on the Note. However,
the issuer is deemed to exercise or not exercise a call option or a combination
of call options in the manner that maximizes the Noteholder's yield on the Note.
Such Treasury Regulations are effective for Notes acquired on or after March 2,
1998. However, if a Noteholder 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 Noteholder'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 Noteholder 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
Noteholder, increased by any original issue discount or market discount
previously includable in the Noteholder'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
Noteholder and by any amortized premium. Similarly, a Noteholder who receives a
scheduled or prepaid principal payment with respect to a Note will recognize
72
<PAGE> 157
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.
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 Noteholder of a Note (i) fails
to furnish the related Indenture Trustee with its taxpayer identification number
("TIN"); (ii) furnishes the related 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 related Indenture Trustee or the issuer or such Noteholder's
securities broker with a certified statement, signed under penalty of perjury,
that the TIN is its correct number and that the Noteholder is not subject to
backup withholding. Backup withholding will not apply, however, with respect to
certain payments made to Noteholders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Nonresidents (as
defined below) complying with requisite certification procedures. Noteholders
should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining the exemption.
The related Indenture Trustee will report to the Noteholders 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 Noteholders. 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 Noteholders who are
nonresident alien individuals, foreign corporations, foreign partnerships or
certain foreign estates and trusts
73
<PAGE> 158
("Nonresidents") or Noteholders 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 Noteholder 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 Noteholders who are foreign persons will not be subject to
withholding if such interest is effectively connected with a United States
business conducted by the Noteholder. 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 Noteholders
and the considerable uncertainty that exists with respect to many aspects of
those rules, it is suggested that potential investors consult their own tax
advisors regarding the tax treatment of the acquisition, ownership, and
disposition of the Notes.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal Income
Tax Consequences," potential investors should consider the state income tax
consequences of the acquisition, ownership, and disposition of the Notes. State
income tax law may differ substantially from the corresponding federal law, and
this discussion does not purport to describe any aspect of the income tax laws
of any state. Therefore, potential investors should consult their own tax
advisors with respect to the various state tax consequences of an investment in
the Notes.
USE OF PROCEEDS
The proceeds of the sale of a Series of Notes, net of Underwriters' discount,
will be transferred to the Indenture Trustee for deposit to the credit of the
Funds and Accounts established under the Indenture, a portion of which will be
used to acquire Financed Student Loans from the depositor. The order of
application of the net proceeds and the amounts to be deposited in each Account
will be set forth in the related Prospectus Supplement.
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 a 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.
74
<PAGE> 159
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.
AVAILABLE INFORMATION
The depositor has filed with the SEC a registration statement (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Notes offered hereby.
This Prospectus and the accompanying Prospectus Supplement, which forms part of
the Registration Statement, does not contain all the information contained
therein. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington D.C. 20549; and at
the SEC's regional offices at Seven World Trade Center, Suite 1300, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of all or any part thereof may be obtained from the Public
Reference Branch of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 upon
the payment of certain fees prescribed by the SEC. You may obtain information on
the operation of the SEC's public reference facilities by calling the SEC at
1-800-SEC-0330. In addition, the Registration Statement may be accessed
electronically through the SEC's Electronic Data Gathering, Analysis and
Retrieval system at the SEC's site on the World Wide Web located at
http://www.sec.gov.
REPORTS TO NOTEHOLDERS
Unless Definitive Notes are issued for any Series of Notes, periodic unaudited
reports as described in the related Prospectus Supplement containing information
concerning the Financed Student Loans in the related Trust will be prepared by
the issuer and sent only to Cede & Co., as nominee of DTC and registered holder
of such Notes but will not be sent to any beneficial holder of such Notes. Such
reports will not constitute financial statements prepared under generally
accepted accounting principles. See "Description of the Notes -- Book-entry
Registration" and "-- Reports to Noteholders" herein. The master servicer will
file with the SEC such periodic reports as are required under the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
thereunder. The issuer intends to suspend the filing of such reports under the
Securities Exchange Act of 1934, as amended, when and if the filing of such
reports is no longer statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by or for the issuer, pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus and prior to the termination of the
offering of any Series of Notes shall be deemed to be incorporated by reference
into this Prospectus and the accompanying Prospectus Supplement and to be a part
hereof. Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for
75
<PAGE> 160
purposes of this Prospectus and the accompanying Prospectus Supplement to the
extent that a statement contained herein or therein or in any subsequently filed
document that also is or is deemed to be incorporated by reference herein or
therein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus and the accompanying Prospectus Supplement.
The issuer will provide without charge to each person to whom a copy of this
Prospectus and the accompanying, Prospectus Supplement are delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Written requests for such copies should be directed to Brian A.
Ross, Senior Vice President & Chief Financial Officer, Student Loan Funding
Resources, Inc., One West Fourth Street, Suite 200, Cincinnati, Ohio 45202 or
"[email protected]" on the Internet. Telephone requests for such copies should
be directed to (513) 763-0222.
PLAN OF DISTRIBUTION
Each issuance of Notes will be offered in one or more Series through one or more
underwriters or underwriting syndicates ("Underwriters") . The Prospectus
Supplement for each issuance of Notes will set forth the terms of the offering
of each Series in such issuance, including the name or names of the Underwriters
and either the initial public offering price, the discounts and commissions to
the Underwriters and any discounts or concessions allowed or reallowed to
certain dealers, or the method by which the price at which the Underwriters will
sell the Notes will be determined.
The Notes may be acquired by Underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of any Underwriters will be subject to
certain conditions precedent, and such Underwriters will be severally obligated
to purchase all of a Series of Notes described in the related Prospectus
Supplement, if any are purchased. If Notes of a Series are offered other than
through Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Notes of such Series.
The time of delivery for the Notes of a Series in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
RATING
It is a condition to the issuance and sale of each Series of Notes that they
each be rated by at least one nationally recognized statistical rating
organization in one of its four highest applicable rating categories. A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning Rating
Agency. See "Rating" in the accompanying Prospectus Supplement.
76
<PAGE> 161
APPENDIX A
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
Prospectus.
"91-day Treasury Bills" mean direct obligations of the United States
with a maturity of thirteen weeks.
"Account" means any of the accounts established and maintained by an
Indenture Trustee under an Indenture.
"Accrual Notes" means any Series of Notes on which all or a portion of
the interest thereon accrues and is capitalized and not payable until a date
certain or until one or more other Series are paid in full.
"Accrual Period" means the period of time during which interest accrues
but is not payable with respect to a Series of Accrual Notes.
"Acquisition Fund" means the Fund established under an Indenture for
the purpose of enabling the issuer to Finance Student Loans with the proceeds of
the Notes.
"Adjustment Payment" means an amount equal to the difference between
the aggregate principal balance of any Subsequent Financed Student Loans that
are being exchanged into the related Trust and the aggregate principal balance
of the Financed Student Loans they are replacing.
"Administration Agreement" means the agreement between the
administrator and the issuer.
"Administrator" means one who performs certain administrative duties
for the issuer under the Administration Agreement.
"Advances" means deposits to a Trust made by the depositor with respect
to anticipated future collections on the Financed Student Loans.
"All Hold Rate" will be defined in the appropriate Auction Procedures
for a Series of Auction Rate Notes.
"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, respective.
"Auction" means the implementation of the Auction Procedures on an
Interest Determination Date.
"Auction Agent" is the party identified as such in the Prospectus
Supplement.
"Auction Agent Agreement" means, with respect to a Series of Auction
Rate Notes, the auction agent agreement among the issuer, the Indenture Trustee
and the Auction Agent, including any amendment thereof or supplement thereto,
relating to such Series.
A-1
<PAGE> 162
"Auction Agent Fee" has the meaning set forth in the Auction Agent
Agreement.
"Auction Period" means with respect to each Auction Rate Note, the
Interest Accrual Period applicable to such Note during which time the applicable
Series Interest Rate is determined pursuant to the related Indenture.
"Auction Period Adjustment" means, with respect to any Auction Rate
Notes, the ability of the issuer to change the length of one or more Auction
Periods to conform with then current market practice or accommodate other
economic or financial factors that may affect or be relevant to the length of
the Auction Period or any Series Interest Rate.
"Auction Period Conversion" means, with respect to any Auction Rate
Notes, the ability of the issuer to change the length of one or more Auction
Periods, if and to the extent provided for in the related Prospectus Supplement.
"Auction Period Conversion Date" shall mean the date on which an
Auction Period Conversion is effective which shall be a Distribution Date with
respect to the related Series of Auction Rate Notes.
"Auction Period Distribution Date" means, with respect to a Series of
Auction Rate Notes, the Business Day immediately following the expiration of
each Auction Period; 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 this
Prospectus and in an Appendix to any Prospectus Supplement relating to a Series
of Auction Rate Notes.
"Auction Rate" shall mean the interest rate that results from the
implementation of the Auction Procedures.
"Auction Rate Notes" means any Series of Notes bearing interest at an
Auction Rate, as identified in the Prospectus Supplement.
"Authenticating Agent" means the authenticating agent for any Notes
appointed pursuant to the related Indenture.
"Available Funds" with respect to each Trust 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 (including payments received from any guarantor or escrow
fund under any Private Loan Program) 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, with respect to Financed FFELP Loans,
the portion of such interest amounts for which the Guarantee Agency did not have
an obligation to make a Guarantee Payment), or lost Interest Subsidy Payments
and Special Allowance Payments, with respect to the Financed Student Loans;
(vii) Counterparty Exchange Payments; (viii) Advances received, (ix) Investment
Earnings for such Collection Period; and (x) any other sums identified in the
related Prospectus Supplement over (B) amounts
A-2
<PAGE> 163
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 (including payments from any guarantor or escrow fund under
any Private Loan Program) or Interest Subsidy Payments applied for but not
received as of the end of the Collection Period immediately preceding the date
such Advance is made, (3) payments by a bond insurance company or other surety,
credit enhancer or guarantor who is obligated to pay debt service on a
particular Series of Notes, and (4) amounts which are paid to the issuer
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 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 any 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.
"Broker-Dealer Fee" has the meaning set forth in the 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 related Indenture, are open for commercial banking business and
on which the New York Stock Exchange is open.
"Calculation Agent" means the calculation agent for any Notes appointed
pursuant to the related 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 Notes then Outstanding under the Indenture, showing, (i) all Available Funds
expected to be received during such period, (ii) the application of all such
Available Funds in accordance with such 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 issued under such Indenture when due and all other
amounts payable under the Indenture when due, and (b) a Parity Percentage of at
least a certain specified percentage as set forth in the related Prospectus
Supplement will be maintained at all times, including, without limitation, on
each Distribution Date.
A-3
<PAGE> 164
"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 underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters of any Series of Notes.
"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.
"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.
"Closing Date" means, for any Series, the date on which such Series is
issued, which will be specified in the related Prospectus Supplement.
"Co-owner Trustee" means the co-owner trustee under the related trust.
"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 an Indenture Trustee
into which all collections on the Financed Student Loans are to be deposited.
"Collection Period" means, unless otherwise provided in a related
Prospectus Supplement, any calendar month.
"Commission" or "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.
"Consolidation Loan Fees" means, as to any Collection Period, an amount
equal to the per annum rate identified in the related Prospectus Supplement of
the outstanding principal balances of and accrued interest on the Consolidation
Loans owned by the related Trust as of the last day of such 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.
"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 related Notes, or any obligations of the issuer the proceeds of which are
used in whole or in any part, directly or indirectly through the Eligible Lender
Trustee, to acquire Financed Student Loans from the related Indenture, including
without limitation costs of planning and feasibility studies, costs of obtaining
governmental registrations, qualifications and regulatory rulings and approvals,
costs of financial
A-4
<PAGE> 165
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 related Notes, advertising and printing
costs, filing and recording fees, any initial fees and charges of the related
Indenture Trustee, Eligible Lender Trustee, Owner Trustee, Co-owner Trustee,
Calculation Agent, any auction agent, any broker-dealer, market agent and any
Authenticating Agent, Rating Agency fees, costs of preparation, execution,
transportation and safekeeping of the related Notes, and any other costs,
charges or fees in connection with the issuance of the related Notes and the
establishment of the related trust.
"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, overcollateralization, 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, for any Series, the date specified in the related
Prospectus Supplement as the date on or after which principal and interest
payments on the related Financed Student Loans are to be included in the related
Trust.
"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 Riverfront LLC, a Delaware
limited liability company.
"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 Untied States, and (ii) Cedel or Euroclear,
if the Notes are offered in Europe.
"Directing Notes" means those Notes entitled to direct the action of
their related Indenture Trustee under certain specified conditions and, as long
as any Series Notes are Outstanding under the related Indenture, the Series
Notes, and thereafter, the Subordinate Notes.
"Distribution Date" means with respect to any Series of Notes, the
Distribution Date set forth in related Prospectus Supplement.
"DTC" means The Depository Trust Company.
"DTC Participants" means the participating organizations that utilize
the services of DTC, including securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
A-5
<PAGE> 166
"Eligible Investments" means one or more of the investments specified
in an Indenture in which moneys in the related Funds and Accounts and certain
other accounts are permitted to be invested.
"Eligible Lender Trust Agreement" means with respect to an issuance of
Notes, the Eligible Lender Trust Agreement or Eligible Lender Trust Agreements
set forth in the related Prospectus Supplement.
"Eligible Lender Trustee" means with respect to an issuance of Notes,
the one or more eligible lender trustees so specified in the related Prospectus
Supplement serving as eligible lender trustee for the issuer.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means the professional depository created to hold
securities for, and to clear and settle transactions between, Euroclear
Participants through electronic book-entry.
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
"Euroclear Participants" means the participating organizations that
utilize the services of Euroclear, including banks, securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series of Notes.
"Event of Default" shall have the meaning set forth in the related
Indenture.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
"Exchange Agreement" means an interest rate exchange agreement between
the issuer and an Exchange Counterparty, as originally executed and as amended
or supplemented, or other interest rate hedge agreement between the issuer and
an Exchange Counterparty, as originally executed and as amended or supplemented,
which agreement shall be designated 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 hereunder.
"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.
"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.
"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.
A-6
<PAGE> 167
"FFELP Loans" means student loans made under the FFEL Program.
"Financed" in the case of Financed Student Loans refers to Student
Loans acquired directly, or indirectly through the Eligible Lender Trustee, with
the proceeds of the Notes or moneys in the Acquisition Fund, the Pre-Funding
Account, if any, or the Collection Account, or upon the exchange of Financed
Student Loans pursuant to an Indenture, and included in the related Student Loan
Portfolio Fund; and to "Finance" or "Financing" in the case of Student Loans
means to acquire or the 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" means those FFELP Loans that secure one or more
Series of Notes. "Financed Private Loans" means those Private Loans that secure
one or more Series of Notes.
"Financed Student Loans" means Financed FFELP Loans and Financed
Private Loans, as applicable.
"Fiscal Year" means the fiscal year of the issuer.
"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, with respect to any Series of Notes, the lesser
of (a) the rate established pursuant to an index or market (LIBOR, T-Bill or
Auction), and (b) a cap, if any, all as specified in the related Prospectus
Supplement for such Series.
"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 an
Indenture Trustee under an 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 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 agreements between a Guarantee Agency and
a Lender.
"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.
A-7
<PAGE> 168
"Holders" or "Noteholders" means, collectively, the registered owners
of the Notes or the duly authorized attorneys-in-fact, representatives or
assignees of such persons.
"Indenture" means an indenture between the issuer, one or more Eligible
Lender Trustee and an Indenture Trustee, pursuant to which one or more Series of
Notes are issued, as such indenture may be supplemented or amended from time to
time, and a related terms supplement.
"Indenture Trustee" means the trustee under the related Indenture.
"Index Maturity" means, with respect to a LIBOR Rate Series of Notes,
the offered rate for deposits having a maturity equal to the related Interest
Accrual Period.
"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 Pool Balance" for any issuance of Notes generally will mean
the Pool Balance of the Financed Student Loans allocable to such Notes as of the
Cut-off Date.
"Insolvency Laws" mean the United States Bankruptcy Code or other
insolvency laws, as the case may be.
"Interest Accrual Period" means with respect to any Series of Notes,
the period of time in which interest may accrue, as set forth in the related
Prospectus Supplement.
"Interest Determination Date" means with respect to any Series of
Notes, the date set forth in the related Prospectus Supplement.
"Interest Shortfall" means, with respect to any Distribution Date for a
Series of Notes, the excess of (i) the Noteholders' Interest Distribution Amount
for such Series on the preceding Distribution Date over (ii) the amount of
interest actually distributed to the Series Noteholders on such preceding
Distribution Date, plus interest on the amount of such excess interest due to
the Series Noteholders, to the extent permitted by law, at the appropriate
Series Interest Rate from such preceding Distribution Date to the current
Distribution Date.
"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 an Indenture to be deposited into the
Collection Fund on or prior to such Distribution Date pursuant to such
Indenture.
"Issuer" means the particular Trust issuing the Notes.
A-8
<PAGE> 169
"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 the Distribution Date on which the
aggregate outstanding principal amount of each Series of Notes will be payable
in full, as identified in the related Prospectus Supplement with respect to each
Series of Notes.
"Lender" means any "eligible lender" as defined in the Higher Education
Act.
"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.
"LIBOR Rate Notes" means any Series of Notes the Series Interest Rate
of which is based upon LIBOR.
"Lock-In Period" means a period of six Business Days preceding any
Distribution Date during which the Series Interest Rate in effect on the first
day of such period will remain in effect until the end of the Accrual Period
related to such Distribution Date.
"London Banking Day" means a business day on which dealings in deposits
in United States dollars are transacted in the London interbank market.
"Management Committee" means the Management Committee of the depositor.
"Master servicer" means Student Loan Funding Resources, Inc. or the
entity specified in the Prospectus Supplement for an issuance of Notes that has
agreed to maintain arrangements in place with one or more approved Servicers for
the servicing of the Financed Student Loans securing such Notes.
A-9
<PAGE> 170
"Master Servicing Agreement" means with respect to an issuance of
Notes, the Master Servicing Agreement set forth in the related Prospectus
Supplement, 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 the maximum auction rate for a Series of
Auction Rate Notes as set forth in the related Prospectus Supplement.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors and assigns.
"Net Loan Rate" means, with respect to the any Interest Accrual Period
for a Series of Notes, the Net Loan Rate set forth in the related Prospectus
Supplement.
"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.
"Nonresidents" means holders who are nonresident alien individuals,
foreign corporations, foreign partnerships or certain foreign estates and
trusts.
"Noteholder" means a holder of a Note.
"Noteholders' Interest Distribution Amount" means, with respect to any
Distribution Date for a Series of Notes, 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 such Series on the
immediately preceding Distribution Date after giving effect to all principal
distributions to Holders of such Series on such preceding Distribution Date (or,
in the case of the first Distribution Date, on the applicable Closing Date for
such Series) and (ii) Interest Shortfall for such Distribution Date; provided
that the Noteholders' Interest Distribution Amount for a Series will not include
any Carryover Interest on such Series.
"Noteholders' Principal Distribution Amount" means, with respect to any
Distribution Date for a Series of Notes, the Principal Distribution Amount for
such Series for such Distribution Date plus the Principal Shortfall for such
Series as of the close of the preceding Distribution Date; provided that the
Noteholders' Principal Distribution Amount for a Series will not exceed the
outstanding principal balance of such Series. In addition, on the Legal Final
Maturity of such Series, the principal required to be distributed to the Series
Noteholders will include the amount required to reduce the outstanding principal
balance of such Series to zero.
"Noteholder" or "Holder of a Note" 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.
"Note Owner" means the registered owner of a Note.
"Notes" means a manually executed written instrument evidencing the
issuer's promise to repay a stated sum of money, plus interest, to the
Noteholder by a specific date.
"Outstanding" when used with respect to Notes refers to any Notes
executed, authenticated, issued and delivered under an Indenture other than
Notes for the transfer or exchange of or in lieu of which other Notes shall be
have been authenticated and delivered by the Indenture Trustee pursuant to such
Indenture and other than Notes which at the time are deemed not to be
Outstanding under such Indenture by reason of the operation and effect of, or
the limitation of, certain provisions of such Indenture.
A-10
<PAGE> 171
"Owner Trustee" means the owner trustee under the related trust.
"Parity Percentage Payment" means those principal amounts required to
be paid on the Notes until a certain Parity Percentage is achieved, as specified
in the Prospectus Supplement.
"Parity Percentage" means with respect to any Series of Notes, the
fraction expressed as a percentage set forth in the related Prospectus
Supplement, 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 denomination of which is the sum of (a) the
Outstanding principal amount of the Notes issued under the related Indenture
(after payment thereon on such Distribution Date) and accrued interest thereon
and (b) accrued and unpaid Program Operating Expenses.
"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, with respect to any Trust, at any time, an amount
equal to the aggregate principal balance of the Financed Student Loans
(including accrued interest thereon capitalized through such date) allocable to
such Trust 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 (including for this purpose any
guarantors or escrow fund under a Private Loan Program) 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
A-11
<PAGE> 172
interested in acquiring Auction Rate Notes (or, in the case of an Existing
Holder thereof, an additional principal amount of Auction Rate Notes).
"Pre-Funding Account" means an Account established under an Indenture
for the purpose of enabling the issuer to Finance Student Loans during the
Pre-Funding Period.
"Pre-Funded Amount" means for any issuance of Notes, the amount
specified in the related Prospectus Supplement.
"Pre-Funding Period" means any period specified as such in a Prospectus
Supplement during which the issuer may Finance additional Financed Student Loans
using funds on deposit in the related Pre-Funding Account.
"Principal Distribution Amount" means the principal amount on a Series
of Notes calculated to be distributed on a Distribution Date for such Series of
Notes, as set forth in the related Prospectus Supplement.
"Principal Factor" means a seven digit decimal number which, when
multiplied by the initial principal amount of a Note, produces its Outstanding
principal balance.
"Principal Shortfall" means, as of the close of any Distribution Date
for a Series of Notes, the excess of (i) the Principal Distribution Amount for
such Series on such Distribution Date over (ii) the amount of principal actually
distributed to the Series Noteholders on such Distribution Date.
"Private Loans" means loans that are originated under Private Loan
Programs.
"Private Loan Programs" mean one or more of the Private Loan Programs
that are identified in the related Prospectus Supplement.
"Program" means the issuer's or the depositor's program of Financing
the Financed Student Loans pursuant to an Indenture.
"Program Expense Requirement" means, with respect to an issuance of
Notes and 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
related 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 such 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, the Owner Trustee, the Co-owner
Trustee and the Authenticating Agent, if any, and any fees charged by a
Depository, (ii) the fees and expenses of and any other amounts payable to the
Calculation Agent, any Auction Agent, Broker-Dealers, any market agent or other
agent in connection with any Notes issued 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 (including for
this purpose any agreement with a guarantor or relating to an escrow fund under
a Private Loan Program) 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
A-12
<PAGE> 173
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.
"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 a nationally recognized statistical rating
organization identified in the related Prospectus Supplement that has been
requested by the issuer to provide a credit rating with respect to one or more
Series of Notes as of the Closing Date for such Series.
"Realized Loss" means, for each Financed Student Loan submitted to a
Guarantee Agency for a Guarantee Payment or a Private Loan Program, 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 or a
Private Loan Program 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 or Private Loan Program payment is made
or (B) the last day of the Collection Period occurring 12 months after the date
the claim for such Guarantee Payment or Private Loan Program payment is first
denied.
"Record Date" means, for any Distribution Date, the date on which the
identities of the Noteholders entitled to distributions on the related Notes on
such Distribution Date are fixed, as specified in the related Prospectus
Supplement.
"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 Statement" means a registration statement (together with
all amendments and exhibits thereto) filed by the depositor with the SEC under
the Securities Act of 1933, as amended, with respect to the Notes offered
hereby.
"Relief Act" means the Taxpayer Relief Act of 1997, as amended.
"Remarketing Agent" means, with respect to any Series of Auction Rate
Notes, the remarketing agent under the remarketing agreement related to such
Series of Auction Rate Notes, or any successor to it as such agent.
"Remarketing Agreement" means, with respect to any Series of Auction
Rate Notes, 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 such Series of 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 the Indenture.
"Repayment Phase" means, with respect to any Financed Student Loan,
that period of time during which principal is repayable.
A-13
<PAGE> 174
"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 a Fund established with the Indenture Trustee
under an Indenture, the balance of which may be used to fund certain payments by
the related 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).
"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.
"Seller" means a Lender or other party from which the depositor 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 Senior Notes issued under an Indenture.
"Senior Issuer Exchange Payment" means any Issuer Exchange Payment, the
priority of payment of which is on a parity with Senior Notes issued under an
Indenture.
"Senior Notes" means any Series of Notes issued on a parity senior to
any Subordinate Notes issued under an Indenture.
"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 Notes as specified in the related
Prospectus Supplement.
"Series Account" means an Account established by the Indenture, the use
of which is related primarily to a specific Series of Notes.
"Series Asset Pool" means, with respect to a Series of Notes, the
related Series Loan Pool and the aggregate balance on deposit in the Indenture
Funds and Accounts allocable to the Notes issued in conjunction with such
Series.
"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, as specified in the related Prospectus Supplement.
"Series Loan Pool" means Financed Student Loans purchased with the
proceeds of the particular Series of Notes designated as relating to such Series
Loan Pool.
"Series Program Operating Expenses" shall mean the Program Operating
Expenses related to a Series of Notes.
"Servicer" means any servicer of Financed Student Loans, as specified
in a related Prospectus Supplement.
A-14
<PAGE> 175
"Servicing Agreement" means an agreement between a Servicer and the
issuer and/or the master servicer for the servicing of all or a part of the
Financed Student Loans.
"Servicing Fee" means the fee payable to the Servicers with respect to
the servicing of the Financed Student Loans in a Trust.
"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 related Notes Outstanding.
"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 with respect to any issuance of
Notes, the required amount of the related Reserve Fund, if any, set forth in the
related Prospectus Supplement.
"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 an issuance or 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 an Indenture
Trustee the balances of which shall include all Financed Student Loans in the
related Trust.
"Subordinate Exchange Agreement" means an Exchange Agreement on a
parity with Subordinate Notes issued under an Indenture.
"Subordinate Issuer Exchange Payment" means any Issuer Exchange
Payment, the priority of payment of which is on a parity with Subordinate Notes
issued under an Indenture.
"Subordinate Notes" means any Series of Notes issued on a parity
subordinate to Senior Notes issued under an Indenture.
"Subsequent Cut-off Date" means the date specified in a transfer
agreement with respect to Subsequent Financed Student Loans as the date on and
after which payments on Subsequent Financed Student Loans will belong to the
trust.
"Subsequent Finance Period" means the period from the Closing Date for
any Series to a subsequent date identified in the accompanying Prospectus
Supplement, if any, when Subsequent Financed Student Loans may be conveyed to a
Trust.
A-15
<PAGE> 176
"Subsequent Financed Student Loans" means those Financed Student Loans
that are conveyed to a Trust after the Closing Date with respect to a Series of
Notes in exchange for Financed Student Loans, and do not include additional
Financed Student Loans.
"Supplemental Indenture" means any supplement to or amendment of an
Indenture entered into by the issuer, each related Eligible Lender Trustee and
the related Indenture Trustee pursuant to and in accordance with the provisions
of such Indenture.
"Surety Bond" means a bond that insures the timely payment of all
interest and ultimate payment of all principal due on a Series of Notes;
provided, however, that a Surety Bond will not insure payment of any Carryover
Interest.
"T-Bill Rate Index" means, on any day, the weighted average per annum
discount rate (expressed on a bond equivalent basis and applied on a daily
basis) for 91-day Treasury Bills sold at the most recent 91-day Treasury Bill
auction prior to such date, as reported by the U.S. Department of the Treasury.
In the event that the results of the auctions of 91-day Treasury Bills cease to
be reported as provided above, or that no such auctions is held in a particular
week, then the T-Bill Rate Index in effect as a result of the last such
publication or report will remain in effect until such time, if any, as the
results of auctions of 91-day Treasury Bills shall again be reported or such an
auction is held, as the case may be. The T-Bill Rate Index will be subject to a
Lock-in Period.
"T-Bill Rate Index Notes" means any Series of Notes the Series Interest
Rate of which is based on the T-Bill Rate Index.
"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 any transfer and sale agreement
among the depositor, the Co-owner Trustee and the Eligible Lender Trustee
pursuant to which the depositor will transfer Financed Student Loans to the
trust.
"Trust" means a trust established to secure the issuance of one or more
Series of Notes.
"Trust Certificate" means evidence of the certificated equity interest
in any Trust.
"Underwriters" means any firm that agrees to purchase one or more
Series of Notes of an issue from the issuer.
"Underwriting Agreement" means an agreement among the issuer and the
Underwriter(s) for purchase of the Notes of a Series.
"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
A-16
<PAGE> 177
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.
A-17
<PAGE> 178
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.
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.
B-1
<PAGE> 179
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt issues in same-day funds.
Trading between Cedel and/or Euroclear participants. Secondary market
trading between Cedel participants and/or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a Cedel participant or a Euroclear participant, the purchaser will
send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. Cedel or Euroclear will instruct the
respective depositary to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including, the
last coupon payment date to and excluding the settlement date. Payment will then
be made by the respective depository to the DTC participant's account against
delivery of the Global.
Securities. After settlement has been completed, the Global Securities will
be credited to the respective clearing system and by the clearing system 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
B-2
<PAGE> 180
the Cedel or Euroclear participant's account would be back-valued to the value
date (which would be the preceding day, when settlement occurred in New York).
Should the Cedel or Euroclear participant have a line of credit with its
respective clearing system and elect to be in debit in anticipation of receipt
of the sale proceeds in its account, the back-valuation will extinguish any
overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Cedel or Euroclear participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC participants for delivery to Cedel participants or Euroclear
participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
1. borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's
customary procedures,
2. borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel
or Euroclear account in order to settle the sale side of the
trade; or
3. staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant
is at least one day prior to the value date for the sale to the
Cedel participant or Euroclear participant.
B-3
<PAGE> 181
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN OTHER
INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. THIS DOCUMENT DOES NOT CONSTITUTE AN
OFFER TO SELL ANY SECURITIES OTHER THAN THE NOTES NOR AN OFFER OF SUCH NOTES TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THE PROSPECTUS AND PROSPECTUS SUPPLEMENT AT ANY TIME
DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS................................................................................................... S-1
RISK FACTORS....................................................................................................... S-7
THE ISSUER......................................................................................................... S-18
THE DEPOSITOR...................................................................................................... S-19
USE OF PROCEEDS.................................................................................................... S-21
THE FINANCED STUDENT LOANS......................................................................................... S-21
MATURITY AND PREPAYMENT CONSIDERATIONS............................................................................. S-27
THE SERVICERS...................................................................................................... S-28
THE GUARANTEE AGENCIES............................................................................................. S-32
EXCHANGE AGREEMENTS................................................................................................ S-45
DESCRIPTION OF THE NOTES........................................................................................... S-45
REDEMPTION......................................................................................................... S-54
THE INDENTURE...................................................................................................... S-55
UNDERWRITING....................................................................................................... S-62
LEGAL MATTERS...................................................................................................... S-63
RATING............................................................................................................. S-63
APPENDIX A -- AUCTION PROCEDURES................................................................................... A-1
APPENDIX B -- SETTLEMENT PROCEDURES................................................................................ B-1
PROSPECTUS
FORMATION OF THE TRUSTS............................................................................................ 1
THE DEPOSITOR...................................................................................................... 3
THE FINANCED STUDENT LOAN POOL..................................................................................... 4
MATURITY AND PREPAYMENT CONSIDERATIONS............................................................................. 5
DESCRIPTION OF THE FFEL PROGRAM.................................................................................... 6
DESCRIPTION OF THE GUARANTEE AGENCIES.............................................................................. 23
THE PRIVATE LOAN PROGRAMS.......................................................................................... 25
TRANSFER AND SALE AGREEMENTS....................................................................................... 26
SERVICING.......................................................................................................... 28
DESCRIPTION OF THE NOTES........................................................................................... 30
REDEMPTION......................................................................................................... 47
SECURITY FOR THE NOTES............................................................................................. 47
THE INDENTURES..................................................................................................... 48
FEDERAL INCOME TAX CONSEQUENCES.................................................................................... 63
STATE TAX CONSIDERATIONS........................................................................................... 74
USE OF PROCEEDS.................................................................................................... 74
ERISA CONSIDERATIONS............................................................................................... 74
AVAILABLE INFORMATION.............................................................................................. 75
REPORTS TO NOTEHOLDERS............................................................................................. 75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................................... 75
PLAN OF DISTRIBUTION............................................................................................... 76
RATING............................................................................................................. 76
GLOSSARY OF PRINCIPAL DEFINITIONS.................................................................................. A-1
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES.................................................................................... B-1
</TABLE>
$____________
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN
ASSET-BACKED NOTES
SERIES 1999A-1
SENIOR LIBOR RATE NOTES
SERIES 1999A-2
SENIOR AUCTION RATE
CALLABLE NOTES
SERIES 1999B-1
SUBORDINATE LIBOR RATE NOTES
PROSPECTUS
SALOMON SMITH BARNEY
FIFTH THIRD/THE OHIO COMPANY
NATIONSBANC MONTGOMERY
SECURITIES LLC
PNC CAPITAL MARKETS, INC.
_______________, 1999
<PAGE> 182
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering of $1,000,000 of the Student Loan Asset Backed Notes being
registered under this Registration Statement, other than underwriting discounts
and commission:
<TABLE>
<S> <C>
SEC Registration................................................................................... $ 295.00
Printing and Engraving............................................................................. *
Legal Fees and Expenses............................................................................ *
Accounting Fees and Expenses....................................................................... *
Trustee Fees and Expenses.......................................................................... *
Blue Sky Fees and Expenses......................................................................... *
Rating Agency Fees................................................................................. *
Miscellaneous...................................................................................... *
TOTAL...................................................................................... $
</TABLE>
* To be provided by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Limited Liability Company Agreement ("LLC Agreement")
implements the provisions of the Delaware Limited Liability Company Act
("DLLCA"), which provide for the limitation of liability of the Registrant's
Members, Manager and members of its Management Committee ("Management Committee
Members") in certain circumstances, which may include liabilities under the
Securities Act of 1933. The Registrant's LLC Agreement limits the liability of
its Members, Manager and members of its Management Committee to the fullest
extent permitted under the DLLCA.
The Registrant's LLC Agreement provides for the mandatory indemnification,
to the fullest extent permitted under the DLLCA and to the extent of the
Registrant's assets, of each of the Registrant's present and former Management
Committee Members against any liabilities, including liabilities under the
Securities Act of 1933, incurred by reason of the fact that such person is or
was a Management Committee Member of the Registrant, except where such liability
arises out of a breach by such Management Committee Member of the Registrant's
LLC Agreement or out of any acts or omissions by such Management Committee
Member of that constitute fraud, willful misconduct or breach of fiduciary duty
to the Registrant. The Registrant's LLC Agreement also provides for the
mandatory indemnification, to the fullest extent permitted under the DLLCA, of
each of the Registrant's present and former Managers against any liabilities,
including liabilities under the Securities Act of 1933, incurred by reason of
the fact that such person is or was a Manager of the Registrant. The
Registrant's LLC Agreement provides for the discretionary indemnification to the
same extent as the Manager of any other officer or agent of the Registrant.
The Registrant has entered into an agreement with respect to its two
independent Management Committee Members in which the Registrant has agreed that
such Management Committee Members or any of their affiliates shall not be liable
to any party, except in the cases of bad faith or negligence, in connection with
any transaction of the Registrant. Furthermore, pursuant to such agreement, the
Registrant has agreed to indemnify and hold harmless
II-1
<PAGE> 183
such Management Committee Members and their affiliates for any liabilities,
including liabilities under the Securities Act of 1933, incurred in good faith
and without negligence in connection with any of the transaction of the
Registrant.
Reference is made to the Underwriting Agreement filed as an exhibit hereto
for provisions relating to the indemnification of Management Committee Members,
the Manager and other officers and controlling persons of the Registrant against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
Student Loan Funding Resources, Inc. carries an insurance policy providing
liability insurance for any liability that its directors or officers or the
Members, Management Committee Members, Managers or officers of the Registrant
may incur in their capacities as such.
ITEM 16. EXHIBITS.
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Formation of Registrant
3.2 Limited Liability Company Agreement of Registrant
3.3 Form of Trust Agreement among the Registrant, the Eligible Lender Trustee and the Owner Trustee
4.1 Form of Indenture among the Trust, the Eligible Lender Trustee and the Indenture Trustee
4.2 Form of Terms Supplement to Indenture among the Trust, the Eligible Lender Trustee and the Indenture
Trustee
5.1 Opinion of Thompson Hine & Flory LLP
8.1 Opinion of Thompson Hine & Flory LLP with respect to tax matters
10.1 Administration Agreement between the Administrator and the Trust
10.2 Form of Eligible Lender Trust Agreement between the Trust and the Eligible Lender Trustee
10.3 Form of Transfer and Sale Agreement among the Depositor, the Depositor's eligible lender trustee, the
Trust and the Eligible Lender Trustee*
10.4 Form of Master Servicing Agreement between the Master Servicer and the Trust
10.5 Guarantee Agreement between the Eligible Lender Trustee and California Student Aid Commission
10.6 Guarantee Agreement between the Eligible Lender Trustee and Florida Department of Education, Office
of Student Financial Assistance
10.7 Guarantee Agreement between the Eligible Lender Trustee and Georgia Higher Education Assistance
Corporation
10.8 Guarantee Agreement between the Eligible Lender Trustee and Great Lakes Higher Education Guaranty
Corporation
10.9 Guarantee Agreement between the Eligible Lender Trustee and Kentucky Higher Education Assistance
Authority
10.10 Guarantee Agreement between the Eligible Lender Trustee and Nebraska Student Loan Program, Inc.
10.11 Guarantee Agreement between the Eligible Lender Trustee and Pennsylvania Higher Education
Assistance Agency
10.12 Guarantee Agreement between the Eligible Lender Trustee and United Student Aid Funds, Inc.
23.1 Consent of Thompson Hine & Flory LLP is contained in their opinions filed as Exhibits 5.1 and 8.1
24.1 Power of Attorney (contained on the signature page hereof)
25.1 T-1 Statement of Eligibility of Firstar Bank, National Association under the Trust Indenture Act of 1939
</TABLE>
II-2
<PAGE> 184
<TABLE>
<S> <C>
99.1 Form of Report to be Filed as Form 8-K in Connection with Periodic Reports to Noteholders*
</TABLE>
- ------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in the post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are included by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering;
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of the Act.
II-3
<PAGE> 185
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against 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 whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements (including, without limitation, the security rating requirement at
time of sale) for filing on Form S-3 and has duly caused this Amendment No. 1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cincinnati, State of Ohio on March 19, 1999.
STUDENT LOAN FUNDING RIVERFRONT LLC
(Registrant)
By: /s/ Thomas L. Conlan, Jr.
-----------------------------------
Thomas L. Conlan, Jr., President
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 Amendment
No. 1 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
_________ ________ ____
<S> <C> <C>
/s/ Thomas L. Conlan, Jr.
- ---------------------------------------- Management Committee member, March 18, 1999
Thomas L. Conlan, Jr. President
(Principal Executive Officer)
/s/ Brian A. Ross
- ---------------------------------------- Management Committee member and March 18, 1999
Brian A. Ross Senior Vice President and Manager
(Principal Financial Officer
and Principal Accounting Officer)
</TABLE>
II-5
<PAGE> 187
<TABLE>
<CAPTION>
Signature Capacity Date
_________ ________ ____
<S> <C> <C>
/s/ Christopher P. Chapman
- ---------------------------------------- Management Committee member March 18, 1999
Christopher P. Chapman
/s/ Kathryn A. Widdoes
- ---------------------------------------- Management Committee member March 19, 1999
Kathryn A. Widdoes
/s/ Sandra K. Zimmerman
- ---------------------------------------- Management Committee member March 19, 1999
Sandra K. Zimmerman
</TABLE>
II-6
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
STUDENT LOAN FUNDING RIVERFRONT 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 Riverfront 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 18th day of March, 1999.
/s/ Steven W. Hieatt
-----------------------------------
Steven W. Hieatt, Authorized Person
<PAGE> 1
Exhibit 3.2
LIMITED LIABILITY COMPANY AGREEMENT
(ALSO REFERRED TO AS THE "OPERATING AGREEMENT")
OF
STUDENT LOAN FUNDING RIVERFRONT LLC,
A DELAWARE LIMITED LIABILITY COMPANY
EFFECTIVE AS OF MARCH 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................1
-----------
ARTICLE II FORMATION OF COMPANY........................................................................4
--------------------
2.01 Formation...................................................................................4
2.02 Name........................................................................................4
2.03 Principal Place of Business.................................................................4
2.04 Registered Office and Registered Agent......................................................4
2.05 Effective Date..............................................................................4
2.06 Term........................................................................................5
2.07 Foreign Qualification.......................................................................5
2.08 No State Law Partnership....................................................................5
ARTICLE III BUSINESS OF COMPANY.........................................................................5
-------------------
3.01 Purpose of the Company......................................................................5
3.02 Change in Purpose of Company................................................................6
ARTICLE IV ACTIVITIES SEPARATE FROM
------------------------
AFFILIATES AND MEMBERS......................................................................6
----------------------
4.01 Affirmative Covenants.......................................................................6
4.02 Negative Covenants..........................................................................7
ARTICLE V MEMBERS.....................................................................................7
-------
5.01 Members.....................................................................................7
5.02 Admission of Additional Members.............................................................7
ARTICLE VI CONTRIBUTIONS TO THE COMPANY AND
--------------------------------
CAPITAL ACCOUNTS............................................................................8
----------------
6.01 Initial Capital Contributions; Interests....................................................8
6.02 Additional Contributions....................................................................8
6.03 Loans and Securities........................................................................9
6.04 Withdrawal and Return of Contributions......................................................9
6.05 Interest on Contributions...................................................................9
6.06 Capital Accounts............................................................................9
6.07 Limitation on Member's Deficit Make-up.....................................................10
6.08 Member Liability...........................................................................10
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VII ALLOCATIONS AND DISTRIBUTIONS..............................................................10
-----------------------------
7.01 Allocation of Net Profits and Net Losses from Operations...................................10
7.02 Distributions..............................................................................10
7.03 Limitation Upon Distributions..............................................................10
7.04 Tax Elections..............................................................................11
7.05 Tax Matters Partner........................................................................11
ARTICLE VIII RIGHTS, DUTIES, POWERS AND COMPENSATION
---------------------------------------
OF THE MANAGEMENT COMMITTEE................................................................11
---------------------------
8.01 Management of Business.....................................................................11
8.02 Management Committee.......................................................................11
8.03 Matters Reserved Exclusively to Management Committee.......................................12
8.04 Rights and Powers of Management Committee..................................................13
8.05 Initial Officers...........................................................................14
8.06 Reimbursement of Management Committee......................................................14
8.07 Consideration of the Company's Creditors by the
Management Committee.......................................................................14
ARTICLE IX MANAGER AND OFFICERS.......................................................................15
--------------------
9.01 Designation................................................................................15
9.02 Duties.....................................................................................15
9.03 Matters Reserved Exclusively to Members....................................................15
9.04 Delegation of Authority; Officers..........................................................15
9.05 Standard of Conduct........................................................................16
9.06 Compensation...............................................................................16
9.07 Removal....................................................................................16
9.08 Resignation................................................................................16
9.09 Indemnification............................................................................16
9.10 Employees..................................................................................16
ARTICLE X RIGHTS AND OBLIGATIONS OF MEMBERS..........................................................17
---------------------------------
10.01 Limitation of Liability....................................................................17
10.02 Company Debt Liability.....................................................................17
10.03 List of Members............................................................................17
10.04 Company Books..............................................................................17
10.05 Priority and Return of Capital.............................................................17
10.06 Binding Authority..........................................................................17
10.07 Consideration of the Company's Creditors by Members........................................17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XI MEETINGS OF MEMBERS........................................................................17
-------------------
11.01 Meetings...................................................................................17
11.02 Place of Meetings..........................................................................18
11.03 Notice of Meetings.........................................................................18
11.04 Meeting of all Members.....................................................................18
11.05 Record Date................................................................................18
11.06 Quorum.....................................................................................18
11.07 Manner of Acting...........................................................................18
11.08 Proxies....................................................................................19
11.09 Action by Members Without a Meeting........................................................19
11.10 Waiver of Notice...........................................................................19
11.11 Participation by Electronic Communication..................................................19
11.12 Representations and Warranties.............................................................19
11.13 Conflicts of Interest......................................................................19
ARTICLE XII TRANSFERABILITY............................................................................20
---------------
12.01 Transfers..................................................................................20
12.02 Conditions to Transfers....................................................................20
12.03 Substitution of a Member...................................................................21
12.04 Pledge or Other Encumbrance................................................................21
ARTICLE XIII DISSOLUTION, TERMINATION AND
----------------------------
LIQUIDATION OF THE COMPANY.................................................................21
--------------------------
13.01 Dissolution................................................................................21
13.02 Winding Up, Liquidation and Distribution of Assets.........................................22
13.03 Certificate of Cancellation................................................................23
13.04 Return of Contribution Nonrecourse to Other Members........................................23
13.05 Final Accounting...........................................................................24
ARTICLE XIV MISCELLANEOUS PROVISIONS...................................................................24
------------------------
14.01 Notices....................................................................................24
14.02 Fiscal Year................................................................................24
14.03 Application of Delaware Law................................................................24
14.04 Waiver of Action for Partition.............................................................24
14.05 Amendments to Organizational Documents.....................................................24
14.06 Construction...............................................................................24
14.07 Headings and Pronouns......................................................................24
14.08 Waivers....................................................................................25
14.09 Successors and Assigns.....................................................................25
14.10 Creditors..................................................................................25
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
14.11 Counterparts...............................................................................25
14.12 Enforcement of Independent Committee Members...............................................25
14.13 Indemnification of Members and Committee Members...........................................25
Exhibit 2.01 - Certificate of Formation..........................................................................27
Exhibit 5.01 - Members...........................................................................................28
Exhibit 6.01 - Capital Contributions and Membership Interests....................................................29
Exhibit 8.02 - Members of the Management Committee...............................................................30
Exhibit 8.05 - Initial Officers..................................................................................31
</TABLE>
(iv)
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
OF
STUDENT LOAN FUNDING RIVERFRONT LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (also referred to as
the "Operating Agreement") is made and entered as of the 18th day of March,
1999, 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. 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.
1.08 "CAPITAL CONTRIBUTION" shall mean any contribution to the capital
of the Company in cash or property by a Member whenever made.
<PAGE> 7
1.09 "CERTIFICATE OF FORMATION" shall mean the Certificate of Formation
of the Company, 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 Riverfront 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.
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.
-2-
<PAGE> 8
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.
1.33 "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.
1.34 "STUDENT LOANS" shall have the meaning set forth in Section
3.01(a).
1.35 "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.
-3-
<PAGE> 9
1.36 "TAX MATTERS PARTNER" shall have the meaning set forth in Section
7.05.
1.37 "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.
1.38 "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.
1.39 "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.
ARTICLE II
FORMATION OF COMPANY
--------------------
2.01 FORMATION. The Members caused the Company to be formed as a
limited liability company effective March ___, 1999 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. Steven W. Hieatt, in his 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 Riverfront
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 ____, 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 March 18, 1999.
-4-
<PAGE> 10
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. Steven W. Hieatt, in his capacity as an authorized
representative of the Company, was authorized to execute, deliver and file an
Application for Registration of Foreign Limited Liability Company with the
Secretary of State of Ohio.
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, 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, 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");
(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;
-5-
<PAGE> 11
(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;
(e) to create and act through subsidiaries, trusts or other
entities to accomplish any of the purposes permitted by this Section 3.01; and
(f) 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 (e) above.
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;
-6-
<PAGE> 12
(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;
(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
-7-
<PAGE> 13
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.
ARTICLE VI
CONTRIBUTIONS TO THE COMPANY AND
--------------------------------
CAPITAL ACCOUNTS
----------------
6.01 INITIAL CAPITAL CONTRIBUTIONS; INTERESTS. On or before the
Effective Date, 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.
-8-
<PAGE> 14
(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 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. 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. 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 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.
-9-
<PAGE> 15
(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 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.
-10-
<PAGE> 16
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 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.
-11-
<PAGE> 17
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;
(e) sell, transfer, assign, convey or lease any substantial
part of the assets of the Company;
(f) merge, consolidate, liquidate or, subject to Article
XIII and to the fullest extent permitted by law,
dissolve the Company;
(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;
-12-
<PAGE> 18
(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
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
-13-
<PAGE> 19
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 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 names on 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.
-14-
<PAGE> 20
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 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.
-15-
<PAGE> 21
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.
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.
-16-
<PAGE> 22
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 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 10.05 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.
-17-
<PAGE> 23
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 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 11.05, 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.
-18-
<PAGE> 24
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 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.
-19-
<PAGE> 25
(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:
(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;
-20-
<PAGE> 26
(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 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
-21-
<PAGE> 27
(iii) the sale of all or substantially all of the assets of
the Company.
(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.
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);
-22-
<PAGE> 28
(ii) to Members who are creditors of the Company in
satisfaction of Company liabilities, including, without
limitation, the repayment of principal of 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 insufficient to return
the cash contribution of one or more Members, such Member or Members shall have
no recourse against any other Member.
-23-
<PAGE> 29
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.
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.
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.
-24-
<PAGE> 30
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.
-25-
<PAGE> 31
MEMBER'S SIGNATURE PAGE
-----------------------
Each of the undersigned agrees to become a Member in Student Loan
Funding Riverfront 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/ Brian A. Ross
---------------------------------
Its: Senior Vice President & CFO
---------------------------------
SLF ENTERPRISES, INC.
By: /s/ Thomas L. Conlan, Jr.
---------------------------------
Its: President
---------------------------------
<PAGE> 32
EXHIBIT 2.01 - CERTIFICATE OF FORMATION
---------------------------------------
CERTIFICATE OF FORMATION
OF
STUDENT LOAN FUNDING RIVERFRONT 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 Riverfront 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 18th day of March, 1999.
/s/ Steven W. Hieatt
-----------------------------------
Steven W. Hieatt, Authorized Person
<PAGE> 33
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> 34
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> 35
EXHIBIT 8.02 - MEMBERS OF THE MANAGEMENT COMMITTEE
--------------------------------------------------
Thomas L. Conlan, Jr.
Brian A. Ross
Christopher P. Chapman
Sandra K. Zimmerman - Independent Committee Member
Kathryn A. Widdoes - Independent Committee Member
<PAGE> 36
EXHIBIT 8.05 - INITIAL OFFICERS
-------------------------------
NAME OFFICE
- ---- ------
Thomas L. Conlan, Jr. President
Brian A. Ross Senior Vice President and Manager
Christopher P. Chapman Vice President
Patrick M. McDonough Vice President
Perry D. Moore Vice President
Patricia Mann Smitson Secretary
<PAGE> 1
Exhibit 3.3
TRUST AGREEMENT
Relating to
STUDENT LOAN FUNDING 1999-A TRUST
Dated as of _____________, 1999
among
STUDENT LOAN FUNDING RIVERFRONT 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
<TABLE>
<S> <C>
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
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
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 ................................................. 18
Section 5.4. No Segregation of Moneys; No Interest ............................. 19
Section 5.5. Accounting: Reports: Tax Returns .................................. 19
ARTICLE VI ......................................................................... 20
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
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 21
Section 6.5. No Action Except under Specified Documents or Instructions ........ 22
Section 6.6. Restrictions ...................................................... 22
Section 6.7. Administration Agreement .......................................... 22
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
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
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
</TABLE>
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 ______________, 1999, is made among
STUDENT LOAN FUNDING RIVERFRONT 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 eligible lender
trustee for the benefit of the Co-Owner Trustee (in such capacity, the "Co-Owner
Eligible Lender Trustee").
WHEREAS, the Depositor 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 transfer certain of the assets to be pledged under the
Indenture to secure the payment of the Notes to the Trust and, but solely with
respect to legal title to the Financed Student Loans, to the Co-Owner Eligible
Lender Trustee;
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 ____________, 1999, between the
Administrator and the Trust, 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.
"Benefit Plan" shall mean the meaning assigned in Section 3.4
hereof.
1
<PAGE> 8
"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 ___________, 1999.
"Co-Owner Eligible Lender Trust Agreement" shall mean the
Co-Owner Eligible Lender Trust Agreement, dated as of ____________,
1999, by and between the Trust 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 Trust, and its permitted
successors and assigns.
"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.
2
<PAGE> 9
"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 Riverfront LLC, a
Delaware limited liability company, and its permitted successors and
assigns.
"Depositor Eligible Lender Trustee" shall mean Firstar 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 _____________, 1999, 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.
"Indenture" shall mean, collectively, the Indenture of Trust
and the Terms Supplement to the Indenture of Trust, each to be dated as
of ____________, 1999, among the Trust, the Co-Owner Eligible Lender
Trustee and the Indenture Trustee, as amended, supplemented or restated
from time to time.
3
<PAGE> 10
"Indenture Trustee" shall mean Firstar 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 ___________, 1999, between the Trust 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 1999A-1, Senior Series 1999A-2 and Subordinate Series 1999B-1,
issued by the Trust under the Indenture.
"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.
"Transfer and Sale Agreement" shall mean the Transfer and Sale
Agreement, to be dated as of ____________, 1999, among the Transferor,
the Trust and the Co-Owner Eligible Lender Trustee, as the same may be
amended and supplemented from time to time.
"Transferred Assets" shall mean all rights of the Depositor
and the Depositor Eligible Lender Trustee in and to the Financed
Student Loans, the Contracts of Guarantee with respect thereto, the
Purchase Agreements and the Servicing Agreements with respect to the
Financed Student Loans serviced thereunder, including all rights of the
Depositor
4
<PAGE> 11
under the warranties of each Seller, Master Servicer or Servicer, as
the case may be thereunder.
"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 1999-A Trust", the estate of which
consists of the Trust Property.
"Trust Property" shall mean the property and proceeds of every
description conveyed to the Trust 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 1999-A 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 1999-A 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 on behalf 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 Depositor and the Depositor Eligible Lender Trustee shall
transfer and assign to the Trust and the Co-Owner Eligible Lender
Trustee all of the Transferred Assets;
(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 the Notes;
(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 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"
7
<PAGE> 14
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
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.
8
<PAGE> 15
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 (i) asserting the invalidity of this
Agreement or any of the Related Documents, (ii) seeking to prevent the issuance
of the Certificate or 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
9
<PAGE> 16
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.
10
<PAGE> 17
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
Transferred Assets 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 Transferred Assets, 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 purpose of registering the Certificate and transfers and
exchanges of the Certificate as provided in this Agreement.
11
<PAGE> 18
(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 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
12
<PAGE> 19
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.
13
<PAGE> 20
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.
14
<PAGE> 21
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 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
15
<PAGE> 22
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).
16
<PAGE> 23
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 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.
17
<PAGE> 24
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.
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
18
<PAGE> 25
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.
19
<PAGE> 26
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, including, but not limited to,
the actions required of the Co-Owner Trustee under any Related Document, 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.
20
<PAGE> 27
(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.
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
21
<PAGE> 28
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.
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
22
<PAGE> 29
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.
23
<PAGE> 30
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;
(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
24
<PAGE> 31
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 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.
25
<PAGE> 32
(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 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:
26
<PAGE> 33
(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 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
27
<PAGE> 34
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
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
28
<PAGE> 35
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.
29
<PAGE> 36
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 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
30
<PAGE> 37
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.
31
<PAGE> 38
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 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
32
<PAGE> 39
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.
33
<PAGE> 40
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 Baa 3 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 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
34
<PAGE> 41
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 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
35
<PAGE> 42
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 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
36
<PAGE> 43
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 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
37
<PAGE> 44
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.
38
<PAGE> 45
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.
(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
39
<PAGE> 46
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.
(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
40
<PAGE> 47
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 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
41
<PAGE> 48
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register.
42
<PAGE> 49
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 RIVERFRONT LLC,
("Depositor" and sole initial
"Certificateholder")
By___________________________________________
Name: _________________________________
Title: _________________________________
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION,
not in its individual capacity,
but solely as trustee under this Trust
Agreement ("Delaware Trustee")
By __________________________________________
Name: _________________________________
Title: _________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as trustee under this Trust Agreement
("Co-Owner Trustee")
By __________________________________________
Name: _________________________________
Title: _________________________________
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 __________________________________________
Name: _________________________________
Title: _________________________________
43
<PAGE> 50
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 1999-A 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 Riverfront LLC and Firstar Bank,
National Association, as eligible lender trustee on behalf
of Student Loan Funding Riverfront LLC
THIS CERTIFIES THAT STUDENT LOAN FUNDING RIVERFRONT LLC is the
registered owner of the Percentage Interest set forth above in the Student Loan
Funding 1999-A 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
___________, 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"), 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"),
and Firstar Bank, National Association, Cincinnati, Ohio, not in its individual
capacity, but solely in its capacity as co-owner eligible lender trustee under
the Trust Agreement (the "Co-Owner Eligible Lender Trustee"). 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 1999-A 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
A-1
<PAGE> 51
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 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
________ 1, 1999, among 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")
(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 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
A-2
<PAGE> 52
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.
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.
- -----------
(1) To be included only upon direction of the Depositor at the time of issuance
of this Certificate.
A-3
<PAGE> 53
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 1999-A 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 Studen Loan Funding
1999-A 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 1999-A 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 Riverfront 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 1999-A 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 1999-A Trust, dated as of
___________, 1999 (the "Agreement"), among Student Loan Funding Riverfront 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 4.1
INDENTURE OF TRUST,
Dated as of ________ 1, 1999,
By and Among
STUDENT LOAN FUNDING 1999-A TRUST,
a Delaware common law trust,
FIRSTAR BANK, NATIONAL ASSOCIATION,
Not in its individual capacity, but solely as eligible lender trustee
for the benefit Student Loan Funding 1999-A Trust
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Relating to the
STUDENT LOAN ASSET-BACKED NOTES,
SERIES 1999A AND SERIES 1999B
OF
STUDENT LOAN FUNDING 1999-A TRUST
<PAGE> 2
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
(THE "TRUST INDENTURE ACT") AND THE
INDENTURE OF TRUST, DATED AS OF 1, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
----------- -----------------
<S> <C>
Section 310 (a)(1).................................................................................7.1(b)
(a)(2)......................................................................................7.1(b)
(a)(3).........................................................................................7.2
(a)(4).........................................................................................N/A
(a)(5)......................................................................................7.1(b)
(b).........................................................................................7.1(d)
(c)............................................................................................N/A
Section 311 (a)......................................................................................7.17
(b)...........................................................................................7.17
(c)............................................................................................N/A
Section 312 (a)......................................................................................6.15
(b)...........................................................................................7.18
(c)...........................................................................................7.18
Section 313 (a)......................................................................................7.10
(b)...........................................................................................7.10
(c)...........................................................................................7.10
(d)...........................................................................................7.10
Section 314 (a).......................................................................................6.7
(b)...........................................................................................12.8
(c).........................................................................................1.3(a)
(c)(1)......................................................................................1.3(a)
(c)(2)......................................................................................1.3(a)
(c)(3)......................................................................................1.3(a)
(d)......................................................................................1.3(c)(e)
(e).........................................................................................1.3(a)
(f).........................................................................................1.3(k)
Section 315 (a).................................................................................7.1(a)(i)
(b)............................................................................................8.8
(c).....................................................................................7.1(a)(ii)
(d)....................................................................................7.1(a)(iii)
(e)...........................................................................................6.16
Section 316 (a)(1)(A).................................................................................8.4
(a)(1)(B)......................................................................................8.7
(a)(2).........................................................................................N/A
(a)(computations)..............................................................................8.9
(b)............................................................................................8.5
(c)............................................................................................N/A
Section 317 (a)(1)....................................................................................8.4
(a)(2).........................................................................................8.4
(b)............................................................................................N/A
Section 318 (a)......................................................................................12.9
</TABLE>
- ----------
NOTE: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture. Attention should also be
directed to Section 318(c) of the Trust Indenture Act (the
provisions of which are intended to apply to this Indenture,
regardless of whether this Indenture is qualified thereunder),
which provides that the provisions of Section 310 to and
including Section 317 are a part of and govern every qualified
indenture whether or not physically contained therein.
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREAMBLE.........................................................................................................1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 Definitions. .........................................................................................4
SECTION 1.2 Use of Certain Terms. ...............................................................................18
SECTION 1.3 Compliance Certificates and Opinions. ...............................................................18
SECTION 1.4 Incorporation by Reference of Trust Indenture Act. ..................................................21
ARTICLE II
AUTHORIZATION, TERMS AND PROVISIONS OF NOTES
SECTION 2.1 Authorization of Notes; Terms of Notes in General; Notes to Constitute Limited Obligations...........22
SECTION 2.2 Execution of Notes; Validity of Signatures. .........................................................22
SECTION 2.3 Transfer of Notes; Exchange of Notes.................................................................23
SECTION 2.4 Books of Registry................................................................................... 24
SECTION 2.5 Mutilated, Lost, Stolen or Destroyed Notes.......................................................... 24
SECTION 2.6 Disposition and Destruction of Notes................................................................ 25
SECTION 2.7 Forms of Notes and Instructions for Payment......................................................... 25
SECTION 2.8 Temporary Notes..................................................................................... 26
ARTICLE III
[RESERVED]
ARTICLE IV
REDEMPTION OF THE NOTES
SECTION 4.1 Redemption of Notes in General...................................................................... 28
ARTICLE V
DISPOSITION OF PROCEEDS
ESTABLISHMENT OF FUNDS AND ACCOUNTS
APPLICATION OF AVAILABLE FUNDS
SECTION 5.1 Disposition of Proceeds of the Notes............................................................... 29
SECTION 5.2 Reserve Fund....................................................................................... 29
SECTION 5.3 Acquisition Fund................................................................................... 30
SECTION 5.3.1 Financing of Student Loans...................................................................... 30
SECTION 5.3.2 Investment of Acquisition Fund; Transfer of Proceeds in Acquisition Fund........................ 32
SECTION 5.4 Student Loan Portfolio Fund; Sale of Student Loans................................................. 32
SECTION 5.5 Collection Fund.................................................................................... 34
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 5.5.1 Collection Account.............................................................................. 34
SECTION 5.5.2 Note Payment Account............................................................................ 35
SECTION 5.5.3 [Reserved.]..................................................................................... 35
SECTION 5.5.4 Expense Account................................................................................. 35
SECTION 5.5.5 Excess Surplus Account.......................................................................... 36
SECTION 5.5.6 Investment of Collection Fund. ................................................................. 36
SECTION 5.6 Pledge. .......................................................................................... 37
SECTION 5.7 Investments. ..................................................................................... 39
SECTION 5.8 Exchange Agreements; Counterparty Exchange Payments; Issuer Exchange Payments..................... 41
SECTION 5.9 Termination....................................................................................... 42
ARTICLE VI
COVENANTS TO SECURE NOTES
SECTION 6.1 Administration of the Program. ...................................................................44
SECTION 6.2 Contracts of Guarantee. ..........................................................................44
SECTION 6.3 Acquisition, Collection and Assignment of Student Loans; Compliance with Law. ....................44
SECTION 6.4 Enforcement of Financed Student Loans. ...........................................................45
SECTION 6.5 Enforcement of Master Servicing Agreement and Servicing Agreements; Removal of Servicer. .........45
SECTION 6.6 Enforcement of Purchase Agreements. ..............................................................46
SECTION 6.7 Books of Account; Annual Audit. ..................................................................46
SECTION 6.8 Punctual Payment of Notes. .......................................................................47
SECTION 6.9 Further Assurances................................................................................47
SECTION 6.10 Protection of Security. .........................................................................47
SECTION 6.11 No Encumbrances..................................................................................48
SECTION 6.12 Compliance with Indenture........................................................................48
SECTION 6.13 Limitation on Program Operating Expenses.........................................................48
SECTION 6.14 Notice of Additional Guarantee Agencies or Servicers. ...........................................49
SECTION 6.15 Issuer to Furnish Indenture Trustee Names and Addresses of Holders. .............................49
SECTION 6.16 Undertaking for Costs. ..........................................................................49
ARTICLE VII
CONCERNING THE INDENTURE TRUSTEE
SECTION 7.1 Appointment of, Acceptance by, and Duties of Indenture Trustee; Qualification; Resignation;
Removal; Successor. ............................................................................. 50
SECTION 7.2 Appointment of Co-Indenture Trustee. .............................................................53
SECTION 7.3 Certain Rights and Obligations of the Indenture Trustee...........................................54
SECTION 7.4 Evidence of Compliance with Conditions Precedent; Examination of Evidence; Evidence of Rights
of Holders. ......................................................................................56
SECTION 7.5 Proofs of Claims and Other Papers and Documents...................................................57
SECTION 7.6 Dealing with the Issuer. .........................................................................57
SECTION 7.7 Fees and Reimbursement of Indenture Trustee. .....................................................58
SECTION 7.8 Fees and Reimbursements of Each Eligible Lender Trustee...........................................58
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C>
SECTION 7.9 Covenants of Indenture Trustee Pursuant to Higher Education Act. .................................59
SECTION 7.10 Statements and Reports by Indenture Trustee of Funds and Accounts and Other Matters. ............59
SECTION 7.11 Additional Authenticating Agent..................................................................61
SECTION 7.12 Notice to Rating Agencies........................................................................61
SECTION 7.13 Indenture Trustee Not Liable for Acts of the Issuer; No Representations by Indenture Trustee. ...61
SECTION 7.14 Indenture Trustee Not Responsible for Calculation Agent..........................................62
SECTION 7.15 Indemnification of the Indenture Trustee and each Eligible Lender Trustee........................62
SECTION 7.16 Intervention by the Indenture Trustee............................................................62
SECTION 7.17 Preferential Collection of Claims Against Issuer.................................................63
SECTION 7.18 Preservation of Information; Communication to Holders............................................63
SECTION 7.19 Survival of Certain Provisions of the Indenture..................................................63
ARTICLE VIII
DEFAULTS AND REMEDIES
SECTION 8.1 Events of Default.................................................................................64
SECTION 8.2 Inspection of Books and Records...................................................................67
SECTION 8.3 Application of Moneys.............................................................................67
SECTION 8.4 Suits at Law or in Equity; Direction of Action by Holders.........................................70
SECTION 8.5 Suits by Individual Holders or an Exchange Counterparty...........................................71
SECTION 8.6 Remedies Not Exclusive............................................................................72
SECTION 8.7 Waivers of Default................................................................................72
SECTION 8.8 Notice of Events of Default.......................................................................73
SECTION 8.9 Computations......................................................................................73
SECTION 8.10 Article Subject to Certain Provisions............................................................73
ARTICLE IX
AMENDING AND SUPPLEMENTING OF INDENTURE
SECTION 9.1 Amending and Supplementing of Indenture Without Consent of Holders................................74
SECTION 9.2 Amendment of Indenture with Consent of Holders and Exchange Counterparties. ......................75
SECTION 9.3 Effectiveness of Supplemental Indenture...........................................................76
SECTION 9.4 Supplemental Indenture Affecting Indenture Trustee................................................76
SECTION 9.5 Supplemental Indentures Affecting Certain Requirements of the Higher Education Act. ..............76
ARTICLE X
DEFEASANCE; MONEYS HELD FOR PAYMENT OF DEFEASED NOTES
SECTION 10.1 Trust Irrevocable. ..............................................................................77
SECTION 10.2 Discharge of Liens and Pledges; Notes No Longer Outstanding and Deemed to Be Paid. ..............77
</TABLE>
v
<PAGE> 6
<TABLE>
<S> <C>
SECTION 10.3 Notes Not Presented for Payment When Due; Moneys Held for the Notes after Due Date Thereof. .....79
ARTICLE XI
MEETINGS OF HOLDERS
SECTION 11.1 Purposes of Meetings.............................................................................81
SECTION 11.2 Call of Meetings; Place of Meetings..............................................................81
SECTION 11.3 Meetings; Regulations of the Indenture Trustee...................................................82
SECTION 11.4 Voting; Speaking at Meeting; Record of Meeting...................................................82
SECTION 11.5 Miscellaneous....................................................................................83
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Benefits of Indenture Limited to Issuer, Eligible Lender Trustees, Indenture Trustee,
Exchange Counterparty and Holders. ..............................................................84
SECTION 12.2 Effect of Legal Holidays.........................................................................84
SECTION 12.3 Partial Invalidity...............................................................................84
SECTION 12.4 Notices..........................................................................................84
SECTION 12.5 Law and Place of Enforcement of Indenture........................................................85
SECTION 12.6 No Recourse Against Directors, Officers or Employees of the Issuer...............................85
SECTION 12.7 Cross-Indemnification............................................................................85
SECTION 12.8 Suspension of Mail...............................................................................86
SECTION 12.9 Opinion as to Trust Estate.......................................................................86
SECTION 12.10 Conflict with Trust Indenture Act...............................................................86
SECTION 12.11 Effect of Article and Section Headings and Table of Contents....................................87
SECTION 12.12 Execution of Counterparts. .....................................................................87
</TABLE>
SCHEDULE I SCHEDULE OF APPROVED GUARANTEE AGENCIES
SCHEDULE II SCHEDULE OF APPROVED SERVICERS AND SERVICING AGREEMENTS
EXHIBIT A STUDENT LOAN ACQUISITION CERTIFICATE
EXHIBIT B UPDATING STUDENT LOAN ACQUISITION CERTIFICATE
vi
<PAGE> 7
THIS INDENTURE OF TRUST, dated as of ________ 1, 1999, as hereafter
amended or supplemented by Supplemental Indentures (the "Base Indenture"), by
and among STUDENT LOAN FUNDING 1999-A TRUST, a common law (as opposed to
statutory) trust created under the laws of the State of Delaware (the "Issuer"),
by FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association duly
organized and existing under the laws of the United States, having its principal
corporate trust office in Cincinnati, Ohio, not in its individual capacity, but
solely as co-owner trustee of the Issuer (the "Co-Owner Trustee"), FIRSTAR BANK,
NATIONAL ASSOCIATION, a national banking association duly organized and existing
under the laws of the United states, having its principal corporate trust
offices in Cincinnati, Ohio, not in its individual capacity, but solely as the
eligible lender trustee on behalf of the Issuer (the "Initial Co-Owner Eligible
Lender Trustee") and FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking
association duly organized and existing under the laws of the United States,
having its principal corporate trust office in Cincinnati, Ohio and being
qualified to accept and administer the trusts hereby created (the "Indenture
Trustee"), with the capitalized words and terms used in the recitals and
granting clauses of this Indenture as defined words and terms and not otherwise
defined therein are being used as defined in Section 1.1 hereof (References to
the name "Student Loan Funding 1999-A Trust" or to the terms "Issuer" or
"Delaware Trust" in this Indenture, including the Schedules and Exhibits
attached hereto and made a part hereof, shall mean the Co-Owner Trustee, not in
its individual capacity, but solely as Co-Owner Trustee of the Issuer on behalf
of the Issuer);
WITNESSETH:
WHEREAS, the Issuer is authorized by the applicable provisions of the
laws of the United States and the State of Delaware and by the Trust Agreement,
dated as of _________ 1, 1999 (the "Trust Agreement"), among Student Loan
Funding Riverfront LLC (the "Depositor"), Firstar Bank, National Association,
not in its individual capacity, but solely as the eligible lender trustee on
behalf of the Depositor (the "Depositor Eligible Lender Trustee"), the Delaware
Trustee (as defined therein), the Co-Owner Trustee and the Initial Co-Owner
Eligible Lender Trustee, to acquire directly, or indirectly through an Eligible
Lender Trustee, student loan notes incurred under the Higher Education Act, and
to finance and refinance the acquisition directly, or indirectly through an
Eligible Lender Trustee, of such student loan notes by the issuance of notes and
other evidences of indebtedness of the Issuer;
WHEREAS, the Issuer has determined to provide under this Base Indenture
and the Terms Supplement (collectively, the "Indenture") for the issuance in
Series of (i) its Student Loan Asset-Backed Senior Notes, Series 1999A (the
"Series 1999A Notes" or the "Senior Notes") and (ii) its Student Loan
Asset-Backed Subordinate Notes, Series 1999B (the "Series 1999B Notes" or the
"Subordinate Notes" and collectively with the Series 1999A Notes, the "Notes");
WHEREAS, pursuant to the Transfer and Sale Agreement, the Depositor and
the Depositor Eligible Lender Trustee have sold, transferred and assigned all of
the Transferred Assets to the Issuer and the Initial Co-Owner Eligible Lender
Trustee;
WHEREAS, the Issuer, the Initial Eligible Lender Trustee and the
Indenture Trustee desire to execute and deliver this Indenture in order to
confirm and declare the terms and
1
<PAGE> 8
conditions upon which the Notes will be secured and to secure payment of the
principal thereof and interest and any Carryover Interest thereon; and
NOW THEREFORE, THIS INDENTURE OF TRUST WITNESSETH:
That (a)(i) in order to secure (A) the payment of the fees and expenses
of the Indenture Trustee hereunder in accordance with the provisions of this
Indenture and (B) the payment of the fees and expenses of each Eligible Lender
Trustee hereunder in accordance with the provisions of this Indenture; and (ii)
in order to secure (A) the payment of the principal of and interest and any
Carryover Interest on, the Senior Notes according to their respective tenor,
purport and effect and (B) the payment of any Senior Issuer Exchange Payment and
the performance and observance of all covenants and conditions contained in any
Senior Exchange Agreement; and (iii) in order to secure (A) the payment of the
principal of and interest and any Carryover Interest on the Subordinate Notes
according to their respective tenor, purport and effect and (B) the payment of
any Subordinate Issuer Exchange Payment and the performance and observance of
all covenants and conditions contained in any Subordinate Exchange Agreement;
and (iv) in order to secure the performance and observance of all the covenants
and conditions contained in this Indenture, in the Notes and in any Exchange
Agreement; (b) for and in consideration of (i) the mutual covenants contained in
this Indenture, (ii) the acceptance by the Indenture Trustee of the trusts
hereby created, and (iii) the execution and delivery of any Exchange Agreement
by the Issuer and an Exchange Counterparty, and the acknowledgment thereof by
the Indenture Trustee; (c) each of the Issuer and the Initial Co-Owner Eligible
Lender Trustee has executed and delivered this Indenture and by these presents
does hereby convey, transfer, assign, pledge, and grant a valid and binding lien
on and a security interest in, unto the Indenture Trustee, its successor or
successors and its or their assigns forever, (i) for the benefit of the
Indenture Trustee and each Eligible Lender Trustee with respect to their
respective fees and expenses, all rights, title and interest of the Issuer and
the Initial Co-Owner Eligible Lender Trustee in and to the Trust Estate, whether
now owned or hereafter acquired, and all other rights hereinafter granted for
the further securing of the fees and expenses of the Indenture Trustee, each
Eligible Lender Trustee; (ii) for the equal and ratable benefit (except as
otherwise provided in Section 8.3 hereof) of the Holders of the Senior Notes,
all rights, title and interest of the Issuer and the Initial Co-Owner Eligible
Lender Trustee in and to the Trust Estate, whether now owned or hereafter
acquired, and all other rights hereinafter granted for the further securing of
the Senior Notes; and (iii) for the equal and ratable benefit (except as
otherwise provided in Section 8.3 hereof) of a Senior Exchange Counterparty, if
any, on a parity with Holders of the Senior Notes, all rights, title and
interest of the Issuer and the Initial Co-Owner Eligible Lender Trustee in and
to the Trust Estate, whether now owned or hereafter acquired, and all other
rights hereinafter granted for the further securing of any Senior Exchange
Agreement; and (iv) for the equal and ratable benefit (except as otherwise
provided in Section 8.3 hereof) of the Holders of the Subordinate Notes,
subordinate, however, to (A) that of the Holders of the Senior Notes and (B)
that of a Senior Exchange Counterparty, all rights, title and interest of the
Issuer and the Initial Co-Owner Eligible Lender Trustee in and to the Trust
Estate, whether now owned or hereafter acquired, and all other rights
hereinafter granted for the further securing of the Subordinate Notes; and (v)
for the equal and ratable benefit (except as otherwise provided in Section 8.3
hereof) of any Exchange Counterparty in addition to each Senior Exchange
Counterparty, if any, whether on a parity with or subordinate to the Holders of
the Senior Notes and any Senior Exchange Counterparty, all rights, title and
interest of the Issuer and the Initial Co-Owner Eligible Lender Trustee in and
to the Trust Estate, whether now owned or hereafter
2
<PAGE> 9
acquired, and all other rights hereinafter granted for the further securing of
the Exchange Agreement of such Exchange Counterparty;
TO HAVE AND TO HOLD the same unto the Indenture Trustee and its
successor or successors and its or their assigns forever;
IN TRUST, NEVERTHELESS, upon the terms and trusts herein set forth, to
secure the payment of the principal of the Notes and the interest and any
Carryover Interest thereon, and to secure the payment of any Issuer Exchange
Payment, and to secure also the observance and performance of all the terms,
provisions, covenants and conditions of this Indenture, and for the equal and
ratable (except as otherwise provided in this Indenture) benefit and security of
all and singular the Holders and any Exchange Counterparty, without preference,
priority or distinction as to lien or otherwise, of any one of such Notes over
any other of such Notes or over any Issuer Exchange Payment or as among
principal and interest and Carryover Interest, or of any one Exchange Agreement
over any other Exchange Agreement or over any Notes, except as otherwise
provided in this Indenture; and it is hereby mutually covenanted and agreed that
the terms and conditions upon which any Exchange Agreement is to be executed,
delivered and accepted by the Issuer and the Exchange Counterparty and
acknowledged by the Indenture Trustee are as set forth in such Exchange
Agreement, and it is hereby further mutually covenanted and agreed that the
terms and conditions upon which such Notes are executed, authenticated, issued,
delivered, secured and accepted by all Persons who shall from time to time be or
become the Holders thereof and upon which any Exchange Agreement is to be
secured, and the trusts and conditions upon which the Trust Estate is to be held
and disbursed, are as set forth in this Indenture:
3
<PAGE> 10
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.1 Definitions.
Unless the context shall clearly indicate some other meaning or may
otherwise require, the terms defined in this Section 1.1 shall, for all purposes
of this Indenture and of any indenture or other instrument amendatory hereof or
supplemental hereto, have the meanings herein specified:
"Account" shall mean any of the accounts established by this Indenture.
The terms "acquire," "acquiring," or "acquisition" when used in
connection with the acquisition or making, respectively, of Student Loans by the
Issuer or the Indenture Trustee shall mean and specifically include the
acquisition directly, or indirectly through an Eligible Lender Trustee, of such
Student Loans.
"Acquisition Fund" shall mean the Fund established by Section 5.3
hereof.
"Administration Agreement" shall mean the administration agreement,
between the Issuer and the Administrator providing for, among other things, the
administration of this Indenture on behalf of the Issuer.
"Administrator" shall mean the administrator, and its successors or
assigns, appointed by the Issuer in the Administration Agreement to provide for,
among other things, the administration of this Indenture on behalf of the
Issuer, such administrator on the Date of Issuance being Student Loan Funding
Resources, Inc., an Ohio for-profit corporation.
"Advances" shall mean deposits to the Trust Estate made by the
Depositor to the Note Payment Account hereunder with respect to anticipated
future collections on the Financed Student Loans.
"adversely affect" shall mean, when used with respect to any rating on
a Series of Notes, to cause the reduction or withdrawal of such rating.
"Authenticating Agent" shall mean any bank, trust company or other
financial institution appointed by the Issuer as authenticating agent for the
Indenture Trustee hereunder and as depositary under the Authenticating Agent
Agreement, or any successor or successors thereto appointed pursuant to Section
7.11 hereof or pursuant to an Authenticating Agent Agreement, as the case may
be, with respect to such functions collectively or separately provided, however,
that if no Authenticating Agent has been appointed under this Indenture,
provisions relating to the Authenticating Agent shall be read as applying to the
Indenture Trustee.
"Authenticating Agent Agreement" shall mean an Authenticating Agent
Agreement among the Issuer, the Indenture Trustee and the Authenticating Agent,
as depositary, or any similar agreement hereafter entered into by the Issuer
with respect to a Series of Notes, in
4
<PAGE> 11
each case as originally executed and as from time to time amended or
supplemented in accordance with the terms thereof and with this Indenture.
"Authorized Denominations" shall have the meaning given such term in
the Terms Supplement.
"Authorized Officer" when used with reference to the Issuer shall mean
any vice president, trust officer or other officer of the Co-Owner Trustee
authorized to sign the document or take the action in question.
"Available Funds" shall mean, with respect to any Collection Period,
the excess of (a) the sum, without duplication, of the following amounts with
respect to such Collection Period: (i) all collections received by the Indenture
Trustee on the Financed Student Loans (including any Guarantee Payments received
with respect to the Financed Student Loans) during such Collection Period; (ii)
any payments, including, without limitation, Interest Subsidy Payments and
Special Allowance Payments, received by each Eligible Lender Trustee during such
Collection Period with respect to Financed Student Loans; (iii) all proceeds
from any sales of Financed Student Loans during such Collection Period; (iv) any
payments of or with respect to interest received by the Indenture Trustee during
such Collection Period with respect to a Financed Student Loan for which a
Realized Loss was previously allocated; (v) the aggregate Purchase Amounts
received for those Financed Student Loans purchased by the Indenture Trustee
during the related Collection Period; (vi) the aggregate amounts, if any,
received from the Issuer or the Indenture Trustee as reimbursement of
non-guaranteed or uninsured interest amounts (which shall not include, with
respect to Financed Student Loans, the portion of such interest amounts for
which the Guarantee Agency did not have an obligation to make a Guarantee
Payment), or lost Interest Subsidy Payments and Special Allowance Payments, with
respect to the Financed Student Loans; (vii) Counterparty Exchange Payments,
(viii) Advances received and (ix) Investment Earnings for such Collection Period
over (b) amounts received by the Issuer in connection with balance
reconciliations required by virtue of Student Loan consolidations for such
Collection Period; provided, however, that Available Funds shall exclude (1) all
payments and proceeds of any Financed Student Loans the Purchase Amount of which
has been included in Available Funds for a prior Collection Period, which
payments and proceeds shall be paid to the Issuer, (2) amounts used to reimburse
the Depositor for Advances or any other amounts advanced by the Depositor on a
voluntary basis with respect to Guarantee Payments or Interest Subsidy Payments
applied for but not received as of the end of the Collection Period immediately
preceding the date such Advance is made, and (3) amounts which are paid to the
Issuer pursuant to the Indenture.
"Base Indenture" shall mean this Indenture of Trust, dated as of
________ 1, 1999, exclusive of the Terms Supplement but as from time to time
amended or supplemented by Supplemental Indentures.
"Book-Entry System" shall have the meaning given such term in the Terms
Supplement.
"Business Day" shall mean any day on which the Indenture Trustee and
the Authenticating Agent, if any, at their respective addresses set forth in or
for purposes of this
5
<PAGE> 12
Indenture, are open for commercial banking business and on which the New York
Stock Exchange is open.
"Calculation Agent" shall have the meaning given such term in the Terms
Supplement.
"Calculation Agent Agreement" shall have the meaning given such term in
the Terms Supplement.
"Carryover Interest" shall mean the difference between the interest
that would have accrued on a Series of Notes at the Formula Rate during a
Collection Period and the interest accrued at the Net Loan Rate during such
Collection Period, together with interest thereon at the Formula Rate from the
Distribution Date on which such Carryover Interest is due until paid, but in no
event greater than the maximum rate permitted by law.
"Cash Flow Statement" shall mean a report or reports prepared by or at
the direction of the Issuer with respect to the period covered by the Cash Flow
Statement, which period shall extend from the date of the Cash Flow Statement to
the latest maturity of the Notes then Outstanding, showing, (i) all Available
Funds expected to be received during such period, (ii) the application of all
such Available Funds in accordance with this Indenture, (iii) the resulting
periodic balances and Parity Percentages, and (iv) that under all assumptions
and scenarios used for the cash flows accompanying such Cash Flow Statement, (a)
anticipated Available Funds will be at least sufficient to pay the principal of
and interest on the Notes when due and all other amounts payable under this
Indenture when due and (b) a Parity Percentage of at least 101% will be
maintained at all times, including, without limitation, on each Distribution
Date.
"Certificate", "Direction", "Instruction", "Order", "Request" or
"Requisition" of the Issuer, as the case may be, shall mean, respectively, a
certificate, direction, instruction, order, request or requisition which shall,
unless otherwise specifically provided herein, be in writing and which is signed
in the name of the Issuer by an Authorized Officer.
"Collection Account" shall mean the Account so designated and
established in the Collection Fund by Section 5.5 hereof.
"Collection Fund" shall mean the Fund established by Section 5.5
hereof.
"Collection Period" shall have the meaning given such term in the Terms
Supplement.
"Commission" shall mean the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this Indenture such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Consolidation Loans" shall mean Student Loans governed by Section 428C
of the Higher Education Act which are Financed by the Issuer, but excluding any
such loans which are made by a Seller and purchased by the Issuer.
6
<PAGE> 13
"Contract of Guarantee" shall mean a contract between a Guarantee
Agency and a Lender providing for, or a certificate or other evidence of, the
Guarantee of Student Loans.
"Co-Owner Trustee" shall mean Firstar Bank, National Association, not
in its individual capacity, but solely as co-owner trustee of the Delaware
Trust.
"Costs of Issuance" shall mean all items of expense allocable to
establishment of the Program and the authorization, issuance, sale and delivery
of the related Notes, or any obligations of the Issuer the proceeds of which are
used in whole or in any part directly, or indirectly through an Eligible Lender
Trustee, to acquire Financed Student Loans under this Indenture, including
without limitation costs of planning and feasibility studies, costs of obtaining
governmental registrations, qualifications and regulatory rulings and approvals,
costs of financial advisory, legal, accounting and management services and
services of other consultants and professionals and related charges, fees and
disbursements, costs of preparation and reproduction of documents, costs of
preparation and printing of any offering document relating to the Notes,
advertising and printing costs, filing and recording fees, any initial fees and
charges of the Indenture Trustee, each Eligible Lender Trustee, Delaware
Trustee, Co-Owner Trustee, the Calculation Agent, the Auction Agent, any
Broker-Dealer, any market agent and any Authenticating Agent, Rating Agency
fees, costs of preparation, execution, transportation and safekeeping of the
Notes, and any other costs, charges or fees in connection with the issuance of
the Notes and the establishment of the Issuer.
"Counterparty Exchange Payment" shall mean a payment due to the Issuer
from an Exchange Counterparty pursuant to the applicable Exchange Agreement.
"Cut-off Date" shall mean _________________, the date on or after which
principal and interest payments on the Financed Student Loans are to be included
in the Trust Estate.
"Date of Issuance" shall mean with respect to a Series of Notes, the
date of the initial issuance and delivery of such Series of Notes as set forth
in the definition thereof in the Terms Supplement related to such Series of
Notes.
The term "day" shall mean any calendar day, whether or not a Business
Day.
"Delaware Trust" shall mean the common law (as opposed to statutory)
trust created under the laws of the State of Delaware by the Trust Agreement,
dated as of __________, 1999, among the Depositor, the Co-Owner Trustee, the
Initial Co-Owner Eligible Lender Trustee and the Delaware Trustee (as defined
therein), and designated "Student Loan Funding 1999-A Trust"; provided that
references to the name "Student Loan Funding 1999-A Trust" or to the term
"Delaware Trust" in this Indenture, including the Schedules and Exhibits
attached hereto and made a part hereof, shall mean the Co-Owner Trustee, not in
its individual capacity, but solely as Co-Owner Trustee on behalf of the Issuer.
"Department of Education" shall mean the U.S. Department of Education.
"Depositor" shall mean Student Loan Funding Riverfront LLC, a Delaware
limited liability company.
7
<PAGE> 14
"Depositor Eligible Lender Trustee" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely as the eligible lender
trustee on behalf of the Depositor.
"Depository" shall have the meaning given such term in the Terms
Supplement.
"Directing Notes" shall mean, so long as any Series of Senior Notes are
Outstanding the Senior Notes, and thereafter, the Subordinate Notes.
The phrase "directly or indirectly" shall mean, with respect to the
making, acquisition or Financing of Student Loans, the making, acquisition or
Financing of Student Loans by the Issuer or by an Eligible Lender Trustee on
behalf of the Issuer, respectively.
"Distribution Date" shall have the meaning given such term in the Terms
Supplement.
"Eligible Investments" shall have the meaning set forth in Section 5.7
hereof.
"Eligible Lender Trust Agreement" shall mean, collectively, (i) the
Eligible Lender Trust Agreement dated as of _________, 1999 by and between the
Issuer and the Initial Co-Owner Eligible Lender Trustee, as from time to time
amended or supplemented and (ii) any other eligible lender trust agreement
between the Issuer and an eligible lender trustee holding legal title to any
Financed Student Loans, in each case as originally executed and as from time to
time amended or supplemented.
"Eligible Lender Trustee" shall mean (i) the Initial Co-Owner Eligible
Lender Trustee and/or (ii) any other eligible lender trustee under its
respective Eligible Lender Trust Agreement.
"Event of Default" shall have the meaning set forth in Section 8.1
hereof.
"Excess Surplus Account" shall mean the Account so designated and
established in the Collection Fund by Section 5.5 hereof.
"Exchange Agreement" shall mean an interest rate exchange agreement
between the Issuer and an Exchange Counterparty, as originally executed and as
amended or supplemented, or other interest rate hedge agreement between the
Issuer and an Exchange Counterparty, as originally executed and as amended or
supplemented, which agreement shall be designated as a Senior Exchange Agreement
or a Subordinate Exchange Agreement.
"Exchange Counterparty" shall mean any Person with whom the Issuer
shall, from time to time, enter into an Exchange Agreement.
"Exchange Counterparty Guarantee" shall mean a guarantee in favor of
the Issuer given in connection with the execution and delivery of an Exchange
Agreement hereunder, which guarantee shall be designated a Senior Exchange
Counterparty Guarantee or Subordinate Exchange Counterparty Guarantee consistent
with the Exchange Agreement to which it relates.
8
<PAGE> 15
"Expected Interest Collections" shall mean, with respect to any
Collection Period, the sum of (i) the amount of interest accrued, net of amounts
required to be paid to the Department of Education or to be repaid to Guarantee
Agencies, with respect to the Financed Student Loans in the Trust Estate for
such Collection Period (whether or not such interest is actually paid), (ii) all
Interest Subsidy Payments and Special Allowance Payments pursuant to claims
submitted for such Collection Period (whether or not actually received), net of
amounts required to be paid to the Department of Education, with respect to
Financed Student Loans in the Trust Estate, to the extent not included in (i)
above, (iii) the net of any Counterparty Exchange Payments less any Issuer
Exchange Payments to be made on the related Distribution Date, and (iv)
Investment Earnings on the amounts on deposit allocable to the Trust Estate with
respect to such Collection Period prior to the related Distribution Date.
"Expense Account" shall mean the Account so designated and established
in the Collection Fund by Section 5.5 hereof.
"FFEL Program" shall mean the Federal Family Education Loan Program
established by the Higher Education Act pursuant to which loans are made to
borrowers pursuant to certain guidelines, and the repayment of such loans is
guaranteed by a Guarantee Agency, and any predecessor or successor program.
"FFELP Loans" shall mean Student Loans made under the FFEL Program.
"Financed" in the case of Student Loans shall refer to Student Loans
made or acquired directly, or indirectly through an Eligible Lender Trustee,
with the proceeds of the Notes or moneys in the Acquisition Fund or the
Collection Account, or upon the exchange of Student Loans pursuant to Section
5.4 hereof, and included in the Student Loan Portfolio Fund, including, without
limitation, all Student Loans identified on the books of the Issuer by a
designation of Lender Identification Number [829626] and to "Finance" or
"Financing" in the case of Loans shall mean to make or acquire or the making or
acquisition of, respectively, directly, or indirectly through an Eligible Lender
Trustee, Student Loans with such moneys or upon any such exchange or transfer.
"Financed Student Loans" shall mean Student Loans which are Financed
and are evidenced solely by promissory notes and applications related thereto.
"Fiscal Year" shall mean the fiscal year of the Issuer, which is, as of
the date of execution and delivery of this Indenture, each twelve-month period
commencing on July 1 and ending on the next succeeding June 30.
"Fitch" shall mean Fitch IBCA, Inc., and its successors and assigns.
"Formula Rate" shall have the meaning given such term in the Terms
Supplement.
"Fund" shall mean any of the Funds established by this Indenture.
"Guarantee" or "Guaranteed" shall mean, with respect to a Student Loan,
the guarantee, by a Guarantee Agency which has entered into a federal
reimbursement agreement and a supplemental federal reimbursement agreement with
the Secretary of Education, of at least
9
<PAGE> 16
ninety-eight percent (98%), or such lower percentage as may be approved by the
Rating Agencies then rating the Outstanding Notes, of the principal of and
accrued interest on such Student Loan thereafter, and the coverage of such
Student Loan by a federal reimbursement agreement and a supplemental federal
reimbursement agreement providing, among other things, for reimbursement to a
Guarantee Agency for losses incurred by it on defaulted Student Loans guaranteed
by such Guarantee Agency at up to the maximum amount of the principal thereof
and accrued interest thereon provided for in the Higher Education Act.
"Guarantee Payment" shall mean any payment made by a Guarantee Agency
pursuant to a Contract of Guarantee in respect of a Financed Student Loan.
"Guarantee Agencies" shall mean the agencies set forth on Schedule I
hereto and any other agency, and the successors and assigns of each, whether a
governmental body or private corporation or other entity, approved by the Rating
Agencies then rating the Outstanding Notes and providing a Guarantee acceptable
to the Issuer; provided, however, that no agency set forth on Schedule I shall
be qualified as a Guarantee Agency of a Financed Student Loan unless an Eligible
Lender Trustee or the Issuer, as applicable, and such agency shall have entered
into a guarantee agreement with respect thereto.
"Higher Education Act" shall mean Title IV, Part B of the Higher
Education Act of 1965, as amended, or any successor federal act, and all
regulations, directives and guidelines promulgated thereunder from time to time.
"Holders" or "Noteholders" shall mean, collectively, the registered
owners of the Notes or the duly authorized attorneys-in-fact, representatives or
assignees of such persons.
"Indenture" shall mean this Indenture of Trust, dated as of ________ 1,
1999, as supplemented by the Terms Supplement and as from time to time amended
or supplemented by Supplemental Indentures.
"Indenture Trustee" shall mean Firstar Bank, National Association, not
in its individual capacity, but solely as trustee under this Indenture, and any
successor or successors thereto which may at any time be appointed or
substituted in its place pursuant to this Indenture.
"Initial Co-Owner Eligible Lender Trustee" shall mean Firstar Bank,
National Association, not in its individual capacity, but solely as eligible
lender trustee under the Eligible Lender Trust Agreement.
"Initial Distribution Date" shall mean, as to each Series of Notes, the
date set forth in the definition thereof in the Terms Supplement for such Series
of Notes.
"Initial Interest Determination Date" shall mean, as to each Series of
Notes, the date set forth in the definition thereof in the Terms Supplement for
such Series of Notes.
"Initial Pool Balance" shall mean the Pool Balance of the Financed
Student Loans as of the Cut-off Date.
"Initial Purchasers" shall mean ____________________________________.
10
<PAGE> 17
"Insider" shall mean an entity referred to or described in Section
101(31) of the United States Bankruptcy Code (assuming for this purpose that the
Issuer or any Affiliate of the Issuer, as applicable, is a debtor) and any
limited partner or limited liability company member thereof.
"Interest Determination Date" shall mean with respect to each Series of
Notes, (i) the Initial Interest Determination Date and thereafter (ii) the day
set forth in the Terms Supplement related to such Series of Notes; provided,
however, that if such day is not a Business Day, then the next succeeding
Business Day.
"Interest Subsidy Payments" shall mean the interest subsidy payments in
respect of eligible Student Loans paid by the Secretary of Education pursuant to
Section 428 of the Higher Education Act during the period prior to the time that
such Student Loan enters repayment or during grace or deferment periods, or
similar subsidies authorized from time to time by federal law or regulation.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended, and the regulations promulgated thereunder.
"Investment Earnings" means, with respect to any Distribution Date, the
investment earnings (net of losses and investment expenses) on amounts on
deposit in the Funds and Accounts hereunder to be deposited into the Collection
Fund on or prior to such Distribution Date.
"Issuer" shall mean the Delaware Trust; provided that references to the
name "Student Loan Funding 1999-A Trust" or to the term "Issuer" in this
Indenture, including the Schedules and Exhibits attached hereto and made a part
hereof, shall mean the Co-Owner Trustee, not in its individual capacity, but
solely as Co-Owner Trustee on behalf of the Issuer.
"Issuer Exchange Payment" shall mean a payment due to an Exchange
Counterparty from the Issuer pursuant to the applicable Exchange Agreement
(excluding, however, payments to an Exchange Counterparty in respect of any
early termination date, as defined in the applicable Exchange Agreement).
"Legal Final Maturity" shall mean with respect to a Series of Notes,
the date set forth in the definition thereof in the Terms Supplement related to
such Series of Notes.
"Lender" shall mean any "eligible lender" as defined in the Higher
Education Act and qualified to participate as a seller of Student Loans to the
Issuer.
"Loan Pool" shall mean the Financed Student Loans purchased with the
proceeds of the Notes or with moneys in Collection Account.
The terms "make" or "making" when used in connection with the making of
Student Loans by the Issuer shall mean and specifically include the making,
directly or indirectly through an Eligible Lender Trustee, of such Student
Loans.
"Master Servicer" shall mean initially Student Loan Funding Resources,
Inc., an Ohio corporation.
11
<PAGE> 18
"Master Servicing Agreement" shall mean the Master Servicing Agreement,
dated as of ________ 1, 1999, by and between the Issuer and Master Servicer,
pursuant to which the Master Servicer covenants and agrees to provide for the
servicing of the Financed Student Loans by the Servicers.
The term "materially," as used in Article VI hereof, shall mean any
effect which will result in a Holder not being fully and timely paid principal
of and interest on such Holder's Notes.
"Monthly Distribution Date" shall have the meaning given such term in
the Terms Supplement.
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors and assigns.
"Net Loan Rate" shall have the meaning given such term in the Terms
Supplement.
"Noteholder" or "Holder of a Note" shall mean any person who shall be
the registered owner of any Note or the duly authorized attorney-in-fact,
representative or assignee of such person.
"Note Purchase Agreement" shall mean the note purchase agreement among
the Issuer and the Initial Purchasers of the Notes.
"Notes" shall mean the Senior Notes and the Subordinate Notes.
"Officer's Certificate" shall mean a document signed by an Authorized
Officer of the Issuer either attesting to or acknowledging the circumstances,
representations or other matters therein stated or set forth or directing that
an action be taken by the person to whom such document is addressed.
"Outstanding" when used with respect to Notes shall refer to any Notes
executed, authenticated, issued and delivered under this Indenture other than
Notes for the transfer or exchange of or in lieu of which other Notes shall have
been authenticated and delivered by the Indenture Trustee pursuant to this
Indenture and other than Notes which at the time are deemed not to be
Outstanding under this Indenture by reason of the operation and effect of
Section 10.2 hereof or the limitation of Section 8.3 hereof.
"Parity Percentage" shall mean, as of any Distribution Date or other
date, the fraction expressed as a percentage, the numerator of which is the sum,
without duplication, of (i) the Pool Balance plus accrued interest thereon due
from borrowers, accrued interest which is expected to be capitalized, and
accrued Interest Subsidy Payments and Special Allowance Payments, if any, as of
the end of the preceding Collection Period, and (ii) all amounts on deposit
(including any accrued interest thereon) in the Acquisition Fund, the Collection
Fund and the Reserve Fund, if any, as of the end of such Collection Period
(adjusted for payments made on 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.
12
<PAGE> 19
"Parity Percentage Limitation" shall have the meaning given such term
in the Terms Supplement.
"Parity Percentage Payment" shall have the meaning given such term in
the Terms Supplement.
"Person" or words importing persons shall mean firms, associations,
partnerships, limited liability companies, joint ventures, societies, estates,
trusts, corporations, public or governmental bodies, other legal entities and
natural persons.
"Pool Balance" shall mean as of the end of a Collection Period, an
amount equal to the aggregate principal balance of the Financed Student Loans
(including accrued interest thereon capitalized through such date) as of the end
of such Collection Period, after giving effect to the following, without
duplication: (i) all payments in respect of principal received by the Indenture
Trustee during such Collection Period from or on behalf of borrowers and
Guarantee Agencies and, with respect to certain payments on certain Financed
Student Loans, the Secretary of Education and (ii) the principal portion of all
Purchase Amounts received by the Indenture Trustee for such Collection Period.
"Principal Distribution Amount" shall mean the principal amount of a
Series of Notes calculated to be distributed on a Distribution Date.
"Principal Factor" shall have the meaning given such term in the Terms
Supplement.
"Program" shall mean the Issuer's or the Depositor's program of making
or Financing Student Loans pursuant to this Indenture.
"Program Expense Requirement" shall mean, as of any date of
calculation, such amount as may then be necessary to be accumulated in the
Expense Account for payment, in accordance with Section 5.5.4 hereof, of Program
Operating Expenses due or to become due during the month beginning on the first
day of the next succeeding calendar month as provided in Section 6.13 hereof.
"Program Operating Expenses" shall mean, with respect to the Notes, all
items of expense allocable to the operation of the Program, including (i) fees
and expenses of and any other amounts payable to the Indenture Trustee, the
Delaware Trustee, the Co-Owner Trustee and the Authenticating Agent, if any, and
any fees charged by a Depository; (ii) the fees and expenses of and any other
amounts payable to the Calculation Agent, the Auction Agent, Broker-Dealers, any
market agent or other agent in connection with the Notes under their respective
agreements; (iii) fees and expenses of and any other amounts payable to the
Servicers, each Eligible Lender Trustee and any bank providing lock-box or
similar services in connection with Financed Student Loans and Servicing
Development Fees; (iv) the fees and expenses incurred by or on behalf of the
Issuer, including, but not limited to the fees and expenses of the Master
Servicer under the Master Servicing Agreement and the Administrator under the
Administration Agreement, in the administration of the Program under the Higher
Education Act and any other agreement or legal requirement affecting the
administration of the Program, costs of legal, accounting, auditing, management,
consulting, banking and financial advisory services and expenses, costs of
salaries, supplies, utilities, mailing, labor, materials, office rent,
maintenance,
13
<PAGE> 20
furnishings, equipment, machinery, apparatus and insurance premiums, Costs of
Issuance not paid from proceeds of Notes; and (v) other reasonable and proper
expenses, including both operating expenses and capital expenditures incurred or
to be incurred in connection with the operation of the Program and with respect
to item (iv) above, any other similar program of the Depositor.
The term "purchase" when used in connection with the purchase of
Student Loans by the Issuer shall mean and specifically include the purchase
directly, or indirectly through an Eligible Lender Trustee, of such Student
Loans.
"Purchase Agreements" shall mean the Student Loan Purchase Agreements
with Sellers, for purposes of the Program (in whole or in part), in each case as
from time to time amended or supplemented in accordance with the terms thereof
and with this Indenture, and in each case only to the extent that each such
Purchase Agreement covers Financed Student Loans.
"Purchase Amount" shall mean, as of the end of any Collection Period,
the principal amount of a Financed Student Loan (including any interest required
to be capitalized through such date), together with accrued but unpaid interest
thereon.
"Rating Agency" shall mean Moody's and Fitch, as long as they maintain
a rating on the Outstanding Notes, and the successor of either or, if both no
longer exist and have no successors, then any other rating agency then rating
the Outstanding Notes.
"Realized Loss" shall mean, for each Financed Student Loan submitted to
a Guarantee Agency for a Guarantee Payment, the excess, if any, of (i) the
unpaid principal balance of such Financed Student Loan on the date it was first
submitted to a Guarantee Agency for a Guarantee Payment over (ii) all amounts
received on or with respect to principal on such Financed Student Loan up
through the earlier to occur of (A) the date a related Guarantee Payment is made
or (B) the last day of the Collection Period occurring 12 months after the date
the claim for such Guarantee Payment is first denied.
"Record Date" shall have the meaning given such term in the Terms
Supplement.
"Registrar" shall mean the Indenture Trustee, unless and until a
separate Person performing the functions of a registrar is appointed hereunder
pursuant to a Supplemental Indenture.
"Reserve Fund" shall mean the Fund established by Section 5.2 hereof.
"Secretary of Education" shall mean the Secretary of Education,
Department of Education of the United States, or any other officer, board, body,
commission or agency succeeding to the functions thereof under the Higher
Education Act.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
"Seller" shall mean a Lender or other party from which Depositor
purchased or the Issuer is purchasing or has purchased or agreed to purchase
Student Loans pursuant to a Purchase Agreement with such Lender or other party.
14
<PAGE> 21
"Senior Exchange Agreement" shall mean an Exchange Agreement on a
parity with a Series of Senior Notes and designated a Senior Exchange Agreement
under this Indenture.
"Senior Exchange Counterparty" shall mean the Exchange Counterparty
under a Senior Exchange Agreement.
"Senior Exchange Counterparty Guarantee" shall mean an Exchange
Counterparty Guarantee applicable to a Senior Exchange Agreement.
"Senior Issuer Exchange Payment" shall mean an Issuer Exchange Payment
under a Senior Exchange Agreement.
"Senior Notes" shall mean, collectively, all Series of the Series 1999A
Notes.
"Senior Parity Percentage" shall mean, as of any Distribution Date or
other date, the fraction expressed as a percentage, the numerator of which is
the sum, without duplication, of (i) the Pool Balance plus accrued interest
thereon due from borrowers, accrued interest which is expected to be
capitalized, and accrued Interest Subsidy Payments and Special Allowance
Payments, if any, as of the end of the preceding Collection Period and (ii) all
amounts allocable to the Notes on deposit (including any accrued interest
thereon) in the Acquisition Fund, the Collection Fund and the Reserve Fund, if
any, as of the end of such Collection Period (adjusted for payments made on such
Distribution Date) and the denominator of which is the sum of (a) the
Outstanding principal amount of all Senior Notes (after payment thereon on such
Distribution Date), and accrued and unpaid interest thereon, and (b) all accrued
and unpaid Program Operating Expenses.
"Series" shall mean a series of Notes to which all the same terms and
conditions apply and which can be identified by its own alpha-numeric
designation (e.g. "A-1") and which is so designated in the Terms Supplement.
"Series Interest Rate" shall mean as of a given date with respect to a
Series of Notes the rate of interest per annum at which interest accrues on such
Series of Notes on such date.
"Series 1999A Notes" shall mean, collectively, all Series of Notes
designated in the Terms Supplement as "Series 1999A".
"Series 1999B Notes" shall mean, collectively, all Series of Notes
designated in the Terms Supplement as "Series 1999B".
"Servicers" shall mean the organizations set forth on Schedule II
hereto for purposes of the Program providing for the administration, servicing
and collection of Financed Student Loans, as such Schedule II may be amended and
supplemented from time to time with the written approval of each Rating Agency
then rating any Outstanding Notes.
"Servicing Agreements" shall mean the Servicing Agreements set forth on
Schedule II hereto with respect to each Servicer therein, in each case as
originally executed and as amended or supplemented from time to time in
accordance with the terms thereof and with
15
<PAGE> 22
this Indenture, but only to the extent that any such agreement relates to the
servicing of Financed Student Loans.
"Servicing Development Fees" shall mean costs, fees and expenses
relating to the development of electronic data information or systems in
connection with the servicing of Financed Student Loans, the establishment of a
servicing center for the servicing of Financed Student Loans, or reserves for
current or future servicing fees for Financed Student Loans; provided, however,
that Servicing Development Fees are payable only with the consent of the Rating
Agencies then rating any Outstanding Notes, such consent to be evidenced by
written confirmation from each Rating Agency that the payment of such Fees will
not adversely affect the rating of such Rating Agency on the Outstanding Notes.
"Special Allowance Payments" shall mean special allowance payments
authorized to be made by the Secretary of Education pursuant to Section 438(b)
of the Higher Education Act with respect to a Student Loan, or similar
allowances authorized from time to time by Federal law or regulation.
"Specified Reserve Fund Balance" shall mean on any Distribution Date a
balance in the Reserve Fund equal to the greater of (i) 1.5% of the principal
balance of the Outstanding Notes on such Distribution Date after giving effect
to payments on such Distribution Date or (ii) $1,500,000, but not in excess of
the principal balance of the Outstanding Notes.
"State" shall mean the State of Ohio.
"Student Loan Portfolio Fund" shall mean the Fund established by
Section 5.4 hereof.
"Student Loans" shall mean FFELP Loans (i) which were or will be
originated in the United States or its territories or possessions under and in
accordance with the FFEL Program to or on behalf of a student who has graduated
or is expected to graduate from an accredited institution of higher education
within the meaning of the Higher Education Act, (ii) Guaranteed, (iii) bearing
interest at the maximum interest rate permitted under the Higher Education Act,
or such lesser rate of interest per annum as is approved by the Rating Agencies
after delivery of a Cash Flow Statement including Student Loans at such lower
rate, with respect to the Student Loan in question at the time such Student Loan
was made, (iv) either (a) eligible for Interest Subsidy Payments or for such
other similar payments at the time provided for under said Act, or (b) governed
by Sections 428A or 428B or 428C or 428H of the Higher Education Act, and (v)
eligible for Special Allowance Payments or for such other similar payments at
the time provided for under said Act.
"Subordinate Exchange Agreement" shall mean an Exchange Agreement which
is on a parity with a Series of Subordinate Notes and designated a Subordinate
Exchange Agreement under this Indenture.
"Subordinate Exchange Counterparty" shall mean the Exchange
Counterparty under a Subordinate Exchange Agreement.
"Subordinate Exchange Counterparty Guarantee" shall mean an Exchange
Counterparty Guarantee applicable to a Subordinate Exchange Agreement.
16
<PAGE> 23
"Subordinate Issuer Exchange Payment" shall mean an Issuer Exchange
Payment under a Subordinate Exchange Agreement.
"Subordinate Notes" shall mean, collectively, all Series of the Series
1999B Notes.
"Supplemental Indenture" shall mean any supplement to or amendment of
this Indenture (other than the Terms Supplement) entered into among the Issuer,
each Eligible Lender Trustee and the Indenture Trustee pursuant to and in
accordance with the provisions of Article IX hereof.
"Terms Supplement" shall mean the indenture supplemental to this Base
Indenture, dated as of even date with this Base Indenture, among the Issuer, the
Initial Co-Owner Eligible Lender Trustee and the Indenture Trustee, setting
forth the terms and conditions of each Series of Notes to be issued hereunder.
"Transfer and Sale Agreement" shall mean the Transfer and Sale
Agreement, dated as of __________, 1999, by and among the Depositor, the
Depositor Eligible Lender Trustee, the Issuer and the Initial Co-Owner Eligible
Lender Trustee.
"Transferred Assets" shall mean all rights of the Depositor and the
Depositor Eligible Lender Trustee in and to the Financed Student Loans, the
Contracts of Guarantee with respect thereto, the Purchase Agreements and the
Servicing Agreements with respect to the Financed Student Loans serviced
thereunder, including all rights of the Depositor under the warranties of each
Seller, Master Servicer or Servicer, as the case may be thereunder.
"Trust Estate" shall mean: (i) all Available Funds, the balances of all
Accounts and Funds, whether derived from proceeds of the sale of Notes, from
Available Funds or from any other source and all rights of the Issuer and each
Eligible Lender Trustee therein and all investment property, security
entitlements and securities accounts (all as defined under the Uniform
Commercial Code as adopted in the State) comprised of the Accounts and Funds and
the balances thereof, including, without limitation, the following Accounts and
Funds maintained with Firstar Bank, National Association, Cincinnati, Ohio:
Account No. __________________________________________________________, (ii) all
rights of the Issuer and each Eligible Lender Trustee in and to the Financed
Student Loans, the Contracts of Guarantee with respect thereto, the Eligible
Investments, any Exchange Agreement and any Exchange Counterparty Guarantee, the
Purchase Agreements, the Master Servicing Agreement and the Servicing Agreements
with respect to Financed Student Loans serviced thereunder, including all rights
of the Issuer under the warranties of each Seller, Master Servicer or Servicer,
as the case may be, thereunder, and (iii) any proceeds of the foregoing.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended, and any reference herein to the Trust Indenture Act or a particular
provision thereof shall mean such Act or provision, as the case may be, as
amended or replaced from time to time or as supplemented from time to time by
rules or regulations adopted by the Commission under or in furtherance of the
purposes of such Act or provision, as the case may be.
"Value of Eligible Investments" shall have the following meaning:
17
<PAGE> 24
the value of Eligible Investments shall be calculated at the end of
each month as follows:
(a) as to Eligible Investments the bid and asked prices of which are
published on a regular basis in The Wall Street Journal (or, if not there, then
The New York Times): the average of the bid and asked prices for such
investments so published on or most recently prior to such time of
determination, plus accrued interest, if any;
(b) as to Eligible Investments the bid and asked prices of which are
not published on a regular basis in The Wall Street Journal or The New York
Times: the average bid price at such time of determination for such investments
by any two nationally recognized government securities dealers (selected by the
Indenture Trustee in its absolute discretion) at the time making a market in
such investments or the bid price published by a nationally recognized pricing
service, plus accrued interest, if any;
(c) as to certificates of deposit and bankers acceptances: the face
amount thereof, plus accrued interest, if any; and
(d) as to any investment not specified above: the value thereof
established by prior agreement between the Issuer, the Indenture Trustee and the
Rating Agencies then rating any Outstanding Notes.
SECTION 1.2 Use of Certain Terms.
Unless the context clearly indicates otherwise, or may otherwise
require, in this Indenture (i) the term "person" includes a firm, partnership,
trust, association, limited liability company, corporation (public or private),
public body, public agency and a natural person, and shall also include an
executor, administrator Indenture Trustee, receiver or other representative;
(ii) the terms "herein", "hereunder", "hereby", "hereto", "hereof" and any
similar terms, refer to this Indenture as a whole and not to any particular
section or subdivision hereof; and (iii) references to specific provisions of
the Ohio Revised Code, the Higher Education Act, the Internal Revenue Code or
any other public law or statute are to such provisions as they may be amended
from time to time. The definitions set forth in Section 1.1 hereof shall include
both the singular and the plural, and any pronoun used herein shall include both
the singular and the plural and shall include all genders.
SECTION 1.3 Compliance Certificates and Opinions.
(a) Except as otherwise specifically provided in this Indenture, upon
any application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, including, without limitation, any
action relating to authentication and delivery of any Notes, the release or the
release and substitution of property subject to the lien and security interest
of this Indenture or the satisfaction and discharge of this Indenture, the
Issuer shall furnish (i) a Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with, (ii) an opinion of counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and (iii)
if required by the Trust Indenture Act, a certificate from a firm of independent
certified public accountants meeting the applicable requirements of this Section
1.3, except that, in the case of any such application or request as to which the
furnishing of such
18
<PAGE> 25
documents is specifically required by any provision of this Indenture, no
additional certificate or opinion need be furnished. Every certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Indenture shall include: (i) a statement that each signatory of such
certificate or opinion has read or has caused to be read such covenant or
condition and the definitions herein relating thereto; (ii) a brief statement as
to the nature and scope of the examination or investigation upon which the
statements or opinions contained in such certificate or opinion are based; (iii)
a statement that, in the opinion of each such signatory, such signatory has made
such examination or investigation as is necessary to enable such signatory to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (iv) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has been complied with.
(b) Prior to the deposit of any property or securities with the
Indenture Trustee that is to be made the basis for the release of any property
subject to the lien created by this Indenture, the Issuer shall, in addition to
any obligation imposed in Section 1.3(a) or elsewhere in this Indenture, furnish
to the Indenture Trustee (1) a Certificate certifying or stating the opinion of
each person signing such Certificate as to the fair value (within 90 days of
such deposit) to the Issuer of the property or securities to be so deposited,
(2) an opinion of counsel either stating that, in the opinion of such counsel,
such action has been taken with respect to the recording and filing of this
Indenture and any other requisite documents, and with respect to the execution
and filing of any financing statements and continuation statements, as are
necessary to perfect and make effective the lien and security interest in favor
of the Indenture Trustee, for the benefit of the Indenture Trustee, created by
this Indenture in the property or securities to be so deposited, and reciting
the details of such action, or stating that, in the opinion of such counsel, no
such action is necessary to make such lien and security interest effective, and
(3) evidence that each of the Rating Agencies then rating any Outstanding Notes
have confirmed that such action will not result in a reduction, qualification or
withdrawal of the then-current rating of any of the Notes.
(c) Whenever the Issuer is required to furnish to the Indenture Trustee
a Certificate certifying or stating the opinion of any signer thereof as to the
matters described in paragraph (b) above, the Issuer shall also furnish to the
Indenture Trustee an Independent Certificate as to the same matters, if the fair
value to the Issuer of the property to be so deposited and of all other such
property made the basis of any such withdrawal or release since the commencement
of the then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to paragraph (b) above and this paragraph (c), is ten percent
(10%) or more of the Outstanding principal amount of the Notes, but such a
certificate need not be furnished with respect to any property so deposited, if
the fair value thereof set forth in the related Certificate is less than $25,000
or less than one percent (1%) of the Outstanding principal amount of the Notes.
(d) Other than with respect to any release described in clause (1) or
(2) of paragraph (f) below, whenever any property or securities are to be
released from the lien created by the Indenture, the Issuer shall also furnish
to the Indenture Trustee a Certificate certifying or stating the opinion of each
person signing such Certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating that
in the opinion of such person the proposed release will not impair the security
created by this Indenture in contravention of the provisions hereof.
19
<PAGE> 26
(e) Whenever the Issuer is required to furnish to the Indenture Trustee
a Certificate certifying or stating the opinion of any signer thereof as to the
matters described in paragraph (d) above, the Issuer shall also furnish to the
Indenture Trustee an Independent Certificate as to the same matters, if the fair
value to the Issuer of the property or securities or of all other property or
securities (other than property described in clauses (1) and (2) of paragraph
(f) below) released from the lien created by this Indenture since the
commencement of the then-current fiscal year of the Issuer, as set forth in the
certificates delivered pursuant to paragraph (d) above and this paragraph (e),
equals ten percent (10%) or more of the Outstanding principal amount of the
Notes, but such a certificate need not be furnished with respect to any release
of property or securities, if the fair value thereof set forth in the related
Certificate is less than $25,000 or less than one percent (1%) of the
Outstanding principal amount of the Notes.
(f) Notwithstanding any other provision of this Section 1.3, the Issuer
may, without compliance with the other provisions of this Section 1.3, (1)
collect, liquidate, sell or otherwise dispose of Financed Student Loans as and
to the extent permitted or required by this Indenture, including, without
limitation, Section 5.4 and Section 8.3 hereof, and any Servicing Agreement, and
(2) make cash payments out of the Funds and Accounts as and to the extent
permitted or required by the Indenture.
(g) In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
(h) Any certificate or opinion of an Authorized Officer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such Certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officer of any Servicer or the Issuer, stating
that the information with respect to such factual matters is in the possession
of such Servicer or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
(i) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
(j) Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of granting such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report, as the case may be, of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The
20
<PAGE> 27
foregoing, shall not, however, be construed to affect the Indenture Trustee's
right to rely upon the truth and accuracy of any statement or opinion contained
in any such document as provided in Article VII hereof.
(k) Nothing in this Section 1.3 shall be construed either as requiring
the inclusion in this Indenture of provisions that the Issuer shall furnish to
the Indenture Trustee any other evidence of compliance with the conditions and
covenants provided for in this Indenture than the evidence specified in this
Section 1.3, or as preventing the inclusion of such provisions in this
Indenture, if the parties hereto agree.
SECTION 1.4 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following terms used in the Trust Indenture Act shall have the
following meanings insofar as such terms are incorporated into this Indenture
pursuant to this Section 1.4.
"Commission" shall mean the Commission.
"indenture securities" shall mean the Notes issued and Outstanding
under this Indenture.
"indenture security holder" shall mean a Holder.
"indenture to be qualified" shall mean this Indenture.
"indenture trustee" or "institutional trustee" shall mean the Indenture
Trustee.
"obligor" on the indenture securities shall mean the Issuer and any
other obligor on the indenture securities.
All other terms from the Trust Indenture Act used in this Indenture
that are defined by the Trust Indenture Act, defined by reference in the Trust
Indenture Act to another statute or defined by Commission rule shall have the
meaning assigned to them by such definition in the Trust Indenture Act.
21
<PAGE> 28
ARTICLE II
Authorization, Terms and Provisions of Notes
SECTION 2.1 Authorization of Notes; Terms of Notes in General; Notes to
Constitute Limited Obligations.
Subject to the other terms and conditions set forth in this Base
Indenture or in the Terms Supplement, each Series of Notes issued hereunder
shall be authorized by, shall have the terms set forth in and shall be subject
to the further conditions, if any, of the Terms Supplement which shall be
executed and delivered in connection with the issuance of such Series of Notes.
A Series of Notes may be issued under and secured by this Base
Indenture and a Terms Supplement relating thereto, subject to the conditions
hereinafter provided, for the purpose of (i) making or acquiring Student Loans
and (ii) making deposits to certain of the Funds and Accounts hereunder.
Such Series of Notes shall be executed and authenticated substantially
in the form and manner provided in this Base Indenture with such changes as may
be necessary or appropriate to conform to the provisions of the Terms Supplement
and shall be deposited with the Indenture Trustee for authentication, but before
such Series of Notes shall be authenticated and delivered by the Indenture
Trustee, there shall be filed with the Indenture Trustee the following:
(a) a certified copy of the resolution of the board of directors of the
Issuer authorizing the issuance of such Series of Notes; and
(b) a fully executed counterpart of the Terms Supplement.
When the documents described above in this Section shall have
been filed with the Indenture Trustee and when such Series of Notes shall have
been executed and authenticated as required by this Base Indenture, the
Indenture Trustee shall deliver such Series of Notes at one time to or upon the
order of the Initial Purchasers, but only upon payment to the Indenture Trustee
of the purchase price of such Series of Notes and the satisfaction of all other
conditions of the Initial Purchasers set forth in the Note Purchase Agreement.
The proceeds of all such Series of Notes issued under the
Indenture shall be paid to the Indenture Trustee for deposit to the credit of
the Funds and Accounts as set forth in the Terms Supplement.
Each Series of Notes shall be limited obligations of the
Issuer payable solely from and secured under this Indenture solely by the Trust
Estate as provided in this Indenture. Each Note shall contain a statement to
that effect.
SECTION 2.2 Execution of Notes; Validity of Signatures.
Each Note and the Indenture Trustee's certificate of authentication
shall be in substantially the form set forth in Exhibits B, C or D, as
applicable, to the Terms Supplement and may have such letters, numbers or other
marks of identification and such legends of
22
<PAGE> 29
endorsements placed thereon as may, consistent herewith, be determined by the
Authorized Officers executing such Notes, as evidenced by their execution of
such Notes. Each such Note shall be executed on behalf of the Issuer by manual
or facsimile signatures of any two Authorized Officers of the Issuer. Each Note
shall be authenticated by the manual signature of an authorized signature of the
Indenture Trustee or the Authenticating Agent.
In case any person who shall have executed, authenticated or registered
any of the Notes, whether manually or by facsimile, shall die or cease to be the
person authorized to execute, authenticate or register the Notes before the
Notes so executed, authenticated or registered by such person shall have been
actually issued and delivered, such Notes shall be valid nevertheless, and may
be issued with the same effect as though the person who had so executed,
authenticated or registered such Notes had not died or ceased to be such
authorized person.
Only such of the Notes as shall bear thereon a certificate of
authentication as described above, manually executed by an authorized signature
of the Indenture Trustee or the Authenticating Agent, shall be valid or
obligatory for any purpose or entitled to the benefits of this Indenture, and
such certificate of authentication shall be conclusive evidence that the Notes
so authenticated have been duly executed, authenticated, delivered and issued
hereunder and are entitled to the benefits of this Indenture.
SECTION 2.3 Transfer of Notes; Exchange of Notes.
Except when Notes are held in a Book-Entry System and subject to the
provisions of this Section 2.3 and Section 2.05 of the Terms Supplement, any
Note may be transferred upon the books of registry maintained pursuant to
Section 2.4 hereof, by the person in whose name it is registered, in person or
by its duly authorized attorney, upon surrender of such Note to the Indenture
Trustee or the Authenticating Agent for cancellation, accompanied by a written
instrument of transfer in the form set forth in Exhibits B, C or D, as
applicable, to the Terms Supplement, as applicable, duly executed by the
registered owner in person or by its duly authorized attorney, with signatures
guaranteed, in a manner satisfactory to the Indenture Trustee or the
Authenticating Agent.
Whenever any Note shall be surrendered for transfer, the Issuer shall
execute and the Indenture Trustee or the Authenticating Agent shall authenticate
and deliver, at the principal corporate trust office of the Indenture Trustee or
at the office of the Authenticating Agent (or send by first class mail to the
new Holder or Holders), registered in the name or names of the transferee or
transferees, a new duly executed Note or (to the extent of Authorized
Denominations) two or more new duly executed Notes of the same date, Series (if
applicable) and aggregate principal amount as the Note being surrendered.
Except when Notes are held in a Book-Entry System, to the extent of
Authorized Denominations, any Note or Notes may be surrendered and exchanged at
the principal corporate trust office of the Indenture Trustee or at the office
of the Authenticating Agent for a Note or Notes of the same date and Series (if
applicable) and of like aggregate principal amount. The Issuer shall execute and
the Indenture Trustee or the Authenticating Agent shall authenticate and deliver
the Notes issued upon such exchange and shall deliver the same at the principal
corporate trust office of the Indenture Trustee or at the office of the
Authenticating Agent (or send the same by first class mail to the Holder
thereof).
23
<PAGE> 30
All exchanges and transfers of Notes pursuant to this Section 2.3 shall
be made without expense to the Holder of such Notes, except that the Indenture
Trustee or the Authenticating Agent shall require the payment by the Holder of
any Note requesting such transfer or exchange of any tax, fee or other
governmental charge required to be paid with respect to such transfer or
exchange.
All Notes surrendered pursuant to this Section shall be canceled.
No exchanges or transfers of any Note shall be required to be made if
such Note has been selected for redemption, nor during the seven (7) days next
preceding the date of selection of Notes for redemption.
SECTION 2.4 Books of Registry.
At all times while any Note remains Outstanding, the Indenture Trustee
shall keep or cause to be kept books of registry for the registration and
transfer of Notes at its principal corporate trust office. Upon presentation of
any Notes to the Indenture Trustee at the principal corporate trust office of
the Indenture Trustee or at the office of the Authenticating Agent, the
Indenture Trustee shall transfer, or the Authenticating Agent shall cause the
Indenture Trustee to transfer, as the case may be, under such reasonable
regulations as the Indenture Trustee may prescribe, such Notes on such books of
registry as hereinabove set forth. Such books of registry shall at all
reasonable times be open for inspection by the Issuer or its duly authorized
agents or representatives.
The Issuer, the Indenture Trustee and the Authenticating Agent may
treat the registered owner of any Note as the absolute owner of such Note for
the purpose of receiving payment of the principal of and interest on such Note
and for all other purposes whatsoever and the Issuer, the Indenture Trustee and
the Authenticating Agent shall not be affected by any notice to the contrary.
SECTION 2.5 Mutilated, Lost, Stolen or Destroyed Notes.
In case any Note shall at any time become mutilated in whole or in
part, or is destroyed, lost or stolen, the Issuer shall cause to be executed and
delivered at the principal corporate trust office of the Indenture Trustee or at
the office of the Authenticating Agent (or send by first class mail to the
Holder thereof at the Holder's request, risk and expense), a new Note of the
same date, Series (if applicable) and principal amount and of like tenor and
effect as the Note so mutilated, destroyed, lost or stolen, in exchange and
substitution for and upon the surrender for cancellation of such mutilated Note,
or in lieu of or in substitution for such destroyed, lost or stolen Note. In any
such event the applicant for the issuance of a substitute Note shall file with
the Indenture Trustee or the Authenticating Agent evidence or proof satisfactory
to the Indenture Trustee or the Authenticating Agent, as the case may be, of the
mutilation, destruction, loss or theft of the original Note, and proof of
ownership thereof, shall furnish the Issuer, the Indenture Trustee and the
Authenticating Agent with security and indemnity satisfactory to the Issuer and
the Indenture Trustee, and shall comply with such other reasonable rules as the
Issuer or the Indenture Trustee may prescribe. Any duplicate Note issued under
the provisions of this Section 2.5 in exchange and substitution for any
mutilated Note or in substitution for any allegedly destroyed, lost or stolen
Note, shall be entitled to the identical
24
<PAGE> 31
benefits under this Indenture as was the original Note in lieu of which such
duplicate Note is issued, and shall be entitled to equal and proportionate
benefits with all the other Notes of the same Series issued hereunder. Neither
the Issuer nor the Indenture Trustee shall be required to treat both the
original Note and any duplicate Note as being Outstanding for the purpose of
determining the principal amount of Notes Outstanding hereunder, but both the
original and duplicate Note shall be treated as one and the same.
Notwithstanding the foregoing provisions of this Section 2.5 as to the
issuance of duplicate or replacement Notes, if any such mutilated, destroyed,
lost or stolen Note has matured, at the option of the Issuer or the Indenture
Trustee, payment of the amount due thereon may be made without the issuance of
any duplicate or replacement Note upon receipt of like evidence, indemnity,
security and expenses and the surrender for cancellation of any such mutilated
Note and upon such other conditions as the Issuer or the Indenture Trustee may
prescribe.
All mutilated Notes surrendered to the Indenture Trustee or the
Authenticating Agent in substitution for new Notes pursuant to this Section 2.5
shall be canceled by the Indenture Trustee or the Authenticating Agent. The
Authenticating Agent shall deliver any such canceled Notes to the Indenture
Trustee.
All expenses incurred by the Issuer or the Indenture Trustee or the
Authenticating Agent for providing of any duplicate or replacement Note shall be
paid by the registered owner thereof.
SECTION 2.6 Disposition and Destruction of Notes.
All Notes surrendered to the Indenture Trustee or the Authenticating
Agent for payment, or surrendered to the Indenture Trustee for transfer or
exchange in accordance with Section 2.3 hereof or for substitution in accordance
with Section 2.5 hereof, shall be canceled by the Indenture Trustee or the
Authenticating Agent upon such payment, transfer, exchange or substitution, as
the case may be.
Whenever in this Indenture provision is made for the cancellation of
any Notes, the canceled Notes shall be delivered by the Indenture Trustee to the
Issuer or as it may direct. Upon the written request of the Issuer, the
Indenture Trustee may, however, in lieu of such cancellation and delivery,
destroy such Notes to the extent permitted by law. If any Notes are destroyed by
the Indenture Trustee, the Issuer may require that such destruction be done in
the presence of its representative. If the Indenture Trustee shall destroy any
Notes, it shall deliver a certificate of such destruction to the Issuer.
SECTION 2.7 Forms of Notes and Instructions for Payment.
The form of each Note and the certificate of authentication and form of
assignment for transfer to be endorsed thereon shall be in substantially the
form set forth in Exhibits B, C or D to the Terms Supplement, with necessary or
appropriate variations, omissions or insertions, as permitted or required by
this Indenture. Any instructions to the Indenture Trustee for payment of
interest on the Notes shall be in substantially the form of Exhibit E to the
Terms Supplement, with necessary or appropriate variations, omissions or
insertions, as permitted or required by this Indenture.
25
<PAGE> 32
SECTION 2.8 Temporary Notes.
Until definitive Notes are prepared, the Issuer may execute and
deliver, in lieu of definitive Notes, but subject to the same provisions,
limitations and conditions as the definitive Notes, except as to the
denominations thereof and as to exchangeability, one or more temporary Notes,
substantially of the tenor of the definitive Notes in lieu of which such
temporary Notes are issued, in Authorized Denominations, and with such
omissions, insertions and variations as may be appropriate to temporary Notes.
Until so exchanged, the temporary Notes shall in all respects be entitled to the
same benefits and security as definitive Notes issued pursuant to this
Indenture. All temporary Notes surrendered in exchange for definitive Notes
shall be forthwith canceled by the Indenture Trustee.
26
<PAGE> 33
ARTICLE III
[Reserved]
27
<PAGE> 34
ARTICLE IV
Redemption of the Notes
SECTION 4.1 Redemption of Notes in General.
The Notes shall be subject to redemption prior to their Legal Final
Maturity only upon the terms and conditions, including without limitation prior
written notice of such redemption to the Holders of the Notes, and at the
redemption price or prices, as are set forth in the Terms Supplement.
28
<PAGE> 35
ARTICLE V
Disposition of Proceeds;
Establishment of Funds and Accounts;
Application of Available Funds
SECTION 5.1 Disposition of Proceeds of the Notes.
All proceeds of the issuance and sale of the Notes hereunder shall be
deposited with the Indenture Trustee on the Date of Issuance, and the Indenture
Trustee shall apply such proceeds in accordance with the terms and provisions of
Article IV of the Terms Supplement.
SECTION 5.2 Reserve Fund.
There is established hereunder a Fund, held by the Indenture Trustee
and designated the "Reserve Fund". The moneys in the Reserve Fund shall be
invested in Eligible Investments as provided in Section 5.7 hereof. Any income
or earnings on such moneys shall be credited to the Collection Account in the
Collection Fund.
To the extent necessary or appropriate, the Issuer and the Indenture
Trustee may establish Accounts within the Reserve Fund and subaccounts within
such Accounts established under this Section.
At any time the balance of the Reserve Fund is below its Specified
Reserve Fund Balance, the Indenture Trustee shall restore the Reserve Fund to
its Specified Reserve Fund Balance by transfers on the next Monthly Distribution
Date from the following Accounts in the following order of priority:
first, from the Collection Account after making all prior distributions
on such Monthly Distribution Date therefrom pursuant to Section
5.5.1 hereof and Article IV of the Terms Supplement; and
second, from the Excess Surplus Account.
If the full amount required to restore the Reserve Fund to its
Specified Reserve Fund Balance is not available in the Collection Account or
Excess Surplus Account on the next succeeding Monthly Distribution Date, the
Indenture Trustee shall continue to transfer funds in such order of priority
from the Collection Account as they become available and in accordance with the
instructions for transfers from such Account pursuant to Section 5.5.1 hereof
and Article IV of the Terms Supplement and from the Excess Surplus Account until
the deficiency in the Reserve Fund has been eliminated. If the Indenture Trustee
transferred amounts from the Reserve Fund to cover a Realized Loss on a Financed
Student Loan, the Indenture Trustee shall deposit any subsequent payments of
principal received on or with respect to such Financed Student Loan into the
Reserve Fund.
On each Monthly Distribution Date, the Indenture Trustee shall transfer
any excess in the Reserve Fund over the Specified Reserve Fund Balance to the
Collection Account. After the transfer of any such excess balance, the Reserve
Fund shall be used solely for the following purposes in the following order of
priority:
29
<PAGE> 36
first, to make up any deficiency in the Expense Account immediately
following the transfer of moneys into such Account pursuant to
Section 5.5.1 hereof;
second, to increase the amount in the Note Payment Account, following
the transfer of moneys into such Account pursuant to Section
5.5.1 hereof and Article IV of the Terms Supplement, to the
amount required to pay interest on the Notes and any related
Issuer Exchange Payment pursuant to Section 5.5.2 hereof
(other than (i) Carryover Interest or (ii) interest on the
Series 1999B Notes or any Subordinate Issuer Exchange Payment
when the payment of such interest or Subordinate Issuer
Exchange Payment is deferred pursuant to Section 5.5.1 hereof
and Article IV of the Terms Supplement) on any Distribution
Date or on any other date on which interest is due upon
redemption or payment of the Notes or on any other date on
which any related Issuer Exchange Payment is due and payable
(other than any Subordinate Issuer Exchange Payment when the
payment of such Subordinate Issuer Exchange Payment is
deferred pursuant to Section 5.5.1 hereof and Article IV of
the Terms Supplement), by transfer and deposit by the
Indenture Trustee to the credit of the Note Payment Account on
any such date; and
third, to provide for payment of the principal of any Series of Notes
at their Legal Final Maturity thereof or for the payment of
the principal of such Series of Notes being redeemed in whole
pursuant to the Terms Supplement by transfer and deposit by
the Indenture Trustee to the credit of the Note Payment
Account on the Legal Final Maturity of such Series of Notes or
the date of any such redemption, as the case may be.
SECTION 5.3 Acquisition Fund.
There is established hereunder a Fund, held by the Indenture Trustee
and designated the "Acquisition Fund".
To the extent necessary or appropriate, the Issuer and the Indenture
Trustee may establish Accounts within the Acquisition Fund and subaccounts
within such Accounts established under this Section.
The Indenture Trustee shall deposit to the credit of the Acquisition
Fund the amount required by the Terms Supplement.
The Acquisition Fund and the Accounts therein shall be applied by the
Indenture Trustee for the Financing directly, or indirectly through an Eligible
Lender Trustee, of Student Loans from Sellers. The Financing directly, or
indirectly through an Eligible Lender Trustee, of Student Loans from Sellers,
from the Issuer and/or from the indenture trustee under other financing
documents to which the Issuer is a party with moneys representing amounts
deposited in the Acquisition Fund (or any Accounts therein) shall be governed by
the provisions of Section 5.3.1 below.
SECTION 5.3.1 Financing of Student Loans.
The moneys representing amounts deposited to the Acquisition Fund (or
any Accounts therein) pursuant to the Terms Supplement to be applied for the
Financing directly, or
30
<PAGE> 37
indirectly through an Eligible Lender Trustee, of Student Loans shall be (i) in
the case of Student Loans that have been fully disbursed, the full remaining
unpaid principal amount of such Student Loans or (ii) in the case of Student
Loans that have not been fully disbursed, the unpaid principal amount of such
Student Loans that has been disbursed to the borrower prior to its Financing
hereunder, plus, in each case, the amount of accrued and unpaid interest on such
Student Loans payable by the borrowers in respect thereof, less a discount or
plus a premium, and, when directed by the Issuer, less any accrued but unpaid
interest on such Student Loans, and plus reasonable transfer fees payable to or
on behalf of the Sellers with respect to such Student Loans pursuant to the
applicable Purchase Agreements, and plus any interest paid by the Indenture
Trustee to a Seller at the direction of the Issuer on the amount of principal
and accrued interest on such Student Loans being Financed, directly or
indirectly, from the date of transfer of such Student Loans until the date funds
are actually paid to such Seller at a rate of interest not to exceed the current
yield on funds in the Expense Account, in any case not exceeding the amount
permitted by law. Such moneys shall be paid to such Sellers upon receipt by the
Indenture Trustee of a Student Loan Acquisition Certificate of the Issuer, in
the form of Exhibit A hereto, together with all documents and certificates
required thereby, if any, with respect to such Student Loans. Within ten (10)
Business Days after the disbursement of moneys from the Acquisition Fund (or any
Account therein), the Issuer shall deliver to the Indenture Trustee an Updating
Student Loan Acquisition Certificate in the form of Exhibit B hereto. Any amount
refunded by the Seller in a loan purchase transaction shall be deposited by the
Indenture Trustee in the Collection Account.
Upon request by the Issuer, the Acquisition Fund may also be applied by
the Indenture Trustee for the acquisition directly, or indirectly through an
Eligible Lender Trustee, of Student Loans from the indenture trustee under
another indenture of trust between the Depositor or its affiliates and such
indenture trustee or from the Issuer, the Depositor or its affiliates for
Student Loans financed by the Issuer, the Depositor or its affiliates with funds
not subject to an indenture of trust, in either case at a price not in excess of
the full remaining unpaid principal amount of such Student Loans, plus the
amount of accrued and unpaid interest on such Student Loans payable by the
obligors in respect thereof, plus any unamortized premium and plus reasonable
transfer fees not exceeding the amount permitted by law, which price shall be
payable upon receipt of Student Loan Acquisition and Updating Student Loan
Acquisition Certificates of the Issuer as set forth above, and otherwise as
provided in said other indenture of trust.
In addition to the amount paid to a Seller, another indenture trustee,
the Depositor or the Issuer from the Acquisition Fund (or any Account therein)
with respect to the purchase of a Student Loan that has not been fully
disbursed, the Indenture Trustee shall pay from the Acquisition Fund (or any
Account therein) from which the purchase price of the partially disbursed
Student Loan was paid, to or for the benefit of the borrower of such Student
Loan that is acquired, directly or indirectly, by check mailed by first-class
mail, postage prepaid, or by electronic funds transfer to such borrower or such
borrower's eligible institution, disbursement agent or other Person (including
the Depositor or the Issuer) (as specified in a written certificate of an
Authorized Officer in the form acceptable to the Indenture Trustee (a
"Disbursement Certificate") at the address and on the date set forth in such
Disbursement Certificate the amount certified to it in such Disbursement
Certificate. In each such Disbursement Certificate the Issuer shall further
certify that the amount to be disbursed pursuant to such Disbursement
Certificate represents an amount which, together with any other amounts
previously disbursed by the Seller, the Issuer, the Depositor, other indenture
trustee and/or the Indenture Trustee in connection with
31
<PAGE> 38
such Student Loan, does not exceed the maximum amount available to or for the
benefit of such obligor from such Student Loan, including all fees payable to
the Guarantee Agency and the Secretary of Education.
The Student Loans Financed as aforesaid shall be included in the
balances of the Student Loan Portfolio Fund until they shall have been paid in
full or sold, exchanged or otherwise disposed of by the Indenture Trustee in
accordance with Section 5.4 hereof.
SECTION 5.3.2 Investment of Acquisition Fund; Transfer of Proceeds in
Acquisition Fund.
Pending application of moneys in the Acquisition Fund (or any Account
therein) to the foregoing purposes, such moneys shall be invested in Eligible
Investments as provided in Section 5.7 hereof.
Any portion of the moneys in the Acquisition Fund which is not, or
which the Issuer at any time determines cannot for any reason be, used to
Finance Student Loans prior to the date specified in the Terms Supplement shall,
at the written direction of the Issuer and subject to any requirements set forth
in the Terms Supplement, be transferred by the Indenture Trustee to the
Collection Account for the payment of the principal of and interest on the Notes
as provided in the Terms Supplement.
SECTION 5.4 Student Loan Portfolio Fund; Sale of Student Loans.
There is established hereunder a Fund, held by the Indenture Trustee
and designated the "Student Loan Portfolio Fund."
To the extent necessary or appropriate, the Issuer and the Indenture
Trustee may establish Accounts within the Student Loan Portfolio Fund and
subaccounts within such Accounts established under this Section.
All Financed Student Loans (including, without limitation, any Student
Loans transferred to the Indenture Trustee for deposit under this Indenture by
the indenture trustee under any other indenture of trust between the Issuer and
such indenture trustee) shall be included in the balances of the Student Loan
Portfolio Fund. All principal of, interest on and Special Allowance Payments or
other Available Funds in respect of, the Financed Student Loans shall be
deposited upon receipt to the credit of the Collection Account in the Collection
Fund as provided in Section 5.5 hereof.
Financed Student Loans included in the balances of the Student Loan
Portfolio Fund may be removed therefrom and sold or exchanged by the Indenture
Trustee only in accordance with this Section 5.4 and with Section 8.3 hereof.
Nothing in this Indenture shall be deemed to preclude the Servicers from
maintaining possession of the notes evidencing, and other documentation relating
to, Financed Student Loans on behalf of the Indenture Trustee in accordance with
the Servicing Agreements, provided the same is consistent with the creation and
maintenance of the first lien and security interest created by the granting
clause hereof and Section 5.6 hereof and does not impair the perfection of such
security interest.
32
<PAGE> 39
The Indenture Trustee may (a) at any time and from time to time deliver
Student Loans to the Sellers thereof as and to the extent provided for in the
applicable Purchase Agreements (or pursuant to the Transfer and Sale Agreement
to the Depositor or other purchaser on behalf of the Depositor under the
applicable Purchase Agreements) with respect to rejections and repurchases of
such Student Loans against payment to the Indenture Trustee by the Seller, the
Depositor or such other purchaser of moneys at least equal to the repurchase
price thereof together with all other amounts payable by the Sellers thereof
under such Purchase Agreements in connection with such rejections or repurchases
or (b) deliver all or any part of the Financed Student Loans against moneys at
least sufficient to defease pursuant to Article X hereof all (but not less than
all) of the Outstanding Notes (provided that such moneys are applied by the
Indenture Trustee immediately after receipt thereof to such defeasance in
accordance with Section 10.2 hereof), or (c) following a default on any Financed
Student Loan, remove such Student Loan from the Student Loan Portfolio Fund and
tender it to the Guarantee Agency or the Secretary of Education to the extent
required to collect the benefits of any related Contract of Guarantee in
connection with such default.
The Indenture Trustee may, at any time and from time to time in
accordance with the provisions of the applicable Servicing Agreement, deliver
Financed Student Loans to the Servicer thereof for purchase by such Servicer as
and to the extent required under such Servicing Agreement against payment to the
Indenture Trustee of moneys equal to the purchase price thereof, together with
all other amounts payable by such Servicer thereof, under such Servicing
Agreement.
The Indenture Trustee shall permit the sale of Financed Student Loans
in the Student Loan Portfolio Fund selected by the Issuer only (a) to avoid an
Event of Default or, if an Event of Default has occurred, as may be required or
appropriate pursuant to the provisions of Section 8.3 hereof, (b) in an exchange
of Financed Student Loans pursuant to the provisions of this Section 5.4, (c) in
connection with the mandatory auction of such Financed Student Loans pursuant to
Article IV of the Terms Supplement, or (d) in connection with an optional
purchase of the Financed Student Loans pursuant to Article IV of the Terms
Supplement. In addition, the Indenture Trustee shall permit the sale of Financed
Student Loans and the removal thereof from the Student Loan Portfolio Fund in
connection with the consolidation of such Student Loans by the student borrower
with another Lender.
Other than in connection with any sale of Financed Student Loan
pursuant to Article III of the Terms Supplement or pursuant to item (b) of the
third preceding paragraph, any Financed Student Loan that is sold pursuant to
this Section 5.4 shall be sold at a price not less than the aggregate unpaid
principal amount thereof plus the amount of accrued and unpaid interest thereon
payable by the student obligors thereof plus late charges, if any, and
unamortized premium thereon determined in accordance with the Issuer's
established accounting policies. The proceeds of the sale of a Financed Student
Loan shall be deposited to the credit of the Collection Account in the
Collection Fund.
The Issuer may, at any time and from time to time, instruct the
Indenture Trustee to exchange Financed Student Loans for other Student Loans
having an aggregate principal amount no less than the aggregate principal amount
of the Financed Student Loans being exchanged, bearing the same or higher rates
of interest, being eligible, after exchange, for the same Special Allowance
Payments, and having the same status, whether interim, grace or payout
33
<PAGE> 40
(provided, however, that as a result of such exchange the average principal
amount of all of the Student Loans included in Trust Estate shall not be
decreased, the average maturity of all such Student Loans shall not be increased
and no Student Loan shall be Financed which is not at the time authorized under
this Indenture) pursuant to a Certificate, in which the Issuer shall certify
that such exchange will not materially adversely affect the sufficiency of
Available Funds to meet the obligations of the Issuer under this Indenture,
including, without limitation, the payment of principal of and interest on the
Notes. The conditions relating to the acquisition directly, or indirectly
through an Eligible Lender Trustee, of Student Loans and the form of certificate
required to be received by the Indenture Trustee as set forth in Section 5.3
hereof shall apply to any such exchange to the extent the same may reasonably be
made applicable. All Student Loans acquired directly, or indirectly through an
Eligible Lender Trustee, by the Indenture Trustee as a result of any such
exchange shall be included in the balances of the Student Loan Portfolio Fund.
The aggregate principal balance of Financed Student Loans bearing
interest at a fixed rate must always equal or exceed the Outstanding principal
balance of the Subordinate Notes unless each Rating Agency then rating the
Outstanding Notes confirms that any failure to meet the foregoing will not
adversely affect the existing ratings of each such Rating Agency on the
Outstanding Notes. In order to comply with the requirements of this paragraph,
the Issuer may exchange Financed Student Loans not bearing interest at a fixed
rate for other Student Loans bearing interest at a fixed rate; provided,
however, that the Issuer certifies that such exchange will not materially
adversely affect the sufficiency of Available Funds to meet the obligations of
the Issuer under the Indenture.
Any sale, exchange or other disposition pursuant to this Section 5.4 of
Financed Student Loans made under the Higher Education Act shall be only to or
with one or more eligible lenders under the Higher Education Act so long as the
Higher Education Act requires the owner or holder of Student Loans to be an
eligible lender.
SECTION 5.5 Collection Fund.
There is established hereunder a Fund, held by the Indenture Trustee
and designated the "Collection Fund", and established therein (a) the
"Collection Account", (b) the "Note Payment Account", (c) the "Expense Account"
and (d) the "Excess Surplus Account".
To the extent necessary or appropriate, the Issuer and the Indenture
Trustee may establish additional Accounts hereunder, and subaccounts within any
such Accounts established in the Collection Fund under this Section.
The Indenture Trustee shall deposit to the credit of (a) the Collection
Account and (b) the Expense Account in the Collection Fund the amounts required
by the Terms Supplement.
SECTION 5.5.1 Collection Account.
There shall be deposited to the Collection Account all amounts
received, whether as principal, interest, Interest Subsidy Payments, Special
Allowance Payments, Guarantee payments, tuition refunds, repurchase payments
paid by Sellers pursuant to the Purchase Agreements or otherwise, in respect of
all Financed Student Loans, interest on all such Financed Student Loans payable
by the borrowers in respect thereof accrued prior to the date of
34
<PAGE> 41
acquisition thereof by the Indenture Trustee and included in the purchase price
thereof paid by the Indenture Trustee to the Sellers thereof; amounts received
as earnings on or income from Eligible Investments included in the balances of
the Funds and Accounts to the extent provided in Section 5.7 hereof; any
Counterparty Exchange Payments; and proceeds of any sale of Financed Student
Loans pursuant to Section 5.4 hereof to the extent required by such Section.
The Issuer shall, and shall cause each Seller and Servicer, in
accordance with the applicable Purchase Agreement or Servicing Agreement, as the
case may be, to transfer all Available Funds received by it to the Indenture
Trustee, and the Indenture Trustee shall, upon receipt of any such Available
Funds, immediately deposit and credit such Available Funds to the Collection
Account.
Payment of rebate fees in respect of Consolidation Loans and any other
amount owed by the Issuer with respect to Financed Student Loans to the
Secretary of Education, any Guarantee Agency, any Servicer or the Indenture
Trustee shall be made by the Indenture Trustee from funds available in the
Collection Account.
On each Distribution Date, the Indenture Trustee shall transfer from
the Collection Account the amounts and in the priority set forth in Article IV
of the Terms Supplement.
SECTION 5.5.2 Note Payment Account.
On each applicable Distribution Date, following the transfers to the
Note Payment Account set forth in the Terms Supplement, the Indenture Trustee
shall distribute to the Noteholders as of the Record Date and Exchange
Counterparties, if any, the amounts transferred to the Note Payment Account,
together with (i) any amounts therein transferred from the Reserve Fund and (ii)
any Advances.
If the Issuer or an Eligible Lender Trustee on behalf of the Issuer has
applied for a Guarantee Payment from a Guarantee Agency or an Interest Subsidy
Payment or a Special Allowance Payment from the Department of Education, and the
Issuer or such Eligible Lender Trustee, as applicable, has not received the
related payment prior to the end of the Collection Period immediately preceding
the Distribution Date on which such amount would be required to be distributed
as a payment of interest, the Depositor may, no later than the third Business
Day before such Distribution Date, deposit into the Note Payment Account an
amount up to the amount of such payments applied for but not received (such
deposits by the Depositor are referred to herein as "Advances"). Such Advances
are recoverable by the Issuer, (i) first, from moneys in the Fund or Account
which such Advance temporarily replaced and (ii) second, from payments received
generally on or with respect to the Financed Student Loans immediately upon
their availability and prior to the use of such moneys for any of the other
purposes permitted under this Indenture. The Depositor shall have no obligation,
legal or otherwise, to make any Advance, and a determination by the Depositor to
make an Advance shall not create any obligation of the Depositor, legal or
otherwise, to make any future Advances.
SECTION 5.5.3 [Reserved.].
SECTION 5.5.4 Expense Account.
35
<PAGE> 42
On the Date of Issuance, the Indenture Trustee shall deposit to the
credit of the Expense Account the amount, if any, set forth in the Terms
Supplement. Thereafter, the Indenture Trustee shall transfer amounts to the
Expense Account from the Collection Account funds in accordance with the
provisions of Section 5.5.1 hereof and Article IV of the Terms Supplement and,
if necessary, from the Reserve Fund in accordance with the provisions of Section
5.2 hereof.
The Indenture Trustee shall apply the funds in the Expense Account to
pay Program Operating Expenses and Costs of Issuance. In addition, the Indenture
Trustee may pay expenses relating to the Notes from time to time from Available
Funds on deposit in the Collection Account by transferring the amount necessary
to pay such expenses from the Collection Account to the Expense Account.
The Indenture Trustee shall pay Program Operating Expenses and Costs of
Issuance from moneys in the Expense Account upon receipt of written orders or
requisitions signed by an Authorized Officer, which shall direct the payment to
designated payees in designated amounts for stated services and certify that
such payment is a proper charge against the Expense Account and is then due and
owing for services rendered or expenses incurred, and in the case of payments to
the Administrator shall certify that such amounts constitute related Program
Operating Expenses described in clause (iv) and clause (v) of the definition
thereof in Section 1.1 hereof and do not exceed the amount of such Program
Operating Expenses permitted to be paid pursuant to Section 6.13 hereof.
SECTION 5.5.5 Excess Surplus Account.
On each Monthly Distribution Date, as provided in the Terms Supplement,
any Available Funds remaining after all required distributions are made on such
Monthly Distribution Date shall be deposited to the credit of the Excess Surplus
Account in accordance with the provisions of Section 5.5.1 hereof and Article IV
of the Terms Supplement. Amounts on deposit in the Excess Surplus Account may be
withdrawn by the Issuer at any time upon written request of the Issuer to the
Indenture Trustee; provided that after such withdrawal the Parity Percentage
shall be at least the Parity Percentage Limitation. Such request shall be signed
by an Authorized Officer. Any Available Funds withdrawn by the Issuer from the
Excess Surplus Account shall not thereafter be available to the Indenture
Trustee to make payments on the Notes. Until withdrawn by the Issuer, amounts on
deposit in the Excess Surplus Account shall be available for transfer by the
Indenture Trustee to the Reserve Fund if, and to the extent that, a deficiency
in the Reserve Fund remains after the transfers from the Collection Account
pursuant to Sections 5.2 and 5.5.1 hereof and Article IV of the Terms
Supplement. In the event of such a deficiency, the Indenture Trustee shall make
such a transfer in an amount up to the amount necessary to eliminate such
deficiency. The Issuer may, at any time, direct in writing that the Indenture
Trustee transfer amounts on deposit in the Excess Surplus Account to the
Collection Account or the Reserve Fund.
SECTION 5.5.6 Investment of Collection Fund.
Moneys in the Collection Fund, or any Account thereof, pending their
application as authorized herein, shall be invested by the Indenture Trustee in
Eligible Investments as provided in Section 5.7 hereof.
36
<PAGE> 43
SECTION 5.6 Pledge.
The Notes of each Series, including the principal thereof and interest
and any Carryover Interest thereon, and any Issuer Exchange Payments shall be
payable solely from and secured hereunder solely by (i) the Trust Estate as
provided in this Indenture and (ii) any other assets pledged to secure such
Series of Notes under a Supplemental Indenture; provided, however, the Exchange
Counterparty in the Exchange Agreement and the Indenture Trustee, on behalf of
the Exchange Counterparty, herein or in any Supplemental Indenture executed in
connection with the Exchange Agreement, shall waive any and all rights which the
Exchange Counterparty may have to receive any amounts realized by the Indenture
Trustee from foreclosure upon the Trust Estate consisting of its Exchange
Agreement and its Exchange Counterparty Guarantee, if any.
The Notes of a Series, including the principal thereof and interest and
any Carryover Interest thereon shall be secured hereunder by the pledge of the
Trust Estate granted hereby, by the lien thereon and security interest therein,
and by the assignment to the Indenture Trustee of all right, title and interest
of the Issuer and each Eligible Lender Trustee in the Trust Estate, without
priority by reason of number, date, purpose, or otherwise, except as otherwise
expressly provided in this Indenture and in the Notes. Senior Issuer Exchange
Payments shall be secured hereunder by the pledge of the Trust Estate granted
hereby, by the lien thereon and security interest therein on an equal priority
with the payment of interest on Senior Notes, and by the assignment to the
Indenture Trustee for the benefit of the Senior Exchange Counterparty of all
rights, title and interest of the Issuer and each Eligible Lender Trustee in the
Trust Estate. Subordinate Issuer Exchange Payments shall be secured hereunder by
the pledge of the Trust Estate granted hereby, by the lien thereon and security
interest therein on an equal priority with the payment of interest on
Subordinate Notes, and by the assignment to the Indenture Trustee for the
benefit of the Subordinate Exchange Counterparty of all rights, title and
interest of the Issuer and each Eligible Lender Trustee in the Trust Estate.
Each pledge, lien, security interest and assignment hereunder shall be valid and
binding and shall, except as otherwise expressly provided herein, constitute a
lien of equal priority and charge on the Trust Estate from time to time held
hereunder for the benefit of the Holders of the Notes of such Series and any
Exchange Counterparty (subject to the provisions of this Indenture permitting
the application of the Trust Estate for the purposes and on the terms and
conditions hereof, including, without limitation, (i) the prior rights of the
Indenture Trustee to any realization from the Indenture Trustee's lien on and
security interest in the Trust Estate, for the payment of the Indenture
Trustee's and each Eligible Lender Trustee's fees and expenses hereunder and
(ii) solely with respect to the Holders of any Subordinate Notes and any
Subordinate Exchange Counterparty, the prior rights of the Holders of the Senior
Notes and of any Senior Exchange Counterparty, to any realization from the
Indenture Trustee's lien on and security interest in the Trust Estate to the
full extent provided by law, prior to all other indebtedness payable from or
secured by the Trust Estate which may hereafter be created or incurred).
Pursuant to this Indenture each of the Issuer and each Eligible Lender
Trustee has granted to the Indenture Trustee a lien on and security interest in
the Trust Estate. Regardless of the time or order of attachment, or the time,
order or manner of perfection, or the time or order of filing of financing
statements, each of the Holders of Notes of a Series by their purchase thereof,
an Exchange Counterparty by execution and delivery of its Exchange Agreement,
the Indenture Trustee, on behalf of itself and the Holders of such Series and
each Eligible Lender Trustee by
37
<PAGE> 44
their respective execution of this Indenture and any Exchange Agreement, each
agrees that each shall have the following relative priority with respect to the
lien on and security interest in and rights related to the Trust Estate:
(i) The Indenture Trustee shall have a first and prior right
to any realization from the Indenture Trustee's lien on and security interest in
the Trust Estate, as security for the payment of the fees and expenses of the
Indenture Trustee and each Eligible Lender Trustee, and any rights that the
Holders of the Notes of such Series or an Exchange Counterparty may have to any
realization from the Indenture Trustee's lien on or security interest in the
Trust Estate with respect to the Issuer's obligations under this Indenture with
respect to (A) the Notes of each Series and (B) any Exchange Agreement shall be
subordinate to such first and prior right; and
(ii) The Holders of Senior Notes and any Senior Exchange
Counterparty shall have a second right to any realization from the Indenture
Trustee's lien on and security interest in the Trust Estate, as security for the
payment and performance of the Issuer's obligations under this Indenture with
respect to (A) such Senior Notes and (B) any Senior Exchange Agreement in the
manner provided in this Indenture.
(iii) The Holders of Subordinate Notes and any Subordinate
Exchange Counterparty shall have a third right to any realization from the
Indenture Trustee's lien on and security interest in the Trust Estate, as
security for the payment and performance of the Issuer's obligations under this
Indenture with respect to (A) the Subordinate Notes and (B) any Subordinate
Exchange Counterparty in the manner provided in this Indenture.
Subject to the priorities established in this Section 5.6, a Holder, an
Exchange Counterparty, an Eligible Lender Trustee or the Indenture Trustee shall
not contest, or join in any contest of, the validity, perfection, priority or
enforceability of the lien or security interest in or right with respect to the
Trust Estate granted or provided for herein.
The covenants and agreements herein set forth to be performed by or on
behalf of the Issuer shall be for the equal and proportionate benefit, security
and protection of all Holders of the Notes of each Series and any Exchange
Counterparty, without preference, priority or distinction as to payment or
security or otherwise of any of the Notes of such Series over any of the other
Notes or over any related Issuer Exchange Payment or any Issuer Exchange Payment
over any of the Notes or over any other Issuer Exchange Payment for any reason
or cause whatsoever, except as expressly provided in this Indenture or the Notes
of such Series, and, except as otherwise herein or therein specifically
provided, all Notes of such Series and any Issuer Exchange Payment shall be
secured equally and ratably hereunder without discrimination or preference
whatsoever.
No Holder of a Note of a Series shall be required to see that the
moneys derived from such Series of Notes are applied to the purpose or purposes
for which the Series of Notes was issued. The validity of any Note of a Series
shall neither be dependent upon nor affected by the validity or regularity of
any proceedings or contracts relating to the Program nor the use and application
of the proceeds of the Notes of such Series.
38
<PAGE> 45
Nothing in this Section 5.6 or in this Indenture shall prevent or be
construed to prevent any Supplemental Indenture from pledging or otherwise
providing, or the Issuer from providing, in addition to the security given or
intended to be given by this Indenture, additional security for the benefit of
any Series of Notes or any portion thereof or for the benefit of any Issuer
Exchange Payment.
The pledges of, liens on and security interests in, and assignments to
the Indenture Trustee of the Trust Estate made hereby include any contract or
any evidence of indebtedness or other rights of the Issuer to receive any of the
same, whether now existing or hereafter coming into existence, and whether now
or hereafter acquired, and the proceeds thereof, with respect to any of the
Trust Estate, including, without limitation, all rights of the Issuer or the
Eligible Lender Trustees in and under all Financed Student Loans, all Contracts
of Guarantee guaranteeing Financed Student Loans, any Exchange Agreement, any
Exchange Counterparty Guarantee, all Purchase Agreements (including all rights
of the Issuer to the warranties of each Seller thereunder), the Master Servicing
Agreement and the Servicing Agreements (including all rights of the Issuer to
the warranties of each Servicer thereunder).
SECTION 5.7 Investments.
The term "Eligible Investments" shall mean any of the following:
(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
39
<PAGE> 46
Corporation, and senior debt obligations of other federal government-sponsored
agencies approved by each Rating Agency;
(d) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptances with domestic commercial banks which have a rating on their
short-term certificates of deposit on the date of purchase of "A-1", "F-1" or
"P-1" by each Rating Agency and maturing no more than 360 days after the date of
purchase (ratings on holding companies are not considered as the rating on the
bank);
(e) commercial paper which is rated at the time of purchase in the
single highest classification, (i.e., "A-1", "F-1" or "P-1") by each Rating
Agency and which matures not more than 270 days after the date of purchase;
(f) investments in a money market fund rated in the highest applicable
rating category by (i) a nationally recognized rating service acceptable to each
Rating Agency or (ii) each Rating Agency;
(g) Pre-refunded Municipal Obligations defined as follows: Any bonds or
other obligations of any state of the United States of America or of any agency,
instrumentality or local governmental unit of any such state which are not
callable at the option of the obligor prior to maturity or as to which
irrevocable instructions have been given by the obligor to call on the date
specified in the notice; and
(1) which are rated, based on an irrevocable escrow account or fund
(the "escrow"), in the highest rating category of each Rating Agency; or
(2) which are fully secured as to principal and interest and
redemption premium, if any, by an escrow consisting only of cash or obligations
described in item (a) above, which escrow may be applied only to the payment of
such principal of and interest and redemption premium, if any, on such bonds or
other obligations on the maturity date or dates thereof or the specified
redemption date or dates pursuant to such irrevocable instructions, as
appropriate, and (B) which escrow is sufficient, as verified by a nationally
recognized independent certified public accountant, to pay principal of and
interest and redemption premium, if any, on the bonds or other obligations
described in this paragraph on the maturity date or dates specified in the
irrevocable instructions referred to above, as appropriate;
(h) investment agreements approved in writing by each Rating Agency and
supported by appropriate opinions of counsel for the investment agreement
provider; and
(i) other forms of investments (including repurchase agreements)
approved in writing by each Rating Agency.
Moneys held by the Indenture Trustee for the credit of any Fund or
Account shall be invested by the Indenture Trustee to the fullest extent
practicable and reasonable, in accordance with the provisions hereof, in
Eligible Investments, as directed in writing by the Issuer, and in the absence
of any such directions, in Eligible Investments selected by the Indenture
Trustee with due regard for the fiduciary responsibility of the Indenture
Trustee to maximize investment income and to protect the interests of the
Holders. All Eligible Investments shall be acquired subject to the limitations
on maturities hereinafter in this Section
40
<PAGE> 47
5.7 set forth and to any additional limitations or requirements, consistent with
the foregoing provisions of this paragraph, as may be established by Request of
the Issuer. Moneys shall be invested in Eligible Investments with respect to
which payments of principal and interest are scheduled or otherwise payable not
later than the date on which it is estimated that such moneys will be required
by the Indenture Trustee for the purposes intended. Eligible Investments
purchased under a repurchase agreement may be deemed to mature on the date or
dates on which the Indenture Trustee may deliver such Eligible Investments for
repurchase under such agreement. Eligible Investments which may be tendered for
payment of the full principal amount thereof plus accrued interest thereon prior
to the maturity thereof may be deemed to mature on the date or dates on which
they may be so tendered. Eligible Investments acquired as an investment of
moneys in any Fund or Account shall be credited to such Fund or Account. Unless
otherwise provided herein, any earnings on or income from Eligible Investments
shall be credited to the Collection Account in the Collection Fund, as provided
in Section 5.5.6 hereof, except that an amount of interest received with respect
to any Eligible Investment on the first payment of interest after purchase equal
to the amount of accrued interest, if any, paid as part of the purchase price of
such Eligible Investment shall be credited to the Account or Fund from which
such accrued interest was paid.
Investments in any and all Funds and Accounts may be commingled in a
separate fund or funds established by the Indenture Trustee for purposes of
making, holding and disposing of investments, notwithstanding provisions herein
for transfer to or holding in or to the credit of particular Funds and Accounts
amounts received or held by the Indenture Trustee hereunder, provided that the
Indenture Trustee shall at all times account for such investments strictly in
accordance with the Funds and Accounts to which they are credited and otherwise
as provided in this Indenture. The Indenture Trustee may act as principal or
agent in the acquisition or disposing of any Eligible Investment. The Indenture
Trustee may sell at the best price obtainable, or present for redemption, any
Eligible Investment so purchased whenever it shall be necessary to provide
moneys to meet any required payment, transfer, withdrawal or disbursement from
the Fund or Account to which such Eligible Investment is credited, and the
Indenture Trustee shall not be liable or responsible for any loss resulting from
the acquisition or disposition of such Eligible Investment in accordance
herewith.
SECTION 5.8 Exchange Agreements; Counterparty Exchange Payments; Issuer
Exchange Payments.
The Issuer hereby authorizes and directs the Indenture Trustee to
acknowledge and agree to any Exchange Agreement hereafter entered into by the
Issuer and an Exchange Counterparty under which (a) the Issuer may be required
to make, from time to time, Issuer Exchange Payments and (b) the Indenture
Trustee may receive, from time to time, Counterparty Exchange Payments for the
account of the Issuer. The Issuer shall not execute and deliver any Exchange
Agreement unless at the time of entering into such Exchange Agreement (i) except
in the case of any Exchange Agreement executed in connection with the execution
and delivery of this Indenture, the Issuer and the Indenture Trustee enter into
a Supplemental Indenture in connection with the execution and delivery of the
Exchange Agreement, and (ii) the Issuer obtains written evidence from each
Rating Agency then rating any Outstanding Notes that the execution and delivery
of the Exchange Agreement will not adversely affect such Rating Agency's rating
on such Notes; provided, however, that in any event the long-term debt
securities of any Exchange Counterparty must be rated at least Aa1 (or its
equivalent) from a
41
<PAGE> 48
Rating Agency. In connection with the execution of any Exchange Agreement
simultaneously with the execution and delivery of this Indenture, the Indenture
Trustee, on behalf of the Exchange Counterparty, hereby waives any and all
rights which the Exchange Counterparty may have to receive any amounts realized
by the Indenture Trustee from foreclosure upon the Trust Estate consisting of
its Exchange Agreement and its Exchange Counterparty Guarantee, if any. In
connection with the execution of any Exchange Agreement, the Indenture Trustee,
on behalf of the Exchange Counterparty, shall waive in the Supplemental
Indenture executed in connection with the Exchange Agreement any and all rights
which the Exchange Counterparty may have to receive any amounts realized by the
Indenture Trustee from foreclosure upon the Trust Estate consisting of its
Exchange Agreement and its Exchange Counterparty Guarantee, if any.
No later than the Business Day immediately preceding each date on which
a Counterparty Exchange Payment or Issuer Exchange Payment is due pursuant to
the applicable Exchange Agreement through and including the termination date of
an Exchange Agreement, the Issuer shall give written notice to the Indenture
Trustee stating either (a) the amount of any Counterparty Exchange Payment due
to be received by the Indenture Trustee for the account of the Issuer no later
than each such date or (b) the amount of any Issuer Exchange Payment to be paid
to the Exchange Counterparty on each such date. If the Indenture Trustee fails
to receive such written notification from the Issuer by the end of such Business
Day, it shall immediately notify the Issuer of such fact in writing.
On any Business Day on which a Counterparty Exchange Payment is due
pursuant to the applicable Exchange Agreement in accordance with the written
notification received from the Issuer, the Indenture Trustee shall deposit all
moneys received representing such Counterparty Exchange Payment in the
Collection Account to be applied in accordance with the provisions of Section
5.5.1 hereof and Article IV of the Terms Supplement. The Indenture Trustee shall
notify the Issuer on such Business Day, if (a) the amount received from the
Exchange Counterparty is not equal to the amount specified in the written
notification of the Issuer, (b) no amount is received from the Exchange
Counterparty or (c) the amount received is not received in freely transferable
funds.
On any date with respect to which an Issuer Exchange Payment is due in
accordance with the written notification received from the Issuer or, with
respect to a payment in respect of an early termination date, from the Exchange
Counterparty, the Indenture Trustee shall make payment to the Exchange
Counterparty of the amount of the Issuer Exchange Payment specified in such
written notification of the Issuer or the Exchange Counterparty, as the case may
be, due on such date from moneys in the Note Payment Account by the deposit or
wire transfer of freely transferable funds to the credit of the account of the
Exchange Counterparty specified in such written notification of the Issuer or
the Exchange Counterparty, as the case may be.
Nothing in this Indenture shall prohibit, or be construed as
prohibiting, an Issuer Exchange Payment or Counterparty Exchange Payment from
being made on a date other than a Distribution Date.
SECTION 5.9 Termination.
When no Notes remain Outstanding and all amounts due or to become due
hereunder have been paid in full or provided for to the satisfaction of the
Indenture Trustee, the
42
<PAGE> 49
Indenture Trustee shall transfer to the Issuer or to any person designated by
the Issuer, including, without limitation, to an Eligible Lender Trustee or its
duly appointed successor, upon the written request of the Issuer, all balances
of all Funds and Accounts established hereby, except that Financed Student Loans
included in the balances of the Student Loan Portfolio Fund shall not be
transferred to the Issuer unless, at the time of such transfer, the Issuer is an
eligible lender under the Higher Education Act or the Higher Education Act
permits transfer of such Student Loans to a person other than an eligible lender
and except that the Indenture Trustee shall retain and hold in the Expense
Account in the Collection Fund an amount estimated by the Indenture Trustee to
be necessary to reimburse the Secretary of Education for any excess payments by
the Secretary of Education to the Indenture Trustee in respect of the Financed
Student Loans.
43
<PAGE> 50
ARTICLE VI
Covenants to Secure Notes
The covenants and agreements of the Issuer, each Eligible Lender
Trustee and the Indenture Trustee contained in Article VI of the Indenture shall
be applicable to, and shall be made with respect to, any Exchange Counterparty,
and the Issuer, each Eligible Lender Trustee and the Indenture Trustee hereby
make such covenants and agreements with any such Exchange Counterparty. The
Issuer, each Eligible Lender Trustee and the Indenture Trustee shall have the
same responsibilities and obligations under this Article VI with respect to any
Exchange Counterparty as each has with respect to the Holders, except for such
responsibilities and obligations which, of necessity, apply only to the Holders
of Notes.
The Issuer, each Eligible Lender Trustee and the Indenture Trustee, as
the case may be, hereby covenant and agree with the purchasers and Holders of
the Notes as follows:
SECTION 6.1 Administration of the Program.
The Issuer shall require the Administrator to administer, operate and
perform all acts and things required to administer, operate and maintain the
Program in strict compliance with the law, including, without limitation, the
Higher Education Act, in such manner as to insure that the Program and the
Financed Student Loans will benefit, to the optimum extent, from any Guarantee,
and Interest Subsidy Payments and Special Allowance Payments (to the extent, if
any, allowed) in respect of Student Loans pursuant to the Higher Education Act
or other applicable federal statutes. The Indenture Trustee hereby acknowledges
the authority of the Administrator under the terms of the Administration
Agreement to take all action necessary to administer, operate and perform all
acts and things required to administer, operate and maintain the Program in
strict compliance with the law.
SECTION 6.2 Contracts of Guarantee.
So long as any Notes are Outstanding and unpaid, each Eligible Lender
Trustee and the Indenture Trustee (a) will, from and after the date on which
each Eligible Lender Trustee and the Indenture Trustee shall have succeeded to
the rights and interests of any Seller under a Contract of Guarantee covering a
Financed Student Loan, maintain such Contract of Guarantee and diligently
enforce their rights thereunder; (b) will enter into such other similar or
supplemental agreements as the Issuer shall determine are required to maintain
benefits for all Financed Student Loans covered thereby and shall notify in
writing each Eligible Lender Trustee and/or the Indenture Trustee; and (c) will
not voluntarily consent to or permit any rescission of or consent to any
amendment to or otherwise take any action under or in connection with any such
Contract of Guarantee or any similar or supplemental agreement which in any
manner will materially adversely affect the rights of the Holders.
SECTION 6.3 Acquisition, Collection and Assignment of Student Loans;
Compliance with Law.
The Issuer shall Finance directly, or indirectly through an Eligible
Lender Trustee, only Student Loans with moneys under this Indenture and shall
diligently cause to be collected all principal and interest payments on each
Financed Student Loan, and grants,
44
<PAGE> 51
subsidies, donations, Guarantee Payments, Interest Subsidy Payments, Special
Allowance Payments (to the extent, if any, allowed) and all defaulted payments
Guaranteed by a Guarantee Agency or the Secretary of Education which relate to
any Financed Student Loan. The Issuer shall also make, or cause to be made by
each Servicer, every effort to perfect the claims of the Issuer and each
Eligible Lender Trustee for payment from the Guarantee Agency or the Secretary
of Education, as soon as possible, of all amounts related to each Financed
Student Loan. The Issuer and each Eligible Lender Trustee, at the Issuer's
written request, shall assign or cause to be assigned each Financed Student Loan
for payment of Guarantee benefits at the earliest date permitted under
applicable law and regulations. The Issuer and each Eligible Lender Trustee, at
the Issuer's written request, shall comply with all State and federal statutes,
rules and regulations which apply to the Program and to Financed Student Loans,
including, the Higher Education Act.
SECTION 6.4 Enforcement of Financed Student Loans.
The Issuer and each Eligible Lender Trustee, at the Issuer's written
request, shall cause to be diligently taken all reasonable steps, actions and
proceedings necessary for the enforcement of all terms, covenants and conditions
of all Financed Student Loans and agreements in connection therewith, including
the prompt payment of all principal and interest payments and all other amounts
due thereunder. The Issuer and each Eligible Lender Trustee, at the Issuer's
written request, shall at all times, to the extent permitted by law, defend,
enforce, preserve and protect the rights and privileges of the Issuer, each such
Eligible Lender Trustee and of the Holders under or with respect to each
Financed Student Loan and agreement in connection therewith. The Issuer and each
Eligible Lender Trustee shall not consent, or agree to or permit any amendment
or modification of any Financed Student Loan or agreement in connection
therewith which will in any manner materially adversely affect the rights or
security of the Holders or of any Exchange Counterparty under this Indenture or
the Guarantee of such Financed Student Loans. Nothing in this Indenture shall be
construed to prevent the Issuer or an Eligible Lender Trustee from permitting a
student borrower to settle a default or cure a delinquency on any Financed
Student Loan on such terms as shall be required by law or consolidate any
Financed Student Loan with another Lender.
SECTION 6.5 Enforcement of Master Servicing Agreement and Servicing
Agreements; Removal of Servicer.
The Issuer shall cause to be diligently enforced and taken all
reasonable steps, actions and proceedings necessary for the enforcement of all
terms, covenants and conditions of the Master Servicing Agreement and the
Servicing Agreements, including the prompt payment of all principal and interest
payments, all Interest Subsidy Payments, all Special Allowance Payments (to the
extent, if any, allowed), all defaulted payments Guaranteed by a Guarantee
Agency or the Secretary of Education which relate to any Financed Student Loan
and all other amounts due the Issuer thereunder. The Issuer shall at all times,
to the extent permitted by law, cause to be defended, enforced, preserved and
protected the rights and interests of the Issuer and of the Holders under or
with respect to the Master Servicing Agreement and the Servicing Agreements. The
Issuer shall not consent or agree to or permit any amendment or modification of
the Master Servicing Agreement or any Servicing Agreement which will in any
manner materially adversely affect the rights or security of the Holders under
this Indenture. Upon termination or expiration of the Master Servicing Agreement
or any Servicing Agreement, the
45
<PAGE> 52
Issuer shall take all appropriate steps to maintain adequate provision for the
administration, servicing and collection of the Financed Student Loans. The
Issuer shall notify the Indenture Trustee and each Rating Agency if either a
successor Master Servicer or Servicer is appointed and shall send a copy of any
amendment or supplement to the Master Servicing Agreement or any Servicing
Agreement in connection therewith.
SECTION 6.6 Enforcement of Purchase Agreements.
The Issuer shall cause to be diligently enforced and taken all
reasonable steps, actions and proceedings necessary for the enforcement of all
terms, covenants and conditions of its rights under any Purchase Agreements,
including warranties with respect to the Student Loans and Guarantees thereof
and including the prompt payment of all amounts due the Servicers and the Issuer
thereunder, to the extent of the Issuer's rights under such Purchase Agreements.
The Issuer shall at all times, to the extent permitted by law, cause to be
defended, enforced, preserved and protected the rights and interests of the
Issuer, of the Holders and of each Exchange Counterparty under or with respect
to the Purchase Agreements. The Issuer shall not consent or agree to or permit
any amendment or modification of any of its rights under a Purchase Agreement
which will in any manner materially adversely affect the rights or security of
the Holders or of any Exchange Counterparty under this Indenture.
SECTION 6.7 Books of Account; Annual Audit.
The Issuer shall cause to be kept and maintained, or cause the
Indenture Trustee to keep and maintain, proper books of record and account
relating to the Program in which full, true and correct entries will be made of
all dealings or transactions of or in relation to the Program, the proceeds of
the Notes, the Available Funds and all Funds and Accounts. Such books of record
and account shall be made available for inspection by the Indenture Trustee (or
the Issuer, as the case may be) and by any Holder of more than ten percent (10%)
of the aggregate principal amount of Notes Outstanding, at reasonable hours and
under reasonable circumstances. Within one hundred twenty (120) days after the
end of each Fiscal Year, the Issuer shall cause such books of record and account
to be audited by a firm of independent certified public accountants of national
reputation. A copy of each audit report, annual balance sheet and income and
expense statement showing in reasonable detail the financial condition of the
Program as of the close of each Fiscal Year, summarizing in reasonable detail
the income and expenses for such year, and containing such other reviews or
reports as may be required by the Higher Education Act, including a report of
the transactions relating to the Funds and Accounts, shall be filed promptly
with the Indenture Trustee and shall be available for inspection by any Holder.
Any financial statements prepared in connection with the foregoing may be
presented on a consolidated or combined basis with other programs of the Issuer,
provided that such financial statements for the Program are separately
identified and only to the extent that such basis of reporting is not
inconsistent with that required by this Section 6.7.
The Issuer, pursuant to Section 314(a) of the Trust Indenture Act,
shall:
(a) file with the Indenture Trustee, within fifteen (15) days after the
Issuer is required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Issuer may
46
<PAGE> 53
be required to file with the Commission pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934; or, if the Issuer is not required to
file information, documents or reports pursuant to either of such Sections, then
it shall file with the Indenture Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission, such
of the supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations;
(b) file with the Indenture Trustee and the Commission, in accordance
with the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to compliance by
the Issuer, as the case may be, with the conditions and covenants of this
Indenture as may be required from time to time by such rules and regulations;
and
(c) transmit within thirty (30) days after the filing thereof with the
Indenture Trustee, in the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act, such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (a) and (b) of
this paragraph as may be required by the rules and regulations prescribed from
time to time by the Commission.
SECTION 6.8 Punctual Payment of Notes.
The Issuer shall duly and punctually pay, or cause to be paid, the
principal of and interest on each Note on the dates, at the places and in the
manner provided in the Notes according to the true intent and meaning thereof,
but only from the Trust Estate, and the Issuer shall faithfully do and perform
and at all times fully observe and keep any and all of its covenants,
undertakings, stipulations and provisions contained in the Notes and this
Indenture.
SECTION 6.9 Further Assurances.
The Issuer and each Eligible Lender Trustee, at the written request of
the Issuer, shall at any and all times, make, do, execute, acknowledge, file,
record and deliver all and every such further resolutions, indentures, acts,
deeds, conveyances, assignments, transfers, assurances and other documents,
including financing statements and continuation statements, as may be necessary
or desirable for the better assuring, conveying, granting, assigning, perfecting
and confirming of any and all of the Trust Estate hereby pledged or charged with
or assigned to the payment of the Notes, or intended so to be, or which the
Issuer or any Eligible Lender Trustee may hereafter become bound to pledge or
charge or assign.
SECTION 6.10 Protection of Security.
The Issuer is duly authorized under its Article of Association, its
By-Laws and applicable law to own student loan notes, directly or indirectly
through an Eligible Lender Trustee, and the other assets pledged to the payment
of the Notes and to pledge, to grant, or cause to be granted, a lien on and a
security interest in, and to assign, or cause to be assigned, the Trust Estate
in the manner and to the extent provided in this Indenture. The Trust Estate is
and will be free and clear of any pledge, lien, security interest, charge or
encumbrance thereon or with respect thereto prior to, or of equal rank with, the
pledge, lien, security interest and
47
<PAGE> 54
assignment created by this Indenture, except as otherwise expressly provided or
permitted herein, and all action on the part of the Issuer to that end has been
duly and validly taken. The Issuer is duly authorized under its Articles of
Association, its By-Laws and applicable law to enter into this Indenture. The
Notes are and will be legal, valid and binding limited obligations of the Issuer
enforceable in accordance with their respective terms and the terms of this
Indenture and each Supplemental Indenture. The Issuer and each Eligible Lender
Trustee shall at all times, to the extent permitted by law, defend, preserve and
protect the pledge of, lien on, security interest in and assignment of the Trust
Estate, the priority of such pledge, lien, security interest and assignment and
all the rights of the Holders and each Exchange Counterparty thereto against all
claims and demands of all persons whomsoever. The pledge of, lien on, security
interest in and assignment of the Trust Estate made hereby includes the pledge
of, any lien on, security interest in and assignment of any contract or any
evidence of indebtedness or other right of the Issuer and each Eligible Lender
Trustee to receive any of the same, whether now existing or hereafter coming
into existence or acquired and the proceeds thereof, including, without
limitation, all Contracts of Guarantee covering Financed Student Loans, all
Purchase Agreements, the Master Servicing Agreement and all Servicing
Agreements.
SECTION 6.11 No Encumbrances.
The Issuer and each Eligible Lender Trustee shall not create, or permit
the creation of, any pledge, lien, charge or encumbrance upon the Trust Estate
except only as provided in or permitted by this Indenture. The Issuer shall not
issue any obligations, notes, securities or other evidences of indebtedness,
other than the Notes as permitted by this Indenture secured by a pledge of the
Trust Estate creating a lien or charge on the Trust Estate equal or superior to
the lien of this Indenture; provided, that nothing in this Indenture shall
prevent the Issuer from issuing evidences of indebtedness secured by a pledge of
the Trust Estate subordinate in priority to that of the Notes, or secured by a
pledge of the Trust Estate arising on or after such date as the pledge of the
Trust Estate hereunder shall be discharged and satisfied as provided in this
Indenture, or from issuing notes, Notes or other evidences of indebtedness of
the Issuer (whether or not under other indentures in order to fund the Program
or other programs of the Issuer) secured by assets and revenues of the Issuer
other than the Trust Estate.
SECTION 6.12 Compliance with Indenture.
The Issuer shall not issue, or permit to be issued, any Notes in any
manner other than in accordance with the provisions of this Indenture and shall
not suffer or permit any Event of Default to occur under this Indenture, but
shall faithfully observe and perform all the covenants, conditions and
requirements hereof. The Issuer, for itself, its successors and assigns,
represents, covenants and agrees with the Holders, as a material inducement to
the purchase and holding of the Notes, that so long as any of the Notes remain
Outstanding and the principal thereof or interest thereon is unpaid or
unprovided for, it shall faithfully perform all of the covenants and agreements
contained in this Indenture and the Notes.
SECTION 6.13 Limitation on Program Operating Expenses.
The Issuer shall not permit the Program Operating Expenses described in
clauses (iv) and (v) of the definition thereof to exceed in any Fiscal Year an
amount equal to 0.10% (ten basis points) of the average aggregate outstanding
principal balance of the Financed Student
48
<PAGE> 55
Loans during such Fiscal Year, unless (i) the Issuer shall have delivered to the
Indenture Trustee and each Rating Agency a revised statement of such Program
Operating Expenses and such supporting data as each Rating Agency may reasonably
request, (ii) each such Rating Agency shall have confirmed that such revised
statement will not adversely affect the rating of such Rating Agency on the
Notes and (iii) the Issuer shall have delivered a Cash Flow Statement giving
effect to such revised Program Operating Expenses satisfactory to the Indenture
Trustee. Thereafter, such Program Operating Expenses shall not exceed those
projected in such revised statement until a further revised statement is
delivered and approved as aforesaid.
SECTION 6.14 Notice of Additional Guarantee Agencies or Servicers.
The Issuer shall give notice to each Rating Agency of the appointment
of (i) any Guarantee Agency in addition to the Guarantee Agencies set forth on
Schedule I hereto and (ii) any Servicer in addition to the Servicers set forth
on Schedule II hereto.
SECTION 6.15 Issuer to Furnish Indenture Trustee Names and Addresses of
Holders.
In accordance with Section 312(a) of the Trust Indenture Act, the
Issuer shall furnish or cause to be furnished to the Indenture Trustee:
(a) semi-annually with respect to each Series of Notes on January 15
and July 15 of each year or upon such other dates as are set forth in or
pursuant to a resolution of the board of directors of the Issuer or a
Supplemental Indenture, a list, in each case in such form as the Indenture
Trustee may reasonably require, of the names and addresses of Holders as of the
applicable date, and
(b) at such other times as the Indenture Trustee may request in
writing, within 30 days after the receipt by the Issuer of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished, provided, however, that so long as the Indenture
Trustee is the Registrar no such list shall be required to be furnished.
SECTION 6.16 Undertaking for Costs.
The Issuer and the Indenture Trustee agree, and each Holder by such
Holder's acceptance of an Note shall be deemed to have agreed, that any court
may, in its discretion, require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Indenture Trustee for
any action taken or omitted by it as Indenture Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may, in its discretion, assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.16 shall not apply to (i) any suit
instituted by the Indenture Trustee, (ii) any suit instituted by any Holder, or
group of Holders, in each case holding in the aggregate more than ten percent
(10%) of the Outstanding principal amount of the Notes or (iii) any suit
instituted by any Holder for the enforcement of the payment of the principal of,
premium, if any, or interest on any Note in accordance with Section 8.5 hereof.
49
<PAGE> 56
ARTICLE VII
Concerning the Indenture Trustee
SECTION 7.1 Appointment of, Acceptance by, and Duties of Indenture
Trustee; Qualification; Resignation; Removal; Successor.
(a) Appointment, Acceptance and Duties. The Issuer hereby appoints
Firstar Bank, National Association to act as the initial Indenture Trustee
hereunder. Firstar Bank, National Association hereby accepts such appointment
and the trusts created under this Indenture, and agrees to perform said trusts,
but only upon and subject to the following terms and conditions, to all of which
the Holders agree, such agreement to be evidenced with respect to the Holders by
their acceptance of the Notes:
(i) Except during the continuance of an Event of Default,
(A) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this Indenture, and
no implied covenants or obligations shall be read into this Indenture against
the Indenture Trustee; and
(B) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Indenture Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to the Indenture
Trustee, the Indenture Trustee shall be under a duty to examine the same to
determine whether or not they conform as to form with the requirements of this
Indenture and whether or not they conform to the requirements of this Indenture.
(ii) In case an Event of Default has occurred and is continuing,
the Indenture Trustee shall exercise such of the rights and powers vested in it
by this Indenture, and shall use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his/her own affairs.
(iii) No provisions of this Indenture shall be construed to relieve
the Indenture Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(A) this subsection shall not be construed to affect
the limitation of the Indenture Trustee's duties and obligations provided in
subparagraph (i)(A) of this Section or the Indenture Trustee's right to rely on
the truth of statements and the correctness of opinions as provided in
subparagraph (i)(B) of this Section;
(B) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by any one of its officers, unless it shall
be established that the Indenture Trustee was negligent in ascertaining the
pertinent facts;
(C) the Indenture Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of
50
<PAGE> 57
the Holders of not less than a majority in principal amount of the Notes then
Outstanding relating to the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee, or exercising any trust or
power conferred upon the Indenture Trustee, under this Indenture; and
(D) no provision of this Indenture shall require the
Indenture Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it (with the exception of any action
required to be taken under Section 8.8 hereof).
(iv) Before taking any action hereunder requested by any Holder,
the Indenture Trustee may require that it be furnished an indemnity bond or
other indemnity satisfactory to it in its sole discretion by the Holder for the
reimbursement of all expenses to which it may be put and to protect it against
all liability, except liability which results from the negligence or misconduct
of the Indenture Trustee, by reason of any action so taken by the Indenture
Trustee;
(v) Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee shall be subject to the provisions
of this Section 7.1 and to the provisions of the Trust Indenture Act.
(b) Qualification. The Indenture Trustee, including any successor
Indenture Trustee shall at all times be a trust company or bank having the
powers of a trust company within the state in which it is located, organized and
doing business under the laws of the United States of America, any state thereof
or the District of Columbia, eligible under Section 310(a) of the Trust
Indenture Act to act as Indenture Trustee under an indenture qualified under the
Trust Indenture Act and have a combined capital and surplus (computed in
accordance with Section 310(a)(2) of the Trust Indenture Act) of at least Ten
Million Dollars ($10,000,000.). The Indenture Trustee shall meet all the
requirements of law for the performance of the duties of the Indenture Trustee
specified herein, shall at all times maintain a rating from any one of the
Rating Agencies in one of their three highest categories (except that Firstar
Bank, National Association shall not be required to maintain such rating).
(c) Resignation. The Indenture Trustee and any successor to the
Indenture Trustee may resign and be discharged from the trusts created by this
Indenture by giving to the Issuer notice in writing which notice shall specify
the date on which such resignation is to take effect and which date shall not be
sooner than sixty (60) days after the date of giving such notice. Such
resignation shall take effect on the day specified in such notice, if a
successor Indenture Trustee shall have been appointed pursuant to Section 7.1(e)
hereof and is qualified to be the Indenture Trustee under the requirements of
this Indenture. If no successor Indenture Trustee has been appointed by the date
specified or within a period of sixty (60) days from the receipt of the notice
by the Issuer, whichever period is the longer, the resigning Indenture Trustee
may request a court of competent jurisdiction to (i) require the Issuer to
appoint a successor, as provided in Section 7.1(e) hereof, within three (3) days
of the receipt of citation or notice by the court, or (ii) appoint an Indenture
Trustee having the qualifications provided in Section 7.1(e) hereof. In no
51
<PAGE> 58
event may the resignation of the Indenture Trustee be effective until a
qualified successor Indenture Trustee shall have been selected and appointed.
(d) Removal. If at any time,
(1) the Indenture Trustee has or shall fail to comply with the
obligations imposed on it under Section 310(b) of the Trust Indenture Act with
respect to the Notes of any Series after written request therefor by the Issuer
or any Holder of such Series who has been a bona fide Holder of a Note of such
Series for at least six (6) months, or
(2) the Indenture Trustee shall cease to be eligible under Section
7.1(b) hereof and shall fail to resign after written request therefor by the
Issuer or any such Holder, or
(3) the Indenture Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Indenture Trustee or of
its property shall be appointed or any public officer shall take charge or
control of the Indenture Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, (i) the Issuer, by or pursuant to a resolution of its board of directors,
may remove the Indenture Trustee with respect to all Notes or the Notes of such
Series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder
who has been a bona fide Holder of a Note of such Series for at least six (6)
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Indenture Trustee with
respect to all Notes of such Series and the appointment of a successor Indenture
Trustee or Indenture Trustees.
The Indenture Trustee may be removed at any time with or without cause
by the written direction or upon affirmative vote of the Holders of a majority
in aggregate principal amount of the Directing Notes then Outstanding or their
attorneys-in-fact duly authorized.
(e) Successor. In the event of resignation, removal, ineligibility,
disability or refusal to act of the Indenture Trustee, a successor may be
appointed by the Holders of not less than a majority in aggregate principal
amount of the Directing Notes then Outstanding by an instrument or concurrent
instruments in writing signed by such Holders or their attorneys-in-fact duly
authorized provided, nevertheless, that in case at any time there shall be a
vacancy in the office of the Indenture Trustee hereunder, the Issuer, by an
instrument in writing shall appoint a successor to fill such vacancy until a new
Indenture Trustee shall be appointed by the Holders of the Directing Notes as
above authorized; and any such successor Indenture Trustee appointed by the
Issuer shall be superseded, immediately and without further act, by the new
Indenture Trustee appointed by the Holders of the Directing Notes. No
resignation or removal of the Indenture Trustee shall be effective until a
successor Indenture Trustee has been appointed and has qualified under this
Section 7.1 and the predecessor Indenture Trustee has been paid all money then
due it under this Indenture.
Any successor Indenture Trustee shall meet the qualifications of this
Section 7.1. Such successor Indenture Trustee shall execute, acknowledge and
deliver to its predecessor and to the Issuer an instrument in writing accepting
such appointment hereunder, and thereupon such successor Indenture Trustee,
without any further act, deed or conveyance, shall become fully
52
<PAGE> 59
vested with all the rights, powers, trusts, duties and obligations of its
predecessor in trust hereunder, with like effect as if originally named as
Indenture Trustee, but such predecessor shall, nevertheless, on the written
request of the Issuer or such successor execute and deliver an instrument
transferring to such successor Indenture Trustee all rights, powers, trusts,
duties and obligations of such predecessor in trust hereunder and shall deliver
all balances (including lawful money of the United States, Eligible Investments,
Financed Student Loans and all evidences of indebtedness, securities and
certificates relating thereto) held by it to such successor Indenture Trustee,
together with an accounting of balances held by the predecessor Indenture
Trustee hereunder. The successor Indenture Trustee shall have no responsibility
for the acts of the predecessor Indenture Trustee. Upon acceptance of
appointment by the successor Indenture Trustee as provided in this Section 7.1,
the Issuer shall give written notice to each Holder within ten (10) days
thereafter.
Any corporation or association into which the Indenture Trustee may be
merged or with which it may be consolidated, or any corporation or association
resulting from any merger or consolidation to which the Indenture Trustee shall
be a party, or any corporation or association to which the Indenture Trustee may
sell or transfer all or substantially all of its corporate trust business, shall
be the successor Indenture Trustee under this Indenture without the execution or
filing of any paper or any further act on the part of the parties hereto,
anything herein to the contrary notwithstanding, provided such Issuer or
association meets the qualifications of this Section 7.1.
The Holders agree to the appointment of the Indenture Trustee under
this Indenture and the performance by the Indenture Trustee of the trusts
imposed upon the Indenture Trustee, but only upon the terms and conditions set
forth in this Indenture, such agreement of the Holders being evidenced with
respect to the Holders by their acceptance of the Notes.
SECTION 7.2 Appointment of Co-Indenture Trustee.
It is the purpose of this Indenture that there shall be no violation of
any law of any jurisdiction (including in particular the Trust Indenture Act, if
and when applicable, and the law of the State) denying or restricting the right
of banking corporations or associations to transact business as the Indenture
Trustee in such jurisdiction. It is recognized that in case of litigation under
this Indenture or any Financed Student Loan or related agreement, and in
particular in case of the enforcement thereof on default, or in case of a
conflict of interest, or in case the Indenture Trustee deems that by reason of
any present or future law of any jurisdiction it may not exercise any of the
powers, rights or remedies herein granted to the Indenture Trustee or hold title
to the properties, in trust, as herein granted, or take any other action which
may be desirable or necessary in connection therewith, it may be necessary that
the Indenture Trustee appoint an additional individual or institution as a
separate or co-Indenture Trustee. The following provisions of this Section are
intended to accomplish these ends.
The Indenture Trustee may appoint a co-Indenture Trustee under this
Section 7.2 with the consent of the Issuer. In the event that the Indenture
Trustee so appoints an individual or institution as a separate or co-Indenture
Trustee, each and every remedy, power, right, duty, obligation, claim, demand,
cause of action, immunity, estate, title, interest, pledge and security interest
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Indenture Trustee with respect thereto shall be conferred or
imposed upon and exercised or
53
<PAGE> 60
performed by the Indenture Trustee, or the Indenture Trustee and such separate
or co-Indenture Trustee jointly, except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed the
Indenture Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such remedy, power, right, duty, obligation, claim, demand,
cause of action, immunity, estate, title, interest, pledge and security interest
shall be exercised and performed by such separate or co-Indenture Trustee but
shall be exercised only to the extent necessary to enable such separate or
co-Indenture Trustee to exercise such powers, rights and remedies, and every
covenant, duty and obligation necessary to the exercise thereof by such separate
or co-Indenture Trustee shall run to and be enforceable by either of them.
Should any instrument in writing from the Issuer or each Eligible
Lender Trustee be required by the separate or co-Indenture Trustee so appointed
by the Indenture Trustee for more fully and certainly vesting in and confirming
to him or its such properties, rights, powers, trusts, duties and obligations,
any and all such instruments in writing shall, on request, be executed,
acknowledged and delivered by the Issuer or each Eligible Lender Trustee. In
case any separate or co-Indenture Trustee, or a successor to either, shall die,
become incapable of acting, resign or be removed, all the estates, properties,
rights, powers, trusts, duties and obligations of such separate or co-Indenture
Trustee, so far as permitted by law, shall vest in and be exercised by the
Indenture Trustee until the appointment of a new Indenture Trustee or a
successor to such separate or co-Indenture Trustee.
SECTION 7.3 Certain Rights and Obligations of the Indenture Trustee.
The following paragraphs (a) through (j), inclusive, of this Section
7.3 are subject to Sections 315(a) through 315(d) of the Trust Indenture Act.
(a) The Indenture Trustee (i) may execute any of the trusts or powers
hereof and perform any of its duties by or through attorneys, agents, receivers
or employees appointed by the Indenture Trustee in the exercise of reasonable
care, (ii) shall be entitled to the advice of counsel concerning all matters of
trusts hereof and duties hereunder, and (iii) may pay reasonable compensation in
all cases to all of those attorneys, agents, receivers and employees reasonably
employed by it in connection with the trusts hereof. The Indenture Trustee may
act upon the opinion or advice of an attorney (who may be the attorney or
attorneys for the Issuer) approved by the Indenture Trustee in the exercise of
reasonable care. The Indenture Trustee shall not be responsible for any loss or
damage resulting from any action taken or omitted to be taken in good faith in
reliance upon that opinion or advice. In addition, the Indenture Trustee shall
not be answerable for the default or misconduct of any such attorney, agent or
employee selected by it with reasonable care.
(b) Except as provided herein, the Indenture Trustee shall have no
responsibility or duty with respect to the application of any moneys paid to the
Issuer or to the Servicers.
(c) Except for its certificate of authentication on the Notes and
pursuant to Section 7.1(a)(i)(A), the Indenture Trustee shall not be responsible
for or have any liability for:
(i) any act of the Issuer or any Eligible Lender Trustee;
(ii) any recital in this Indenture or in the Notes;
54
<PAGE> 61
(iii) the validity, priority, recording, rerecording, filing or
refiling of this Indenture or any Supplemental Indenture issued hereunder or of
any other document in connection herewith;
(iv) any instrument or document of further assurance or collateral
assignment;
(v) any financing statements, amendments thereto, or continuation
statements;
(vi) the validity of the execution by the Issuer of this Indenture,
any Supplemental Indenture or instruments or documents of further assurance;
(vii) the sufficiency of the security for the Notes issued
hereunder or intended to be secured hereby; and
(viii) the maintenance of the security hereof.
(d) The Indenture Trustee shall be protected in acting upon any notice,
resolution, request, consent, order, certificate, report, appraisal, opinion, or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties. Any action taken by the Indenture
Trustee pursuant to this Indenture upon the request of any Person who is a
Holder at the time of making the request or giving the authority or consent
shall be conclusive and binding upon all future Holders of the same Note and of
Notes issued in exchange therefor or in place thereof.
(e) Whenever in the administration hereof the Indenture Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering, or omitting any action hereunder, the Indenture Trustee (unless other
evidence be herein specifically prescribed), in the absence of bad faith on its
part, may, but shall not be obligated to, rely upon a certificate signed by an
Authorized Officer of the Issuer. Prior to the occurrence of a default or Event
of Default hereunder, the Indenture Trustee may accept a similar certificate to
the effect that any particular dealing, transaction or action is necessary or
expedient; provided, that the Indenture Trustee in its discretion may require
and obtain any further evidence which it deems to be necessary or advisable;
and, provided further, that the Indenture Trustee shall not be bound to secure
any further evidence.
(f) At any reasonable time, the Indenture Trustee and its duly
authorized agents, attorneys, experts, engineers, accountants and
representatives (i) may inspect and copy fully all books, papers and records of
the Issuer pertaining to the Notes, and (ii) may take any memoranda from and in
regard thereto as the Indenture Trustee may desire.
(g) The Indenture Trustee shall not be required to give any bond or
surety with respect to the execution of these trusts and powers or otherwise.
(h) Notwithstanding anything contained elsewhere in this Indenture, the
Indenture Trustee may demand any showings, certificates, reports, opinions,
appraisals and other information, and any corporate action and evidence thereof,
in addition to that required by the terms hereof, as a condition to the
authentication of any Notes or the taking of any action
55
<PAGE> 62
whatsoever within the purview of this Indenture, if the Indenture Trustee deems
it to be desirable for the purpose of establishing the right of the Issuer to
the authentication of any Notes or the right of any person to the taking of any
other action by the Indenture Trustee; provided, that the Indenture Trustee
shall not be required to make that demand and shall be protected by the
provisions hereof if such demand is not made.
(i) Unless otherwise provided herein, all moneys received by the
Indenture Trustee under this Indenture shall be held in trust for the purpose
for which those moneys were received, until those moneys are used, applied or
invested as provided herein; provided, however, that those moneys need to be
segregated from other moneys, except to the extent required by this Indenture or
by law. The Indenture Trustee shall not have any liability for interest on any
moneys received hereunder, except to the extent expressly provided herein or
agreed in writing with the Issuer.
(j) Any opinions, certificates and other instruments and documents for
which provision is made in this Indenture may be accepted by the Indenture
Trustee, in the absence of bad faith on its part, as conclusive evidence of the
facts and conclusions stated therein and shall be full warrant, protection and
authority to the Indenture Trustee for its actions taken hereunder. In all cases
the Indenture Trustee shall be entitled to rely conclusively upon the notice of
the rate of interest on the Notes announced by the Calculation Agent pursuant to
Section 2.03(a) of the Terms Supplement and any applicable subsections
thereunder.
SECTION 7.4 Evidence of Compliance with Conditions Precedent;
Examination of Evidence; Evidence of Rights of Holders.
The Issuer will furnish, or will cause to be furnished, to the
Indenture Trustee any evidence of compliance with the conditions precedent, if
any, provided in this Indenture (including any covenants compliance with which
constitutes a condition precedent) which relate to any action to be taken by the
Indenture Trustee at the request or upon the application of the Issuer. The
Indenture Trustee shall examine such evidence and any evidence furnished to it
pursuant to any other provisions of this Indenture to determine whether or not
such evidence conforms to the requirements of this Indenture.
Any request, consent or other instrument required by this Indenture to
be signed and executed by Holders may be in any number of concurrent writings of
substantially similar tenor and may be signed or executed by such Holders in
person or by agent or agents duly appointed in writing. Proof of the execution
of any such request, consent or other instrument or of a writing appointing any
such agent, or of the ownership of Notes, shall be sufficient for any purpose of
this Indenture and shall be conclusive in favor of the Indenture Trustee, the
Issuer if made in the following manner:
(a) The fact and date of the execution by any person of any such
request, consent or other instrument or writing may be proved by the affidavit
of a witness of such execution or by the certificate of any notary public or
other officer of any jurisdiction, authorized by the laws thereof to take
acknowledgments of deeds, certifying that the person signing such request,
consent or other instrument or writing acknowledged to him the execution
thereof.
56
<PAGE> 63
(b) The ownership of Notes shall be proved by the Note registry
maintained by the Indenture Trustee pursuant to Section 2.4 hereof. The fact and
the date of execution of any request, consent or other instrument and the amount
and distinguishing numbers of Notes held by the person so executing such
request, consent or other instrument may also be proved in any other manner
which the Indenture Trustee may deem sufficient. The Indenture Trustee may
nevertheless, in its discretion, require further proof in cases where it may
deem further proof desirable.
Any request, consent or vote of the Holder of any Note shall bind every
future Holder of the same Note and the Holder of any Note issued in exchange
therefor or in lieu thereof, in respect of anything done or suffered to be done
by the Indenture Trustee, the Issuer in pursuance of such request, consent or
vote.
In determining whether the Holders of the requisite aggregate principal
amount of Notes have concurred in any demand, request, direction, consent or
waiver under this Indenture, Notes which are owned by the Issuer or by any other
direct or indirect obligor on the Notes, or by any person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
the Issuer or any other direct or indirect obligor on the Notes, shall be
disregarded and deemed not to be Outstanding for the purpose of any such
determination, provided that, for the purpose of determining whether the
Indenture Trustee shall be protected in relying on any such demand, request,
direction, consent or waiver, only Notes which the Indenture Trustee knows to be
so owned shall be disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding for the purposes of this paragraph if the
pledgees shall establish to the satisfaction of the Indenture Trustee the
pledgee's right to vote such Notes and that the pledgee is not a person directly
or indirectly controlling or controlled by, or under direct or indirect common
control with, the Issuer or any other direct or indirect obligor on the Notes.
In case of a dispute as to such right, any decision by the Indenture Trustee
taken upon the advice of counsel shall provide full protection to the Indenture
Trustee.
SECTION 7.5 Proofs of Claims and Other Papers and Documents.
The Indenture Trustee may file such proofs of claims and other papers
or documents as may be necessary or advisable in order to have claims of the
Indenture Trustee and of the Holders of the Notes allowed in any judicial
proceedings relative to the Notes and the security therefor.
SECTION 7.6 Dealing with the Issuer.
The Indenture Trustee, each Eligible Lender Trustee and their
respective directors, officers, employees or agents, may in good faith buy,
sell, own, hold and deal in any of the Notes, and may join in any action which
any Holder of a Note may be entitled to take, with like effect as if the
Indenture Trustee or such Eligible Lender Trustee were not the Indenture Trustee
or an Eligible Lender Trustee, respectively, under this Indenture. The Indenture
Trustee or any Eligible Lender Trustee may in good faith hold any other form of
indebtedness of the Issuer, own, accept or negotiate any drafts, bills of
exchange, acceptances or obligations of the Issuer, and make disbursements for
the Issuer and enter into any commercial or business arrangement therewith,
including, without limitation, acting as Servicer and/or Seller of Financed
Student Loans under the Program. The Indenture Trustee may act as depository
for, and permit
57
<PAGE> 64
any of its officers or directors to act as a member of, or act in any other
capacity in respect to, any committee formed to protect the rights of the
Holders or to effect or aid in any reorganization growing out of the enforcement
of the Notes or of this Indenture. Notwithstanding the foregoing, the Indenture
Trustee shall not be responsible for servicing any Financed Student Loans unless
the Indenture Trustee, acting at its sole discretion, elects to enter into a
Servicing Agreement with the Issuer or the Administrator.
SECTION 7.7 Fees and Reimbursement of Indenture Trustee.
The Issuer shall promptly pay to the Indenture Trustee from time to
time, but solely from the Trust Estate, customary compensation for all services
rendered by it hereunder, and also all its reasonable expenses, charges, and
other disbursements and those of its attorneys, agents, and employees incurred
in and about the administration and execution of the trusts hereby created. For
purposes hereof, fees for ordinary services provided for by its applicable
standard fee schedules with respect to such services, in the absence of a
written agreement between the Issuer and the Indenture Trustee with respect to
its compensation for ordinary services rendered hereunder, shall be deemed to be
customary. As security for such payment, each Eligible Lender Trustee and the
Issuer in the granting clauses hereof or a Supplemental Indenture, as the case
may be, has pledged, and granted unto the Indenture Trustee a security interest
in, the Trust Estate, prior to any rights of the Holders; provided, however, so
long as no Event of Default under Section 8.1(1) hereof exists, such pledge and
security interest shall secure payment of the fees and expenses of the Indenture
Trustee incurred hereunder in an amount not to exceed in any one calendar year
$100,000; provided further, however, that if an Event of Default under Section
8.1(1) exists, such pledge and security interest shall secure payment of the
fees and expenses of the Indenture Trustee incurred hereunder without limitation
as to amount so long as such Event of Default continues to exist.
SECTION 7.8 Fees and Reimbursements of Each Eligible Lender Trustee.
The Issuer shall promptly pay to each Eligible Lender Trustee from time
to time customary compensation for all services rendered by it under this
Indenture and each Supplemental Indenture hereto and under the applicable
Eligible Lender Trust Agreement, and also all of its respective reasonable
expenses, charges and other disbursements and those of its attorneys, agents and
employees incurred relating to the administration and execution of the trusts
created by this Indenture and further trusts created by any Supplemental
Indenture. For purposes hereof, fees for ordinary services provided for by its
standard fee schedules with respect to such services, in the absence of a
written agreement between the Issuer and an Eligible Lender Trustee or with
respect to its compensation for ordinary services rendered hereunder and under
the Eligible Lender Trust Agreement shall be deemed to be customary. As security
for such payment, each Eligible Lender Trustee and the Issuer in the granting
clauses hereof or in a Supplemental Indenture, as the case may be, has pledged
and granted unto the Indenture Trustee for the fees and expenses of each
Eligible Lender Trustee hereunder and under any Supplemental Indenture and under
the applicable Eligible Lender Trust Agreement a security interest in the Trust
Estate hereunder, prior to any rights of the Holders of Notes or; provided,
however, so long as no Event of Default hereunder exists, such pledge and
security interest shall secure payment of such fees and expenses of each
Eligible Lender Trustee incurred with respect to this Indenture and any
Supplemental Indenture hereto in an amount not to exceed in any one calendar
year $100,000; provided further, however, that if an Event of Default hereunder
exists, such pledge
58
<PAGE> 65
and security interest shall secure payment of such fees and expenses, without
limitation as to amount, of each Eligible Lender Trustee so long as such Event
of Default continues to exist.
SECTION 7.9 Covenants of Indenture Trustee Pursuant to Higher Education
Act.
The Indenture Trustee hereby represents, covenants and agrees as
follows:
1. The Indenture Trustee is an eligible lender under the
Higher Education Act and so long as any of the Notes remain Outstanding
and any Financed Student Loans are held by the Indenture Trustee under
the Indenture, the Indenture Trustee will remain an eligible lender.
2. The Indenture Trustee will not exercise any of the rights,
duties or privileges under this Indenture (particularly those
enumerated in Article V, Article VII or Article VIII hereof) in such
manner as would cause any Financed Student Loans to be sold,
transferred, assigned or pledged as security to any person or entity
other than an eligible lender so long as the Higher Education Act
prohibits such sale, transfer, assignment or pledge.
3. The Indenture Trustee will comply with the Higher Education
Act, and will execute such Supplemental Indentures in accordance with
Section 9.1(6) hereof as may from time to time be required in order for
this Indenture, as amended by any such Supplemental Indenture, to be
operative in a manner consistent with amendments made to the Higher
Education Act.
4. Prior to the Financing of any Student Loan, the Indenture
Trustee shall have received the certificates and other documents
required by Section 5.3 hereof.
The Indenture Trustee and the Issuer hereby acknowledge their
understanding that the Indenture Trustee has special contractual obligations to
the Secretary of Education which must be maintained and preserved in order for
the Indenture Trustee to remain an eligible lender under the Higher Education
Act, and the Indenture Trustee specifically recognizes its obligations
thereunder and in particular such obligations during the administration of the
trust created hereby.
SECTION 7.10 Statements and Reports by Indenture Trustee of Funds and
Accounts and Other Matters.
Within twenty (20) days following the end of each calendar month, the
Indenture Trustee shall furnish to the Issuer a statement setting forth (to the
extent applicable) with respect to such calendar month (a) the balances held by
the Indenture Trustee at the end of such month to the credit of each Fund and
Account, (b) the principal amount of Notes Outstanding at the end of such
calendar month and the principal amount thereof redeemed or paid by the
Indenture Trustee during such calendar month and (c) any other information which
the Issuer may reasonably request and which is customarily provided by indenture
trustees under trusts similar hereto.
59
<PAGE> 66
Within sixty (60) days after each April 15 of each year commencing with
the April 15 following the first issuance of Notes under this Indenture, if
required by Section 313(a) of the Trust Indenture Act, the Indenture Trustee
shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief
report dated as of such April 15 with respect to any of the events specified in
such Section 313(a) which may have occurred since the later of the immediately
preceding April 15 or the date of this Indenture. The Indenture Trustee shall
transmit the reports required by Section 313(a) of the Trust Indenture Act at
the time specified therein. Reports pursuant to this Section 7.10 shall be
transmitted in the manner and to the Persons required by Sections 313(c) and
313(d) of the Trust Indenture Act.
On each Monthly Distribution Date, the Indenture Trustee shall provide
to each Rating Agency and to each Noteholder of the applicable Series of Notes,
a statement substantially in the form of Exhibit A to the Terms Supplement,
setting forth at least the following information with respect to such
Distribution Date or the preceding Collection Period or Collection Periods, to
the extent applicable:
(a) the Principal Factor for each Series of Notes, as applicable;
(b) the amount of the payment allocable to principal of each Series of
Notes;
(c) the amount of the payment allocable to interest on such Series of
Notes, together with the Series Interest Rates applicable with respect thereto
(indicating, whether such Series Interest Rates are based on the Formula Rate or
on the Net Loan Rate with respect to such Notes, and specifying what each such
Series Interest Rate would have been if it had been calculated using the
alternate basis);
(d) the amount of the payment, if any, allocable to any Carryover
Interest, together with the outstanding amount, if any, thereof after giving
effect to any such distribution;
(e) the Pool Balance, the Parity Percentage and the Senior Parity
Percentage, in each case as of the close of business on the last day of the
preceding Collection Period;
(f) the aggregate outstanding principal amount of each Series of Notes
as of such Monthly Distribution Date, after giving effect to distributions
allocated to principal on such Distribution Date;
(g) the estimated amount to be allocated to Program Operating Expenses
on the upcoming Monthly Distribution Date;
(h) the amount of the aggregate Realized Losses, if any, for the
preceding Collection Period and the aggregate amount, if any, received (stated
separately for interest and principal) during such Collection Period relating to
Financed Student Loans for which a Realized Loss was previously allocated;
(i) the amount of the distribution attributable to amounts in the
Reserve Fund, the Acquisition Fund or other Account hereunder, the amount of any
other withdrawals from such Funds and other Accounts for such Monthly
Distribution Date, the balance of such Funds and other Accounts on such
Distribution Date, after giving effect to changes therein on such
60
<PAGE> 67
Distribution Date, the then applicable Parity Percentage and the amount of the
distribution, if any, attributable to Parity Percentage Payments;
(j) the aggregate amount, if any, paid for Financed Student Loans
purchased from the Student Loan Portfolio Fund during the preceding Collection
Period;
(k) the following information as reported to the Indenture Trustee by
the Issuer or Servicers: the number and principal amount of Financed Student
Loans, as of the end of the preceding Collection Period, that are (i) 31 to 60
days delinquent, (ii) 61 to 90 days delinquent, (iii) 91 to 120 days delinquent,
(iv) more than 120 days delinquent and (v) for which claims have been filed with
the appropriate Guarantee Agency or the Secretary of Education and which are
awaiting payment; and
(l) any other information specified in Terms Supplement.
Within the prescribed period of time for federal tax reporting purposes
after the end of each calendar year during the term of the Indenture, the
Indenture Trustee shall mail to each Person who at any time during such calendar
year was a Noteholder and received any payment thereon, a statement containing
the information required for such Noteholder's preparation of its federal income
tax returns.
SECTION 7.11 Additional Authenticating Agent.
The Indenture Trustee may at any time, subject to the approval of the
Issuer, appoint an authenticating agent which shall be authorized to act on the
Indenture Trustee's behalf and subject to its direction in the authentication
and delivery of Notes in connection with transfers and exchanges of Notes as
fully to all intents and purposes as though the agent had been expressly
authorized to authenticate and deliver Notes hereunder. Any authenticating agent
appointed hereunder shall be a commercial bank, trust company or other financial
institution, in each case whose debt securities are rated "Baa3/P-3" or higher
or "BBB-/A-3" or higher by a Rating Agency. For all purposes of this Indenture,
the authentication and delivery of Notes by the agent appointed pursuant to this
Indenture shall be deemed to be the authentication and delivery of such Notes by
the Indenture Trustee.
SECTION 7.12 Notice to Rating Agencies.
The Indenture Trustee shall give written notice to any Rating Agency
that then maintains a rating on the Notes: (a) if a successor Indenture Trustee
is appointed hereunder; (b) if this Indenture is amended or supplemented; (c) if
all Notes are no longer Outstanding or are defeased; (d) if there is a change in
or an addition to Servicers or Guarantee Agencies or (e) if an Event of Default
has occurred and is continuing.
SECTION 7.13 Indenture Trustee Not Liable for Acts of the Issuer; No
Representations by Indenture Trustee.
The Indenture Trustee shall not be responsible or have any liability
for any act of the Issuer. The Indenture Trustee shall not be responsible in any
manner whatsoever for the correctness of the recitals, statements and
representations of the Issuer in this Indenture and any and all Supplemental
Indentures or in the Notes, all of which are made by the Issuer solely.
61
<PAGE> 68
Except with regard to the execution of the certificate of authentication set
forth on each Note and as to the authority and eligibility of the Indenture
Trustee hereunder and due execution by the Indenture Trustee hereof, the
Indenture Trustee makes no representation as to the validity of this Indenture
or of the Notes issued hereunder, and the Indenture Trustee shall incur no
liability or responsibility in respect of any such matters.
SECTION 7.14 Indenture Trustee Not Responsible for Calculation Agent.
The Indenture Trustee shall not be liable or responsible for the
actions of or the failure to act by the Calculation Agent under this Indenture
or under any Calculation Agent Agreement. The Indenture Trustee may conclusively
rely upon any information required to be furnished by the Calculation Agent
without undertaking any independent review or investigation of the truth or
accuracy of such information.
SECTION 7.15 Indemnification of the Indenture Trustee and each Eligible
Lender Trustee.
The Indenture Trustee shall be under no obligation or duty to perform
any act at the request of any Holder or to institute or defend any suit in
respect thereof unless properly indemnified to its satisfaction as provided in
Section 7.1(a) hereof, except as otherwise provided in said Section 7.1(a). The
Indenture Trustee shall not be required to take notice, or be deemed to have
knowledge, of any default or Event of Default of the Issuer hereunder and may
conclusively assume that there has been no such default or Event of Default
(other than an Event of Default described in Section 8.1(1) hereof) unless it
shall have actual notice thereof or unless and until it shall have been
specifically notified in writing of such default or Event of Default by a Holder
or the Issuer. The Issuer agrees to indemnify (a) the Indenture Trustee for, and
to hold it harmless against, any loss, liability, or expenses incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder and (b) each Eligible Lender Trustee for, and to hold it harmless
against, any loss, liability or expenses incurred without negligence or bad
faith on its part, arising out of or in connection with (i) the acceptance or
administration of the trust or trusts under its respective Eligible Lender Trust
Agreement or (ii) the exercise of performance of any of its powers or duties
under this Indenture, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any or its powers or duties under its respective Eligible Lender Trust Agreement
or hereunder; provided, however, that any such indemnification shall be payable
solely out of the Trust Estate.
All expenses and obligations incurred by the Issuer by reason of the
indemnification provided for in this Section 7.15 shall be payable solely from,
as appropriate, the Trust Estate, including, without limitation, the Excess
Surplus Account, in accordance with the provision of Sections 5.5.1, 5.5.4 and
5.5.5 hereof.
SECTION 7.16 Intervention by the Indenture Trustee.
The Indenture Trustee may intervene on behalf of the Holders, and shall
intervene if requested to do so in writing by the Holders of not less than a
majority of the aggregate
62
<PAGE> 69
principal amount of Notes then Outstanding, in any judicial proceeding with
respect to this Indenture to which the Issuer is a part and which in the opinion
of the Indenture Trustee and its counsel has a substantial bearing on the
interest of the Holders of the Notes. The rights and obligations of the
Indenture Trustee under this Section are subject to the approval of that
intervention by a court of competent jurisdiction. The Indenture Trustee may,
but is not required to, require that an indemnity bond satisfactory to it be
provided to it in accordance with Section 7.1(a) hereof before it takes action
under this Section.
SECTION 7.17 Preferential Collection of Claims Against Issuer.
The Indenture Trustee shall comply with Section 311(a) of the Trust
Indenture Act, excluding any creditor relationship listed in Section 311(b) of
the Trust Indenture Act. An Indenture Trustee who has resigned or been removed
shall be subject to Section 311(a) of the Trust Indenture Act to the extent
indicated.
SECTION 7.18 Preservation of Information; Communication to Holders.
The Indenture Trustee shall comply with the obligations imposed upon it
pursuant to Section 312 of the Trust Indenture Act.
Every Holder, by receiving and holding the same, agrees with the Issuer
and the Indenture Trustee that no one of the Issuer, the Indenture Trustee, any
Paying Agent or Registrar shall be held accountable by reason of the disclosure
of any such information as to the names and addresses of the Holders in
accordance with Section 312(c) of the Trust Indenture Act, regardless of the
source from which such information was derived, and that the Indenture Trustee
shall not be held accountable by reason of mailing any material pursuant to a
request made under Section 312(b) of the Trust Indenture Act.
SECTION 7.19 Survival of Certain Provisions of the Indenture.
The provisions of Sections 7.1(a), 7.3, 7.4, 7.7, 7.8, 7.9 and 7.15 of
this Article VII shall survive the release, discharge and satisfaction of this
Indenture.
63
<PAGE> 70
ARTICLE VIII
Defaults and Remedies
SECTION 8.1 Events of Default.
The following shall constitute "Events of Default":
1. Failure in the due and punctual payment of:
(i) the principal of or interest on any Note when
due, either at Final Legal Maturity or upon redemption or otherwise
(excluding, however, (a) any shortfall on a Distribution Date other
than the Legal Final Maturity of any Series of Notes if Available Funds
are insufficient to pay the related Principal Distribution Amount on
such date, (b) for so long as any Senior Notes are Outstanding under
this Indenture, any shortfall on a Distribution Date other than the
Legal Final Maturity of any Series of Subordinate Notes if Available
Funds are insufficient to pay the related Noteholders' Interest
Distribution Amount on such date, and (c) for so long as any Senior
Notes are Outstanding under this Indenture, any deferral in the payment
of interest or principal on Subordinate Notes on a Distribution Date
other than the Legal Final Maturity of the Subordinate Notes pursuant
to Section 5.5.1 hereof and Article IV of the Terms Supplement), or
(ii) any Issuer Exchange Payment when due, excluding,
however (a) payment in respect of an early termination of the Exchange
Agreement, (b) for so long as Senior Notes are Outstanding under this
Indenture, any shortfall on a Distribution Date other than the Legal
Final Maturity of any series of Subordinate Notes if Available Funds
are insufficient to pay any Subordinate Issuer Exchange Payments
relating to such Subordinate Notes, and (c) for so long as any Senior
Notes are Outstanding under this Indenture, any deferral in the payment
of Subordinate Issuer Exchange Payments pursuant to Section 5.5.1
hereof and Article IV of the Terms Supplement;
2. Failure by the Issuer in the observance and performance of
any other of the covenants and agreements of the Issuer contained in this
Indenture and the continuation of such failure for a period of 30 days after
written notice thereof is given to the Issuer from the Indenture Trustee or from
the Holders of at least a majority of the aggregate principal amount of the
Notes then Outstanding under this Indenture;
3. If an order or decree shall be entered, with the consent or
acquiescence of the Issuer, appointing a receiver or other custodian for the
Trust Estate, or approving a petition filed against the Issuer seeking
reorganization or liquidation of the Issuer under the federal bankruptcy laws or
any other similar state or federal law, or if any such order or decree, having
been entered without the consent or acquiescence of the Issuer, shall not be
vacated or discharged or stayed on appeal within thirty (30) days after the
entry thereof; or any proceeding shall be instituted, with the consent or
acquiescence of the Issuer, for the purpose of effecting a composition or other
arrangement between the Issuer and its creditors or for the purpose of adjusting
the claims of such creditors pursuant to any federal or state statute, if the
64
<PAGE> 71
claims of such creditors are under any circumstances payable from the Trust
Estate; or if the Issuer makes an assignment for the benefit of its creditors,
or consents to the appointment of a receiver, trustee or other custodian for
itself or for the whole or any part of the Trust Estate; or if (i) the Issuer is
adjudged insolvent by a court of competent jurisdiction, or (ii) an order,
judgment or decree be entered by any court of competent jurisdiction appointing,
without the consent of the Issuer, a receiver, trustee or other custodian of the
Issuer or of the whole or any substantial part of its property and any of the
aforesaid adjudications, orders, judgments or decrees shall not be vacated or
set aside or stayed within thirty (30) days from the date of entry thereof; or
if the Issuer shall file a petition or answer seeking reorganization or any
arrangement under the federal bankruptcy laws or any other applicable state or
federal law; or if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume custody or control
of the Issuer or of the whole or any substantial part of its property, and such
custody or control shall not be terminated within thirty (30) days from the date
of assumption of such custody or control;
4. The entry of a final judgment against the Issuer which
judgment constitutes or could result in (a) a lien or charge upon the Available
Funds or the Trust Estate equal or superior to the lien granted under this
Indenture for the benefit of the Holders of Senior, (b) if there are no Senior
Notes Outstanding, a lien or charge upon the Available Funds or the Trust Estate
equal or superior to the lien granted under this Indenture for the benefit of
the Holders of Subordinate Notes, or (c) which materially and adversely affects
the ownership, control or operation of the Program, if such judgment will not be
discharged within 60 days from the entry thereof, or if an appeal will not be
taken therefrom, or from the order, decree or process upon which or pursuant to
which such judgment was granted or entered, in such manner as to conclusively
set aside the execution or levy under such judgment, order, decree or process,
or the enforcement thereof.
Upon the occurrence of an Event of Default,
(a) in the case of an Event of Default described in clause (1) above,
so long as such Event of Default shall not have been remedied, unless the
principal of all of the Notes shall have already become due and payable, the
Indenture Trustee may, and upon written request of the Holders of at least a
majority of the aggregate principal amount of the Outstanding Directing Notes,
the Indenture Trustee shall, by written notice to the Issuer, declare the
principal of all the Notes then Outstanding and the interest and Carryover
Interest, if any, accrued thereon to be due and payable immediately, and upon
any such declaration the same shall become and be immediately due and payable,
anything contained in the Indenture or in any of the Notes to the contrary
notwithstanding; or
(b) in the case of an Event of Default described in clauses (2) and (4)
above, so long as such Event of Default shall not have been remedied, unless the
principal of all of the Notes shall have already become due and payable, the
Indenture Trustee may, and upon written request of all of the Holders of the
Directing Notes then Outstanding in the case of an Event of Default under clause
(2) above and at least a majority of the aggregate principal amount of the
Directing Notes then Outstanding in the case of an Event of Default under clause
(4) above, the Indenture Trustee shall, by written notice to the Issuer, declare
the principal of all the Notes then Outstanding and the interest and Carryover
Interest, if any, accrued thereon to be due and payable immediately, and upon
any such declaration the same shall become and be immediately
65
<PAGE> 72
due and payable, anything contained in the Indenture or in any of the Notes to
the contrary notwithstanding; or
(c) in the case of any Event of Default described in clause (3) above,
so long as such Event of Default shall not have been remedied, the principal of
and all accrued interest and Carryover Interest, if any, on the Notes then
Outstanding shall become immediately due and payable without notice or any
action by the Indenture Trustee of any kind and a declaration of such
acceleration shall be deemed to have been made.
The right of the Indenture Trustee to make any such declaration as
aforesaid, however, is subject to the condition that if, at any time after such
declaration, but before any judgment or decree for the payment of moneys due
shall have been obtained or entered unless the same has been discharged:
1. all defaults under the Notes or under the Indenture (other
than the payment of principal and interest due and payable solely by reason of
such declaration) shall have been cured to the satisfaction of the Indenture
Trustee or provision deemed by the Indenture Trustee to be adequate shall have
been made therefor, and
2. the following amounts shall either have been paid by or for
the account of the Issuer or provision satisfactory to the Indenture Trustee
shall have been made for such payment:
(i) all overdue installments of interest upon (a) the
Senior Notes for so long as any Senior Notes are Outstanding, or (b)
the Subordinate Notes if no Senior Notes are Outstanding, and
(ii) the reasonable and proper charges, expenses and
liabilities of the Indenture Trustee, any Exchange Counterparty and the
Noteholders and their respective agents and attorneys, and all other
sums then payable by the Issuer under this Indenture (except the
principal of and interest accrued since the next preceding Distribution
Date on the Notes due and payable solely by virtue of such
declaration),
then, the Holders of at least a majority of the aggregate principal amount of
the Directing Notes then Outstanding, by written notice to the Issuer and to the
Indenture Trustee, may rescind such declaration with respect to the Notes and
annul such Event of Default with respect to the Notes, or, if the Indenture
Trustee has acted with respect to the Notes without a direction from the Holders
of at least a majority of the aggregate principal amount of the Directing Notes
Outstanding at the time of such request, and if there has not been theretofore
delivered to the Indenture Trustee written direction to the contrary by the
Holders of at least a majority of the aggregate principal amount of the
Directing Notes then Outstanding, then the Indenture Trustee may annul, by
written notice to the Issuer, such declaration and any such default with respect
to the Notes and its consequences will be annulled; provided that no such
rescission and annulment will extend to or affect any subsequent Event of
Default or impair or exhaust any right or power consequent thereon.
Upon any declaration of acceleration of the Notes hereunder, the
Indenture Trustee shall give notice of such declaration and its consequences to
Holders and to any related
66
<PAGE> 73
Exchange Counterparty in the manner set forth in Section 8.8 hereof. Notice of
such acceleration having been given as aforesaid, anything contained in this
Indenture or in the Notes to the contrary notwithstanding, interest and
Carryover Interest, if any, shall cease to accrue on the Notes from and after
the date set forth in such notice (which shall be not more than five (5) days
from the date of such declaration).
SECTION 8.2 Inspection of Books and Records.
The Issuer covenants that if an Event of Default shall have happened
and shall not have been remedied, the books of record and account of the Issuer
and the Servicers relating to the Program shall at all times, at reasonable
hours and under reasonable circumstances, be subject to the inspection and use
of the Indenture Trustee and any Holder of at least ten percent (10%) of the
aggregate principal amount of Notes then Outstanding and of their respective
agents and attorneys.
The Issuer covenants that if an Event of Default shall have happened
and shall not have been remedied, the Issuer will continue to account, as a
Indenture Trustee of an express trust, for all moneys, securities and property
pledged under this Indenture.
SECTION 8.3 Application of Moneys.
In the event that an Event of Default shall have occurred and be
continuing and at any time the moneys held by the Indenture Trustee will be
insufficient for the payment of (i) the principal of and interest then due on
the Notes and/or (ii) any Issuer Exchange Payment, such moneys (other than
moneys held for the payment or redemption of particular Notes, which proceeds
and moneys shall be applied solely to the payment of principal and interest to
Holders other than the Issuer, the Depositor, the Administrator or their
affiliates) and all Available Funds received or collected from the Trust Estate
or otherwise for the benefit or for the account of Holders and/or an Exchange
Counterparty by the Indenture Trustee shall be applied first to the payment of
the costs and expenses of the proceedings resulting in the collection of such
moneys, the expenses, liabilities and advances incurred or made by the Indenture
Trustee in connection with such proceedings and to the payment of the other
reasonable and proper fees and expenses of the Indenture Trustee under this
Indenture and of such other expenses as are necessary in the judgment of the
Indenture Trustee to prevent loss of Available Funds and to protect the
interests of the Holders and/or each Exchange Counterparty, and thereafter as
follows:
1. If the principal of all of the Notes shall not have become or has
not been declared due and payable,
First, to the payment to the Persons entitled thereto of all
installments of interest then due on the Senior Notes (including any interest on
overdue principal at the rate borne by the respective Senior Notes), and to each
Senior Exchange Counterparty of all Senior Issuer Exchange Payments then due, in
the order that such installments of interest and/or Senior Issuer Exchange
Payments shall have become due, and, if the amounts available shall not be
sufficient to pay in full all installments of interest and/or Senior Issuer
Exchange Payments coming due on the same date, then to the payment thereof
ratably, according to the amount due thereon, to such Persons entitled thereto,
without any discrimination or preference; and
67
<PAGE> 74
Second, to the payment to the Persons entitled thereto, of the unpaid
Noteholders' Principal Distribution Amount and/or principal due and unpaid on
the Senior Notes at the time of such payment without preference or priority of
any Senior Notes over any other Senior Notes, ratably, according to the
Noteholders' Principal Distribution Amount and/or amounts due for principal, to
such Persons entitled thereto without any discrimination or preference; and
Third, to the payment to the Persons entitled thereto of all
installments of interest then due on the Subordinate Notes (including any
interest on overdue principal at the interest rates borne by the respective
Subordinate Notes), and to each Subordinate Exchange Counterparty of all
Subordinate Issuer Exchange Payments then due, in the order that such
installments of interest and/or Subordinate Issuer Exchange Payments shall have
become due, and, if the amounts available shall not be sufficient to pay in full
all installments of interest and/or Subordinate Issuer Exchange Payments coming
due on the same date, then to the payment thereof ratably, according to the
amount due thereon, to such Persons entitled thereto, without any discrimination
or preference; and
Fourth, to the payment to the Persons entitled thereto of the unpaid
Noteholders' Principal Distribution Amount and/or principal due and unpaid on
the Subordinate Notes at the time of such payment without preference or priority
of any Subordinate Notes over any other Subordinate Notes, ratably, according to
the amounts due for principal, to such Persons entitled thereto without any
discrimination or preference.
2. If the principal of all of the Notes shall have become or have been
declared due and payable,
First, to the payment of the principal and interest then due and unpaid
on the Senior Notes and all Senior Issuer Exchange Payments then due, without
preference or priority of principal over interest or over any Senior Issuer
Exchange Payment, or of interest over principal or over any Senior Issuer
Exchange Payment, of any installment of interest over any other installment of
interest, or of any Senior Note over any other Senior Note, or of any Senior
Issuer Exchange Payment over any other Senior Issuer Exchange Payment, ratably,
according to the amounts due respectively for principal and interest, and all
Senior Issuer Exchange Payments to the Persons entitled thereto without any
discrimination or preference; and
Second, to the payment of the principal and interest then due and
unpaid on the Subordinate Notes and all Subordinate Issuer Exchange Payments
due, without preference or priority of principal over interest or over any
Subordinate Issuer Exchange Payment, of interest over principal or over any
Subordinate Issuer Exchange Payment, of any installment of interest over any
other installment of interest, or of any Subordinate Note over any other
Subordinate Note, or of any Subordinate Issuer Exchange Payment over any other
Subordinate Issuer Exchange Payment, ratably, according to the amounts due
respectively for principal and interest, and any Subordinate Issuer Exchange
Payment to the Persons entitled thereto without any discrimination or
preference; and
Third, to the payment of all Carryover Interest due and unpaid on the
Senior Notes, without preference or priority of any Senior Notes over any other
Senior Notes, ratably, according to the amounts due for Carryover Interest, to
the Persons entitled thereto without any discrimination or preference; and
68
<PAGE> 75
Fourth, to the payment of all Carryover Interest due and unpaid on the
Subordinate Notes, without preference or priority to any Subordinate Notes over
any other Subordinate Notes, ratably according to the amounts due for Carryover
Interest, to the Persons entitled thereto without any discrimination or
preference.
Whenever moneys are to be applied pursuant to the foregoing paragraphs,
such moneys shall be applied at such times, and from time to time, as the
Indenture Trustee in its sole discretion shall determine, having due regard to
the amount of such moneys available for application and the likelihood of
additional moneys becoming available for such application in the future.
Whenever the Indenture Trustee shall exercise such discretion, it shall fix the
date upon which application is to be made, and upon such date interest and
Carryover Interest, if any, on the amounts of principal to be paid on such date
shall cease to accrue on the Notes. The Indenture Trustee shall give such notice
as it may deem appropriate of the fixing of any such date and shall not be
required to make payment to the Holder of any unpaid Note unless such Note is
presented for appropriate endorsement.
Whenever moneys are to be applied pursuant to the foregoing
paragraphs, irrespective of and whether other remedies authorized shall have
been pursued in whole or in part, the Indenture Trustee may cause any or all of
the Trust Estate to be sold. The Indenture Trustee may, with or without entry,
so sell the Trust Estate and all right, title, interest, claim and demand
thereto and the right of redemption thereof, in one or more parts, at any such
place or places, and at such time or times and upon such notice and terms as the
Indenture Trustee may deem appropriate and as may be required by law and apply
the proceeds thereof in accordance with the provisions of this Section 8.3. Upon
such sale, the Indenture Trustee may make and deliver to the purchaser or
purchasers a good and sufficient assignment or conveyance for the same, which
sale shall be a perpetual bar both at law and in equity against the Issuer and
all Persons claiming such properties. No purchaser at any sale shall be bound to
see to the application of the purchase money or to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
Nevertheless, the Issuer and/or each Eligible Lender Trustee, if so requested by
the Indenture Trustee, shall ratify and confirm any sale or sales by executing
and delivering to the Indenture Trustee or to such purchaser or purchasers all
such instruments as may be necessary or in the judgment of the Indenture Trustee
and/or such Eligible Lender Trustee proper for the purpose which may be
designated in such request.
The Indenture Trustee shall not sell or permit the sale or assignment
of any Financed Student Loans or any interest therein (as a part of the Trust
Estate) to any Person who is not an eligible lender under the Higher Education
Act if such Act or the regulations thereunder, or either of them, in force and
effect at the time, prohibit the same.
If and whenever all overdue installments of interest on all Notes, and
all overdue Issuer Exchange Payments, together with the reasonable and proper
charges, expenses and liabilities of the Indenture Trustee, each Exchange
Counterparty, the Holders of Notes, their respective agents and attorneys, and
all other sums payable by the Issuer under this Indenture, including the
principal of and accrued and unpaid interest on all Notes and amounts due under
each Exchange Agreement which shall then be payable by declaration or otherwise,
shall either be paid in full by or for the account of the Issuer or provision
satisfactory to the Indenture Trustee shall be made for such payment, and all
Events of Default under this Indenture or the Notes shall be made good or
secured to the satisfaction of the Indenture Trustee or provision
69
<PAGE> 76
deemed by the Indenture Trustee to be adequate shall be made therefor, thereupon
the Issuer and the Indenture Trustee shall be restored, respectively, to their
former positions and rights under this Indenture, and all Available Funds shall
thereafter be applied as provided in Article V hereof. No such resumption of the
application of Available Funds as provided in Article V hereof shall extend to
or affect any subsequent Event of Default under this Indenture or impair any
right consequent thereon.
SECTION 8.4 Suits at Law or in Equity; Direction of Action by Holders.
If an Event of Default shall happen and shall not have been remedied
within the applicable time period, if any, provided herein, then and in every
such case, the Indenture Trustee either in its own name or as trustee of an
express trust, or as attorney-in-fact for the Holders and/or each such Exchange
Counterparty or in any one or more of such capacities by its agents and
attorneys, shall be entitled and empowered to proceed forthwith to institute
such suits, actions and proceedings at law or in equity against the Issuer for
the collection of all sums due in connection with the Notes and any Issuer
Exchange Payment and to protect and enforce its rights and the rights of the
Holders and each Exchange Counterparty under this Indenture for the specific
performance of any covenant herein contained, or in aid of the execution of any
power herein granted, or for an accounting as Indenture Trustee of any express
trust, or in the enforcement of any legal or equitable right as the Indenture
Trustee, being advised by counsel, shall deem most effectual to enforce any of
its rights, or to perform any of its duties under this Indenture. The Indenture
Trustee shall be entitled and empowered either in its own name or as a trustee
of an express trust, or as attorney-in-fact for the Holders and/or each such
Exchange Counterparty, or in any one or more of such capacities, to file such
proof of debt, claim, petition or other document as may be necessary or
advisable in order to have the claims of the Indenture Trustee, the Holders and
any Exchange Counterparty allowed in any equity, receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other similar
proceedings. For this purpose, subject to the provisions of Section 8.10 hereof,
the Indenture Trustee is hereby irrevocably appointed the true and lawful
attorney-in-fact of the respective Holders and any Exchange Counterparty (and
the successive Holders by taking and holding the same shall be conclusively
deemed to have so appointed the Indenture Trustee) with authority to make and
file in the respective names of the Holders and any Exchange Counterparty any
such proof of debt, amendment of proof of debt, claim, petition or other
document in any such proceedings, and to receive payment of any sums becoming
distributable on account thereof, and to execute any such other papers and
documents and to do and perform any and all acts and things for and on behalf of
the Holders and any Exchange Counterparty as may be necessary or advisable in
the opinion of the Indenture Trustee in order to have the respective claims of
the Indenture Trustee and the Holders and any Exchange Counterparty allowed in
any such proceedings and to receive payment of and on account of such claims.
All rights of action under this Indenture may be enforced by the
Indenture Trustee without the possession of any of the Notes or any of the
Exchange Agreements or the production thereof in any suit, action or other
proceeding.
The Holders of at least a majority in aggregate principal amount of the
Outstanding Directing Notes shall have the right, at any time, by an instrument
or instruments in writing executed and delivered to the Indenture Trustee, to
direct the time, method and place of conducting all proceedings to be taken in
connection with the enforcement of the terms and
70
<PAGE> 77
conditions of this Indenture; provided that (i) such direction shall not be
otherwise than in accordance with the provisions of law and this Indenture;
(ii) the Indenture Trustee shall not determine that the action so directed would
be unjustly prejudicial to the Holders not taking part in such direction, other
than by effect of the subordination of any of their interests hereunder; and
(iii) the Indenture Trustee may take any other action deemed proper by the
Indenture Trustee which is not inconsistent with such direction.
In case the Indenture Trustee shall have proceeded to enforce any right
or remedy under this Indenture and such proceedings shall have been discontinued
or abandoned for any reason, or shall have been determined adversely to the
Indenture Trustee, then and in every such case the Issuer and the Indenture
Trustee shall be restored to their former positions and rights hereunder with
respect to the Trust Estate (subject, however, to such determination), and all
rights, remedies and powers of the Indenture Trustee shall continue as if no
such proceedings have been taken.
SECTION 8.5 Suits by Individual Holders or an Exchange Counterparty.
Except as otherwise specifically provided in this Section 8.5, no
Holder or Exchange Counterparty shall have any right to institute any suit,
action or proceeding in equity or at law for the enforcement of any provision
of, or the execution of any trust or for any remedy under, this Indenture unless
(i) such Holder or Exchange Counterparty, as the case may be, previously shall
have given to the Indenture Trustee notice of the Event of Default on account of
which such suit, action or proceeding is to be instituted, (ii) with respect to
any Exchange Counterparty, such Exchange Counterparty is not in default of its
obligations under its respective Exchange Agreement, all obligations of all the
parties under such Agreement have not been satisfied and such Exchange Agreement
has not been terminated, (iii) the Holders of not less than a majority in
aggregate principal amount of the Directing Notes then Outstanding shall have
filed a written request with the Indenture Trustee after the right to exercise
such powers or right of action, as the case may be, shall have accrued that such
suit, action or proceeding be instituted, (iv) there shall have been offered to
the Indenture Trustee reasonable security and indemnity against the costs,
expenses and liability to be incurred therein or thereby, (v) the Indenture
Trustee for a period of thirty (30) days after the receipt by it of such notice,
request and offer of indemnity shall have failed to proceed to exercise such
powers or to institute any such action, suit or proceeding, or the Indenture
Trustee shall at any time after such receipt have stated in writing that it
shall not so proceed, and (vi) no direction inconsistent with such written
request shall have been given to the Indenture Trustee pursuant to Section 8.4
hereof by the Holders of at least a majority in aggregate principal amount of
the Directing Note then Outstanding; it being understood and intended that,
except as otherwise above provided, neither an Exchange Counterparty nor one or
more Holders shall have any right in any manner whatsoever by its or their
action to affect, disturb or prejudice the pledge created by this Indenture, or
to enforce any right under this Indenture except in the manner herein provided
and that all proceedings at law or in equity shall be instituted, had and
maintained in the manner herein provided for the benefit of Holders and each
Exchange Counterparty.
Notwithstanding any other provision in this Indenture, each Holder and
each Exchange Counterparty shall have the right, which is absolute and
unconditional as to the payment, respectively, of principal and interest and
which is limited and conditional as the payment of Carryover Interest, to
receive payment of the principal of, and interest and Carryover
71
<PAGE> 78
Interest, if any, on such Holder's Note in accordance with the terms thereof and
hereof and of each Issuer Exchange Payment, and, upon the occurrence of an Event
of Default with respect thereto, to institute suit for the enforcement of any
such payment, and nothing in this Indenture shall affect or impair the right of
any Holder or Exchange Counterparty to enforce the payment, respectively, of the
principal of and interest and Carryover Interest, if any, on any Note at and
after the maturity thereof and of each Issuer Exchange Payment at the time,
place, from the source and in the manner provided herein.
Notwithstanding any other provision of this Indenture, the right of any
Holder of any Note to receive payment of the principal of and interest and
Carryover Interest on such Note, on or after the respective due dates expressed
in such Note, or the right of any Exchange Counterparty to receive payment of
any Issuer Exchange Payment, or to institute suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 8.6 Remedies Not Exclusive.
No remedy by the terms of this Indenture conferred upon or reserved to
the Indenture Trustee, the Holders or an Exchange Counterparty is intended to be
exclusive of any other remedy, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Indenture or existing at law or in equity or by statute on or after the date of
adoption of this Indenture.
SECTION 8.7 Waivers of Default.
No delay or omission of the Indenture Trustee, any Holder or any
Exchange Counterparty to exercise any right or power arising upon the happening
of an Event of Default shall impair any right or power or shall be construed to
be a waiver of any such Event of Default or to be an acquiescence therein and
every power and remedy given by this Article VIII to the Indenture Trustee, the
Holders or any Exchange Counterparty may be exercised from time to time and as
often as may be deemed necessary by the Indenture Trustee, such Holders or any
Exchange Counterparty. No waiver of any Event of Default hereunder, whether by
the Indenture Trustee, any Holder or any Exchange Counterparty, shall extend to
or shall affect any subsequent Event of Default or shall impair any rights or
remedies consequent thereon.
Prior to a declaration accelerating the maturity of the Notes as
provided in Section 8.1 hereof, the Holders of not less than two-thirds (2/3) in
principal amount of the Directing Notes at the time Outstanding and each
Exchange Counterparty (so long as such Exchange Counterparty is not in default
of its obligations under its respective Exchange Agreement and such Exchange
Agreement has not be terminated), or their attorneys-in-fact duly authorized,
may, on behalf of the Holders of all of the Notes and each such Exchange
Counterparty, respectively, waive any past failure under this Indenture and its
consequences with respect to the Notes, except a failure in payment of the
principal of or interest on any of the Notes. The Indenture Trustee shall, upon
the written request of an Exchange Counterparty, except as otherwise provided in
the next succeeding paragraph, waive any failure in the payment of an Issuer
Exchange Payment to such Exchange Counterparty. No such waiver shall extend to
any subsequent or other failure or impair any right consequent thereon.
72
<PAGE> 79
SECTION 8.8 Notice of Events of Default.
The Indenture Trustee shall, within thirty (30) days after the
Indenture Trustee becomes aware of the occurrence of an Event of Default, give
written notice to each Exchange Counterparty and all Holders by registered mail
of all Events of Default known to the Indenture Trustee, unless such Event of
Default shall have been cured before the giving of such notice.
SECTION 8.9 Computations.
For the purposes of this Article VIII and Section 7.1(a)(iii)(C)
hereof, in determining whether the Holders of a required principal amount of
Notes have concurred in any such direction or consent, Notes owned by the
Issuer, or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuer, shall be disregarded,
except for purposes of determining whether the Indenture Trustee shall be
protected in relying on any such direction or consent, only Notes which the
Indenture Trustee knows are so owned shall be so disregarded.
SECTION 8.10 Article Subject to Certain Provisions.
The provisions of this Article VIII are subject to the provisions of
Section 7.8 hereof.
73
<PAGE> 80
ARTICLE IX
Amending and Supplementing of Indenture
SECTION 9.1 Amending and Supplementing of Indenture Without Consent of
Holders.
The Issuer, each Eligible Lender Trustee and the Indenture Trustee,
with the written confirmation from each Rating Agency then rating the Notes that
execution of the proposed Supplemental Indenture will not adversely affect the
rating of such Rating Agency on the Notes (provided, however, that such written
confirmation shall not be required for a Supplemental Indenture executed
pursuant to item (13) of this Section 9.1), from time to time and at any time
and without the consent or concurrence of any Holder, may execute a Supplemental
Indenture for any one or more of the following purposes:
(1) To make any changes or corrections in this Indenture as are
required for the purpose of curing or correcting any ambiguity or defective
or inconsistent provision or omission or mistake or manifest error contained
in this Indenture or to insert in this Indenture such provisions clarifying
matters or questions arising under this Indenture as are necessary or
desirable;
(2) To add additional covenants and agreements of the Issuer for the
purpose of further securing the payment of the Notes;
(3) To surrender any right, power or privilege reserved to or conferred
upon the Issuer by the terms of this Indenture;
(4) To confirm as further assurance any lien, pledge, security
interest, assignment or charge, or the subjection to any lien, pledge,
security interest, assignment or charge, created or to be created by the
provisions of this Indenture;
(5) To grant to or confer upon the Holders any additional rights,
remedies, powers, authority or security that lawfully may be granted to or
conferred upon them, or to grant to or to confer upon the Indenture Trustee
for the benefit of the Holders or an Exchange Counterparty any additional
rights, duties, remedies, powers or authority;
(6) To make such amendments to this Indenture as are required to permit
the Indenture Trustee fully to comply with the Higher Education Act, or as
required in order for this Indenture, as amended by such Supplemental
Indenture, not to be contrary to the terms of the Higher Education Act;
(7) To make such amendments to this Indenture as may be necessary or
convenient to provide for issuance of the Notes in coupon form or issuance
and registration of the Notes in book-entry form and to provide for other
related provisions of the Notes;
(8) To modify, amend or supplement this Indenture or any indenture
supplemental hereto in such manner as to maintain the qualification hereof
or thereof under the Trust Indenture Act or any similar federal statute
hereafter in effect, and, if the
74
<PAGE> 81
Issuer and the Indenture Trustee so determine, to add to this Indenture or
any indenture supplemental hereto such other terms, conditions and
provisions as may be permitted by the Trust Indenture Act or similar federal
statute, and which shall not materially adversely affect the interests of
the Holders of the Notes;
(9) To authorize the establishment of agreements providing for the
pledge of funds in excess of the amount required to pay principal of and
interest on the Notes hereunder to other indentures, and for the pledge of
such funds under other indentures to this Indenture;
(10) To permit any changes or modifications hereof required (a) by a
Rating Agency to maintain the outstanding rating on the Notes or (b) by the
issuer of (i) a policy of bond insurance or (ii) any similar financial
guaranty insuring the payment of the principal of and interest on any Notes
to obtain an internal rating of at least investment grade or as a condition
of the issuance of such insurance or guaranty;
(11) To make the terms and provisions of this Indenture, including the
lien and security interest granted herein, applicable to an Exchange
Agreement;
(12) To provide for the issuance of credit enhancement, including, but
not limited to, a policy of bond insurance, with respect to any Series of
Notes;
(13) To add any additional Eligible Lender Trustee or replace any
existing Eligible Lender Trustee; or
(14) To make any other amendment which, in the judgment of the
Indenture Trustee, is not to the material prejudice of the Indenture
Trustee, the Holders or any Exchange Counterparty.
The Issuer, each Eligible Lender Trustee and the Indenture Trustee,
from time to time and at any time without the consent or concurrence of any
Holder, may execute a Supplemental Indenture, if the Issuer determines that the
provisions of such Supplemental Indenture are necessary or desirable to maximize
Available Funds.
SECTION 9.2 Amendment of Indenture with Consent of Holders and Exchange
Counterparties.
The Issuer, each Eligible Lender Trustee and the Indenture Trustee from
time to time and at any time may execute a Supplemental Indenture, with the
prior written consent of the Holders of not less than a majority in aggregate
principal amount of the Directing Notes then Outstanding (or, with respect to
any change affecting only certain Series of Notes, the Holders of a majority in
aggregate principal amount of the Outstanding Notes of such Series) for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture, or modifying or amending the rights
and obligations of the Issuer hereunder, or modifying or amending in any manner
the rights of an Exchange Counterparty or the Holders of Notes then Outstanding;
provided, however, that, without the specific consent of the Holder of each such
Note which would be affected thereby, no Supplemental Indenture amending or
supplementing the provisions hereof shall: (1) change the Legal Final Maturity
for the payment of the principal of any Note or any date for the payment of
interest thereon, or
75
<PAGE> 82
reduce the principal amount of any Note or, except on an Interest Determination
Date, the Series Interest Rate thereon; or (2) reduce the aforesaid proportion
of Notes the Holders of which are required to consent to any Supplemental
Indenture amending or supplementing the provisions of the Indenture; or (3)
except as shall be otherwise provided herein, give to any Note any preference
over any other Notes secured hereby; or (4) except as shall be otherwise
provided herein, authorize the creation of any pledge of the Trust Estate prior,
superior or equal to, or deprive the Holders or any Exchange Counterparty of,
the pledge, lien, security interest and assignment created herein for the
payment of the Notes or any Issuer Exchange Payment.
It shall not be necessary that the consents of the Holders approve the
particular form of wording of the proposed amendment or supplement or of the
Supplemental Indenture effecting such amendment or supplement, but it shall be
sufficient if such consents approve the substance of the proposed amendment or
supplement.
SECTION 9.3 Effectiveness of Supplemental Indenture.
Upon the execution pursuant to this Article IX by the Issuer, each
Eligible Lender Trustee and the Indenture Trustee of any Supplemental Indenture
amending or supplementing the provisions of this Indenture or at such later date
as may be specified in such Supplemental Indenture, this Indenture shall be
amended or supplemented in accordance with such Supplemental Indenture.
SECTION 9.4 Supplemental Indenture Affecting Indenture Trustee.
The Indenture Trustee shall not be required to execute any Supplemental
Indenture changing, amending or modifying any of the rights, duties and
obligations of the Indenture Trustee.
SECTION 9.5 Supplemental Indentures Affecting Certain Requirements of
the Higher Education Act.
No Supplemental Indenture amending the provisions of this Indenture
which prohibit the transfer of, or the granting of a security interest in,
Financed Student Loans (or any security interest therein) to persons other than
eligible lenders under the Higher Education Act shall be effective unless the
Higher Education Act shall have been amended to permit such a transfer or grant.
76
<PAGE> 83
ARTICLE X
Defeasance; Moneys Held for Payment of Defeased Notes
SECTION 10.1 Trust Irrevocable.
The trust created by this Indenture shall be irrevocable until the
indebtedness secured hereby has been fully paid or provision for the payment
thereof has been made as provided in this Article X.
SECTION 10.2 Discharge of Liens and Pledges; Notes No Longer
Outstanding and Deemed to Be Paid.
The Notes of the Issuer under this Indenture and the liens, pledges,
security interests, charges, trusts, assignments, covenants and agreements of
the Issuer and each Eligible Lender Trustee, herein made or provided for, shall
be fully discharged and satisfied as to: (a) any Note, when either of items (i)
or (ii) below shall have occurred; (b) any Program Operating Expenses, when item
(iii) below shall have occurred; (c) any Exchange Agreement, when item (iv)
below shall have occurred; and (d) Carryover Interest, when item (v) below shall
have occurred, and such Note, Program Operating Expense. Exchange Agreement or
Carryover Interest shall no longer be deemed to be Outstanding hereunder
(provided, however, that this Indenture shall not be deemed defeased unless and
until all of the following shall have occurred):
(i) when such Note shall have been canceled;
(ii) as to any Note not canceled, when payment of the principal of
such Note, plus interest on such principal to the due date
thereof (whether such due date is by reason of maturity or
upon redemption, or otherwise), either:
(a) shall have been made or caused to be made in
accordance with the terms thereof, or
(b) shall have been provided for by an irrevocable
deposit with the Indenture Trustee or the
Authenticating Agent, which is irrevocably
appropriated and set aside exclusively for such
payment, and which is derived from a source which is
not a transfer of property voidable under Sections
544 or 547 of the United States Bankruptcy Code,
(accompanied by an opinion of counsel experienced in
bankruptcy matters to that effect), should the Issuer
be a debtor under such Code of:
(1) moneys sufficient to make such payment,
and/or
(2) Eligible Investments (which for the purpose
of this Article X shall include only those
obligations which are described in item (a)
of the definition thereof in Section 5.7
hereof and which are not subject to call for
redemption prior to maturity), maturing as
to principal and interest in such amounts
and at such times as will insure the
availability of
77
<PAGE> 84
sufficient moneys to make such payment, the
sufficiency of said moneys or Eligible
Investments to be verified in writing by a
firm of independent certified public
accountants;
(iii) when all Program Operating Expenses then owed by the Issuer,
including related necessary and proper fees, compensation and
expenses of the Indenture Trustee, each Eligible Lender
Trustee and the Authenticating Agent, if any, when they shall
have been paid or the payment thereof provided for to the
satisfaction of the Indenture Trustee;
(iv) in the case of payment of any Issuer Exchange Payment pursuant
to Section 5.8 hereof and the applicable Exchange Agreement,
when payment of all Issuer Exchange Payments due and payable
to each Exchange Counterparty under its respective Exchange
Agreement has been made or duly provided for to the
satisfaction of each Exchange Counterparty and each Exchange
Agreement has been terminated and
(v) in the case of payment of any amount of Carryover Interest,
when the first of the following occurs:
(a) payment of all such Carryover Interest that has
accrued and remains unpaid has been made or duly
provided for to the satisfaction of such Indenture
Trustee; or
(b) all amounts held in the Funds and Accounts hereunder
which are available pursuant to the provisions of
this Indenture to pay Carryover Interest have been
paid out, and no further amounts, or assets the
proceeds of which could be used to pay Carryover
Interest, are so available hereunder to make payment
of Carryover Interest.
At such time as an Note shall be deemed to be no longer Outstanding,
hereunder, as aforesaid, such Note shall cease to accrue interest from the due
date thereof (whether such due date is by reason of maturity, or upon
redemption, or otherwise), or, in the case of any Note paid after the due date
thereof, from the date of such payment or provision for payment as aforesaid,
and shall no longer be secured by or entitled to the benefits of this Indenture
and the Holder of such Note thereafter shall be entitled only to payment out of
such moneys or Eligible Investments.
Notwithstanding the foregoing, in the case of Notes which are to be
redeemed prior to their stated maturities, no deposit under clause (b) of
subparagraph (ii) above shall constitute such payment, discharge and
satisfaction as aforesaid until proper notice of such redemption shall have been
given in accordance with Article IV hereof or provision satisfactory to the
Indenture Trustee shall have been irrevocably made for the giving of such
notice.
Anything in Article IX hereof to the contrary notwithstanding, if
moneys and/or Eligible Investments have been deposited or set aside with the
Indenture Trustee pursuant to this Section for the payment of Notes and such
Notes shall be deemed to have been paid and to be no
78
<PAGE> 85
longer Outstanding hereunder as provided in this Section, but such Notes shall
not have in fact been actually paid in full, no amendment to the provisions of
this Section shall be made without the consent of the Holder of each Note
affected thereby.
The Issuer may at any time cause to be canceled any Note previously
executed and delivered which the Issuer may have acquired in any manner
whatsoever, and such Note upon such surrender for cancellation shall be deemed
to be paid and no longer Outstanding hereunder.
Notwithstanding any provision of any other Section of this Indenture
which may be contrary to the provisions of this Section, all moneys or Eligible
Investments set aside and held in trust pursuant to the provisions of this
Section for the payment of the Notes described in items (a) and (c) of the first
paragraph of this Section 10.2 (including, without limitation, any accrued but
unpaid interest on items (a) and (c)) shall be applied to and used solely for
the payment of the particular Notes with respect to which such moneys and
Eligible Investments have been so set aside in trust.
In no event shall the Indenture Trustee deliver over to the Issuer any
Financed Student Loans unless the Issuer is at the time an eligible lender under
the Higher Education Act, if the Higher Education Act as then in effect then
requires the owner or holder of Student Loans to be an eligible lender. If to be
the owner or holder of Student Loans, the Issuer is required to be an eligible
lender under the Higher Education Act, it shall evidence the fact that it is an
eligible lender under the Higher Education Act by a written certificate to that
effect delivered to the Indenture Trustee. If the Higher Education Act does not
permit the Issuer to be the owner or holder of Student Loans, then such Financed
Student Loans shall remain in the name of an Eligible Lender Trustee, or its
duly appointed and qualified successor, for the benefit of the Issuer.
SECTION 10.3 Notes Not Presented for Payment When Due; Moneys Held for
the Notes after Due Date Thereof.
Subject to the provisions of the next sentence of this Section 10.3, if
any Note shall not be presented for payment when the principal thereof shall
become due, whether at maturity or at the date fixed for the redemption thereof,
or otherwise, and if moneys and/or Eligible Investments shall at such due date
be held by the Indenture Trustee, in trust for that purpose sufficient and
available to pay the principal of such Note, together with all interest and
Carryover Interest, if any, due and payable pursuant to the provisions of this
Indenture on such principal, to the due date thereof, or to the date fixed for
redemption thereof, as the case may be, all liability of the Issuer for such
payment shall forthwith cease, determine and be completely discharged, and
thereupon it shall be the duty of the Indenture Trustee, to hold said moneys
and/or Eligible Investments without liability to the Holder of such Note for
interest thereon, in trust for the benefit of the Holder of such Note, who
thereafter shall be restricted exclusively to said moneys and/or Eligible
Investments for any claim of whatever nature on its part on or with respect to
said Note, including for any claim for the payment thereof; provided, however,
that any such moneys and/or Eligible Investments held by the Indenture Trustee
remaining unclaimed by the Holders of such Notes for four (4) years after the
principal of the respective Notes with respect to which such moneys and/or
Eligible Investments have been so set aside has become due and payable (whether
at maturity or upon redemption or otherwise) shall be paid to the
79
<PAGE> 86
Issuer free from the trusts created by this Indenture, and all liabilities of
the Indenture Trustee with respect to such moneys and/or Eligible Investments
shall cease. In such event such Holders shall thereafter be deemed to be general
unsecured creditors of the Issuer for the amounts so paid to the Issuer (without
interest thereon), subject to any applicable statute of limitation.
80
<PAGE> 87
ARTICLE XI
Meetings of Holders
SECTION 11.1 Purposes of Meetings.
A meeting of Holders of the Notes, or of the Holders of any Series of
Notes, may be called at any time and from time to time pursuant to the
provisions of this Article XI, to the extent relevant to the Holders of all of
the Notes or of Notes of that Series, as the case may be, to take any action
authorized to be taken by or on behalf of the Holders of any specified aggregate
principal amount of the Notes, or of that Series, under any provision of this
Indenture or authorized or permitted by law.
SECTION 11.2 Call of Meetings; Place of Meetings.
The Indenture Trustee may, but is not obligated to, call at any time a
meeting of Holders pursuant to this Article to be held at any reasonable time
and place which the Indenture Trustee shall determine. Notice of that meeting,
setting forth the time and the place of the meeting and, in general terms, the
subject thereof and the action proposed to be taken, shall be mailed not fewer
than fifteen (15) or nor more than ninety (90) days prior to the date determined
for the meeting. That notice shall be mailed to each Holder at the close of
business on the 15th day preceding the mailing of the notice at its address as
it appears on the books of registry maintained by the Indenture Trustee pursuant
to Section 2.4 hereof on that 15th day preceding the mailing. The date of
determination of Holders for purposes of the mailing shall constitute the record
date for the meeting.
At any time, the Issuer or the Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes, or if applicable, the
affected Series of Outstanding Notes, may request the Indenture Trustee in
writing to call a meeting of respective Holders. The request shall describe in
general terms the subject of the meeting and the action proposed to be taken. If
the Indenture Trustee shall not have mailed the notice of the meeting within
twenty (20) days after receipt of the request, the Issuer or the Holders of
Notes in the amount described above, as the case may be, may determine a
reasonable time and place of the meeting and may call the meeting to take any
action authorized in this Article, by mailing notice thereof as provided above.
Any meetings of Holders, or the Holders of any Series of Outstanding
Notes affected by a particular matter, shall be valid without notice, if
(a) the Holders of all Outstanding Notes, or if applicable, the
affected Series of Outstanding Notes, are present in person or by proxy; or
notice is waived before or after the meeting by the Holders of all Outstanding
Notes, or if applicable, the affected Series of Outstanding Notes, who were not
so present at the meeting; and
(b) the Issuer and the Indenture Trustee are either present by duly
authorized representatives or have waived notice, before or after the meeting.
81
<PAGE> 88
SECTION 11.3 Meetings; Regulations of the Indenture Trustee.
Notwithstanding any other provisions of this Indenture, the Indenture
Trustee may make any reasonable regulations which it may deem to be advisable
for meetings of Holders, with regard to
(a) proof of the holding of Outstanding Notes and of the appointment of
proxies;
(b) the appointment and duties of inspectors of votes;
(c) recordation of the proceedings of those meetings;
(d) the execution, submission and examination of proxies and other
evidence of the right to vote; and
(e) any other matters concerning the conduct, adjournment or
reconvening of meetings which it may consider to be necessary or desirable.
The Indenture Trustee shall appoint a temporary chair of the meeting by
an instrument or document in writing, unless the meeting shall have been called
by the Issuer or Holders, in which case the Issuer or the Holders calling the
meeting, as the case may be, shall appoint a temporary chair in like manner. A
permanent chair and a permanent secretary of the meeting shall be elected by
vote of the Holders of a majority in principal amount of the Outstanding Notes
represented at the meeting and entitled to vote.
SECTION 11.4 Voting; Speaking at Meeting; Record of Meeting.
To be entitled to vote at any meeting of Holders, a Person shall
(a) be a Holder of one or more Outstanding Notes, or if applicable, of
the affected Series of Outstanding Notes, as of the record date for the meeting
as determined above; or
(b) be a person appointed in writing by an instrument or document as
proxy by a Holder, as of the record date for the meeting, of one or more
Outstanding Notes or, if applicable, of the affected Series of Outstanding
Notes.
The only Persons who shall be entitled to be present or to speak at any
meeting of Holders shall be the Persons entitled to vote at the meeting and
their counsel, any representatives of the Issuer and its counsel. Each Holder or
proxy shall be entitled to one vote for each $5,000 principal amount of
Outstanding Notes held or represented by it; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Notes challenged as
not Outstanding and ruled by the chair of the meeting to be not Outstanding.
The chair of the meeting shall have no right to vote other than by
virtue of Notes held by him or her or of instruments or documents described
above duly designating him or her as the person entitled to vote on behalf of
other Holders. Any meeting duly called pursuant to
82
<PAGE> 89
the provisions of this Article XI may be adjourned from time to time, and the
meeting may be held as so adjourned without further notice.
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the Holders
of Outstanding Notes, or if their representatives by proxy and the identifying
number or numbers of the Outstanding Notes held or represented by them.
The permanent chair of the meeting shall appoint two inspectors of
votes, who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting their
verified written reports in triplicate of all votes cast at the meeting. A
record in triplicate of the proceedings of each meeting of Holders shall be
prepared by the secretary of the meeting.
The original reports of the inspectors of votes on any vote by ballot
taken at the meeting and the affidavits by one or more individuals having
knowledge of the facts, setting forth a copy of the notice of the meeting and
showing that the notice was mailed as provided herein, shall be attached to each
copy of the record of the meeting prepared by the secretary. Each copy of the
record shall be signed and verified by the affidavits of the permanent chair and
the secretary of the meeting. One of the triplicate copies shall be delivered to
the Issuer and the other to the Indenture Trustee to be preserved by the
Indenture Trustee. The copy delivered to the Indenture Trustee shall have
attached thereto the ballots voted at the meeting.
Any record signed and verified as described above shall be conclusive
evidence of the matters therein stated.
SECTION 11.5 Miscellaneous.
Nothing contained in this Article XI shall be deemed or construed to
authorize or permit any hindrance or delay in the exercise of any right, remedy
or power conferred upon or reserved to the Indenture Trustee or to the Holders
under any of the provisions of this Indenture or of any Series of Notes by
reason of any call of a meeting of Holders or any right, remedy or power
conferred expressly or impliedly hereunder to make a call of a meeting.
83
<PAGE> 90
ARTICLE XII
Miscellaneous
SECTION 12.1 Benefits of Indenture Limited to Issuer, Eligible Lender
Trustees, Indenture Trustee, Exchange Counterparty and Holders.
With the exception of rights or benefits herein expressly conferred,
nothing expressed or mentioned in or to be implied from this Indenture or the
Notes is intended or shall be construed to confer upon or give to any Person
other than the Issuer, each Eligible Lender Trustee, the Indenture Trustee, any
Exchange Counterparty and the Holders, any legal or equitable right, remedy or
claim under or by reason of or in respect to this Indenture or any covenant,
condition, stipulation, promise, agreement or provision contained herein and all
of the covenants, conditions, stipulations, promises, agreements and provisions
hereof are intended to be and shall be for and inure to the sole and exclusive
benefit of the Issuer, each Eligible Lender Trustee, the Indenture Trustee, any
Exchange Counterparty and the Holders from time to time of the Notes as herein
and therein provided.
SECTION 12.2 Effect of Legal Holidays.
Whenever this Indenture requires any action to be taken on a day which
is not a Business Day, such action shall be taken on the next succeeding
Business Day with the same force and effect as if taken on such day.
SECTION 12.3 Partial Invalidity.
If any one or more of the covenants or agreements or portion thereof
provided in this Indenture on the part of the Issuer, each Eligible Lender
Trustee or the Indenture Trustee to be performed should be determined by a court
of competent jurisdiction to be contrary to law, then such covenant or
covenants, or such agreement or agreements, or such portions thereof, shall be
deemed severable from the remaining covenants and agreements provided in this
Indenture and the invalidity thereof shall in no way affect the validity of the
other provisions of this Indenture or of the Notes, and the Holders shall retain
all the rights and benefits accorded to them hereunder and under any applicable
provisions of law.
SECTION 12.4 Notices.
Except as otherwise expressly provided herein, any notice to or demand
upon the Indenture Trustee may be served or presented, and such demand may be
made, at the principal corporate trust office of the Indenture Trustee in
Cincinnati, Ohio, at 425 Walnut Street, Cincinnati, Ohio 45202, Attention:
Corporate Trust Services, telecopier number: (513) 632-3286, or at such other
address or number as may have been filed in writing by the Indenture Trustee
with the Issuer and each Eligible Lender Trustee.
Except as otherwise expressly provided herein, any notice to or demand
upon the Initial Co-Owner Eligible Lender Trustee may be served or presented,
and such demand may be made, at the principal corporate trust office of the
Initial Co-Owner Eligible Lender Trustee in Cincinnati, Ohio, at 425 Walnut
Street, Cincinnati, Ohio 45202, Attention: Corporate Trust Services, telecopier
number: (513) 632-3286, or at such other address or number as may have
84
<PAGE> 91
been filed in writing by the Initial Co-Owner Eligible Lender Trustee with the
Issuer and the Indenture Trustee.
Except as otherwise expressly provided herein, any notice to or demand
upon the Issuer may be served or presented, and such demand may be made, at the
principal corporate trust office of the Co-Owner Trustee not in its individual
capacity, but solely as co-owner trustee of the Delaware Trust, at 425 Walnut
Street, Cincinnati, Ohio 45202, Attention: Corporate Trust Services, telecopier
number: (513) 632-3286, or to the Issuer at such other address or number as may
have been filed in writing by the Issuer with the Indenture Trustee and each
Eligible Lender Trustee.
Copies of any notices delivered to the Indenture Trustee, the Holders
(except for any notice of redemption) or the Issuer shall be delivered by the
Indenture Trustee or the Issuer to each Exchange Counterparty at the address
filed in writing by each such Exchange Counterparty with the Indenture Trustee.
Any notice required to be in writing shall be deemed to be in writing
if given by telex, telecopier or other method which produces a written record.
SECTION 12.5 Law and Place of Enforcement of Indenture.
This Indenture shall be construed and interpreted in accordance with
the laws of the State and all suits and actions arising out of this Indenture
shall be instituted in a court of competent jurisdiction in the State.
SECTION 12.6 No Recourse Against Directors, Officers or Employees of
the Issuer.
All representations, covenants and obligations of any director, officer
or employee of the Issuer shall be treated as representations, covenants and
obligations of the Issuer and not as made in such person's individual capacity,
and no recourse shall be had for the payment of the principal of or interest or
Carryover Interest on the Notes or for any claim based on that payment or on
this Indenture against any such person or any person executing the Notes on
behalf of the Issuer; but nothing herein contained shall relieve any such
director, officer or employee from the performance of any official duty provided
by law or by this Indenture.
SECTION 12.7 Cross-Indemnification.
The Issuer, the Indenture Trustee and the Eligible Lender Trustee
hereby covenant and agree to indemnify, solely from the assets held in the Trust
Estate, any trust estate held under any other indenture between the Issuer and
the Eligible Lender Trustee entered into after the date hereof, in which trust
estate are held Student Loans assigned the same Department of Education lender
identification numbers as Student Loans included in the Trust Estate, against
any offset, shortfall or other loss of payments with respect to Student Loans in
such trust estate caused solely by an offset or withholding of payments on
Student Loans in this Trust Estate that share the same Department of Education
lender identification number.
85
<PAGE> 92
SECTION 12.8 Suspension of Mail.
If because of the suspension of delivery of first class mail or, for
any other reason, the Indenture Trustee shall be unable to mail by the required
class of mail any notice, request, complaint, demand or other instrument or
document required to be mailed hereby, the Indenture Trustee shall give it in
any other manner which shall approximate most effectively the mailing thereof in
accordance herewith in the judgment of the Indenture Trustee. The giving of that
notice, request, complaint, demand or other instrument or document in that
manner shall be deemed for all purposes of this Indenture to be in compliance
with the requirement for the mailing thereof. Except as provided otherwise
herein, the mailing of any notice, request, complaint, demand or other
instrument or document shall be deemed to be complete upon deposit thereof in
the mail, and the giving thereof by any other means of delivery shall be deemed
to be complete upon receipt thereof by the delivery service.
SECTION 12.9 Opinion as to Trust Estate.
On the Date of Issuance of the Notes, the Issuer shall furnish or cause
to be furnished to the Indenture Trustee an opinion of counsel either (i)
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording and filing of any financing statements and continuation
statements, as are necessary to make effective the lien and security interest
created by this Indenture in favor of the Indenture Trustee, for the benefit of
the parties described in the granting clauses and Section 5.6 of this Indenture,
and reciting the details of such action, or (ii) stating that in the opinion of
such counsel, no such action is necessary to make such lien and security
interest effective.
On or before June 30 in each calendar year, beginning in 2003, the
Issuer shall furnish or cause to be furnished to the Indenture Trustee an
opinion of counsel with respect to each jurisdiction in which the Financed
Student Loans are located or a Uniform Commercial Code financing statement has
been filed by the Issuer either stating that, in the opinion of such counsel,
such action has been taken with respect to the recording, filing, re-recording
and refiling of this Indenture, any Supplemental Indentures and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and security interest created by this Indenture and reciting the details of
such action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such opinion of counsel
shall also describe the recording, filing, re-recording and refiling of this
Indenture, any Supplemental Indentures and any other requisite documents and
with respect to the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture until June 30 in
the following calendar year.
SECTION 12.10 Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with
another provision hereof that is required to be included in this Indenture by
any of the provisions of the Trust Indenture Act, such required provision shall
control. The provisions of the Trust Indenture Act, Sections 310 through 317,
inclusive, that impose duties on any Person (including the
86
<PAGE> 93
provisions automatically deemed included herein unless expressly excluded by a
provision in this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
SECTION 12.11 Effect of Article and Section Headings and Table of
Contents.
The heading or titles of the several Articles and Sections hereof, and
any table of contents appended hereto, shall be solely for convenience of
reference and shall not affect the meaning or construction, interpretation or
effect of this Indenture.
SECTION 12.12 Execution of Counterparts.
This Indenture may be executed in several counterparts, each of which
shall be regarded as an original and all of which shall constitute but one and
the same document. It shall not be necessary in proving this Indenture to
produce or account for more than one of those counterparts.
87
<PAGE> 94
IN WITNESS WHEREOF, STUDENT LOAN FUNDING 1999-A TRUST, by Firstar Bank,
National Association, not in its individual capacity, but solely as Co-Owner
Trustee, has caused this Indenture to be signed in its name and on its behalf by
one of its officers thereunto duly authorized and FIRSTAR BANK, NATIONAL
ASSOCIATION, as Initial Co-Owner Eligible Lender Trustee, has caused this
Indenture to be signed in its name and on its behalf by one of its officers
thereunto duly authorized; and FIRSTAR BANK, NATIONAL ASSOCIATION, to evidence
its acceptance of the trusts hereby created, has caused this Indenture to be
signed in its name and on its behalf by one of its officers thereunto duly
authorized, all as of the date first above written.
STUDENT LOAN FUNDING 1999-A TRUST,
By FIRSTAR BANK NATIONAL BANK,
not in its individual capacity, but solely as Co-
Owner Trustee of the Issuer on behalf of the Issuer
By _______________________________________________
Title: ___________________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Initial Co-Owner Eligible Lender Trustee
By _______________________________________________
Title: ___________________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By _______________________________________________
Title: ___________________________________________
88
<PAGE> 95
SCHEDULE I
SCHEDULE OF APPROVED GUARANTEE AGENCIES
<TABLE>
<S> <C>
CALIFORNIA STUDENT AID COMMISSION NEBRASKA STUDENT LOAN PROGRAM
Educational Credit Management Corporation New Jersey Higher Assistance Authority
Finance Authority of Maine New York State Higher Education Services Corporation
FLORIDA DEPARTMENT OF EDUCATION, OFFICE OF STUDENT Oklahoma Guaranteed Student Loan Program
FINANCIAL ASSISTANCE
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
GREAT LAKES HIGHER EDUCATION GUARANTY AUTHORITY Tennessee Student Assistance Commission
KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY Texas Guaranteed Student Loan Corporation
Missouri Guaranteed Student Loan Program UNITED STUDENT AID FUNDS, INC.
</TABLE>
BOLD = NAMED IN S-3 REGISTRATION STATEMENT
II-1
<PAGE> 96
SCHEDULE II
SCHEDULE OF APPROVED SERVICERS AND SERVICING AGREEMENTS
<TABLE>
<CAPTION>
Servicers Servicing Agreements
- --------- --------------------
<S> <C>
AFSA DATA CORPORATION ("AFSA") Servicing Agreement, dated as of November 1,
1998, between the Master Servicer and AFSA
and the Subservicing Addendum, dated as of
________ 1, 1999, among the Master Servicer,
AFSA and the [Depositor].
GREAT LAKES HIGHER EDUCATION Servicing Agreement, dated as of November 1,
SERVICING CENTER ("GLHESC") 1998, between the Master Servicer and GLHESC
and the Subservicing Addendum, dated as of
________ 1, 1999, among the Master Servicer,
GLHESC and the [Depositor].
INTUITION, INC. ("INTUITION") Servicing Agreement, dated as of July 31,
1998, between the Master Servicer and
InTuition and the Subservicing Addendum,
dated as of __________, 1999, among the
Master Servicer, InTuition and the
[Depositor].
KENTUCKY HIGHER EDUCATION Servicing Agreement, dated as of November 1,
STUDENT LOAN CORPORATION 1998, between the Master Servicer and KHESLC
("KHESLC") and the Subservicing Addendum, dated as of
________ 1, 1999, among the Master Servicer,
KHESLC and the [Depositor].
PENNSYLVANIA HIGHER Servicing Agreement, dated as of November 1,
EDUCATION ASSISTANCE 1998, between the Master Servicer and PHEAA
AGENCY ("PHEAA") and the Subservicing Addendum, dated as of
________ 1, 1999, among the Master Servicer,
PHEAA and the [Depositor].
</TABLE>
II-1
<PAGE> 97
UNIPAC SERVICE CORPORATION Servicing Agreement, dated as of November 1,
("UNIPAC") 1998, between the Master Servicer and UNIPAC
and the Subservicing Addendum, dated as of
___________, 1999, among the Master
Servicer, UNIPAC and the [Depositor].
USA GROUP LOAN SERVICES, INC. Servicing Agreement, dated as of November 1,
("USAGLS") 1998, between the Master Servicer and USAGLS
and the Subservicing Addendum, dated as of
_____________, 1999, among the Master
Servicer, USAGLS and the [Depositor].
BOLD = NAMED IN S-3 REGISTRATION STATEMENT
II-2
<PAGE> 98
EXHIBIT A
to the
Indenture of Trust,
dated as of ________ 1, 1999, by and among
Student Loan Funding 1999-A Trust,
Firstar Bank, National Association,
as Initial Co-Owner Eligible Lender Trustee,
and
Firstar Bank, National Association,
as Indenture Trustee
[Addressed to Indenture Trustee]
STUDENT LOAN ACQUISITION CERTIFICATE
This Student Loan Acquisition Certificate is submitted pursuant to the
provisions of the Indenture of Trust, dated as of _________ 1, 1999 (the
"Indenture"), among Student Loan Funding 1999-A Trust, (the "Issuer") by Firstar
Bank, National Association, not in its individual capacity, but solely as
co-owner trustee of the Issuer (the "Co-Owner Trustee"), Firstar Bank, National
Association, as Initial Co-Owner Eligible Lender Trustee, and Firstar Bank,
National Association, as Indenture Trustee. All capitalized terms used in this
Certificate and not otherwise defined herein shall have the same meanings given
to such terms in the Indenture. In your capacity as Indenture Trustee, you are
hereby authorized and requested to disburse to _____________________________
(the "Lender") the sum of $_______________________ for the acquisition of
Student Loans. With respect to the Student Loans so to be acquired, the Issuer
hereby certifies as follows:
1. The Student Loans to be acquired (the "Acquired Student Loans") will
be further described by an updating certificate if required by the Indenture.
2. The amount to be disbursed pursuant to this Certificate does not
exceed the aggregate of the remaining unpaid principal amount of the Acquired
Student Loans plus accrued borrower interest, if any, [plus a premium of ____%
of the unpaid principal amount of Acquired Student Loans] [plus transfer fees of
$_________] [plus interest on the amount of principal and accrued borrower
interest from the date of transfer of said Student Loans until the date of
payment in the amount of $______________, said rate of interest not exceeding
the current yield on funds in the Expense Account.
3. Each Acquired Student Loan is a Student Loan authorized so to be
acquired by the Indenture.
4. The Issuer is not, on the date hereof, in default under the
Indenture.
5. The undersigned, as the _________________________ of the Issuer, is
authorized to sign and submit this Certificate on behalf of the Issuer.
A-1
<PAGE> 99
WITNESS my hand this _____ day of ___________________, 199_.
STUDENT LOAN FUNDING 1999-A TRUST,
By FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but
solely as co-owner trustee of the Issuer
By:_____________________________________
Title:__________________________________
A-2
<PAGE> 100
EXHIBIT B
to the
Indenture of Trust,
dated as of ________ 1, 1999,
by and among
Student Loan Funding 1999-A Trust,
Firstar Bank, National Association,
as Initial Co-Owner Eligible Lender Trustee
and
Firstar Bank, National Association,
as Indenture Trustee
[Addressed to Indenture Trustee]
UPDATING STUDENT LOAN ACQUISITION CERTIFICATE
This Updating Student Loan Acquisition Certificate is submitted
pursuant to the provisions of the Indenture of Trust, dated as of ____________
1, 1999, (the "Indenture"), among Student Loan Funding 1999-A Trust (the
"Issuer"), by Firstar Bank, National Association, not in its individual
capacity, but solely as co-owner trustee of the Issuer, Firstar Bank, National
Association, as Initial Co-Owner Eligible Lender Trustee, and Firstar Bank,
National Association, as Indenture Trustee. All capitalized terms used in this
Certificate and not otherwise defined herein shall have the same meanings given
to such terms in the Indenture. In your capacity as Indenture Trustee, you have,
pursuant to a Student Loan Acquisition Certificate, dated
__________________________, been previously authorized and requested to disburse
to _____________________________ the sum of $__________ for the acquisition of
Student Loans. With respect to the Student Loans so acquired, the Issuer hereby
certifies as follows:
1. The Student Loans acquired with such moneys are those specified in
Schedule A attached hereto (the "Acquired Student Loans").
2. The remaining unpaid principal amount of each Acquired Student Loan
is as shown on Schedule A attached hereto.
3. The undersigned, as _____________________ of the Issuer, is
authorized to sign and submit this Certificate on behalf of the Issuer.
4. The additional sum of $___________ is due and owing to the Lender
for the purchase price of such Student Loans representing
_________________________________.
OR
We are herewith transmitting to you $_______________ representing an
overpayment made to the Lender for such Student Loans.
B-1
<PAGE> 101
WITNESS my hand this _____ day of ___________________, 199_.
STUDENT LOAN FUNDING 1999-A TRUST,
By FIRSTAR BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as co-owner
trustee of the Issuer
By: ________________________________
Title: _____________________________
B-2
<PAGE> 1
Exhibit 4.2
TERMS SUPPLEMENT
TO THE
INDENTURE OF TRUST
Dated as of ________ 1, 1999,
by and among
STUDENT LOAN FUNDING 1999-A TRUST,
A Delaware common law trust,
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as eligible
lender trustee for the benefit of
Student Loan Funding 1999-A Trust,
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee,
Dated as of ________ 1, 1999
Securing
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-1
(LIBOR RATE),
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1999A-2
(AUCTION RATE)
and
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTES,
SERIES 1999B-1
(LIBOR RATE)
OF
STUDENT LOAN FUNDING 1999-A TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions
ARTICLE II
Authorization, Terms and Provisions of Notes
<S> <C>
SECTION 2.01 Authorization of Notes; Notes to Constitute Special Obligations........................... 15
SECTION 2.02 Terms of Notes............................................................................ 15
SECTION 2.03 Determination of Series Interest Rates on the Notes....................................... 18
SECTION 2.03.1 Determination of the Series Interest Rate on the LIBOR Rate Notes.............. 18
SECTION 2.03.2 Determination of the Series Interest Rate on the Auction Rate Notes............ 19
SECTION 2.03.2.1 Auction Procedures.................................................. 21
SECTION 2.03.2.2 Application of Interest Payments for the Auction Rate
Notes........................................................................ 30
SECTION 2.03.2.3 Calculation of Maximum Auction Rate, All Hold Rate, Net
Loan Rate, Applicable LIBOR Rate and Non-Payment Rate........................ 30
SECTION 2.03.2.4 Notification of Rates, Amounts and Payment Dates.................... 31
SECTION 2.03.2.5 Auction Agent....................................................... 32
SECTION 2.03.2.6. Broker-Dealers..................................................... 33
SECTION 2.03.2.7 Changes in Auction Period or Periods................................ 33
SECTION 2.03.2.8 Changes in the Interest Determination Date.......................... 34
SECTION 2.03.2.9 Auction Period Conversions.......................................... 35
SECTION 2.03.2.10 Mandatory Tender and Purchase of Series Auction Rate
Notes in connection with Auction Period Conversion........................... 37
SECTION 2.03.2.11 Remarketing Agent Notes............................................ 39
SECTION 2.03.3 Carryover Interest............................................................. 39
SECTION 2.03.4 Additional Provisions Regarding Series Interest Rate........................... 40
SECTION 2.04 Forms of Notes and Instructions for Payment............................................... 41
ARTICLE
Redemption of the Notes
SECTION 3.01 Redemption of Notes in General............................................................ 42
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.02 Auction of Financed Student Loans; Redemption of Outstanding Notes from
Auction Proceeds prior to the Legal Final Maturity............................................. 42
SECTION 3.03 Optional Redemption of Notes prior to the Legal Final Maturity............................ 43
ARTICLE IV
Disposition of Proceeds of the Notes; Collection Account; Acquisition Fund
SECTION 4.01 Disposition of Proceeds of the Notes...................................................... 45
SECTION 4.02 Disposition of Collection Account......................................................... 45
ARTICLE V
Miscellaneous
SECTION 5.01 Execution and Delivery of this Terms Supplement........................................... 50
SECTION 5.02. Effect of Terms Supplement on Indenture.................................................. 50
SECTION 5.03 Execution of Counterparts................................................................. 50
SECTION 5.04. Governing Law............................................................................ 50
SCHEDULE I TERMS OF SENIOR NOTES; TERMS OF SUBORDINATE NOTES
EXHIBIT A DISTRIBUTION STATEMENT
EXHIBIT B FORM OF SENIOR LIBOR FLOATING RATE NOTE
EXHIBIT C FORM OF SENIOR AUCTION RATE NOTE
EXHIBIT D FORM OF SUBORDINATE NOTE
EXHIBIT E INSTRUCTION FOR PAYMENT OF INTEREST
EXHIBIT F NOTICE OF PAYMENT DEFAULT
EXHIBIT G NOTICE OF CURE OF PAYMENT DEFAULT
EXHIBIT H NOTICE OF PROPOSED AUCTION PERIOD ADJUSTMENT
EXHIBIT I NOTICE ESTABLISHING AUCTION PERIOD ADJUSTMENT
EXHIBIT J NOTICE OF CHANGE IN RATE DETERMINATION DATE
EXHIBIT K NOTICE OF PROPOSED AUCTION PERIOD CONVERSION
EXHIBIT L NOTICE ESTABLISHING AUCTION PERIOD CONVERSION
</TABLE>
ii
<PAGE> 4
TERMS SUPPLEMENT
THIS TERMS SUPPLEMENT, dated as of ________ 1, 1999 (this "Terms
Supplement"), by and among STUDENT LOAN FUNDING 1999-A TRUST, a common law (as
opposed to statutory) trust created under the laws of the State of Delaware (the
"Issuer"), by FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association
duly organized and existing under the laws of the United States, having its
principal corporate trust office in Cincinnati, Ohio, not in its individual
capacity, but solely as Co-Owner Trustee of the Issuer (the "Co-Owner Trustee"),
FIRSTAR BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely
in its capacity as the initial eligible lender trustee holding title to the
Financed Student Loans on behalf of the Issuer (the "Initial Co-Owner Eligible
Lender Trustee"), and FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking
association duly organized and existing under the laws of the United States,
having its principal corporate trust office in Cincinnati, Ohio (the "Indenture
Trustee"), as Indenture Trustee under that certain Indenture of Trust, dated as
of ________ 1, 1999 (as hereafter amended and supplemented by Supplemental
Indentures, the "Base Indenture"), among the Issuer, the Initial Co-Owner
Eligible Lender Trustee and the Indenture Trustee, amends and supplements the
Base Indenture (as amended and supplemented by this Terms Supplement, the
"Indenture"). Words and terms used as defined words and terms herein and not
otherwise defined herein shall have the meanings given them in the Base
Indenture. (References to the name "Student Loan Funding 1999-A Trust" or to the
term "Issuer" in this Terms Supplement, including the Schedules and Exhibits
attached hereto and made a part hereof, shall mean the Co-Owner Trustee, not in
its individual capacity, but solely as Co-Owner Trustee of the Issuer on behalf
of the Trust.)
WITNESSETH:
WHEREAS, Section 2.1 of the Base Indenture provides, among other
things, that the Issuer, the Initial Co-Owner Eligible Lender Trustee and the
Indenture Trustee shall enter into a Terms Supplement thereto for the purposes
of (i) authorizing the issuance of a Series of Notes thereunder and (ii)
specifying certain terms of such Notes; and
WHEREAS, the Issuer has determined to provide hereunder for the
issuance of (i) its Student Loan Senior Asset-Backed Notes, Series 1999A-1
(LIBOR Rate) (the "Series 1999A-1 Notes"), (ii) Student Loan Senior Asset-Backed
Callable Notes, Series 1999A-2 (Auction Rate) (the "Series 1999A-2 Notes" and,
together with the Series 1999A-1 Notes, the "Senior Notes"), and (iii) its
Student Loan Subordinate Asset-Backed Notes, Series 1999B-1 (LIBOR Rate) (the
"Subordinate Notes" and, collectively with the Senior Notes, the "Notes"); and
WHEREAS, the Issuer, the Initial Co-Owner Eligible Lender Trustee and
the Indenture Trustee desire to execute and deliver this Terms Supplement in
order to authorize the issuance of each Series of the Notes and to declare the
terms upon which each Series of the Notes will be issued; and
1
<PAGE> 5
NOW, THEREFORE, THIS TERMS SUPPLEMENT WITNESSETH:
That it is hereby mutually covenanted and agreed that the terms and
conditions upon which each Series of the Notes are executed, authenticated,
issued, delivered, secured and accepted by all Persons who shall from time to
time be or become the Holders thereof, and the trusts and conditions upon which
the Trust Estate is to be held and disbursed, are as set forth herein and in the
Base Indenture:
2
<PAGE> 6
ARTICLE I
Definitions
Unless the context shall clearly indicate some other meaning or may
otherwise require, the terms defined in this Article I shall, for all purposes
of the Base Indenture and of any indenture or other instrument amendatory or
supplemental thereto, have the meanings herein specified (terms used herein as
defined terms and not defined herein, shall have the meanings ascribed thereto
in the Base Indenture):
"All Hold Rate" shall mean eighty-five percent (85%) of the Applicable
LIBOR Rate.
"Applicable LIBOR Rate" shall mean (a) for Auction Periods of 35 days
or less, One-Month LIBOR, (b) for Auction Periods of more than 35 days but less
than 91 days, Three-Month LIBOR, (c) for Auction Periods of more than 90 days
but less than 181 days, Six-Month LIBOR, and (d) for Auction Periods of more
than 180 days, One-Year LIBOR. As used in this definition and otherwise herein,
the terms "Three-Month LIBOR," "Six-Month LIBOR" or "One-Year LIBOR," means the
rate of interest per annum equal to the rate per annum with respect to United
States dollar deposits in the London interbank market having a maturity of three
months, six months or one year, respectively.
"Auction" shall mean the implementation of the Auction Procedures on an
Interest Determination Date.
"Auction Agent" shall mean with respect to the Auction Rate Notes, the
Initial Auction Agent unless and until a Substitute Auction Agent Agreement
becomes effective, after which the Auction Agent shall mean the Substitute
Auction Agent.
"Auction Agent Agreement" shall mean with respect to the Auction Rate
Notes, the Initial Auction Agent Agreement unless and until a Substitute Auction
Agent Agreement is entered into, after which Auction Agent Agreement shall mean
such Substitute Auction Agent Agreement.
"Auction Agent Fee" shall have the meaning set forth in the applicable
Auction Agent Agreement.
"Auction Agent Fee Rate" shall have the meaning set forth in the
applicable Auction Agent Agreement.
"Auction Period" shall mean with respect to each Series of Auction Rate
Notes, a period generally consisting of twenty-eight (28) days beginning on a
__________ and ending on the fourth ___________ thereafter, as the same may be
changed pursuant to Section 2.03.2.7 hereof.
3
<PAGE> 7
"Auction Period Adjustment" shall mean with respect to a Series of
Auction Rate Notes, the change, from time to time, in the length of an Auction
Period and, specifically, (i) with respect to an Auction Period between seven
(7) and ninety-one (91) days, inclusive, from such an Auction Period to any
other Auction Period between seven (7) and ninety-one (91) days, inclusive, or
(ii) with respect to an Auction Period between ninety-two (92) days and the
Legal Final Maturity of a Series of Auction Rate Notes, inclusive, from such an
Auction Period to an Auction Period between ninety-two (92) days and the Legal
Final Maturity of a Series of Auction Rate Notes, inclusive, if such latter
Auction Period is no more than three (3) months shorter or no more than three
(3) months longer than the Auction Period for such series of Auction Rate Notes
established either at the initial issuance of such Series of Auction Rate Notes
or pursuant to an Auction Period Conversion, whichever has occurred most
recently.
"Auction Period Commencement Date" shall mean, with respect to the
Auction Rate Notes, the first Business Day following each Interest Determination
Date.
"Auction Period Conversion" shall mean with respect to a Series of
Auction Rate Notes, the change in the length of an Auction Period (i) from an
Auction Period between seven (7) and ninety-one (91) days, inclusive, to an
Auction Period between ninety-two (92) days and the Legal Final Maturity of such
Series of Auction Rate Notes, inclusive, (ii) from an Auction Period between
ninety-two (92) days and the Legal Final Maturity of such Series of Auction Rate
Notes, inclusive, to an Auction Period between seven (7) and ninety-one (91)
days, inclusive, or (iii) from an Auction Period between ninety-two (92) days
and the Legal Final Maturity of such Series of Auction Rate Notes, inclusive, to
an Auction Period between ninety-two (92) and the Legal Final Maturity of such
Series of Auction Rate Notes, inclusive, if such latter Auction Period is at
least three (3) months shorter or at least three (3) months longer than the
Auction Period for such Series of Auction Rate Notes established either upon
initial issuance of such Series of Auction Rate Notes or pursuant to an Auction
Period Conversion, whichever has occurred most recently.
"Auction Period Conversion Date" shall mean, with respect to a Series
of Auction Rate Notes, the date on which an Auction Period Conversion is
effective which shall be an Auction Period Distribution Date.
"Auction Period Distribution Date" shall mean, with respect to a Series
of Auction Rate Notes, the Business Day immediately following the expiration of
each related Auction Period, commencing on the Initial Distribution Date for
each Series of Auction Rate Notes; provided, however, that in connection with
any Auction Period Adjustment or Auction Period Conversion, the Auction Period
Distribution Date may be changed.
"Auction Procedures" shall mean the procedures set forth in Section
2.03.2 hereof.
"Auction Rate" shall mean with respect to the Series Interest Rate on a
Series of Auction Rate Notes, the interest rate that results from implementation
of the applicable Auction Procedures.
4
<PAGE> 8
"Auction Rate Noteholders" shall mean the Holders of Auction Rate
Notes.
"Auction Rate Notes" shall mean the Series 1999A-2 Notes.
"Authorized Denominations" shall mean (a) with respect to the LIBOR
Rate Notes, (i) as applicable solely in connection with the original issuance of
each such Series of Notes, $50,000 and integral multiples of $1,000 in excess
thereof and (ii) after distribution of principal in accordance with Section
5.5.2 of the Base Indenture, the Outstanding principal amount that results after
such distribution, and (b) with respect to the Auction Rate Notes, $50,000 and
integral multiples of $50,000 in excess thereof.
"Bid Auction Rate" shall have the meaning described in Section
2.03.2.1(c)(i) hereof.
"Bidder" shall have the meaning set forth in Section 2.03.2.1(a)(i)
hereof.
"Book-Entry Form" or "Book-Entry System" shall mean a form or system
under which (i) the beneficial right to principal and interest may be
transferred only through a book entry, (ii) physical Series 1999A-1 Notes,
Series 1999A-2 Notes, Series 1999B-1 Notes or notes in registered form are
issued only to a Depository or its nominee as registered owner, with such Notes
"immobilized" to the custody of the Depository, and (iii) the book entry is the
record that identifies the owners of beneficial interests in that principal and
interest and Carryover Interest, if any.
"Broker-Dealer" shall mean _________________________________ 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 Section 2.03.2.6 hereof, and (c) has entered
into a Broker-Dealer Agreement that is in effect on the date of reference.
"Broker-Dealer Agreement" shall mean each agreement between the Auction
Agent and a Broker-Dealer, approved by the 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 ________
1, 1999, between Bankers Trust Company, as Auction Agent, and
______________________________, 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.
5
<PAGE> 9
"Calculation Agent" shall mean __________________________________, as
Calculation Agent under the Calculation Agent Agreement, or any successor to it
as such agent under the Calculation Agent Agreement.
"Calculation Agent Agreement" shall mean the Calculation Agent
Agreement, dated as of ________ 1, 1999, among the Issuer, the Calculation Agent
and the Indenture Trustee, in each case as originally executed and as from time
to time amended or supplemented in accordance with the terms thereof and the
Indenture.
"Cedel" shall mean a professional depository incorporated under the
laws of Luxembourg which holds securities for its participating organizations
and facilitates the clearance and settlement of securities transactions between
Cedel Participants through electronic book-entry.
"Cedel Participants" means recognized financial institutions around the
world that utilize the services of Cedel, including initial purchasers,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Initial Purchasers.
"Collection Period" shall mean (i) initially the period commencing on
Date of Issuance and running through and including ________________, and (ii)
thereafter a period of one calendar month commencing and including the date next
following the end of the preceding Collection Period.
"Date of Issuance" shall mean with respect to each Series of the Notes,
________________, the date of their initial issuance and delivery.
"Depository" shall mean any securities depository that is a clearing
agency under federal law operating and maintaining a Book-Entry System to record
beneficial ownership of the right to principal and interest, and to effect
transfers of Notes, in Book-Entry Form, and includes and means initially (i)
DTC, if the Notes are offered in the United States, and (ii) Cedel or Euroclear,
if the Notes are offered in Europe.
"Depository Participant" shall mean any broker-dealer, bank or other
financial institution for which a Depository holds Notes from time to time as
securities depository.
"Distribution Date" shall mean (i) with respect to each Series of LIBOR
Rate 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" shall mean The Depository Trust Company (a limited purpose trust
company), New York, New York.
6
<PAGE> 10
"Euroclear" shall mean Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
"Existing Holder" shall mean, (i) with respect to and for the purpose
of dealing with the Auction Agent in connection with the Auction, a Person who
is a Broker-Dealer listed in the Existing Holder Registry at the close of
business on the Business Day immediately preceding such Auction, and (ii) with
respect to and for the purpose of dealing with the Broker-Dealer in connection
with an Auction, a Person who is a beneficial owner of Auction Rate Notes.
"Existing Holder Registry" shall mean the registry of Persons who are
holders of Auction Rate Notes maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Formula Rate" shall mean, (i) with respect to the Series 1999A-1
Notes, the lesser of One-Month LIBOR as of the related Interest Determination
Date for such Interest Accrual Period plus ____% per annum and 18%, (ii) with
respect to the Series 1999A-2 Notes, the lesser of the Auction Rate for such
Interest Accrual Period and 17%, and (iii) with respect to the Series 1999B-1
Notes, the lesser of One-Month LIBOR as of the related Interest Determination
Date for such Interest Accrual Period plus ____% and 18%.
"Indirect Participant" shall mean any Person which has indirect access
to a Clearing Agency, such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
"Initial Auction Agent" shall mean Bankers Trust Company, New York, New
York, its successors and assigns.
"Initial Auction Agent Agreement" shall mean the Auction Agent
Agreement, dated as of ________ 1, 1999, by and among the Issuer, the Indenture
Trustee and the Initial Auction Agent, including any amendment thereof or
supplement thereto, relating to the Auction Rate Notes.
"Initial Distribution Date" shall mean, (i) as to the Series 1999A-1
Notes, ___________, 1999, (ii) as to the Series 1999A-2 Notes, ____________,
1999, and (iii) as to the Series 1999B-1 Notes, _____________, 1999.
"Initial Interest Determination Date" shall mean (i) as to the Series
1999A-1 Notes, ____________, 1999, (ii) as to the Series 1999A-2 Notes,
_________, 1999, and (iii) as to the Series 1999B-1 Notes, ____________, 1999.
"Interest Accrual Period" shall mean with respect to each Series of
Notes, the period of time in which interest may accrue commencing initially on
the Date of Issuance for such Series of Notes and ending on the day before the
Initial Distribution Date for each Series and thereafter commencing on each
Distribution Date for such Series of Notes and ending on the day before the next
Distribution Date for such Series.
7
<PAGE> 11
"Interest Determination Date" shall mean (i) the Initial Interest
Determination Date and thereafter (ii) (a) with respect to the LIBOR Rate Notes,
the second London Banking Day immediately preceding the first day of each
Interest Accrual Period, and (b) with respect to the Auction Rate Notes, the
Business Day on which the Auction Rate is determined by an Auction and that
immediately preceded the first day of each Interest Accrual Period, other than
(1) an Interest Accrual Period which commences on an Auction Period Conversion
Date or an Auction Period Adjustment Date; (2) each Interest Accrual Period
commencing after the ownership of the Auction Rate Notes is no longer maintained
in Book-Entry Form; (3) each Interest Accrual Period commencing after the
occurrence and during the continuance of a Payment Default; provided, however,
that if such day is not a Business Day, then the next succeeding Business Day.
"Legal Final Maturity" shall mean with respect to (i) the Series
1999A-1 Notes, _______________, (ii) the Series 1999A-2 Notes, ____________; and
(iii) the Series 1999B-1 Notes,
"LIBOR" shall mean, the rate of interest per annum equal to the rate
per annum at which United States dollar deposits having a particular maturity
are offered to prime banks in the London interbank market which appears on the
Telerate Page 3750 as of approximately 11:00 a.m., Greenwich Mean time, on the
Interest Determination Date. If such rate does not appear on Telerate Page 3750,
the rate for that day will be determined on the basis on the Reuters Screen
LIBOR Page. If at least two such quotations appear, LIBOR shall be the
arithmetic mean (rounded to the nearest one-hundredth of one percent (.01%)) of
such offered rates. If fewer than two such quotes appear, LIBOR with respect to
an Interest Accrual Period will be determined at approximately 11:00 a.m.,
London time, on such applicable Interest Determination Date on the basis of the
rate at which deposits in United States dollars having such particular maturity
are offered to prime banks in the London interbank market by four major banks in
the London interbank market selected by the Calculation Agent and in a principal
amount of not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time. The Calculation Agent will request the
principal London office of each of such banks to provide a quotation of its
rate. If at least two quotations are provided, LIBOR shall be the arithmetic
mean (rounded to the nearest one-hundredth of one percent (.01%)) of such
offered rates. If fewer than two quotations are provided, LIBOR with respect to
such Interest Accrual Period shall be the arithmetic mean (rounded to the
nearest one-hundredth of one percent (.01%)) of the rates quoted at
approximately 11:00 a.m., New York City time on such applicable Interest
Determination Date by three major banks in New York, New York selected by the
Calculation Agent for loans in United States dollars to leading European banks
having such particular maturity and in a principal amount equal to an amount of
not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time; provided, however, that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, LIBOR in
effect for the applicable Interest Accrual Period shall be LIBOR in effect for
the immediately preceding Interest Accrual Period.
"LIBOR Rate Notes" shall mean collectively, the Series 1999A-1 Notes
and the Series 1999B-1 Notes.
8
<PAGE> 12
"London Banking Day" shall mean any business day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
"Maximum Auction Rate" shall mean (i) prior to an Auction Period
Conversion, (a) the Applicable LIBOR Rate plus 1.50% (if both of the ratings
assigned by the Rating Agencies to the Auction Rate Notes are "Aa3," "AA-" or
better) or (b) the Applicable LIBOR Rate plus 2.50% (if any one of the ratings
assigned by Rating Agencies to the Auction Rate Notes is less than "Aa3" or
"AA-" but at least "A") or (c) the Applicable LIBOR Rate plus 3.50% (if any one
of the ratings assigned by the Ratings Agencies to the Auction Rate Notes is
less than "A") and (ii) after an Auction Period Conversion, the rate set forth
in the Supplemental Indenture executed in connection with the Auction Period
Conversion. For purposes of the Auction Agent and the Auction Procedures, the
ratings referred to in this definition shall be the last ratings of which the
Auction Agent has been given notice pursuant to the Auction Agent Agreement.
"Monthly Distribution Date" shall mean, with respect to a Series of
LIBOR Rate Notes, the last Business Day of each month, commencing on the Initial
Distribution Date for each such Series of Notes.
"Net Loan Rate" shall mean with respect to any Interest Accrual Period
for a Series of the Notes, the annualized percentage rate determined by
multiplying (a) the ratio of 360 to the actual number of days in such Interest
Accrual Period, and (b) the ratio of (i) Expected Interest Collections for the
applicable Collection Period less Program Operating Expenses with respect to
such Collection Period, to (ii) the Pool Balance as of the first day of such
Collection Period. In calculating the Net Loan Rate, the applicable Collection
Period for the LIBOR Rate Notes is the Collection Period immediately preceding
the Collection Period in which the Monthly Distribution Date occurs. The
applicable Collection Period for the applicable Auction Rate Notes is the second
preceding Collection Period prior to the applicable Auction Period Distribution
Date.
"Non-Payment Rate" on any date of determination, shall mean (a) prior
to an Auction Period Conversion, One-Month LIBOR plus 1.50% and (b) after an
Auction Period Conversion, the interest rate per annum set forth in the
definition thereof in the Supplemental Indenture executed in connection with the
Auction Period Conversion.
"Notice of Fee Change" shall mean a notice of a change in the Auction
Agent Fee Rate or the Broker-Dealer Fee Rate substantially in the form of
Exhibit D to the applicable Auction Agent Agreement.
"One-Month LIBOR" shall mean LIBOR with respect to U.S. denominated
deposits having a maturity of one (1) month.
"Parity Percentage" shall have the meaning given such term in the Base
Indenture.
"Parity Percentage Limitation" shall mean ___%.
9
<PAGE> 13
"Parity Percentage Payment" shall mean those principal amounts required
to be paid on the Notes pursuant to Section 4.2 hereof until the Parity
Percentage is ___%.
"Participant" shall mean a Person who is a participant in or member of
the Depository, as determined by the rules or bylaws of the Depository.
"Payment Default" shall mean (a) a default in the due and punctual
payment of any installment of interest on a Series of Auction Rate Notes or (b)
a default in the due and punctual payment of any interest on and principal of a
Series of Auction Rate Notes at their Final Legal Maturity.
"Potential Holder" shall mean any Person (including an Existing Holder
that is (i) a Broker-Dealer when dealing with the Auction Agent and (ii) a
potential beneficial owner when dealing with a Broker-Dealer), who may be
interested in acquiring Auction Rate Notes (or, in the case of an Existing
Holder thereof, an additional principal amount of Auction Rate Notes).
"Principal Factor" shall mean a seven-digit decimal number which, when
multiplied by the initial principal amount of each LIBOR Rate Note, produces its
Outstanding principal balance. The Principal Factor will be 1.0000000 for each
such Note as of the Date of Issuance; thereafter, the Principal Factor for each
such Note will decline to reflect reductions in the Outstanding principal
balance of such Note.
"Program Expense Requirement" shall have the meaning given such term in
the Base Indenture.
"Record Date" shall mean, (i) with respect to the LIBOR Rate Notes, the
second Business Day preceding a Monthly Distribution Date, and (ii) with respect
to the Auction Rate Notes, the Business Day immediately preceding an Auction
Period Distribution Date.
"Remarketing Agent" shall mean, with respect to the Auction Rate Notes,
the remarketing agent under the remarketing agreement related to the Auction
Rate Notes, or any successor to it as such agent.
"Remarketing Agreement" shall mean a remarketing agreement among the
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.
"Senior Parity Percentage" shall have the meaning given such term in
the Base Indenture.
"Series 1999A Noteholders" shall mean, collectively, the Series 1999A-1
Noteholders and the Series 1999A-2 Noteholders.
"Series 1999A Noteholders' Principal Distribution Amount" shall mean,
with respect to any Distribution Date for a Series of Series 1999A Notes, the
Series 1999A Principal Distribution Amount for such Distribution Date plus the
Series 1999A Principal Shortfall as of
10
<PAGE> 14
the close of the preceding Distribution Date; provided that the Series 1999A
Noteholders' Principal Distribution Amount will not exceed the outstanding
principal balance of the Series 1999A Notes. In addition, (i) on the Legal Final
Maturity of the Series 1999A-1 Notes, the principal required to be distributed
to the Series 1999A-1 Noteholders will include the amount required to reduce the
outstanding principal balance of the Series 1999A-1 Notes to zero, and (ii) on
the Legal Final Maturity of the Series 1999A-2 Notes, the principal required to
be distributed to the Series 1999A-2 Noteholders will include the amount
required to reduce the outstanding principal balance of the Series 1999A-2 Notes
to zero.
"Series 1999A Notes" shall mean, collectively, the Series 1999A-1 Notes
and the Series 1999A-2 Notes.
"Series 1999A Principal Distribution Amount" shall be equal to (i) with
respect to the Series 1999A-1 Notes, an amount equal to the decline in the Pool
Balance between the end of the second Collection Period preceding a Monthly
Distribution Date and the end of the immediately preceding Collection Period,
and (ii) with respect to the Series 1999A-2 Notes on and after which the
principal balance of the Series 1999A-1 Notes has been paid in full, an amount
equal to the decline in the Pool Balance between the end of the third Collection
Period preceding an Auction Period Distribution Date and the end of the second
preceding Collection Period.
"Series 1999A Principal Shortfall" shall mean, as of the close of any
Distribution Date, the excess of (i) the Series 1999A Principal Distribution
Amount on such Distribution Date over (ii) the amount of principal actually
distributed to the Series 1999A Noteholders on such Distribution Date.
"Series 1999A-1 Interest Shortfall" shall mean, with respect to any
Monthly Distribution Date, the excess of (i) the Series 1999A-1 Noteholders'
Interest Distribution Amount on the preceding Monthly Distribution Date over
(ii) the amount of interest actually distributed to the Series 1999A-1
Noteholders on such preceding Monthly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1999A-1 Noteholders, to the
extent permitted by law, at the related Series Interest Rate from such preceding
Monthly Distribution Date to the current Monthly Distribution Date.
"Series 1999A-1 Noteholders" shall mean the Holders of the Series
1999A-1 Notes.
"Series 1999A-1 Noteholders' Interest Distribution Amount" shall mean
with respect to any Monthly Distribution Date, the sum of (i) the amount of
interest accrued at the related Series Interest Rate for the related Interest
Accrual Period on the aggregate outstanding principal balance of the Series
1999A-1 Notes on the immediately preceding Monthly Distribution Date after
giving effect to all principal distributions to Holders of Series 1999A-1 Notes
on such preceding Monthly Distribution Date (or, in the case of the first
Monthly Distribution Date, on the Date of Issuance) and (ii) the Series 1999A-1
Interest Shortfall for such Distribution Date; provided that the Series 1999A-1
Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series 1999A-1 Notes.
11
<PAGE> 15
"Series 1999A-1 Notes" shall mean the Student Loan Senior Asset-Backed
Notes, Series 1999A-1 (LIBOR Rate), of the Issuer issued under the Indenture.
"Series 1999A-2 Interest Shortfall" shall mean, with respect to any
Auction Period Distribution Date, the excess of (i) the Series 1999A-2
Noteholders' Interest Distribution Amount on the preceding Auction Period
Distribution Date over (ii) the amount of interest actually distributed to the
Series 1999A-2 Noteholders on such preceding Auction Period Distribution Date,
plus interest on the amount of such excess interest due to the Series 1999A-2
Noteholders, to the extent permitted by law, at the related Series Interest Rate
from such preceding Auction Period Distribution Date to the current Auction
Period Distribution Date.
"Series 1999A-2 Noteholders" shall mean the Holders of the Series
1999A-2 Notes.
"Series 1999A-2 Noteholders' Interest Distribution Amount" shall mean
with respect to any 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
1999A-2 Notes on the immediately preceding Auction Period Distribution Date
after giving effect to all principal distributions to Holders of Series 1999A-2
Notes on such preceding Auction Period Distribution Date (or, in the case of the
first Auction Period Distribution Date, on the Date of Issuance) and (ii) the
Series 1999A-2 Interest Shortfall for such Auction Period Distribution Date;
provided that the Series 1999A-2 Noteholders' Interest Distribution Amount will
not include any Carryover Interest on the Series 1999A-2 Notes.
"Series 1999A-2 Notes" shall mean the Student Loan Senior Asset-Backed
Callable Notes, Series 1999A-2 (Auction Rate), of the Issuer issued under the
Indenture.
"Series 1999B-1 Interest Shortfall" shall mean, with respect to any
Monthly Distribution Date, the excess of (i) the Series 1999B-1 Noteholders'
Interest Distribution Amount on the preceding Monthly Distribution Date over
(ii) the amount of interest actually distributed to the Series 1999B-1
Noteholders on such preceding Monthly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1999B-1 Noteholders, to the
extent permitted by law, at the related Series Interest Rate from such preceding
Monthly Distribution Date to the current Monthly Distribution Date.
"Series 1999B-1 Noteholders" shall mean the Holders of the Series
1999B-1 Notes.
"Series 1999B-1 Noteholders' Interest Distribution Amount" shall mean,
with respect to any 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
1999B-1 Notes on the immediately preceding Monthly Distribution Date after
giving effect to all principal distributions to Holders of Series 1999B-1 Notes
on such preceding Monthly Distribution Date (or, in the case of the first
Monthly Distribution Date, on the Date of Issuance) and (ii) the Series 1999B-1
Interest Shortfall for such
12
<PAGE> 16
Monthly Distribution Date; provided that the Series 1999B-1 Noteholders'
Interest Distribution Amount will not include any Carryover Interest on the
Series 1999B-1 Notes.
"Series 1999B-1 Noteholders' Principal Distribution Amount" shall mean,
with respect to any Monthly Distribution Date, the Series 1999B-1 Principal
Distribution Amount for such Monthly Distribution Date plus the Series 1999B-1
Principal Shortfall as of the close of the preceding Monthly Distribution Date;
provided that the Series 1999B-1 Noteholders' Principal Distribution Amount
shall not exceed the outstanding principal balance of the Series 1999B-1 Notes.
In addition, on the Legal Final Maturity of the Series 1999B-1 Notes, the
principal required to be distributed to the Series 1999B-1 Noteholders shall
include the amount required to reduce the outstanding principal balance on the
Series 1999B-1 Notes to zero.
"Series 1999B-1 Notes" shall mean the Student Loan Subordinate
Asset-Backed Notes, Series 1999B-1 (LIBOR Rate), of the Issuer issued under the
Indenture.
"Series 1999B-1 Principal Distribution Amount" shall mean on each
Monthly Distribution Date on and after which the principal balance of the Series
1999A Notes has been paid in full, an amount equal to the decline in the Pool
Balance between the end of the second Collection Period preceding a 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 1999B-1 Notes by the Series 1998A Noteholders'
Principal Distribution Amount on such Monthly Distribution Date).
"Series 1999B-1 Principal Shortfall" shall mean, as of the close of any
Monthly Distribution Date, the excess of (i) the Series 1999B-1 Principal
Distribution Amount on such Distribution Date over (ii) the amount of principal
actually distributed to the Series 1999B-1 Noteholders on such Monthly
Distribution Date.
"Submission Deadline" shall mean 12:30 p.m., eastern time, on any
Interest Determination Date or such other time on any Interest Determination
Date by which Broker-Dealers are required to submit Orders to the Auction Agent
as specified by the Auction Agent from time to time.
"Submitted Bid" shall have the meaning set forth in Section
2.03.2.1(c)(i) hereof.
"Submitted Hold Order" shall have the meaning set forth in Section
2.03.2.1(c)(i).
"Submitted Order" shall have the meaning set forth in Section
2.03.2.1(c)(i).
"Submitted Sell Order" shall have the meaning set forth in Section
2.3.2.1(c)(i).
"Substitute Auction Agent" shall mean a Person having the
qualifications required by Section 2.03.2.5 of this Indenture with whom the
Indenture Trustee and the Issuer enter into a Substitute Auction Agent
Agreement.
13
<PAGE> 17
"Substitute Auction Agent Agreement" shall mean an auction agent
agreement containing terms substantially similar to the terms of the Initial
Auction Agent Agreement, whereby a Substitute Auction Agent agrees with the
Indenture Trustee and the Issuer to perform the duties of the Auction Agent
under this Indenture.
"Telerate Page 3750" shall mean the display page so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
14
<PAGE> 18
ARTICLE II
Authorization, Terms and Provisions of Notes
SECTION 2.01 Authorization of Notes; Notes to Constitute Special
Obligations There is hereby authorized the borrowing of funds, and to evidence
such borrowing there is authorized the issuance of Notes of the Issuer in the
following aggregate principal amounts and Series: (i) _______________ Dollars
($___________) designated "Student Loan Funding 1999-A Trust Student Loan Senior
Asset-Backed Notes, Series 1999A-1 (LIBOR Rate)" (herein referred to as the
"Series 1999A-1 Notes"); (ii) _____________________ Dollars ($___________)
designated "Student Loan Funding 1999-A Trust Student Loan Senior Asset-Backed
Callable Notes, Series 1999A-2 (Auction Rate)" (herein referred to as the
"Series 1999A-2 Notes" and together with the Series 1999A-1 Notes, the "Senior
Notes"); and (iii) _____________________ Dollars ($________________) designated
"Student Loan Funding 1999-A Trust Student Loan Subordinate Asset-Backed Notes,
Series 1999B-1 (LIBOR Rate)" (herein referred to as the "Subordinate Notes" and,
collectively with the Senior Notes, the "Notes").
SECTION 2.02 Terms of Notes
(a) Terms of Notes Generally. Payments of principal of and interest on
each Note shall be made by the Indenture Trustee from its principal corporate
trust office in Cincinnati, Ohio in lawful money of the United States, and
payment of interest on each Note shall, if the Holder thereof is the registered
owner of $1,000,000 or more in aggregate principal amount of Notes, be made by
the deposit or wiring of immediately available funds to the credit of an account
specified by such Holder in duly executed instructions, with signature
guaranteed in a manner satisfactory to the Indenture Trustee, in the form set
forth in Exhibit E hereto delivered to the Indenture Trustee no less than ten
(10) Business Days prior to the date such payment is to be made. If such
instructions are not delivered to the Indenture Trustee in accordance with the
immediately preceding sentence and except as otherwise provided for when Notes
are registered in the name of the Depository or its nominee, payment of interest
shall be made by check mailed to such Holder's address as it appears on the
books of registry maintained by the Indenture Trustee pursuant to Section 2.4 of
the Base Indenture. Each payment of principal and interest and Carryover
Interest, if any, on each Note of a Series shall be accompanied by the CUSIP
number, if any, of the Note of such Series to which such payment relates.
Notwithstanding the foregoing and except as otherwise provided for when
Notes are registered in the name of the Depository or its nominee, no payment of
principal shall be made on any Note unless and until such Note is tendered to
the Indenture Trustee for cancellation; and no payment of interest or Carryover
Interest shall be made on any Note except to the Person whose name appears on
the books of registry maintained by the Indenture Trustee as the registered
Holder thereof as of the close of business on the Record Date.
If and as long as a Book-Entry System is utilized, (i) the Notes shall
be issued in the form of one fully registered Note for each Legal Final Maturity
within each Series of Notes or otherwise as may be required or requested by the
Depository and agreed to by the Issuer,
15
<PAGE> 19
registered in the name of the Depository or its nominee, as registered owner,
and immobilized in the custody of the Depository; (ii) (a) the principal of the
Notes shall be payable in next day or federal funds delivered or transmitted to
the Depository or its nominee on the Legal Final Maturity or such other date as
principal is payable hereunder and (b) interest on the Notes shall be payable in
same day or federal funds delivered to the Depository or its nominee on the
applicable Distribution Date; (iii) the beneficial owners in Book-Entry Form
shall have no right to receive Notes in the form of physical securities or
certificates; (iv) ownership of beneficial interests in Book-Entry Form shall be
shown by a book entry on the system maintained and operated by the Depository
and its Participants, and transfers of the ownership of beneficial interests
shall be made only by book entry by the Depository and its Participants; and (v)
the Notes as such shall not be transferable or exchangeable, except for transfer
to another Depository or to another nominee of a Depository, without further
action by the Issuer.
As long as the Notes are held by a Depository in a Book-Entry System,
the Indenture Trustee shall send any notice of redemption only to the
Depository. In the event that the Indenture Trustee gives notice of redemption
to the Depository, such notice shall initiate the Depository's standard
redemption process.
If any Depository determines not to continue to act as a Depository for
the Notes for use in a Book-Entry System, the Authorized Officer may attempt to
have established a securities depository/book-entry relationship with another
qualified Depository. If (i) the Issuer advises the Indenture Trustee in writing
the a Depository is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Notes, and the Issuer is
unable to locate a qualified successor, (ii) the Issuer, at its option, advises
the Indenture Trustee in writing that it elects to terminate the Book-entry
System through a Depository, or (iii) after the occurrence of an Event of
Default, Noteholders representing not less than 50% of the Outstanding principal
balance of the Directing Notes advise the Indenture Trustee and the Depository
in writing that the continuation of a Book-entry System through a Depository is
no longer in the best interest of the Noteholders, the Indenture Trustee shall
permit withdrawal of the Notes from the Depository or its nominee, all at the
cost and expense (including any costs of printing), if the event is not the
result of Issuer action or inaction, of those Persons requesting such issuance.
Note certificates authenticated and delivered pursuant to this paragraph shall
be in Authorized Denominations.
With respect to the Notes registered in the name of Cede & Co., as
nominee of DTC, or in the name of any successor Depository or its nominee, the
Issuer and the Indenture Trustee shall have no responsibility or obligation to
any Depository Participant or to any Indirect Participant. Without limiting the
generality of the immediately preceding sentence, the Issuer and the Indenture
Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of DTC, Cede & Co., any other Depository, its nominee,
or any Depository Participant with respect to any ownership interest in the
Notes, (ii) the delivery to any Depository Participant or any Indirect
Participant or any other Person, other than a Holder of a Note, of any notice
with respect to the Notes, including any notice of redemption, or (iii) the
payment to any Depository Participant or any Indirect Participant or any other
Person, other than a Holder of a Note, of any amount with respect to principal
of or interest on the Notes.
16
<PAGE> 20
For as long as the Notes are in Book-Entry Form, the notice, tender and
delivery procedures of DTC, or any other Depository to which the Notes are
transferred, shall be applicable. Whenever during the term of the Notes the
beneficial ownership thereof is determined by a book-entry at DTC, the
requirements of the Indenture of holding, delivering, surrendering or
transferring Notes shall be deemed modified to require the appropriate person to
meet the requirements of DTC as to registering, holding, surrendering or
transferring the book-entry to produce the same effect.
(b) Terms of Senior Notes Generally. The Senior Notes shall be initially
issued in fully registered form in substantially the form set forth in Exhibits
B or C hereof, as appropriate. The Senior Notes may be issued only in Authorized
Denominations. The Senior Notes initially issued hereunder shall be dated their
Date of Issuance, and each Series of such Senior Notes shall mature on the
respective Legal Final Maturity for such Series. The Senior Notes shall be
subject to redemption prior to their respective Legal Final Maturity as provided
in Article III hereof. The Senior Notes of each Series shall be numbered in
consecutive numerical order as set forth in Schedule I attached hereto.
The Senior Notes shall be issued to a Depository for use in a
Book-Entry System in accordance with the provisions of the Indenture. The
Authorized Officer, on behalf of the Issuer and to the extent necessary or
required, shall enter into any agreements determined necessary in connection
with the registration, authentication, immobilization, and transfer of the
Senior Notes, including arrangements for the payment of principal and interest
by wire transfer, after determining that the execution thereof will not endanger
the funds or securities of the Issuer.
Each Senior Note of a Series shall be payable on its respective Legal
Final Maturity and shall bear interest for each Interest Accrual Period at the
Series Interest Rate determined in accordance with the procedures and subject to
the limitations set forth in Section 2.03 hereof. Interest at such Series
Interest Rate shall accrue during each Interest Accrual Period on the principal
balance of each Series of Senior Notes Outstanding until such Series of Senior
Notes has been paid in full or payment has been duly provided for, as the case
may be, and shall accrue from the later of the date thereof or the most recent
applicable Distribution Date to which interest has been paid or duly provided
for until paid, subject, however, to the provisions of Section 2.03 hereof. Each
Senior Note of a Series shall initially bear interest at the rate of interest
per annum set forth in Schedule I attached hereto. Interest on each Senior Note
shall be paid on each applicable Distribution Date to the extent of interest
accrued on the principal then being paid or redeemed to the Holders of such
Senior Notes as of the Record Date. Interest accrued as of any applicable
Distribution Date on the Senior Notes of a Series but not paid on such
Distribution Date shall be payable on the succeeding applicable Distribution
Date, together with interest thereon at the applicable Series Interest Rate.
Interest shall be paid pro rata to the Holders of each such Series of Senior
Notes Outstanding.
(c) Terms of Subordinate Notes Generally. The Subordinate Notes shall
be initially issued in fully registered form in substantially the form set forth
in Exhibit D hereof. The Subordinate Notes shall be issued only in Authorized
Denominations. The Subordinate Notes issued hereunder shall be dated their Date
of Issuance and shall mature on the Legal Final
17
<PAGE> 21
Maturity. The Subordinate Notes shall be subject to redemption prior to their
respective Legal Final Maturity as provided in Article III hereof. The
Subordinate Notes shall be numbered in consecutive numerical order as set forth
in Schedule I hereto.
The Subordinate Notes shall be issued to a Depository for use in a
Book-entry System in accordance with the provisions of the Indenture. The
Authorized Officer, on behalf of the Issuer and to the extent necessary or
required, shall enter into any agreements determined necessary in connection
with the registration, authentication, immobilization, and transfer of the
Subordinate Notes, including arrangements for the payment of principal and
interest by wire transfer, after determining that the execution thereof will not
endanger the funds or securities of the Issuer.
The Subordinate Notes shall be payable on their Legal Final Maturity
and shall bear interest for each Interest Accrual Period at the Series Interest
Rate determined in accordance with the procedures, subject to the limitations
set forth in Section 2.03 hereof. Interest shall accrue during each Interest
Accrual Period on the principal balance of the Subordinate Notes Outstanding
until such Subordinate Notes have been paid in full or payment has been duly
provided for, as the case may be, and shall accrue from the later of the date
thereof or the most recent applicable Distribution Date to which interest has
been paid or duly provided for until paid, subject, however, to the provisions
of Section 2.03 hereof. Each Subordinate Note shall bear interest at the rate of
interest per annum set forth in Schedule I attached hereto. Interest accrued as
of any applicable Distribution Date on the Subordinate Notes but not paid on
such Distribution Date shall be payable on the next succeeding applicable
Distribution Date, together with interest thereon at the applicable Series
Interest Rate. Interest will be paid pro rata to the Holders of the Subordinate
Notes Outstanding.
The Indenture Trustee shall make available to each Holder or owner of a
beneficial interest in a Series of Notes via telephone information concerning
the Series Interest Rate applicable to the Notes of each Series. The Indenture
Trustee shall make such information available to such Holders between the hours
of 9 a.m. and 5 p.m. Eastern time on any day on which the principal corporate
trust office of the Indenture Trustee is open for business.
SECTION 2.03 Determination of Series Interest Rates on the Notes.
SECTION 2.03.1 Determination of the Series Interest Rate on the LIBOR
Rate Notes. (a) The Calculation Agent shall determine the Series Interest Rate
with respect to a Series of LIBOR Rate Notes for each Interest Accrual Period
which Series Interest Rate shall equal the Formula Rate calculated as follows,
subject to the limitation of the Net Loan Rate as hereinafter described. The
Formula Rate for each Interest Accrual Period for the Series 1999A-1 Notes shall
equal One-Month LIBOR plus ___%, but in no event greater than 18% per annum. The
Formula Rate for each Interest Accrual Period for the Series 1999B-1 Notes shall
equal One-Month LIBOR plus ____%, but in no event greater than 18%.
Interest on each Series of LIBOR Rate Notes for each Interest Accrual
Period shall be calculated on the basis of the actual number of days elapsed in
such Interest Accrual
18
<PAGE> 22
Period on the basis of a year consisting of 360 days. The calculation of the
Formula Rates described above shall be based on the actual number of days in
such Interest Accrual Period.
If the Calculation Agent shall fail or refuse to determine the Formula
Rate on a Series of LIBOR Rate Notes on any Interest Determination Date, the
Formula Rate on such LIBOR Rate Notes shall be determined by a securities dealer
appointed by the Issuer and capable, in the reasonable judgment of the Issuer,
of making such a determination in accordance with the provisions of the
Indenture and written notice of such determination shall be given by such
securities dealer to the Indenture Trustee.
SECTION 2.03.2 Determination of the Series Interest Rate on the Auction
Rate Notes. Until an Auction Period Adjustment or Auction Period Conversion and
subject to the Net Loan Rate, the Auction Rate Notes shall bear interest at a
Series Interest Rate based on a 28-day Auction Period, as determined pursuant to
Section 2.03.2 hereof and the subsections thereunder.
For the Auction Rate Notes during each Interest Accrual Period,
interest at the applicable Series Interest Rate shall accrue daily and shall be
computed for the actual number of days elapsed on the basis of a year consisting
of 360 days.
The Series Interest Rate to be borne by each Series of Auction Rate
Notes after the initial Interest Accrual Period shall be determined by the
Auction Agent, which Series Interest Rate shall be the Formula Rate, as
hereinafter described and subject to the limitation of the Net Loan Rate, as
hereinafter described. Each Auction Period shall commence on and include the
first day of such Interest Accrual Period and end on and include the immediately
succeeding Interest Determination Date. The Series Interest Rate on each Series
of Auction Rate Notes for each Auction Period shall be the lesser of the (i) Net
Loan Rate in effect for such Auction Period and (ii) the Formula Rate in effect
for such Auction Period; provided that if, on any Interest Determination Date,
an Auction is not held for any reason, then the Series Interest Rate on the
Auction Rate Notes for the next succeeding Auction Period shall be the Net Loan
Rate.
Notwithstanding the foregoing:
(A) if the ownership of Auction Rate Notes is no longer
maintained in Book-entry Form, the Auction Rate on such Auction Rate Notes for
any Auction Period commencing after the delivery of certificates representing
such series pursuant to Section 2.3 of the Base Indenture shall equal the lesser
of (i) the Maximum Auction Rate and (ii) the Net Loan Rate on the Business Day
immediately preceding the first day of such subsequent Auction Period; or
(B) if a Payment Default shall have occurred, the
Auction Rate on the Auction Rate Notes for the Auction Period commencing on or
immediately after 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
this Indenture, shall be the Non-Payment Rate on the first day of each such
Auction Period; or
19
<PAGE> 23
(C) the Auction Rate for an Auction Period that
commences on an Auction Period Conversion Date will be equal to the lesser of
(i) the interest rate necessary to enable the Auction Agent to sell all of such
Auction Rate Notes at par plus accrued interest to the Auction Period Conversion
Date or (ii) the Maximum Auction Rate as of the Auction Period Conversion Date,
subject to the Net Loan Rate.
In accordance with Section 2.03.2.1(c)(ii) hereof, the Auction Agent
shall promptly give written notice to the Indenture Trustee and the Issuer of
each Series Interest Rate (unless the Series Interest Rate is the Non-Payment
Rate in which case the Indenture Trustee will determine the Non-Payment Rate and
give written notice thereof to the Issuer) and either the Auction Rate or the
Net Loan Rate, as the case may be, when such rate is not the Series Interest
Rate, applicable to the Auction Rate Notes. The Indenture Trustee shall notify
the Holders of Auction Rate Notes of the Series Interest Rate applicable to the
Auction Rate Notes for each Auction Period on the second Business Day of such
Auction Period.
In the event that there are fewer than three (3) Business Days in any
week during which the Auction Period for the Auction Rate Notes would otherwise
be scheduled to expire, the expiration date and the Auction Period Distribution
Date for such Auction Period then in effect, and the Interest Determination Date
and commencement date for the immediately following Auction Period for the
Auction Rate Notes, may be adjusted to fall on such dates as the Calculation
Agent, with the consent of the Issuer, may determine to be appropriate under
such circumstances. The Calculation Agent will promptly notify the Indenture
Trustee and the Auction Agent in writing of any such determination. The
Indenture Trustee, upon receipt of such notice, will immediately give written
notification of such determination to the Holders of the Auction Rate Notes.
Notwithstanding any other provision of the Auction Rate Notes or this
Indenture and except for interest payable at the Non-Payment Rate in connection
with the occurrence of a Payment Default, interest payable on the Auction Rate
Notes for an Auction Period shall never exceed for such Auction Period the
amount of interest payable at the Net Loan Rate in effect for such Auction
Period.
In the event that the Auction Agent no longer determines, or fails to
determine, when required, the Series Interest Rate with respect to each series
of Auction Rate Notes, or, if for any reason such manner of determination shall
be held to be invalid or unenforceable, the Series Interest Rate for the next
succeeding Interest Accrual Period, which period shall be an Auction Period, for
each Series of Auction Rate Notes shall be the Net Loan Rate as determined by
the Administrator for such next succeeding Auction Period, and if the
Administrator shall fail or refuse to determine said Net Loan Rate, the Net Loan
Rate shall be determined by a securities dealer appointed by the Issuer and
capable, in the reasonable judgment of the Issuer, of making such a
determination in accordance with the provisions hereof, and written notice of
such determination shall be given by such securities dealer to the Indenture
Trustee.
20
<PAGE> 24
SECTION 2.03.2.1 Auction Procedures.
By purchasing Auction Rate Notes, whether in an Auction or otherwise,
each purchaser of the Auction Rate Notes, or its Broker-Dealer, must agree and
shall be deemed by such purchase to have agreed (i) to participate in Auctions
on the terms described herein, (ii) to have its beneficial ownership of the
Auction Rate Notes maintained at all times in Book-Entry Form for the account of
its Depository Participant, which in turn will maintain records of such
beneficial ownership and (iii) to authorize such Depository Participant to
disclose to the Auction Agent such information with respect to such beneficial
ownership as the Auction Agent may request.
So long as the ownership of a Series of Auction Rate Notes is
maintained in Book-Entry Form by the Depository, an Existing Holder may sell,
transfer or otherwise dispose of Auction Rate Notes only pursuant to a Bid or
Sell Order placed in an Auction or otherwise sell, transfer or dispose of
Auction Rate Notes through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Holder, its
Broker-Dealer or its Depository Participant advises the Auction Agent of such
transfer. Prior to a Period Adjustment Date and except with respect to the
Interest Determination Date immediately preceding an Auction Period Conversion
Date, Auctions shall be conducted on each Interest Determination Date, if there
is an Auction Agent on such Interest Determination Date, in the following
manner:
(a) (i) Prior to the Submission Deadline on each Interest Determination
Date;
(A) each Existing Holder of Auction Rate Notes may
submit to a Broker-Dealer by telephone or otherwise any information as to:
(1) the principal amount of Outstanding Auction Rate
Notes, if any, held by such Existing Holder which such Existing Holder desires
to continue to hold without regard to the Series Interest Rate for the next
succeeding Auction Period;
(2) the principal amount of Outstanding Auction Rate
Notes, if any, which such Existing Holder offers to sell if the Series Interest
Rate for the next succeeding Auction Period shall be less than the rate per
annum specified by such Existing Holder; and/or
(3) the principal amount of Outstanding Auction Rate
Notes, if any, held by such Existing Holder which such Existing Holder offers to
sell without regard to the Series Interest Rate for the next succeeding Auction
Period;
and
(B) one or more Broker-Dealers may contact Potential
Holders to determine the principal amount of Auction Rate Notes which each
Potential Holder offers to
21
<PAGE> 25
purchase, if the Series Interest Rate for the next succeeding Auction Period
shall not be less than the rate per annum specified by such Potential Holder.
The statement of an Existing Holder or a Potential Holder
referred to in (A) or (B) of this paragraph (i) is hereinafter referred to as an
"Order," and each Existing Holder and each Potential Holder placing an Order is
hereinafter referred to as a "Bidder"; an Order described in clause (A)(1) is
hereinafter referred to as a "Hold Order"; an Order described in clauses (A)(2)
and (B) is hereinafter referred to as a "Bid"; and an Order described in clause
(A)(3) is hereinafter referred to as a "Sell Order."
(ii) (A) Subject to the provisions of Section 2.03.2.1(b)
hereof, a Bid by an Existing Holder shall constitute an irrevocable offer to
sell:
(1) the principal amount of Outstanding Auction Rate
Notes specified in such Bid if the Series Interest Rate determined as provided
in this Section 2.03.2.1 shall be less than the rate specified therein; or
(2) such principal amount or a lesser principal
amount of Outstanding Auction Rate Notes to be determined as set forth in
Section 2.03.2.1(d)(i)(D), if the Series Interest Rate determined as provided in
this Section 2.03.2.1 shall be equal to the rate specified therein; or
(3) such principal amount or a lesser principal
amount of Outstanding Auction Rate Notes to be determined as set forth in
Section 2.03.2.1(d)(ii)(C) if the rate specified therein shall be higher than
the Series Interest Rate and Sufficient Clearing Bids have not been made.
(B) Subject to the provisions of Section 2.03.2.1(b)
hereof, a Sell Order by an Existing Holder shall constitute an irrevocable offer
to sell:
(1) the principal amount of Outstanding Auction Rate
Notes specified in such Sell Order; or
(2) such principal amount or a lesser principal
amount of Outstanding Auction Rate Notes set forth in Section 2.03.2.1(d)(i)(C),
if Sufficient Clearing Bids have not been made.
(C) Subject to the provisions of Section 2.03.2.1(b)
hereof, a Bid by a Potential Holder shall constitute an irrevocable offer to
purchase:
(1) the principal amount of Outstanding Auction Rate
Notes specified in such Bid if the Series Interest Rate determined as provided
in this Section 2.03.2.1 shall be higher than the rate specified in such Bid; or
22
<PAGE> 26
(2) such principal amount or a lesser principal
amount of Outstanding Auction Rate Notes set forth in Section 2.03.2.1(d)(i)(E),
if the Series Interest Rate determined as provided in this Section 2.03.2.1
shall be equal to the rate specified in such Bid.
(b) (i) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Interest Determination Date all Orders
obtained by such Broker-Dealer and shall specify with respect to each such
Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate principal amount of Auction Rate Notes
that are the subject of such Order;
(C) to the extent that such Bidder is an Existing
Holder:
(1) the principal amount of Auction Rate Notes, if
any, subject to any Hold Order placed by such Existing Holder;
(2) the principal amount of Auction Rate Notes, if
any, subject to any Bid placed by such Existing Holder and the rate specified in
such Bid; and
(3) the principal amount of Auction Rate Notes, if
any, subject to any Sell Order placed by such Existing Holder;
and
(D) to the extent such Bidder is a Potential Holder, the
rate specified in such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next higher one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all Outstanding Auction
Rate Notes held by an Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to
have been submitted on behalf of such Existing Holder covering the principal
amount of Outstanding Auction Rate Notes held by such Existing Holder and not
subject to an Order submitted to the Auction Agent.
(iv) Neither the Issuer, the Indenture Trustee nor the Auction
Agent shall be responsible for any failure of a Broker-Dealer to submit an Order
to the Auction Agent on behalf of any Existing Holder or Potential Holder.
23
<PAGE> 27
(v) If any Existing Holder submits through a Broker-Dealer to
the Auction Agent one or more Orders covering in the aggregate more than the
principal amount of Outstanding Auction Rate Notes held by such Existing Holder,
such Orders shall be considered valid as follows and in the following order of
priority:
(A) All Hold Orders shall be considered valid, but only
up to the aggregate principal amount of Outstanding Auction Rate Notes held by
such Existing Holder, and if the aggregate principal amount of Auction Rate
Notes subject to such Hold Orders exceeds the aggregate principal amount of
Auction Rate Notes held by such Existing Holder, the aggregate principal amount
of Auction Rate Notes subject to each such Hold Order shall be reduced pro rata
so that the aggregate principal amount of Auction Rate Notes subject to such
Hold Order equals the aggregate principal amount of Outstanding Auction Rate
Notes held by such Existing Holder.
(B) (1) any Bid shall be considered valid up to an amount
equal to the excess of the principal amount of Outstanding Auction Rate Notes
held by such Existing Holder over the aggregate principal amount of Auction Rate
Notes subject to any Hold Order referred to in clause (A) of this paragraph (v);
(2) subject to subclause (1) of this clause (B), if
more than one Bid with the same rate is submitted on behalf of such Existing
Holder and the aggregate principal amount of outstanding Auction Rate Notes
subject to such Bids is greater than such excess, such Bids shall be considered
valid up to an amount equal to such excess;
(3) subject to subclauses (1) and (2) of this clause
(B), if more than one Bid with different rates are submitted on behalf of such
Existing Holder, such Bids shall be considered valid first in the ascending
order of their respective rates until the highest rate is reached at which such
excess exists and then at such rate up to the amount of such excess; and
(4) in any such event, the amount of Outstanding
Auction Rate Notes, if any, subject to Bids not valid under this clause (B)
shall be treated as the subject of a Bid by a Potential Holder at the rate
therein specified; and
(C) All Sell Orders shall be considered valid up to an
amount equal to the excess of the principal amount of Outstanding Auction Rate
Notes held by such Existing Holder over the aggregate principal amount of
Auction Rate Notes subject to Hold Orders referred to in clause (A) of this
paragraph (v) and valid Bids referred to in clause (B) of this paragraph (v).
(vi) If more than one Bid for Auction Rate Notes is submitted
on behalf of any Potential Holder, each Bid submitted shall be a separate Bid
with the rate and principal amount therein specified.
(vii) An Existing Holder that offers to purchase additional
Auction Rate Notes is, for purposes of such offer, treated as a Potential
Holder.
24
<PAGE> 28
(viii) Any Bid or Sell Order submitted by an Existing Holder
covering an aggregate principal amount of Auction Rate Notes not equal to an
Authorized Denomination shall be rejected and shall be deemed a Hold Order. Any
Bid submitted by a Potential Holder covering an aggregate principal amount of
Auction Rate Notes not equal to an Authorized Denomination shall be rejected.
(ix) Any Bid specifying a rate higher than the Maximum Auction
Rate shall (a) be treated as a Sell Order if submitted by an Existing Holder and
(b) not be accepted if submitted by a Potential Holder.
(x) Any Order submitted in an Auction by a Broker-Dealer to
the Auction Agent prior to the Submission Deadline on any Interest Determination
Date shall be irrevocable.
(c) (i) Not earlier than the Submission Deadline on each
Interest Determination Date, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers (each such Order as
submitted or deemed submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
Order," as the case may be, or as a "Submitted Order" and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the
case may be, or as "Submitted Orders") and shall determine:
(A) the excess of the total principal amount of
Outstanding Auction Rate Notes over the sum of the aggregate principal amount of
Outstanding Auction Rate Notes subject to Submitted Hold Orders (such excess
being hereinafter referred to as the "Available Auction Rate Notes"), and
(B) from the Submitted Orders whether:
(1) the aggregate principal amount of Outstanding Auction Rate
Notes subject to Submitted Bids by Potential Holders specifying one or more
rates equal to or lower than the Maximum Auction Rate;
exceeds or is equal to the sum of:
(2) the aggregate principal amount of Outstanding Auction Rate
Notes subject to Submitted Bids by Existing Holders specifying one or more rates
higher than the Maximum Auction Rate; and
(3) the aggregate principal amount of Outstanding Auction Rate
Notes subject to submitted Sell Orders;
(in the event such excess or such equality exists, other than because
all of the Outstanding Auction Rate Notes are subject to Submitted Hold Orders,
such Submitted Bids
25
<PAGE> 29
described in subclause (1) above shall be referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the Bid Auction
Rate (the "Bid Auction Rate") shall be the lowest rate specified in such
Submitted Bids such that if:
(1) (aa) each Submitted Bid from Existing Holders
specifying such lowest rate and (bb) all other Submitted Bids from Existing
Holders specifying lower rates were rejected, thus entitling such Existing
Holders to continue to hold the principal amount of Auction Rate Notes subject
to such Submitted Bids; and
(2) (aa) each such Submitted Bid from Potential
Holders specifying such lowest rate and (bb) all other Submitted Bids from
Potential Holders specifying lower rates were accepted; the result would be that
such Existing Holders described in subclause (1) above would continue to hold an
aggregate principal amount of Outstanding Auction Rate Notes which, when added
to the aggregate principal amount of Outstanding Auction Rate Notes to be
purchased by such Potential Holders described in subclause (2) above, would
equal not less than the Available Auction Rate Notes.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Section 2.03.2.1(c)(i) hereof, the Auction Agent shall advise the
Indenture Trustee and the Broker-Dealers of the Net Loan Rate, the Maximum
Auction Rate and the All Hold Rate and the components thereof on the Interest
Determination Date and, based on such determinations, the Auction Rate for the
next succeeding Interest Accrual Period as follows:
(A) if Sufficient Clearing Bids exist, that the Auction
Rate for the next succeeding Interest Accrual Period shall be equal to the Bid
Auction Rate so determined;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding Auction Rate Notes are subject to Submitted Hold
Orders), that the Auction Rate for the next succeeding Interest Accrual Period
shall be equal to the Maximum Auction Rate; or
(C) if all Outstanding Auction Rate Notes are subject to
Submitted Hold Orders, that the Auction Rate for the next succeeding Interest
Accrual Period shall be equal to the All Hold Rate.
(iii) Promptly after the Auction Agent has determined the Auction Rate,
the Auction Agent shall determine and advise the Indenture Trustee of the Series
Interest Rate, which rate shall be the lesser of (a) the Formula Rate and (b)
the Net Loan Rate. In no event shall the Series Interest Rate exceed 17%.
(d) Existing Holders shall continue to hold the principal
amount of Auction Rate Notes that are subject to Submitted Hold Orders. If the
Net Loan Rate is equal to or greater than the Bid Auction Rate and if Sufficient
Clearing Bids have been received by the
26
<PAGE> 30
Auction Agent, the Bid Auction Rate will be the Auction Rate, and Submitted Bids
and Submitted Sell Orders will be accepted or rejected and the Auction Agent
will take such other action as described below in subparagraph (i).
If the Net Loan Rate is greater than the Auction Rate, the Series
Interest Rate for the Outstanding Auction Rate Notes will be the Auction Rate.
If the Net Loan Rate is less than the Auction Rate, the Series Interest Rate for
the Outstanding Auction Rate Notes will be the Net Loan Rate. If the Auction
Rate and the Net Loan Rate for the Auction Rate Notes are both greater than 17%,
the Series Interest Rate shall be equal to 17%. If the Auction Agent has not
received Sufficient Clearing Bids (other than because all of the Outstanding
Auction Rate Notes are subject to Submitted Hold Orders), the Series Interest
Rate will be the lesser of the Auction Rate (which shall be the Maximum Auction
Rate) and the Net Loan Rate, but in no event greater than 17%. In any of the
cases described above, Submitted Orders will be accepted or rejected and the
Auction Agent will take such other action as described below in subparagraph
(ii).
(i) if Sufficient Clearing Bids have been made and the Net Loan Rate is
equal to or greater than the Bid Auction Rate (in which case the Series Interest
Rate shall be the Bid Auction Rate), all Submitted Sell Orders shall be accepted
and, subject to the provisions of paragraphs (iv) and (v) of this Section
2.03.2.1(d), Submitted Bids shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids shall be rejected:
(A) Existing Holders' Submitted Bids specifying any rate that is
higher than the Series Interest Rate shall be accepted, thus requiring each such
Existing Holder to sell the aggregate principal amount of Auction Rate Notes
subject to such Submitted Bids;
(B) Existing Holders' Submitted Bids specifying any rate that is
lower than the Series Interest Rate shall be rejected, thus entitling each such
Existing Holder to continue to hold the aggregate principal amount of Auction
Rate Notes subject to such Submitted Bids;
(C) Potential Holders' Submitted Bids specifying any rate that is
lower than the Series Interest Rate shall be accepted;
(D) Each Existing Holders' Submitted Bid specifying a rate that is
equal to the Series Interest Rate shall be rejected, thus entitling such
Existing Holder to continue to hold the aggregate principal amount of Auction
Rate Notes subject to such Submitted Bid, unless the aggregate principal amount
of Outstanding Auction Rate Notes subject to all such Submitted Bids shall be
greater than the principal amount of Auction Rate Notes (the "remaining
principal amount") equal to the excess of the Available Auction Rate Notes over
the aggregate principal amount of Auction Rate Notes subject to Submitted Bids
described in clauses (B) and (C) of this Section 2.03.2.1(d)(i), in which event
such Submitted Bid of such Existing Holder shall be rejected in part, and such
Existing Holder shall be entitled to continue to hold the principal amount of
Auction Rate Notes subject to such Submitted Bid, but only in an amount equal to
the aggregate principal amount of Auction Rate Notes obtained by multiplying the
remaining principal amount by a fraction, the numerator of which shall be the
principal amount
27
<PAGE> 31
of Outstanding Auction Rate Notes held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the sum of the principal
amount of Outstanding Auction Rate Notes subject to such Submitted Bids made by
all such Existing Holders that specified a rate equal to the Series Interest
Rate; and
(E) Each Potential Holder's Submitted Bid specifying a rate that
is equal to the Series Interest Rate shall be accepted, but only in an amount
equal to the principal amount of Auction Rate Notes obtained by multiplying the
excess of the aggregate principal amount of Available Auction Rate Notes over
the aggregate principal amount of Auction Rate Notes subject to Submitted Bids
described in clauses (B), (C) and (D) of this Section 2.03.2.1(d)(i) by a
fraction the numerator of which shall be the aggregate principal amount of
Outstanding Auction Rate Notes subject to such Submitted Bid and the denominator
of which shall be the sum of the principal amount of Outstanding Auction Rate
Notes subject to Submitted Bids made by all such Potential Holders that
specified a rate equal to the Series Interest Rate; and
(F) Each Potential Noteholder's Bid specifying a rate that is
higher than the Series Interest Rate will be rejected.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding Auction Rate Notes are subject to submitted Hold Orders),
or if the Net Loan Rate is less than the Bid Auction Rate (in which case the
Series Interest Rate shall equal the Net Loan Rate), or if the Series Interest
Rate would be greater than 17%, subject to the provisions of Section
2.03.2.1(d)(iv), Submitted Orders shall be accepted or rejected as follows in
the following order of priority and all other Submitted Bids shall be rejected:
(A) Existing Holders' Submitted Bids specifying any rate that is
equal to or lower than the Series Interest Rate shall be rejected, thus
entitling such Existing Holders to continue to hold the aggregate principal
amount of Auction Rate Notes subject to such Submitted Bids;
(B) Potential Holders' Submitted Bids specifying (1) any rate that
is equal to or lower than the Series Interest Rate shall be accepted and (2) any
rate that is higher than the Series Interest Rate shall be rejected; and
(C) each Existing Holder's Submitted Bid specifying any rate that
is higher than the Series Interest Rate and the Submitted Sell Order of each
Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted any such Submitted Bid or Submitted Sell Order to sell the Auction
Rate Notes subject to such Submitted Bid or Submitted Sell Order, but in both
cases only in an amount equal to the aggregate principal amount of Auction Rate
Notes obtained by multiplying the aggregate principal amount of Auction Rate
Notes subject to Submitted Bids described in clause (B) of this Section
2.03.2.1(d)(ii) by a fraction the numerator of which shall be the aggregate
principal amount of Outstanding Auction Rate Notes held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order
28
<PAGE> 32
and the denominator of which shall be the aggregate principal amount of
Outstanding Auction Rate Notes subject to all such Submitted Bids and Submitted
Sell Orders.
(iii) If all Outstanding Auction Rate Notes are subject to Submitted
Hold Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the procedures described in paragraph (i) or
(ii) of this Section 2.03.2.1(d), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a principal amount of Auction Rate Notes that is not equal to an
Authorized Denomination, the Auction Agent shall, in such manner as in its sole
discretion it shall determine, round up or down the principal amount of Auction
Rate Notes to be purchased or sold by any Existing Holder or Potential Holder so
that the principal amount of Auction Rate Notes purchased or sold by each
Existing Holder or Potential Holder shall be equal to an Authorized
Denomination.
(v) If, as a result of the procedures described in paragraph (ii) of
this Section 2.03.2.1(d), any Potential Holder would be entitled or required to
purchase less than an Authorized Denomination of Auction Rate Notes, the Auction
Agent shall, in such manner as in its sole discretion it shall determine,
allocate Auction Rate Notes for purchase among Potential Holders so that only
Auction Rate Notes in Authorized Denominations are purchased by any Potential
Holder, even if such allocation results in one or more of such Potential Holders
not purchasing any Auction Rate Notes.
(e) Based on the result of each Auction, the Auction Agent shall
determine the aggregate principal amount of Auction Rate Notes to be purchased
and the aggregate principal amount of Auction Rate Notes to be sold by Potential
Holders and Existing Holders on whose behalf each Broker-Dealer submitted Bids
or Sell Orders and, with respect to each Broker-Dealer, to the extent that such
aggregate principal amount of Auction Rate Notes to be sold differs from such
aggregate principal amount of Auction Rate Notes to be purchased, determine to
which other Broker-Dealer or Broker Dealers acting for one or more purchasers
such Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall receive,
as the case may be, Auction Rate Notes.
(f) The Issuer and any affiliate may not submit an Order in any
Auction.
(g) Any calculation by the Auction Agent (or Administrator or the
Indenture Trustee, if applicable) of the Series Interest Rate, the Applicable
LIBOR Rate, the Maximum Auction Rate, the All Hold Rate, the Net Loan Rate and
the Non-Payment Rate shall, in the absence of manifest error, be binding on all
other parties.
29
<PAGE> 33
SECTION 2.03.2.2 Application of Interest Payments for the Auction Rate
Notes. (a) The Indenture Trustee shall determine not later than 12:00 Noon,
eastern time, on the Business Day next succeeding an Auction Period Distribution
Date, whether a Payment Default has occurred. If a Payment Default has occurred,
the Indenture Trustee shall, not later than 12:15 p.m., eastern time, on such
Business Day, send a notice thereof in substantially the form of Exhibit F
attached hereto to the Auction Agent by telecopy or similar means and, if such
Payment Default is cured, the Indenture Trustee shall immediately send a notice
in substantially the form of Exhibit G attached hereto to the Auction Agent by
telecopy or similar means.
(b) Not later than 12:00 Noon, eastern time, on each Auction Period
Distribution Date the Indenture Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Expense Account, an amount
equal to the Auction Agent Fee and the Broker-Dealer Fee as calculated in the
Auction Agent Agreement. The Indenture Trustee shall, from time to time at the
request of the Auction Agent and with the approval of an Authorized Officer of
the Issuer, reimburse the Auction Agent for its reasonable expenses as provided
in the Auction Agent Agreement, such expenses to be paid out of amounts in the
Expense Account.
SECTION 2.03.2.3 Calculation of Maximum Auction Rate, All Hold Rate,
Net Loan Rate, Applicable LIBOR Rate and Non-Payment Rate. The Auction Agent
shall calculate the Maximum Auction Rate, the All Hold Rate and the Applicable
LIBOR Rate on each Interest Determination Date and shall notify the Indenture
Trustee and the Broker-Dealers of the Maximum Auction Rate, the All Hold Rate
and the Applicable LIBOR Rate as provided in the Auction Agent Agreement. The
Administrator shall calculate the Net Loan Rate and no later than the Business
Day immediately preceding each Interest Determination Date shall report to the
Auction Agent in writing, the Net Loan Rate. Upon receipt of notice from the
Indenture Trustee of a failed Auction Period Conversion as described in Section
2.03.2.9 hereof, the Auction Agent shall calculate the Maximum Auction Rate and
the Administrator will report to the Auction Agent in writing the Net Loan Rate
as of such failed Auction Period Conversion and give notice thereof as provided
and to the parties specified in Section 2.3(b)(iv) of the Auction Agent
Agreement. If the ownership of a Series of Auction Rate Notes is no longer
maintained in Book-Entry form by the Depository, the Indenture Trustee shall
calculate the Maximum Auction Rate and Administrator shall report to the
Indenture Trustee in writing the Net Loan Rate on the Business Day immediately
preceding the commencement of each Interest Accrual Period after the delivery of
certificates representing such Series of Auction Rate Notes pursuant to this
Indenture. If a Payment Default shall have occurred, the Indenture Trustee shall
calculate the Non-Payment Rate on the Interest Determination Date for (i) each
Interest Accrual Period commencing on or after the occurrence and during the
continuance of such Payment Default and (ii) any Interest Accrual Period
commencing less than two Business Days after the cure of any Payment Default.
The Auction Agent shall determine the Applicable LIBOR Rate for each Interest
Accrual Period other than the Initial Period; provided, that if the ownership of
the Auction Rate is no longer maintained in Book-Entry form, or if a Payment
Default has occurred, then the Indenture Trustee shall determine the Applicable
LIBOR Rate for each such Interest Accrual Period. The determination by the
Indenture Trustee or the Auction Agent, as the
30
<PAGE> 34
case may be, of the Applicable LIBOR Rate shall (in the absence of manifest
error) be final and binding upon all parties. If determined by the Auction
Agent, the Auction Agent shall promptly advise the Indenture Trustee of the
Applicable LIBOR Rate.
SECTION 2.03.2.4 Notification of Rates, Amounts and Payment Dates.
(a) By 10:00 a.m., eastern time, on the Business Day following each
Record Date, the Indenture Trustee shall determine the aggregate amounts of
interest distributable on the next succeeding Auction Period Distribution Date
to the beneficial owners of Auction Rate Notes.
(b) Promptly after the Closing Date and after the beginning of each
subsequent Interest Accrual Period, and in any event at least four (4) days
prior to any Auction Period Distribution Date, as the case may be, the Indenture
Trustee shall:
(i) confirm with the Auction Agent, so long as no Payment Default
has occurred and is continuing and the ownership of the Auction Rate Notes is
maintained in Book-Entry form by the Depository, (1) the date of such next
Auction Period Distribution Date and (2) the amount payable to the Auction Agent
on the Interest Determination Date pursuant to Section 2.03.2.2(b) hereof;
(ii) pursuant to Section 2.03.3 hereof, advise the Holders of any
Carryover Interest accruing on any series of Series Auction Rate Notes; and
(iii) advise the Depository, so long as the ownership of the
Auction Rate Notes is maintained in Book-entry form by the Depository, upon
request, of the Series Interest Rate payable on the Auction Rate Notes and the
interest amount.
If any day scheduled to be an Auction Period Distribution Date shall be
changed after the Indenture Trustee shall have given the notice or confirmation
referred to in clause (i) of the preceding sentence, the Indenture Trustee
shall, not later than 9:15 a.m., eastern time, on the Business Day next
preceding the earlier of the new Auction Period Distribution Date or the old
Auction Period Distribution Date, by such means as the Indenture Trustee deems
practicable, give notice of such change to the Auction Agent, so long as no
Payment Default has occurred and is continuing and the ownership of the Auction
Rate Notes is maintained in Book-Entry Form by the Depository.
SECTION 2.03.2.5 Auction Agent.
(a) Bankers Trust Company has been appointed as Auction Agent to serve
as agent for the Issuer in connection with Auctions with respect to the Auction
Rate Notes. The Indenture Trustee has entered into the Initial Auction Agent
Agreement with Bankers Trust Company, as the Initial Auction Agent. Any
Substitute Auction Agent shall be (i) a bank, national banking association or
trust company duly organized under the laws of the United States of America or
any state or territory thereof having its principal place of business in the
Borough
31
<PAGE> 35
of Manhattan, New York, or such other location as is approved by the Indenture
Trustee and the Calculation Agent in writing and having a combined capital stock
or surplus of at least $50,000,000, or (ii) a member of the National Association
of Securities Dealers, Inc., having a capitalization of at least $50,000,000,
and, in either case, authorized by law to perform all the duties imposed upon it
hereunder and under the Auction Agent Agreement. The Auction Agent may at any
time resign and be discharged of the duties and obligations created by this
Indenture by giving at least 90 days' notice to the Indenture Trustee, the
Issuer and the Calculation Agent. The Auction Agent may be removed at any time
by the Indenture Trustee upon the written direction of an Authorized Officer of
the Issuer or the Holders of 66-2/3% of the aggregate principal amount of the
Auction Rate Notes then Outstanding, and if by the Holders, by an instrument
signed by such Holders or their attorneys and filed with the Auction Agent, the
Issuer, the Indenture Trustee and the Calculation Agent upon at least 90 days'
notice. Neither resignation nor removal of the Auction Agent pursuant to the
preceding two sentences shall be effective until and unless a Substitute Auction
Agent has been appointed and has accepted such appointment. If required by the
Issuer or by the Calculation Agent, with the Issuer's consent, a Substitute
Auction Agent Agreement shall be entered into with a Substitute Auction Agent.
Notwithstanding the foregoing, the Auction Agent may terminate the Auction Agent
Agreement if, within fifteen (15) days after notifying the Indenture Trustee,
the Issuer and the Calculation Agent in writing that it has not received payment
of any Auction Agent Fee due it in accordance with the terms of the Auction
Agent Agreement, the Auction Agent does not receive such payment.
(b) If the Auction Agent shall resign or be removed or be dissolved, or
if the property or affairs of the Auction Agent shall be taken under the control
of any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Indenture Trustee at the direction of
an Authorized Officer of the Issuer (after receipt of a certificate from the
Calculation Agent confirming that any proposed Substitute Auction Agent meets
the requirements described in the immediately preceding paragraph), shall use
its best efforts to appoint a Substitute Auction Agent.
(c) The Auction Agent shall act as agent for the Issuer in connection
with Auctions. In the absence of bad faith, negligent failure to act or
negligence on its part, the Auction Agent shall not be liable for any action
taken, suffered or omitted or any error of judgment made by it in the
performance of its duties under the Auction Agent Agreement and shall not be
liable for any error of judgment made in good faith unless the Auction Agent
shall have been negligent in ascertaining (or failing to ascertain) the
pertinent facts.
(d) In the event of a change in the Auction Agent Fee Rate pursuant to
Section 6.4(b) of the Auction Agent Agreement, the Auction Agent shall give a
Notice of Fee Rate Change to the Indenture Trustee in accordance with the
Auction Agent Agreement.
32
<PAGE> 36
SECTION 2.03.2.6. Broker-Dealers.
(a) The Auction Agent has entered into a Broker-Dealer Agreement with
_______________________________, as the initial Broker-Dealer. An Authorized
Officer of the Issuer may, from time to time, approve one or more additional
persons to serve as Broker-Dealers under Broker-Dealer Agreements and shall be
responsible for providing such Broker-Dealer Agreements to the Indenture Trustee
and the Auction Agent; provided, however, that while ________________________
________ is serving as a Broker-Dealer, _____________________________ shall have
the right to consent to the approval of any additional Broker-Dealers, which
consent will not be unreasonably withheld.
(b) Any Broker-Dealer may be removed at any time, at the request of an
Authorized Officer of the Issuer, but there shall, at all times, be at least one
Broker-Dealer appointed and acting as such.
SECTION 2.03.2.7 Changes in Auction Period or Periods.
(a) While any of the Auction Rate Notes are Outstanding, the Issuer
may, from time to time, convert on an Auction Period Distribution Date the
length of one or more Auction Periods pursuant to an Auction Period Adjustment,
in order to conform with then current market practice with respect to similar
securities or to accommodate economic and financial factors that may affect or
be relevant to the length of the Auction Period and the interest rate borne by
the Auction Rate Notes; provided, however that the Issuer shall only initiate a
change in the length in the Auction Period to an Auction Period of other than
seven (7) or twenty-eight (28) days upon written evidence based on a Cash Flow
Statement from each of the Rating Agencies then rating any Outstanding Auction
Rate Notes that such a change will not adversely affect any rating of such
Rating Agencies on any Outstanding Auction Rate Notes; provided, further,
however, that each Rating Agency may waive the requirement for delivery of a
Cash Flow Statement. The Issuer shall not initiate an Auction Period Adjustment
unless it shall have received the written consent of the Calculation Agent,
which consent shall not be unreasonably withheld, not less than fifteen (15)
days nor more than twenty (20) days prior to the Auction Period Adjustment. The
Issuer shall initiate the Auction Period Adjustment by giving written notice to
the Indenture Trustee, the Auction Agent, the Calculation Agent, the Depository
and each Rating Agency then rating the Auction Rate Notes subject to such
Auction Period Adjustment in substantially the form of, or containing
substantially the information contained in, Exhibit H to this Indenture at least
ten (10) days prior to the Interest Determination Date for such Auction Period.
(b) The length of any such adjusted Auction Period pursuant to an
Auction Period Adjustment shall be subject to the limitations thereon set forth
in the definition of an Auction Period Adjustment in this Indenture.
(c) An Auction Period Adjustment shall not be allowed unless Sufficient
Clearing Bids existed or all of the Outstanding Auction Rate Notes were subject
to Submitted
33
<PAGE> 37
Hold Orders at both the Auction, if any, before the date on which the notice of
the proposed change was given as provided in this Section 2.03.2.7 and the
Auction immediately preceding the proposed change.
(d) An Auction Period Adjustment shall take effect on an Auction Period
Distribution Date only if (A) the Indenture Trustee and the Auction Agent
receive, by 11:00 a.m., eastern time, on the Business Day before the Interest
Determination Date for the first such Auction Period, a certificate from the
Issuer in substantially the form attached as, or containing substantially the
same information contained in, Exhibit I to this Indenture, authorizing the
Auction Period Adjustment specified in such certificate along with a copy of the
certificate of the Calculation Agent described above in subparagraph (a) and (B)
Sufficient Clearing Bids exist or all of the Outstanding Auction Rate Notes are
subject to Submitted Hold Orders on the Interest Determination Date for such
first Auction Period. If the condition referred to in (A) above is not met, the
Auction Rate for the Auction Period commencing on the Effective Date (as defined
in Exhibit I) will be determined pursuant to the Auction Procedures and the
Auction Period shall be the Auction Period determined without reference to the
proposed change. If the condition referred to in (A) is met but the condition
referred in (B) above is not met, the Series Interest Rate for the next Auction
Period shall be the lesser of the Auction Rate (which shall be the Maximum
Auction Rate) and the Net Loan Rate, but in no event greater than 17%, and the
Auction Period shall be the Auction Period determined without reference to the
proposed change.
(e) In connection with any Auction Period Adjustment, the Auction Agent
will provide such further notice as is specified in Section 2.5 of the Auction
Agent Agreement.
(f) While any of the Auction Rate Notes are Outstanding, the Issuer
may, from time to time, change the length of one or more Auction Periods
pursuant to an Auction Period Conversion. In such case, the Issuer, the
Indenture Trustee and the Auction Agent shall comply with the provisions of
Section 2.03.2.9 of this Indenture for effecting such an Auction Period
Conversion. If the conditions set forth in Section 2.03.2.9 are not met, the
Series Interest Rate for the Auction Period with respect to which the proposed
Auction Rate Conversion was to have been effective shall be the lesser of the
Auction Rate (which shall be the Maximum Auction Rate) and the Net Loan Rate,
but in no event greater than 17%, and the Auction Period shall be the Auction
Period determined without reference to the proposed change.
SECTION 2.03.2.8 Changes in the Interest Determination Date. The
Calculation Agent may specify an earlier Interest Determination Date than the
Interest Determination Date that would otherwise be determined in accordance
with the definition of "Interest Determination Date" in Article I of this Terms
Supplement with respect to one or more specified Auction Periods in order to
conform with then current market practice with respect to similar securities or
to accommodate economic and financial factors that may affect or be relevant to
the day of the week constituting an Interest Determination Date and the Series
Interest Rate borne on the Auction Rate Notes. The Authorized Officer of the
Issuer shall not consent to such change in the Interest Determination Date
unless he or she shall have received a written request for consent from the
Calculation Agent not less than fifteen (15) days nor more than twenty (20) days
prior to the effective date of such change. The Calculation Agent shall provide
notice of its
34
<PAGE> 38
determination to specify an earlier Interest Determination Date for one or more
Auction Periods by means of a written notice delivered at least ten (10) days
prior to the proposed changed Interest Determination Date to the Indenture
Trustee, the Auction Agent, the Issuer and the Depository. Such notice shall be
substantially in the form of, or contain substantially the information contained
in, Exhibit J to this Indenture.
In connection with any change described in this Section 2.03.2.8, the
Auction Agent will provide such further notice as is specified in Section 2.5 of
the Auction Agent Agreement.
SECTION 2.03.2.9 Auction Period Conversions. At the option of the
Issuer, the length of an Auction Period for a Series of Auction Rate Notes is
subject to an Auction Period Conversion on an Auction Period Conversion Date.
The length of the new Auction Period, the new Interest Determination Dates, if
any, and the Auction Period Distribution Dates with respect to the new Auction
Period shall be set forth in a Supplemental Indenture executed in connection
with such Auction Period Conversion. No such Auction Period Conversion shall be
effective unless prior to the Auction Period Conversion Date the Issuer shall
have furnished to the Indenture Trustee written evidence from each of the Rating
Agencies then rating any Outstanding Auction Rate Notes that execution of the
Supplemental Indenture and the related Auction Period Conversion will not
adversely affect the ratings on any series of Outstanding Auction Rate Notes.
With respect to an Auction Period Conversion, the Issuer shall give
written notice to the Indenture Trustee, the Auction Agent, the Calculation
Agent and the Remarketing Agent of any such proposed Auction Period Conversion
not less than twenty-eight (28) days prior to the Auction Period Conversion Date
in substantially the form of, or containing substantially the information
contained in, Exhibit K to this Indenture.
Upon receipt of such written notice from the Issuer, the Indenture
Trustee shall give written notice to the Holders of such Series of Auction Rate
Notes in the manner set forth in Section 3.01 of this Terms Supplement not less
than twenty-five (25) days prior to the Auction Period Conversion Date. Such
notice shall state (i) that (a) the length of the Auction Period will be
converted (1) from an Auction Period between seven (7) and ninety-one (91) days,
inclusive, to an Auction Period between ninety-two (92) days and the Final Legal
Maturity of such Series of Auction Rate Notes, inclusive, (2) from an Auction
Period between ninety-two (92) days and the Final Legal Maturity of such Series
of Auction Rate Notes, inclusive, to an Auction Period between seven (7) and
ninety-one (91) days, inclusive, or (3) from an Auction Period between
ninety-two (92) days and the Final Legal Maturity of such Series of Auction Rate
Notes, inclusive, to an Auction Period between ninety-two (92) days and the
Final Legal Maturity of such Series of Auction Rate Notes, inclusive, if such
latter Auction Period is at least three (3) months shorter or at least three (3)
months longer than the Auction Period established for such series at its initial
issuance or pursuant to an Auction Period Conversion, as applicable; (ii) the
Auction Period Conversion Date, (iii) that all Holders of such Series of Auction
Rate Notes are required to tender their Auction Rate Notes to the Indenture
Trustee or its agent no later than the Auction Period Conversion Date for
purchase at a price equal to 100% of the principal amount
35
<PAGE> 39
thereof plus accrued interest and any unpaid Carryover Interest (and interest
accrued thereon) to the Auction Period Conversion Date; provided, however, that
all such Auction Rate Notes that are not tendered to the Indenture Trustee by
such date shall be deemed tendered to the Indenture Trustee as of the Auction
Period Conversion Date, subject, however, to remarketing or purchase by the
Remarketing Agent for settlement on the Auction Period Conversion Date and
receipt by the Indenture Trustee of the purchase price equal to 100% of the
principal amount of Auction Rate Notes from the purchasers thereof or the
Remarketing Agent; (iv) that in the event that on the Auction Period Conversion
Date, the Remarketing Agent has been unable to remarket all Auction Rate Notes
for settlement on the Auction Period Conversion Date and has elected not to
purchase for its own account such unremarketed Auction Rate Notes, or on the
Auction Period Conversion Date the Indenture Trustee has not received the
purchase price equal to 100% of the principal amount of the Auction Rate Notes
from the purchasers thereof or the Remarketing Agent, the proposed Auction
Period Conversion of the Auction Rate Notes shall be canceled and such Auction
Rate Notes shall remain in the Auction Period applicable to such Auction Rate
Notes prior to the proposed Auction Period Conversion; (v) that the proposed
Auction Period Conversion is conditioned upon there being sufficient moneys
available in the Note Payment Account, after making provision for the payment of
accrued interest on such Auction Rate Notes and interest on other Auction Rate
Notes due and payable on such Auction Period Conversion Date to pay on the
Auction Period Conversion Date all Carryover Interest (and accrued interest
thereon), if any, on such Auction Rate Notes through the Auction Period
Conversion Date; and (vi) that a Holder has no right to elect to retain any such
Auction Rate that have been remarketed, or will be purchased, by the Remarketing
Agent, on the Auction Period Conversion. The Indenture Trustee shall mail a copy
of such notice to each of the Rating Agencies.
Notwithstanding anything to the contrary in this Section 2.03.2.9 or
elsewhere in this Indenture, if all of the Auction Rate Notes subject to Auction
Period Conversion are not remarketed or purchased by the Remarketing Agent for
settlement on the Auction Period Conversion Date, or if the Indenture Trustee
does not, by 11:00 a.m., eastern time, on the Auction Period Conversion Date
receive from the purchaser or the Remarketing Agent the purchase price equal to
100% of the principal amount thereof or if there are not sufficient moneys
available in the Note Payment Account, after making provision for the payment of
accrued interest on such Auction Rate Notes due and payable on Auction Period
Conversion Date to pay on the Auction Period Conversion Date all Carryover
Interest (and accrued interest thereon), if any, on such Auction Rate Notes
through the Auction Period Conversion Date, none of such Auction Rate Notes
shall be subject to such Auction Period Conversion, but all such Auction Rate
Notes shall bear interest at the lesser of the Net Loan Rate or the Auction Rate
(which shall be the Maximum Auction Rate), but in no event greater than 17%, for
the Interest Accrual Period commencing on such date and shall continue to be
held by and registered to the Holders that held such Auction Rate Notes
immediately prior to the failed Auction Period Conversion. Upon the occurrence
of a failed Auction Period Conversion, the Indenture Trustee shall give written
notice to the Issuer, the Auction Agent, the Calculation Agent, the Remarketing
Agent and each Rating Agency then rating the Auction Rate Notes, as appropriate,
confirming such failure.
36
<PAGE> 40
SECTION 2.03.2.10 Mandatory Tender and Purchase of Series Auction Rate
Notes in connection with Auction Period Conversion.
In the event that an Auction Period Conversion with respect to Auction
Rate Notes is to take place, such Auction Rate Notes shall be tendered to the
Authenticating Agent no later than the related Auction Period Conversion Date
for purchase at a purchase price equal to 100% of the principal amount thereof
plus accrued interest and any unpaid Carryover Interest (and any interest
accrued thereon) to the Auction Period Conversion Date; provided, however, that
any Auction Rate Note not tendered to the Authenticating Agent by such date
shall be deemed tendered to the Authenticating Agent. The Indenture Trustee
shall give notice by mail to the Holders of such Auction Rate Notes not less
than twenty-five (25) days prior to the Auction Period Conversion Date, of the
mandatory tender of such Series of Auction Rate Notes, which notice shall be
contained in the notice given in accordance with the provisions of Section
2.03.2.9 hereof.
Pursuant to a Remarketing Agreement, the Remarketing Agent shall be
obligated (i) to use its best efforts to remarket the Auction Rate Notes subject
to an Auction Period Conversion at a purchase price of not less than 100% of the
principal amount thereof, (ii) not later than 3:00 p.m., eastern time, on the
Business Day before the Auction Period Conversion Date, to give notice to the
Indenture Trustee stating whether all of the Auction Rate Notes have been
remarketed or will be purchased by the Remarketing Agent on the Auction Period
Conversion Date, and (iii) to cause the purchase price of each Auction Rate Note
so remarketed or to be purchased by the Remarketing Agent to be deposited in the
fund to be established under a Remarketing Agreement and maintained by the
Indenture Trustee pursuant to a Remarketing Agreement (the "Note Purchase Fund")
in immediately available funds. Pursuant to a Remarketing Agreement, all amounts
deposited in the Note Purchase Fund as aforesaid shall be held by the Indenture
Trustee uninvested and in cash and in trust for the sole and exclusive benefit
of the Holders of the Auction Rate Notes for the purchase of which such amounts
were deposited in the Note Purchase Fund and shall be applied by the Indenture
Trustee to such purchase by payment to such Holders without further
authorization or direction. Accrued interest and any unpaid Carryover Interest
(and any interest accrued thereon) on the Auction Rate Notes shall be paid by
the Indenture Trustee to such Holders from the Note Payment Account.
If by 11:00 a.m., eastern time, on the Auction Period Conversion Date,
there is on deposit in the Note Purchase Fund and the Note Payment Account an
aggregate amount sufficient to pay the purchase price of all Auction Rate Notes
subject to Auction Period Conversion equal to 100% of the principal amount
thereof plus accrued interest and any unpaid Carryover Interest (and any
interest accrued thereon) due and payable on the Auction Period Conversion Date,
all Auction Rate Notes which have not been delivered to the Indenture Trustee
shall be deemed to have been tendered in accordance with the provisions hereof.
In connection with an Auction Period Conversion, if necessary, replacement note
certificates, if any, amending and restating the tendered or deemed tendered
note certificates with respect to changes to the terms of such tendered or
deemed tendered note certificates, shall be authenticated by the Indenture
Trustee and delivered to the purchasers thereof; provided, however, that in the
case of Auction Rate Notes held in a Book-Entry System, any such replacement
Auction Rate Notes
37
<PAGE> 41
shall be authenticated by the Indenture Trustee and delivered to the Depository
or its agent. The Holder of any undelivered Auction Rate Notes shall not be
entitled to any payment (including any interest to accrue on and subsequent to
the Auction Period Conversion Date) other than the purchase price for such
undelivered Auction Rate Notes, and undelivered Auction Rate Notes shall no
longer be entitled to the benefit of this Indenture, except for the purpose of
payment of the purchase price therefor.
As of such Auction Period Conversion Date, the Auction Rate Notes
subject to Auction Period Conversion shall be registered to the purchasers
thereof, regardless of tender of the predecessor Auction Rate Notes by the
Holders thereof and shall bear interest at the new Auction Rate for the new
Auction Period. The Issuer shall give written notice to the Indenture Trustee,
the Auction Agent, the Calculation Agent and the Depository of any such
successful Auction Period Conversion no later than 5:00 p.m., eastern time, on
the Auction Period Conversion Date in substantially the form of, or containing
substantially the information contained in, Exhibit L to this Indenture.
The Holders of Auction Rate Notes which are subject to mandatory tender
on the Auction Period Conversion Date do not have the right to elect to retain
such Auction Rate Notes. Subject only to receipt by the Indenture Trustee from
the purchaser of the purchase price equal to 100% of the principal amount of all
Auction Rate Notes on the Auction Period Conversion Date and the payment of
accrued interest and any unpaid Carryover Interest (and accrued interest
thereon) as described above, such Auction Rate Notes will be deemed to be
tendered to the Indenture Trustee on such Auction Period Conversion Date and
registered in the names of the purchasers thereof.
If by 11:00 a.m., eastern time, on the Auction Period Conversion Date
there is not on deposit in the Note Purchase Fund and the Note Payment Account
(after taking into account other amounts to be paid from the Note Payment
Account as hereinbefore described) an aggregate amount sufficient to pay the
purchase price of all Auction Rate Notes subject to Auction Period Conversion
all Auction Rate Notes that have been tendered to the Indenture Trustee shall be
returned by the Indenture Trustee to the tendering Holders thereof, and the
Indenture Trustee shall give written notice on the date that the proposed
Auction Period Conversion was to have occurred to each Holder of Auction Rate
Notes, whether such Holder has actually tendered his Auction Rate Notes or not,
that (i) the Auction Period Conversion of such Auction Rate Notes has been
canceled because (A) not all Auction Rate Notes were remarketed or purchased by
the Remarketing Agent or (B) there were not moneys available to pay accrued
interest on such Auction Rate Notes due and payable on the Auction Period
Conversion Date, and any unpaid Carryover Interest (and accrued interest
thereon), if any, on such Auction Rate Notes and (ii) such Auction Rate Notes
will bear interest at the lesser of the Net Loan Rate or the Auction Rate (which
shall be the Maximum Auction Rate) as of the failed Auction Period Conversion
Date for the Interest Accrual Period commencing on such date, but in no event
greater than 17%, written notice of which Series Interest Rate will be given by
the Indenture Trustee to each such Holder on the second Business Day of the new
Auction Period.
38
<PAGE> 42
SECTION 2.03.2.11 Remarketing Agent Notes. Notwithstanding the fact
that the Remarketing Agent is under no obligation to purchase any Auction Rate
Notes in connection with an Auction Period Conversion, in the event that the
Remarketing Agent should elect, in its sole discretion, to purchase Auction Rate
Notes, then the Auction Rate Notes so purchased by the Remarketing Agent will
constitute "Remarketing Agent Notes" until the date, if any, on which such
Auction Rate Notes are sold by the Remarketing Agent. For so long as such
Auction Rate Notes constitute Remarketing Agent Notes, the Remarketing Agent
will be entitled to payment of the Remarketing Agent Recovery Amount, as
hereinafter defined, with respect to the principal amount of Remarketing Agent
Notes. For purposes of this Section 2.03.2.11, "Remarketing Agent Recovery
Amount" shall mean, with respect to any Remarketing Agent Notes, an amount equal
to the Daily Deferred Rate, as hereinafter defined, multiplied by the daily
principal balance of such Remarketing Agent Notes for the actual number of days
such Auction Rate Notes constitute Remarketing Agent Notes. For purposes of this
Section 2.03.2.11, "Daily Deferred Rate" shall mean an amount equal to the
excess, if any, of (x) the rate published as the "Broker Call" in The Wall
Street Journal on each day the Remarketing Agent is the owner of such
Remarketing Agent Notes over (y) the new Series Interest Rate in effect for such
Auction Rate Notes from and after the Auction Period Conversion Date. Any
accrued but unpaid Remarketing Agent Recovery Amount is payable from the Note
Payment Account, to the extent funds are available therefor after payment of all
other amounts payable therefrom, on each Auction Period Distribution Date.
In the event that the Remarketing Agent acquires Auction Rate Notes
other than in connection with a mandatory tender in anticipation of an Auction
Period Conversion, such Auction Rate Notes will not constitute Remarketing Agent
Notes prior to Auction Period Conversion. In the event that the Remarketing
Agent holds such Auction Rate Notes and such Auction Rate Notes become subject
to Auction Period Conversion, the Remarketing Agent will tender them to the
Indenture Trustee, and in connection with such Auction Period Conversion such
Auction Rate Notes may become Remarketing Agent Notes in accordance with the
provisions of this Section 2.03.2.11.
SECTION 2.03.3 Carryover Interest. The Calculation Agent and Auction
Agent, as appropriate, shall announce the Formula Rate and the Net Loan Rate to
the Indenture Trustee and the Issuer.
If, with respect to any Series of Notes for any Interest Accrual
Period, interest at the Formula Rate exceeds interest at the Net Loan Rate with
respect to such Series of Notes for such Interest Accrual Period, the Series
Interest Rate for such Interest Accrual Period shall be the Net Loan Rate, and
the Indenture Trustee, on the Distribution Date for such Interest Accrual
Period, shall pay to the Holders of such Series of Notes interest at the Net
Loan Rate. With respect to such Series of Notes, the Indenture Trustee shall
also calculate the amount by which interest at the Formula Rate exceeds interest
at the Net Loan Rate for such Interest Accrual Period, and such excess, together
with interest thereon (compounded on each Distribution Date for the related
Series when such interest is not paid on the first Distribution Date for such
Series when such interest was otherwise payable) at the applicable Formula Rate
from the Distribution Date for the related Series on which such excess was
calculated until paid, if at all, shall
39
<PAGE> 43
constitute Carryover Interest. Such Carryover Interest shall be paid on each
Distribution Date for the related Series subsequent to the Distribution Date on
which such excess was calculated to the extent funds are available therefor in
the Note Payment Account of the Collection Fund after making the other required
payments from the Note Payment Account in accordance with the provisions of
Section 5.5.2 of the Base Indenture and Section 4.02 hereof. Carryover Interest
shall continue to be so payable notwithstanding that the principal amount of the
applicable Series of Notes has been reduced to zero until (i) no Notes remain
outstanding and (ii) the balances in the Funds and Accounts have been reduced to
zero. For purpose of the Indenture any reference herein to "principal or
"interest" shall not include within the meaning of such words Carryover
Interest.
Carryover Interest shall be separately calculated for each Series of
Notes by the Indenture Trustee in sufficient time for the Indenture Trustee to
give notice to each Holder of such Carryover Interest as required in this
paragraph. On the Distribution Date for an Interest Accrual Period with respect
to which Carryover Interest has been calculated by the Indenture Trustee, the
Indenture Trustee shall, in accordance with Section 7.10 of the Base Indenture,
give written notice to each Holder of the Carryover Interest applicable to such
Holder's Note for such Interest Accrual Period, which written notice may
accompany the payment of interest by check made to each such Holder on such
Distribution Date or otherwise shall be mailed on such Distribution Date by
first class mail, postage prepaid, to each such Holder at such Holder's address
as it appears on the books of registry maintained by the Indenture Trustee
pursuant to the Indenture.
Such notice shall state, in addition to such Carryover Interest, that,
Carryover Interest shall continue to be payable notwithstanding that the
principal amount of the applicable Series of Notes has been reduced to zero
until (i) no Notes remain outstanding and (ii) the balances in the Funds and
Accounts have been reduced to zero.
SECTION 2.03.4 Additional Provisions Regarding Series Interest Rate.
The determination of a Series Interest Rate by the Calculation Agent, Auction
Agent or any other Person pursuant to the provisions of the applicable Section
of this Article II shall be conclusive and binding on the Holders of the Series
of Note or Notes to which such Series Interest Rate applies, and the Issuer and
the Indenture Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on
a Series of Notes (including interest calculated as provided herein, plus any
other amounts that constitute interest on the Notes of such Series under
applicable law which are contracted for, charged, reserved, taken or received
pursuant to the Notes of such Series or related documents) calculated from the
Date of Issuance of the Notes of such Series through any subsequent day during
the term of the Notes of such Series or otherwise prior to payment in full of
the Notes of such Series exceed the amount permitted by applicable law. If the
applicable law is ever judicially interpreted so as to render usurious any
amount called for under the Notes of such Series or related documents or
otherwise contracted for, charged, reserved, taken or received in connection
with the Notes of such Series, or if the redemption or acceleration of the
maturity of the Notes of such Series results in payment to or receipt by the
Holder or any former Holder of the Notes of such Series of any interest in
excess of that permitted by applicable law, then, notwithstanding
40
<PAGE> 44
any provision of the Notes of such Series or related documents to the contrary,
all excess amounts theretofore paid or received with respect to the Notes of
such Series shall be credited on the principal balance of the Notes of such
Series (or, if the Notes of such Series have been paid or would thereby be paid
in full, refunded by the recipient thereof), and the provisions of the Notes of
such Series and related documents shall immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for under the Notes of such Series and under the related documents.
SECTION 2.04 Forms of Notes and Instructions for Payment. The Senior
Notes and the certificate of authentication and form of assignment for transfer
to be endorsed thereon shall be in substantially the form of Exhibits B or C
hereof, as appropriate, with necessary or appropriate variations, omissions or
insertions, as permitted or required by this Indenture.
Each Subordinate Note and the certificate of authentication and form of
assignment for transfer to be endorsed thereon shall be in substantially the
form of Exhibit D hereof, with necessary or appropriate variations, omissions or
insertions, as permitted or required by this Indenture.
Any instructions to the Indenture Trustee for payment of interest on
the Notes shall be in substantially the form of Exhibit E hereof, with necessary
or appropriate variations, omissions or insertions, as permitted or required by
this Indenture.
41
<PAGE> 45
ARTICLE III
Redemption of the Notes
SECTION 3.01 Redemption of Notes in General. The Notes shall be subject
to redemption prior to their Legal Final Maturity only upon the terms and
conditions, and only on the applicable dates and at the redemption price, as are
set forth in this Terms Supplement. The redemption price of the Notes shall, in
each case, be par plus (i) accrued interest to the applicable dates on which
such redemption will occur and (ii) all unpaid Carryover Interest, if any,
thereon. Principal of and interest and unpaid Carryover Interest on the Notes
shall be paid from the moneys available therefor in the Note Payment Account in
the Collection Fund and in the Reserve Fund.
If Outstanding Notes are to be redeemed pursuant to the provisions of
this Article III, the Indenture Trustee shall give written notice of such
redemption to the Holders of such Outstanding Notes not less than fifteen (15)
days prior to the applicable dates on which such Outstanding Notes are to be
redeemed. Each notice of redemption shall state (i) the date, Series and numbers
of the Notes to be redeemed, the applicable dates on which such redemption will
occur and the redemption price payable upon such redemption; (ii) that the
interest on such Outstanding Notes and on any unpaid Carryover Interest shall
cease to accrue from and after the applicable date on which such redemption will
occur and (iii) that on said date there will become due and payable on each such
Outstanding Note the principal amount thereof and the interest accrued on such
principal amount to the applicable date on which the redemption will occur and
all unpaid Carryover Interest. Each notice of redemption shall also state that
each such Outstanding Note must be surrendered to the Indenture Trustee for
payment of the principal of and interest and any unpaid Carryover Interest on
such Outstanding Notes.
If notice of redemption of Outstanding Notes has been duly given as
hereinbefore provided and if moneys for the payment of the principal of and
interest and any unpaid Carryover Interest on such Outstanding Notes are held
for the purpose of such payment by the Indenture Trustee, then such Outstanding
Notes shall, on the applicable dates on which such redemption will occur, become
due and payable, and interest on said Outstanding Notes and on any unpaid
Carryover Interest shall cease to accrue.
All Notes surrendered pursuant to the provisions of this Article III
shall be canceled by the Indenture Trustee.
SECTION 3.02 Auction of Financed Student Loans; Redemption of
Outstanding Notes from Auction Proceeds prior to the Legal Final Maturity. On or
after ________________, if the then outstanding Pool Balance is __% or less of
the Initial Pool Balance, the Indenture Trustee shall offer the Financed Student
Loans in the Trust Estate for sale. The Issuer, its affiliates and unrelated
third parties may offer bids to purchase such Financed Student Loans on or prior
to such date. If at least two bids are received, the Indenture Trustee shall
accept the higher bid if it, together with the funds (including the Value of
Eligible Investments, if any, to the credit of the Reserve Fund) on deposit in
the Reserve Fund, will pay
42
<PAGE> 46
accrued and unpaid Program Operating Expenses and all fees and expenses in
connection with the sale of the Financed Student Loans and the redemption of the
Notes (the "Transaction Costs") and all principal of and accrued interest and
unpaid Carryover Interest on all such Outstanding Notes due to the Noteholders.
If at least two bids are not received or the bid proceeds, together with the
funds (including the Value of Eligible Investments, if any, to the credit of the
Reserve Fund) on deposit in the Reserve Fund, are not sufficient to pay
Transaction Costs and all principal of and accrued interest and unpaid Carryover
Interest on all such Outstanding Notes due to the Noteholders, the Indenture
Trustee shall not consummate the sale and may, but is not obligated to, solicit
bids for the Financed Student Loans in the Trust Estate on future Distribution
Dates until a successful bid is accepted or until the Notes have been paid in
full. The net proceeds of such purchase, together with such funds from the
Reserve Fund as are necessary to effect such redemption, shall be applied to
redeem all Outstanding Notes at par plus accrued interest to and all unpaid
Carryover Interest on the next applicable Distribution Date.
SECTION 3.03 Optional Redemption of Notes prior to the Legal Final
Maturity. (a) All Outstanding Notes will be subject to redemption in whole on
any applicable Distribution Date in the event the Issuer exercises its option to
repurchase all remaining Financed Student Loans, and thus effect the early
retirement of the Notes, on any applicable Distribution Date for the applicable
Series of Notes on or after the Monthly Distribution Date on which the Pool
Balance is equal to 10% or less of the Initial Pool Balance, at a price at least
equal to, for each Financed Student Loan, the outstanding principal balance of
such Financed Student Loan as of the end of the preceding Collection Period,
together with all accrued interest thereon and unamortized premiums, if any, and
sufficient to pay Transaction Costs and all amount due to the Noteholders,
including Carryover Interest, after application of funds (including the Value of
Eligible Investments, if any, to the credit of the Reserve Fund) on deposit in
the Reserve Fund.
In connection with the optional redemption of any Notes, all unpaid
Carryover Interest on such Notes (and accrued interest, if any, thereon) shall
be paid on or before the date of optional redemption of such Notes.
(b) On and after such date that there are no Series 1999A-1 Notes
Outstanding, the Auction Rate Notes shall be subject to redemption in whole or
in part on any Auction Period Commencement Date prior to their Final Legal
Maturity, at the option of the Issuer (including the designation of which Series
is to be redeemed) from funds deposited by or on behalf of the Issuer or
otherwise to the credit of the Note Payment Account, upon notice given by the
Indenture Trustee to the Noteholders thereof not less than fifteen (15) days
prior to the redemption date in the form and manner described in 3.01 hereof, at
a redemption price of 100% of the principal amount redeemed plus accrued
interest to the date of redemption. The Issuer may not exercise its option to
redeem any Auction Rate Notes unless after any such redemption the Parity
Percentage is no less than ___% and the provisions of Section 5.4 of the Base
Indenture regarding the minimum amount of Financed Student Loans bearing
interest at a fixed rate held in the Student Loan Portfolio Fund are satisfied.
With respect to the optional redemption of Auction Rate Notes pursuant to this
Section 3.03, in the event of a redemption in part of a Series, the Auction Rate
Notes to be redeemed will be selected by lot by the Indenture
43
<PAGE> 47
Trustee. No Auction Rate Notes will be subject to redemption in part in an
amount less than an Authorized Denomination thereof, and no portion of the
Auction Rate Notes is to be retained by a Noteholders in an amount less than an
Authorized Denomination.
In connection with the optional redemption of any Auction Rate Notes,
all unpaid Carryover Interest on such Auction Rate Notes (and accrued interest,
if any, thereon) shall be paid on or before the date of optional redemption of
such Auction Rate Notes.
Any amounts in the Note Payment Account in excess of the amounts
thereof applied to an optional redemption pursuant to this Section 3.03(b) shall
remain in such Account until such amounts are applied by the Indenture Trustee
to any other payments to be made from such Account as provided in Section 5.5.1
of the Base Indenture and Section 4.02 hereof or transferred to the Issuer upon
its written request if such amounts represent funds deposited by or on behalf of
the Issuer.
Auction Rate Notes to be redeemed pursuant to this Section 3.03(b)
shall be redeemed by the Indenture Trustee only upon written notice from the
Issuer to the Indenture Trustee. That notice shall specify the redemption date
and shall be given at least twenty (20) days prior to the redemption date or
such shorter period as shall be acceptable to the Indenture Trustee in its sole
discretion. Before the Indenture Trustee shall give notice of redemption to the
Noteholders as provided in Section 3.01 hereof, the Indenture Trustee shall
confirm that there is on deposit in the Note Payment Account funds which will be
sufficient to pay on the date fixed for redemption the redemption price of the
Auction Rate Notes to be redeemed pursuant to such notice.
44
<PAGE> 48
ARTICLE IV
Disposition of Proceeds of the Notes; Collection Account;
Acquisition Fund
SECTION 4.01 Disposition of Proceeds of the Notes. All proceeds of the
issuance and sale of the Series of Notes hereunder shall be deposited with the
Indenture Trustee on the Date of Issuance, and the Indenture Trustee shall
deposit such proceeds to the following Funds and Accounts:
(a) $________ of the proceeds of the Notes, an amount equal to the
Specified Reserve Fund Balance, shall be deposited by the Indenture
Trustee upon receipt in the Reserve Fund;
(b) $_________ of the proceeds of the Notes shall be deposited by the
Indenture Trustee upon receipt to the Collection Account in the Collection
Fund;
(c) $3________ of the proceeds of the Notes shall be deposited by the
Indenture Trustee upon receipt to the Expense Account in the Collection
Fund; and
(d) The balance of the proceeds of the Notes shall be deposited by the
Indenture Trustee upon receipt in the Acquisition Fund.
SECTION 4.02 Disposition of Collection Account.
On or before _____________, amounts on deposit in the Collection
Account constituting Consolidation Loan prepayments may be applied for the (i)
Financing of Consolidation Loans by the Eligible Lender Trustee on behalf of the
Issuer that consolidate one or more of the Financed Student Loans, provided that
in no event shall the aggregate amount of Financed Student Loans that are
Consolidation Loans exceed $___________, or (ii) purchase, directly or
indirectly through the Eligible Lender Trustee, by the Issuer of Student Loans
for the purpose of combining or consolidating loans of a single obligor
(sometimes known as serial loans). The moneys to be so applied will be an amount
equal to the full remaining unpaid principal and accrued and unpaid interest and
late charges on all Financed Student Loans selected by the obligor for
consolidation or by the Issuer for purchase.
On each Monthly Distribution Date, as described below, the Indenture
Trustee shall transfer from the Collection Account the following amounts in the
following priority, subject to Available Funds for the immediately preceding
Collection Period:
(i) to the Expense Account, to the extent required to increase the
balance of such Account to the Program Expense Requirement calculated as
of such Monthly Distribution Date;
(ii) to the Note Payment Account,
45
<PAGE> 49
(a) an amount up to (1) the Series 1999A-1 Noteholders' Interest
Distribution Amount for payment on such Monthly Distribution Date
to the Series 1999A-1 Noteholders, ratably, without preference or
priority of any kind and (2) any related Senior Issuer Exchange
Payment for payment to the related Senior Exchange Counterparty;
(b) an amount up to (1) the Series 1999A-2 Noteholders' Interest
Distribution Amount for payment on each Auction Period
Distribution Date occurring in the next succeeding calendar month
to the Series 1999A-2 Noteholders, ratably, without preference or
priority of any kind and (2) any related Senior Issuer Exchange
Payment with respect to the Series 1999A-2 Notes for payment to
the related Senior Exchange Counterparty;
(iii) to the Note Payment Account, an amount up to (a) the Series
1999B-1 Noteholders' Interest Distribution Amount for payment on
such Monthly Distribution Date to the Series 1999B-1 Noteholders,
ratably, without preference or priority of any kind and (b) any
related Subordinate Issuer Exchange Payment for payment to the
related Subordinate Exchange Counterparty;
(iv) to the Note Payment Account,
(a) an amount up to the Series 1999A Noteholders' Principal
Distribution Amount for payment on such Monthly Distribution Date
to the Series 1999A-1 Noteholders until the Outstanding principal
balance of Series 1999A-1 Notes has been reduced to zero, then,
(b) once the Series 1999A-1 Notes are no longer Outstanding, an
amount up to the Series 1999A Noteholders' Principal Distribution
Amount for payment on the next succeeding Auction Period
Distribution Date to the Series 1999A-2 Noteholders until the
Outstanding principal balance of the Series 1999A-2 Notes has been
reduced to zero;
(v) once the Series 1999A Notes are no longer Outstanding, to the Note
Payment Account, an amount up to the Series 1999B-1 Noteholders'
Principal Distribution Amount for payment on such Monthly
Distribution Date to the Series 1999B-1 Noteholders until the
Outstanding principal balance of the Series 1999B-1 Notes has been
reduced to zero;
(vi) to the Reserve Fund the amount, if any, required to increase the
balance thereof to the Specified Reserve Fund Balance as provided
for in Section 5.2 of the Base Indenture;
(vii) to the Note Payment Account, an amount up to Parity Percentage
Payments to the extent then required:
46
<PAGE> 50
(a) for payment on such Monthly Distribution Date to the Series
1999A-1 Noteholders until the principal balance of the Series
1999A-1 Notes has been reduced to zero, then
(b) once the Series 1999A-1 Notes are no longer Outstanding, for
payment on the next succeeding Auction Period Distribution Date to
the Series 1999A-2 Noteholders until the principal balance of the
Series 1999A-2 Notes has been reduced to zero, then
(c) once the Series 1998A Notes are no longer Outstanding, for
payment on such Monthly Distribution Date to the Series 1999B-1
Noteholders until the principal balance of each such Series of
Series 1999B-1 Notes has been reduced to zero;
(viii) to the Note Payment Account, an amount up to any Carryover
Interest,
(a) first to the Series 1999A-1 Noteholders for payment on such
Monthly Distribution Date, and upon payment of all Carryover
Interest due to the Series 1999A-1 Noteholders, then,
(b) to the Series 1999A-2 Noteholders for payment on the next
succeeding Auction Period Distribution Date, and upon payment of
all Carryover Interest due to the Series 1999A-2 Noteholders,
then,
(c) to the Series 1999B-1 Noteholders for payment on such Monthly
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 after giving
effect to all distributions to be made on such Monthly Distribution Date,
either:
(a) the Outstanding principal amount of the Series 1999A Notes would
exceed the sum of (i) the Pool Balance plus (ii) the aggregate
balance on deposit in the Funds and Accounts (exclusive of the
balance of the Student Loan Portfolio Fund) under the Indenture at
the end of the immediately preceding Collection Period, less all
distributions to be made on such Distribution Date, or
47
<PAGE> 51
(b) an Event of Default described in item 1 of the first paragraph of
Section 8.1 of the Base Indenture has occurred (but prior to the
acceleration of the Legal Final Maturity of the Notes),
then, until the applicable conditions described in clauses (a) and (b) no longer
exist, the Series 1999B-1 Noteholders' Interest Distribution Amount and the
Series 1999B-1 Noteholders' Principal Distribution Amount will not be paid to
the Series 1999B-1 Noteholders pursuant to clauses (iii) and (v) above and no
Subordinate Issuer Exchange Payment shall be made. For so long as any Series
1999A Notes remain Outstanding, such deferral in the payment of the Series
1999B-1 Noteholders' Interest Distribution Amount, the Series 1999B-1
Noteholders' Principal Distribution Amount or Subordinate Issuer Exchange
Payments (except with respect to the Legal Final Maturity of the Series 1999B-1
Notes) shall not constitute an Event of Default. In addition, as long as the
applicable conditions described in clause (b) continue to exist, the Series
1998A Noteholders' Principal Distribution Amount shall be paid pro rata among
each Series of Series 1999A Notes, without preference or priority of any kind.
In connection with transfers made pursuant to subclause (b) of item
(ii) above, if the Series Interest Rate for the Auction Rate Notes is unable to
be calculated on any Monthly Distribution Date with regard to one or more
Auction Period Distribution Dates for such Notes occurring in the calendar month
next succeeding such Monthly Distribution Date, the Indenture Trustee shall
calculate the Noteholders' Interest Distribution Amount using the Net Loan Rate
for the preceding Collection Period. To the extent the Series Interest Rate once
calculated is lower than the Net Loan Rate, any excess deposited to the Note
Payment Account pursuant to subclause (b) of item (ii) above shall be
transferred to the Collection Account.
Notwithstanding the foregoing, principal payments will be made to the
Auction Rate Noteholders only in amounts equal to $50,000 and integral multiples
in excess thereof. If the amount in the Note Payment Account otherwise required
to be applied as a payment of principal either (i) is less than $50,000 or (ii)
exceeds an even multiple of $50,000, then, in the case of (i), such entire
amount or, in the case of (ii), such excess amount, will not be paid as
principal on the upcoming Auction Period Distribution Date, but will be retained
in the Note Payment Account until the amount therein available for payment of
principal equals $50,000.
With respect to the Series of Auction Rate Notes entitled to receive
payments of principal, the actual Notes of such Series that will receive
payments of principal on each applicable Auction Period Distribution Date will
be selected no later than five (5) Business Days prior to the such Auction
Period Distribution Date by the Indenture Trustee by lot in such manner as the
Indenture Trustee in its discretion may determine and which will provide for the
selection for payment of principal in the minimum denominations of $50,000, and
integral multiples in excess thereof.
Notice of the specific Auction Rate Notes to receive payments of
principal is to be given by the Indenture Trustee by first-class, postage
prepaid, mailed not less than five (5) Business Days but no more than ten (10)
Business Days before the applicable Auction Period Distribution Date at the
address of the applicable Noteholder appearing on the registration books.
48
<PAGE> 52
Any defect in or failure to give such mailed notice shall not affect the
validity of proceedings for the payment of any other Notes not affected by such
failure or defect. All notices of payment are to state: (i) the applicable
Auction Period Distribution Date, (ii) the amount of principal to be paid, and
(iii) the Series of Auction Rate Notes to be paid.
49
<PAGE> 53
ARTICLE V
Miscellaneous
SECTION 5.01 Execution and Delivery of this Terms Supplement.
This Terms Supplement is executed and delivered pursuant to Section 2.1 of the
Base Indenture.
SECTION 5.02. Effect of Terms Supplement on Indenture. This
Terms Supplement shall supplement the Base Indenture, which is in all respects
ratified and confirmed, and the Base Indenture so supplemented by this Terms
Supplement shall be read, taken and construed as one and the same instrument.
Each addition to and amendment of the Base Indenture herein is solely for the
purposes of the Notes. If any term of this Terms Supplement conflicts with any
terms of the Base Indenture, this Terms Supplement shall control for purposes of
the Notes.
SECTION 5.03 Execution of Counterparts. This Terms Supplement
may be executed in several counterparts, each of which shall be regarded as an
original and all of which shall constitute but one and the same document. It
shall not be necessary in proving this Terms Supplement to produce or account
for more than one of those counterparts.
SECTION 5.04. Governing Law. This Terms Supplement is entered
into with the intent that the laws of the State of Ohio shall govern its
construction, without giving effect to the conflict of law principles thereof.
[balance of page left blank intentionally]
50
<PAGE> 54
IN WITNESS WHEREOF, STUDENT LOAN FUNDING 1999-A TRUST, by
Firstar Bank, National Association, not in its individual capacity, but solely
as co-owner trustee of the Issuer, has caused this Terms Supplement to be signed
in its name and on its behalf by one of its officers thereunto duly authorized;
and FIRSTAR BANK, NATIONAL ASSOCIATION, as Initial Co-Owner Eligible Lender
Trustee, has caused this Terms Supplement to be signed in its name and on its
behalf by one of its officers thereunto duly authorized; and FIRSTAR BANK,
NATIONAL ASSOCIATION, to evidence its acceptance of the trusts hereby created,
has caused this Terms Supplement to be signed in its name and on its behalf by
one of its officers thereunto duly authorized, all as of the date first above
written.
STUDENT LOAN FUNDING 1999-A TRUST
By Firstar Bank, National Association,
not in its individual capacity, but
solely as co-owner trustee of the
Issuer
By________________________________
Title:____________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Initial Co-Owner Eligible Lender
Trustee
By________________________________
Title:____________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By________________________________
Title:____________________________
51
<PAGE> 55
SCHEDULE I
TERMS OF SENIOR NOTES
INITIAL INTEREST RATE (A-1) ____%
INITIAL INTEREST RATE (A-2): ____%
DATED DATE: ___________, 1999.
INITIAL INTEREST DETERMINATION DATE FOR ___________, 1999
SERIES 1999A-1 NOTES:
INITIAL INTEREST DETERMINATION DATE FOR ___________, 1999
SERIES 1999A-2 NOTES:
SERIES 1999A-1 - NUMBERED FROM: A-1
SERIES 1999A-2 - NUMBERED FROM: B-1
TERMS OF SUBORDINATE NOTES
INITIAL INTEREST RATE: ____%
DATED DATE: ____________, 1999
INITIAL INTEREST DETERMINATION DATE FOR THE ____________, 1999
SERIES 1999B-1 NOTES:
SERIES 1999B-1 - NUMBERED FROM: C-1
I-1
<PAGE> 56
EXHIBIT A
DISTRIBUTION STATEMENT
NOTEHOLDERS' STATEMENT FOR STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN ASSET-BACKED NOTES SERIES 1999 A-1, A-2 AND B-1
FOR COLLECTION PERIOD ENDING
Monthly Distribution Date:______________________
(A) Principal Factor
(i) Series A-1 Notes:____________
(ii) Series B-1 Notes:____________
(B) Amount of principal being paid or distributed:
(i) Series A-1 Notes:$___________
(ii) Series A-2 Notes:$___________
(iii) Series B-1 Notes:$___________
(C) (i) Amount of Interest being paid or distributed:
(a) Series A-1 Notes:$____________
(b) Series A-2 Notes:$____________
(c) Series B-1 Notes:$____________
(ii) Applicable Interest Rates (based on the
[Formula Rate/Net Loan Rate]:
(a) Series A-1 Notes:____________%
(b) Series A-2 Notes:____________%
(c) Series B-1 Notes:____________%
(D) Amount of Distribution allocable to any Carryover Interest:
(i) Series A-1 Notes:$____________
(ii) Series A-2 Notes:$____________
(iii) Series B-1 Notes:$____________
(E) Pool Balance at end of preceding Collection Period:$___________
(F) After giving effect to distributions on this Distribution Date:
(i) outstanding principal amount of Series A-1 Notes:$_____________
(ii) outstanding principal amount of Series A-2 Notes:$_____________
(iii) outstanding principal amount of Series B-1 Notes:$______________
(G) Amount of Program Operating Expenses to be allocated for the upcoming
Distribution Date:$______________
(H) (i) Aggregate amount of Realized Losses (if any) for the
Collection Period immediately preceding the Distribution
Date:$_____________
A-1
<PAGE> 57
(ii) Amount received for recoveries of Realized Losses from a
previous Collection Period$____________
(a) interest:$_____________
(b) principal:$____________
(I) (i) Amount of distribution attributable to amounts in the
following Funds:
(a) Reserve Fund:$_________
(b) Expense Account:$____________
(c) Acquisition Fund:$____________
(d) Collection Account:$__________
(e) Note Payment Account:$________
(f) Excess Surplus Account:$________
(ii) Balance of Funds and Accounts on Distribution Date
(a) Reserve Fund:$_________
(b) Expense Account:$___________
(c) Acquisition Fund:$___________
(d) Collection Account:$__________
(e) Note Payment Account:$___________
(f) Excess Surplus Account:$___________
(iii) Parity Percentage:__________%
(iv) Senior Parity Percentage:___________%
(v) Amount of Parity Percentage Payments:$__________
(J) The aggregate amount paid for Financed Student Loans purchased from the
Student Loan Portfolio Fund during the immediately preceding Collection
Period:$____________
(K) Amount of Financed Student Loans:
(i) that are 31 through 60 days delinquent:$_________
(ii) that are 61 through 90 days delinquent:$__________
(iii) that are 91 through 120 days delinquent:$___________
(iv) that are more than 120 days delinquent:$____________
(v) for which claims have been filed with the appropriate
guarantor or the Secretary and which are awaiting
payment:$___________
By: Star Bank as Indenture Trustee for Student Loan Funding 1999-A Trust Student
Loan Asset-Backed Notes, Series 1999A and Series 1999B.
A-2
<PAGE> 58
EXHIBIT B
FORM OF SENIOR LIBOR RATE NOTE
THE INTEREST ON THIS SERIES 1999A-1 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. A-__ $__,000,000
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1999A-1
(LIBOR RATE)
Dated: ___________, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: ________________
Student Loan Funding 1999-A Trust, a common law (as opposed to
statutory) trust created under the laws of the State of Delaware (herein called
the "Issuer"), by Firstar Bank, National Association, a national banking
association duly organized and existing under the laws of the United States, not
in its individual capacity, but solely as co-owner trustee of the Issuer on
behalf of the Issuer (the "Co-Owner Trustee"), hereby acknowledges itself
indebted and, for value received, hereby promises to pay (but only out of the
Trust Estate) to
CEDE & CO.
or registered assigns, on the Legal Final Maturity stated above (subject to
prior redemption referred to herein), the principal sum of
________________________________ DOLLARS
in lawful money of the United States of America; and to pay interest thereon at
the Series Interest Rate applicable for each Interest Accrual Period on the
dates as provided herein (but only out of said Trust Estate) in like lawful
money.
This Series 1999A-1 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1999-A Trust Student Loan Senior
Asset-Backed Notes, Series 1999A-1 (LIBOR Rate)" in the aggregate principal
amount of $___________ (this series herein referred to as the "Series 1999A-1
Notes"), issued (a) pursuant to a resolution duly adopted by the board of
directors of the Issuer authorizing the issuance of the Series 1999A-1 Notes and
(b) under an Indenture of Trust, dated as of ________ 1, 1999 (the "Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Terms Supplement"), as such Base Indenture and Terms Supplement
is supplemented or amended from time to time (the "Indenture"), each by and
among the Issuer, Firstar Bank, National Association, as initial eligible lender
trustee on behalf of the Issuer (the "Initial Co-Owner Eligible Lender Trustee"
and together with any other eligible lender trustee, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1999A-1 Notes are issued simultaneously and on
a parity with the Issuer's $__________ Student Loan Senior Asset-Backed Callable
Notes, Series 1999A-2 (Auction Rate) (the "Series 1999A-2 Notes" and, together
with the Series 1999A-1 Notes, the Series 1999A Notes), and simultaneously with
and on a basis senior to the Issuer's $___________ Student Loan Subordinate
Asset-Backed Notes, Series 1999B-1 (LIBOR Rate) (the "Series 1999B-1 Notes" and
collectively with the Series 1998A Notes, the "Notes").
Reference is hereby made to the Indenture, a copy of which is on file
with the Indenture Trustee, and to all of the provisions thereof, to all of
which provisions the Holder of this Series 1999A-1 Note, by acceptance hereof,
hereby assents and agrees, for definitions of terms; the descriptions of and the
nature and extent of the security for
B-1
<PAGE> 59
the Series 1999A-1 Notes; the student loan purchase program being financed by
the issuance of the Series 1999A-1 Notes; the revenues and other assets pledged
(the "Trust Estate") to the payment of the principal of and interest and any
Carryover Interest on the Series 1999A-1 Notes (subject to the prior rights of
the Indenture Trustee to any realization from the Indenture Trustee's lien on
and security interest in the Trust Estate for payment of its fees and expenses
and the fees and expenses of each Eligible Lender Trustee); the nature and
extent and manner of enforcement of the pledge; the conditions upon which the
Indenture may be amended or supplemented with or without the consent of the
Holders of the Directing Notes; the rights and remedies of the Holders of the
Series 1999A-1 Notes, including the limitations therein contained upon the right
of a Holder to institute any suit, action or proceeding in equity or at law with
respect hereto and thereto; the rights, duties and obligations of the Issuer,
each Eligible Lender Trustee and the Indenture Trustee thereunder; the terms and
provisions upon which the liens, pledges, charges, trusts, security interests,
assignments and covenants made therein may be discharged at or prior to the
maturity of this Series 1999A-1 Note, this Series 1999A-1 Note thereafter no
longer being secured by the Indenture or being deemed to be outstanding
thereunder; and for the other terms and provisions thereof. References in this
Series 1999A-1 Note to the name "Student Loan Funding 1999-A Trust" or to the
term "Issuer" shall mean the Co-Owner Trustee, not in its individual capacity,
but solely as Co-Owner Trustee of the Issuer on behalf of the Issuer.
Words and terms used as defined words and terms in this Series 1999A-1
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest and Carryover Interest, if any, on the
Series 1999A-1 Notes are limited obligations of the Issuer payable only out of
the Trust Estate, as and to the extent set forth in the Indenture, and are
secured by a pledge of, lien on, security interest in and assignment of the
Trust Estate, subject to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth
in the Indenture.
THE INTEREST ACCRUAL PERIOD, THE APPLICABLE SERIES INTEREST RATE, THE
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1999A-1
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1999A-1 NOTE AND REDEMPTION OF THIS SERIES 1999A-1 NOTE WILL
BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE CALCULATION AGENT AGREEMENT, TO WHICH TERMS, CONDITIONS AND
PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND ALL OF WHICH TERMS, CONDITIONS
AND PROVISIONS ARE HEREBY SPECIFICALLY INCORPORATED HEREIN BY REFERENCE.
No covenant or agreement contained in this Series 1999A-1 Note or in
the Indenture shall be deemed to be a covenant or agreement of any director,
officer, agent or employee of the Issuer in his or her individual capacity, and
none of such directors, officers, agents or employees nor any person executing
this Series 1999A-1 Note on behalf of the Issuer shall be liable personally on
this Series 1999A-1 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1999A-1 Note.
If an Event of Default occurs, the principal of and interest on all
Notes issued under the Indenture may be declared due and payable upon the
conditions and in the manner and with the effect provided in the Indenture. The
Indenture and the rights and obligations of the Issuer, each Eligible Lender
Trustee, the Indenture Trustee and the registered owner hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
Except when this Series 1999A-1 Note is held in a Book-entry System,
this Series 1999A-1 Note is transferable by the registered owner hereof or its
attorney duly authorized in writing at the principal corporate trust office of
the Indenture Trustee, upon surrender of this Series 1999A-1 Note, accompanied
by a duly executed instrument of transfer in the form set forth herein, with
signature guaranteed in a manner satisfactory to the Indenture Trustee, subject
to such reasonable regulations as the Issuer or the Indenture Trustee may
prescribe, and upon payment of any tax, fee or other governmental charge
incident to such transfer. Upon any such transfer there shall be issued in the
name of the transferee a new fully registered Series 1999A-1 Note or Series
1999A-1 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1999A-1 Note. The person in whose name this Series
1999A-1 Note is registered shall be deemed the owner hereof for all purposes,
and the Issuer, the Indenture Trustee and any other designated Authenticating
Agent shall not be affected by any notice to the contrary.
B-2
<PAGE> 60
The Series 1999A-1 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1999A-1 Note is held in a
Book-entry System and subject to the limitations and upon payment of the
charges, if any, provided in the Indenture, Series 1999A-1 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1999A-1 Notes of the same date and series of other Authorized
Denominations.
In any case where the date fixed for the payment of principal of or
interest or Carryover Interest on this Series 1999A-1 Note shall not be a
Business Day, then payment of such principal or interest or Carryover Interest
need not be made on such date but may be made on the next succeeding Business
Day with the same force and effect as if made on the date fixed for the payment
thereof.
It is hereby certified, recited and declared that all acts, conditions
and things required to have happened, to exist and to have been performed
precedent to and in the issuance of this Series 1999A-1 Note and the issue of
which it is one, have happened, exist and have been performed in regular and due
time, form and manner as required by law; and that this Series 1999A-1 Note and
the issue of which it is one do not exceed any limitations of indebtedness
prescribed by law or otherwise applicable to the Issuer.
This Series 1999A-1 Note shall not be entitled to any benefit under the
Indenture, or become valid or obligatory for any purpose, until the certificate
of authentication and registration hereon endorsed shall have been signed by the
Indenture Trustee or the Authenticating Agent.
This Series 1999A-1 Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Issuer has caused this Series 1999A-1
Note to be executed in its name and on its behalf by the facsimile signatures of
two Authorized Officers of the Issuer.
STUDENT LOAN FUNDING 1999-A TRUST
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee
of the Issuer on behalf of the Issuer
BY: [facsimile signature] BY: [facsimile signature]
---------------------- ---------------------
B-3
<PAGE> 61
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1999A-1 Notes described in the
within mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: _______________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By ____________________________________
Authorized Signatory
[Form of Assignment for Transfer]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _______________ (Tax Identification or Social Security Number:
_______________) the within Student Loan Senior Asset-Backed Note, Series
1999A-1 (LIBOR Rate), of Student Loan Funding 1999-A Trust, and hereby
irrevocably constitutes and appoints _______________ attorney to transfer said
Note on the registry books kept by the Indenture Trustee for that purpose with
full power of substitution in the premises.
Dated_______________ ______________________________
Signature
NOTE: The signature to the assignment must correspond to the
name as written on the face of this Note in every particular, without any
alteration or change whatsoever.
Signature Guarantee:______________________________
B-4
<PAGE> 62
EXHIBIT C
FORM OF SENIOR AUCTION RATE NOTES
THE INTEREST ON THIS SERIES 1999A-2 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. B-__ $__,000,000
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1999A-2
(AUCTION RATE)
Dated: ___________, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: ________________
Student Loan Funding 1999-A Trust, a common law (as opposed to
statutory) trust created under the laws of the State of Delaware (herein called
the "Issuer"), by Firstar Bank, National Association, a national banking
association duly organized and existing under the laws of the United States, not
in its individual capacity, but solely as co-owner trustee of the Issuer on
behalf of the Issuer (the "Co-Owner Trustee"), hereby acknowledges itself
indebted and, for value received, hereby promises to pay (but only out of the
Trust Estate) to
CEDE & CO.
or registered assigns, on the Legal Final Maturity stated above (subject to
prior redemption referred to herein), the principal sum of
________________________________ DOLLARS
in lawful money of the United States of America; and to pay interest thereon at
the Series Interest Rate applicable for each Interest Accrual Period on the
dates as provided herein (but only out of said Trust Estate) in like lawful
money.
This Series 1999A-2 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1999-A Trust Student Loan Senior
Asset-Backed Callable Notes, Series 1999A-2 (Auction Rate)" in the aggregate
principal amount of $______,000 (this series herein referred to as the "Series
1999A-2 Notes"), issued (a) pursuant to a resolution duly adopted by the board
of directors of the Issuer authorizing the issuance of the Series 1999A-2 Notes
and (b) under an Indenture of Trust, dated as of ________ 1, 1999 (the "Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Terms Supplement"), as such Base Indenture and Terms Supplement
is supplemented or amended from time to time (the "Indenture"), each by and
among the Issuer, Firstar Bank, National Association, as initial eligible lender
trustee on behalf of Issuer (the "Initial Co-Owner Eligible Lender Trustee" and
together with any other eligible lender trustee, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1999A-2 Notes are issued simultaneously and on
a parity with the Issuer's $___________ Student Loan Senior Asset-Backed Notes,
Series 1999A-1 (LIBOR Rate) (the "Series 1999A-1 Notes", and together with the
Series 1999A-1 Notes, the "Series 1999A Notes"), and simultaneously with and on
a basis senior to the Issuer's $__________ Student Loan Subordinate Asset-Backed
Notes, Series 1999B-1 (LIBOR Rate) (the "Series 1999B-1 Notes" and collectively
with the Series 1998A Notes, the "Notes").
Reference is hereby made to the Indenture, a copy of which is on file
with the Indenture Trustee, and to all of the provisions thereof, to all of
which provisions the Holder of this Series 1999A-2 Note, by acceptance hereof,
hereby assents and agrees, for definitions of terms; the descriptions of and the
nature and extent of the security for
C-1
<PAGE> 63
the Series 1999A-2 Notes; the student loan purchase program being financed by
the issuance of the Series 1999A-2 Notes; the revenues and other assets pledged
(the "Trust Estate") to the payment of the principal of and interest and any
Carryover Interest on the Series 1999A-2 Notes (subject to the prior rights of
the Indenture Trustee to any realization from the Indenture Trustee's lien on
and security interest in the Trust Estate for payment of its fees and expenses
and the fees and expenses of each Eligible Lender Trustee); the nature and
extent and manner of enforcement of the pledge; the conditions upon which the
Indenture may be amended or supplemented with or without the consent of the
Holders of the Directing Notes; the rights and remedies of the Holders of the
Series 1999A-2 Notes, including the limitations therein contained upon the right
of a Holder to institute any suit, action or proceeding in equity or at law with
respect hereto and thereto; the rights, duties and obligations of the Issuer,
each Eligible Lender Trustee and the Indenture Trustee thereunder; the terms and
provisions upon which the liens, pledges, charges, trusts, security interests,
assignments and covenants made therein may be discharged at or prior to the
maturity of this Series 1999A-2 Note, this Series 1999A-2 Note thereafter no
longer being secured by the Indenture or being deemed to be outstanding
thereunder; and for the other terms and provisions thereof. References in this
Series 1999A-1 Note to the name "Student Loan Funding 1999-A Trust" or to the
term "Issuer" shall mean the Co-Owner Trustee, not in its individual capacity,
but solely as Co-Owner Trustee of the Issuer on behalf of the Issuer.
Words and terms used as defined words and terms in this Series 1999A-2
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest and Carryover Interest, if any, on the
Series 1999A-2 Notes are limited obligations of the Issuer payable only out of
the Trust Estate, as and to the extent set forth in the Indenture, and are
secured by a pledge of, lien on, security interest in and assignment of the
Trust Estate, subject to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth
in the Indenture.
THE INTEREST ACCRUAL PERIOD, THE APPLICABLE SERIES INTEREST RATE, THE
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1999A-2
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1999A-2 NOTE AND REDEMPTION OF THIS SERIES 1998A-_ NOTE WILL
BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION AGENT AGREEMENT, TO WHICH TERMS, CONDITIONS AND
PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND ALL OF WHICH TERMS, CONDITIONS
AND PROVISIONS ARE HEREBY SPECIFICALLY INCORPORATED HEREIN BY REFERENCE.
No covenant or agreement contained in this Series 1999A-2 Note or in
the Indenture shall be deemed to be a covenant or agreement of any director,
officer, agent or employee of the Issuer in his or her individual capacity, and
none of such directors, officers, agents or employees nor any person executing
this Series 1999A-2 Note on behalf of the Issuer shall be liable personally on
this Series 1999A-2 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1999A-2 Note.
If an Event of Default occurs, the principal of and interest on all
Notes issued under the Indenture may be declared due and payable upon the
conditions and in the manner and with the effect provided in the Indenture. The
Indenture and the rights and obligations of the Issuer, each Eligible Lender
Trustee, the Indenture Trustee and the registered owner hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
Except when this Series 1999A-2 Note is held in a Book-entry System,
this Series 1999A-2 Note is transferable by the registered owner hereof or its
attorney duly authorized in writing at the principal corporate trust office of
the Indenture Trustee, upon surrender of this Series 1999A-2 Note, accompanied
by a duly executed instrument of transfer in the form set forth herein, with
signature guaranteed in a manner satisfactory to the Indenture Trustee, subject
to such reasonable regulations as the Issuer or the Indenture Trustee may
prescribe, and upon payment of any tax, fee or other governmental charge
incident to such transfer. Upon any such transfer there shall be issued in the
name of the transferee a new fully registered Series 1999A-2 Note or Series
1999A-2 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1999A-2 Note. The person in whose name this Series
1999A-2 Note is registered shall be deemed the owner hereof for all purposes,
and the Issuer, the Indenture Trustee and any other designated Authenticating
Agent shall not be affected by any notice to the contrary.
C-2
<PAGE> 64
The Series 1999A-2 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1999A-2 Note is held in a
Book-entry System and subject to the limitations and upon payment of the
charges, if any, provided in the Indenture, Series 1999A-2 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1999A-2 Notes of the same date and series of other Authorized
Denominations.
In any case where the date fixed for the payment of principal of or
interest or Carryover Interest on this Series 1999A-2 Note shall not be a
Business Day, then payment of such principal or interest or Carryover Interest
need not be made on such date but may be made on the next succeeding Business
Day with the same force and effect as if made on the date fixed for the payment
thereof.
It is hereby certified, recited and declared that all acts, conditions
and things required to have happened, to exist and to have been performed
precedent to and in the issuance of this Series 1999A-2 Note and the issue of
which it is one, have happened, exist and have been performed in regular and due
time, form and manner as required by law; and that this Series 1999A-2 Note and
the issue of which it is one do not exceed any limitations of indebtedness
prescribed by law or otherwise applicable to the Issuer.
This Series 1999A-2 Note shall not be entitled to any benefit under the
Indenture, or become valid or obligatory for any purpose, until the certificate
of authentication and registration hereon endorsed shall have been signed by the
Indenture Trustee or the Authenticating Agent.
This Series 1999A-2 Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Issuer has caused this Series 1999A-2
Note to be executed in its name and on its behalf by the facsimile signatures of
two Authorized Officers of the Issuer.
STUDENT LOAN FUNDING 1999-A TRUST
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner
trustee of the Issuer on behalf of the Issuer
BY: [facsimile signature] BY: [facsimile signature]
--------------------- -------------------------
C-3
<PAGE> 65
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1999A-2 Notes described in the
within mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: _______________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By ________________________________
Authorized Signatory
[Form of Assignment for Transfer]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _______________ (Tax Identification or Social Security Number:
_______________) the within Student Loan Senior Asset-Backed Callable Note,
Series 1999A-2 (Auction Rate), of Student Loan Funding 1999-A Trust, and hereby
irrevocably constitutes and appoints _______________ attorney to transfer said
Note on the registry books kept by the Indenture Trustee for that purpose with
full power of substitution in the premises.
Dated_______________ ______________________________
Signature
NOTE: The signature to the assignment must correspond to the
name as written on the face of this Note in every particular, without any
alteration or change whatsoever.
Signature Guarantee:______________________________
C-4
<PAGE> 66
EXHIBIT D
FORM OF SUBORDINATE NOTE
THE INTEREST ON THIS SERIES 1999B-1 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. C-__ $__,000,000
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1999B-1
(LIBOR RATE)
Dated: ___________, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: ________________
Student Loan Funding 1999-A Trust, a common law (as opposed to
statutory) trust created under the laws of the State of Delaware (herein called
the "Issuer"), by Firstar Bank, National Association, a national banking
association duly organized and existing under the laws of the United States, not
in its individual capacity, but solely as co-owner trustee of the Issuer (the
"Co-Owner Trustee"), hereby acknowledges itself indebted and, for value
received, hereby promises to pay (but only out of the Trust Estate) to
CEDE & CO.
or registered assigns, on the Legal Final Maturity stated above (subject to
prior redemption referred to herein), the principal sum of
_______________________________ DOLLARS
in lawful money of the United States of America; and to pay interest thereon at
the Series Interest Rate applicable for each Interest Accrual Period on the
dates as provided herein (but only out of said Trust Estate) in like lawful
money.
This Series 1999B-1 Note is one of a duly authorized issue of
notes of the Issuer designated as "Student Loan Funding 1999-A Trust Student
Loan Subordinate Asset-Backed Notes, Series 1999B-1 (LIBOR Rate)" in the
aggregate principal amount of $_______________ (this series herein referred to
as the "Series 1999B-1 Notes"), issued (a) pursuant to a resolution duly adopted
by the board of directors of the Issuer authorizing the issuance of the Series
1999B-1 Notes and (b) under an Indenture of Trust, dated as of ________ 1, 1999
(the "Base Indenture"), and a Terms Supplement, dated as of even date with the
Base Indenture (the "Terms Supplement"), as such Base Indenture and Terms
Supplement is supplemented or amended from time to time (the "Indenture"), each
by and among the Issuer, Firstar Bank, National Association, as initial eligible
lender trustee on behalf of the Issuer (the "Initial Co-Owner Eligible Lender
Trustee" and together with any other eligible lender trustee, each an "Eligible
Lender Trustee"), and Firstar Bank, National Association, as indenture trustee
(the "Indenture Trustee"). The Series 1999B-1 Notes are issued simultaneously
with and on a basis subordinate to the Issuer's $___________ Student Loan Senior
Asset-Backed Notes, Series 1999A-1 (LIBOR Rate) (the "Series 1999A-1 Notes"),
and the Issuer's $__________ Student Loan Senior Asset-Backed Callable Notes,
Series 1999A-2 (Auction Rate) (the "Series 1999A-2 Notes", and together with the
Series 1999A-1 Notes, the "Series 1999A Notes", and collectively with the Series
1999B-1 Notes, the "Notes").
Reference is hereby made to the Indenture, a copy of which is on file
with the Indenture Trustee, and to all of the provisions thereof, to all of
which provisions the Holder of this Series 1999B-1 Note, by acceptance hereof,
D-1
<PAGE> 67
hereby assents and agrees, for definitions of terms; the descriptions of and the
nature and extent of the security for the Series 1999B-1 Notes; the student loan
purchase program being financed by the issuance of the Series 1999B-1 Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest on the Series 1999B-1 Notes (subject to the prior
rights of the Indenture Trustee to any realization from the Indenture Trustee's
lien on and security interest in the Trust Estate for payment of its fees and
expenses, the fees and expenses of each Eligible Lender Trustee and for payment
of the principal of and interest on the Series 1998A Notes); the nature and
extent and manner of enforcement of the pledge; the conditions upon which the
Indenture may be amended or supplemented with or without the consent of the
Holders of the Series 1999B-1 Notes; the rights and remedies of the Holders of
the Directing Notes, including the limitations therein contained upon the right
of a Holder to institute any suit, action or proceeding in equity or at law with
respect hereto and thereto; the rights, duties and obligations of the Issuer,
each Eligible Lender Trustee and the Indenture Trustee thereunder; the terms and
provisions upon which the liens, pledges, charges, trusts, security interests,
assignments and covenants made therein may be discharged at or prior to the
maturity of this Series 1999B-1 Note, this Series 1999B-1 Note thereafter no
longer being secured by the Indenture or being deemed to be outstanding
thereunder; and for the other terms and provisions thereof. References in this
Series 1999A-1 Note to the name "Student Loan Funding 1999-A Trust" or to the
term "Issuer" shall mean the Co-Owner Trustee, not in its individual capacity,
but solely as Co-Owner Trustee of the Issuer.
Words and terms used as defined words and terms in this Series 1999B-1
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest and Carryover Interest, if any, on the
Series 1999B-1 Notes are limited obligations of the Issuer payable only out of
the Trust Estate, as and to the extent set forth in the Indenture, and are
secured by a pledge of, lien on, security interest in and assignment of the
Trust Estate, subject to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth
in the Indenture.
THE INTEREST ACCRUAL PERIOD, THE APPLICABLE SERIES INTEREST RATE, THE
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1999B-1
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1999B-1 NOTE AND THE REDEMPTION OF THIS SERIES 1999B-1 NOTE
WILL BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF
THE INDENTURE, TO WHICH TERMS, CONDITIONS AND PROVISIONS SPECIFIC REFERENCE IS
HEREBY MADE, AND ALL OF WHICH TERMS, CONDITIONS AND PROVISIONS ARE HEREBY
SPECIFICALLY INCORPORATED HEREIN BY REFERENCE.
No covenant or agreement contained in this Series 1999B-1 Note or in
the Indenture shall be deemed to be a covenant or agreement of any director,
officer, member, agent or employee of the Issuer in his or her individual
capacity, and none of such directors, officers, agents or employees nor any
person executing this Series 1999B-1 Note on behalf of the Issuer shall be
liable personally on this Series 1999B-1 Note or be subject to any personal
liability or accountability by reason of the issuance of this Series 1999B-1
Note.
If an Event of Default occurs, the principal of and interest on all
Notes issued under the Indenture may be declared due and payable upon the
conditions and in the manner and with the effect provided in the Indenture. The
Indenture and the rights and obligations of the Issuer, each Eligible Lender
Trustee, the Indenture Trustee and the registered owner hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
Except when this Series 1999B-1 Note is held in a Book-entry System,
this Series 1999B-1 Note is transferable by the registered owner hereof or its
attorney duly authorized in writing at the principal corporate trust office of
the Indenture Trustee, upon surrender of this Series 1999B-1 Note, accompanied
by a duly executed instrument of transfer in the form set forth herein, with
signature guaranteed in a manner satisfactory to the Indenture Trustee subject
to such reasonable regulations as the Issuer or the Indenture Trustee may
prescribe, and upon payment of any tax, fee or other governmental charge
incident to such transfer. Upon any such transfer there shall be issued in the
name of the transferee a new fully registered Series 1999B-1 Note or Series
1999B-1 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1999B-1 Note. The person in whose name this Series
1999B-1 Note is registered shall be deemed the owner hereof for all purposes,
and
D-2
<PAGE> 68
the Issuer, the Indenture Trustee and any other designated Authenticating
Agent shall not be affected by any notice to the contrary.
The Series 1999B-1 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1999B-1 Note is held in a
Book-entry System and subject to the limitations and upon payment of the
charges, if any, provided in the Indenture, Series 1999B-1 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1999B-1 Notes of the same date and series of other Authorized
Denominations.
In any case where the date fixed for the payment of principal of or
interest or Carryover Interest on this Series 1999B-1 Note shall not be a
Business Day, then payment of such principal or interest or Carryover Interest
need not be made on such date but may be made on the next succeeding Business
Day with the same force and effect as if made on the date fixed for the payment
thereof.
It is hereby certified, recited and declared that all acts, conditions
and things required to have happened, to exist and to have been performed
precedent to and in the issuance of this Series 1999B-1 Note and the issue of
which it is one, have happened, exist and have been performed in regular and due
time, form and manner as required by law; and that this Series 1999B-1 Note and
the issue of which it is one do not exceed any limitations of indebtedness
prescribed by law or otherwise applicable to the Issuer.
This Series 1999B-1 Note shall not be entitled to any benefit under the
Indenture, or become valid or obligatory for any purpose, until the certificate
of authentication and registration hereon endorsed shall have been signed by the
Indenture Trustee or the Authenticating Agent.
This Series 1999B-1 Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Issuer has caused this Series 1999B-1 Note to
be executed in its name and on its behalf by the facsimile signatures of two
Authorized Officers of the Issuer.
STUDENT LOAN FUNDING 1999-A TRUST
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of the Issuer
BY: [facsimile signature] BY: [facsimile signature]
---------------------- ----------------------
---------------------- ----------------------
D-3
<PAGE> 69
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1999B-1 Notes described in the
within mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: _______________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By ______________________________
Authorized Signatory
[Form of Assignment for Transfer]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _______________ (Tax Identification or Social Security Number:
_______________) the within Student Loan Subordinate Asset-Backed Note, Series
1999B-1 (LIBOR Rate), of Student Loan Funding 1999-A Trust, and hereby
irrevocably constitutes and appoints _______________ attorney to transfer said
Note on the registry books kept by the Indenture Trustee for that purpose with
full power of substitution in the premises.
Dated_______________ ______________________________
Signature
NOTE: The signature to the assignment must correspond to the
name as written on the face of this Note in every particular, without any
alteration or change whatsoever.
Signature Guarantee:______________________________
D-4
<PAGE> 70
EXHIBIT E
[FORM OF]
INSTRUCTIONS FOR
PAYMENT OF INTEREST
Firstar Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Corporate Trust Services
The undersigned is the registered owner of Student Loan
Asset-Backed Note(s), Series 1999[A/B-_], of Student Loan Funding 1999-A Trust
No(s). _____________ (the "Note(s)"), in an aggregate principal amount of
$1,000,000 or more. Until further notice or until the undersigned ceases to be
the registered owner of the Note(s), you are instructed to make payment of all
interest due on the Note(s) on any date due by depositing or wiring immediately
available funds on such date to the credit of the undersigned's Account No.
___________ with __________________.
Name___________________________________
Date:____________________ ____________________________________
Authorized Signature
Signature Guaranteed:
_____________________________________
E-1
<PAGE> 71
EXHIBIT F
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE OF PAYMENT DEFAULT
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and
is continuing with respect to the Notes identified above. The next Auction for
the Series 1999A-2 Notes will not be held. The Auction Rate for the Series
1999A-2 Notes for the next succeeding Interest Accrual Period shall be the
Non-Payment Rate.
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Dated: ____________________ By: ____________________________
F-1
<PAGE> 72
EXHIBIT G
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE OF CURE OF PAYMENT DEFAULT
NOTICE IS HEREBY GIVEN that a Payment Default with respect to
the Notes identified above has been waived or cured. The next Distribution Date
for the Series 1999A-2 Notes is _____________________ and the next Interest
Determination Date is ___________________.
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Dated:_____________________ By: ___________________________
G-1
<PAGE> 73
EXHIBIT H
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE OF PROPOSED AUCTION PERIOD ADJUSTMENT
Notice is hereby given that Student Loan Funding 1999-A Trust,
by Firstar Bank, National Association, not in its individual capacity, but
solely as the co-owner of the Student Loan Funding 1999-A Trust on behalf of the
Trust, proposes to change with respect to the captioned Notes the length of the
Auction Period pursuant to the Indenture as follows:
1. The change shall take effect on __________________, the
Distribution Date for the current Auction Period and the date of commencement of
the next Auction Period (the "Effective Date").
2. The Auction Period Adjustment in Paragraph 1 shall take
place only if (A) the Indenture Trustee and the Auction Agent receive, by 11:00
A.M., eastern time, on the Business Day before the Auction Date for the Auction
Period commencing on the Effective Date, a certificate from the Calculation
Agent, as required by the Indenture authorizing the change in length of one or
more Auction Periods and (B) Sufficient Clearing Bids exist on the Interest
Determination Date for the Auction Period commencing on the Effective Date.
3. If the condition referred to in (A) above is not met, the
Auction Rate for the Auction Period commencing on the Effective Date will be
determined pursuant to the Auction Procedures and the Auction Period shall be
the Auction Period determined without reference to the proposed change. If the
condition referred to in (A) is met but the condition referred to in (B) above
is not met, the Auction Rate for the Auction Period commencing on the Effective
Date shall be the lesser of the Maximum Auction Rate and the Net Loan Rate and
the Auction Period shall be the Auction Period determined without reference to
the proposed change.
4. It is hereby represented, upon advice of the Auction Agent
for the Notes described herein, that there were Sufficient Clearing Bids for
such Notes at the Auction immediately preceding the date of this Notice.
5. Terms not defined in this Notice shall have the meanings
set forth in the Indenture entered into in connection with the captioned Notes.
STUDENT LOAN FUNDING 1999-A TRUST,
By Firstar Bank, National
Association, not in its
individual capacity, but solely
as the co-owner trustee of the
Student Loan Funding 1999-A
Trust on behalf of the Trust
H-1
<PAGE> 74
Date:______________________ By:___________________________
H-2
<PAGE> 75
EXHIBIT I
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE ESTABLISHING AUCTION PERIOD ADJUSTMENT
Notice is hereby given that Student Loan Funding 1999-A Trust,
by Firstar Bank, National Association, not in its individual capacity, but
solely as the co-owner trustee of the Student Loan Funding 1999-A Trust on
behalf of the Trust, hereby establishes with respect to the captioned Notes new
lengths for one or more Auction Periods pursuant to the Indenture:
1. The change shall take effect on _______________, the
Distribution Date for the current Auction Period and the date of commencement of
the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date,
the Distribution Date shall be __________________, or the next succeeding
Business Day if such date is not a Business Day.
3. For Auction Periods occurring after the Auction Period
commencing on the Effective Date the Distribution Dates shall be
[___________(date) and every ____________(number) _____________ (day of week)
thereafter] [every ____________ (number) _____________ (day of week) after the
date set forth in paragraph 2 above], or the next Business Day if any such day
is not a Business Day; provided, however, that the length of subsequent Auction
Periods shall be subject to further change hereafter as provided in Section
2.03.2.7 of the Indenture.
4. For all purposes of the Indenture, from and after the
Effective Date, "Rate Adjustment Date" shall mean the Effective Date, and
thereafter _________ of each __________, if each such __________ is a Business
Day; provided, however, that if each such __________ is not a Business Day, then
the first Business Day next succeeding such ____________.
5. The changes described in paragraphs 2 and 3 above shall
take place only upon delivery of this Notice and the satisfaction of other
conditions set forth in the Indenture and our prior notice dated
________________ regarding the proposed change.
6. Terms not defined in this Notice shall have the meanings
set forth in the Indenture relating to the captioned Notes.
I-1
<PAGE> 76
STUDENT LOAN FUNDING 1999-A TRUST,
By Firstar Bank, National
Association, not in its
individual capacity, but solely
as the co-owner trustee of the
Student Loan Funding 1999-A
Trust on behalf of the Trust
Date:______________________ By:___________________________
I-2
<PAGE> 77
EXHIBIT J
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE OF CHANGE IN INTEREST DETERMINATION DATE
Notice is hereby given by _____________________, as
Calculation Agent for the captioned Notes, that with respect to the Series
1999A-2 Notes, the Interest Determination Date is hereby changed as follows:
1. The definition of "Interest Determination Date" shall be
deemed amended by substituting "________________ (number) Business Day" as set
forth in the definition thereof in the Indenture and by substituting
"___________________ (number) Business Days" for "two Business Days" in
subsection (d) thereof.
2. This change shall take effect on ________________ which
shall be the Auction Date for the Auction Period commencing on
___________________.
3. The Interest Determination Date for the Series 1999A-2
Notes shall be subject to further change hereafter as provided in the Indenture.
4. Terms not defined in this Notice shall have the meanings
set forth in the Indenture relating to the captioned Notes.
_______________________________,
as Calculation Agent
Dated:____________________ By: ___________________________
J-1
<PAGE> 78
EXHIBIT K
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE OF PROPOSED AUCTION PERIOD CONVERSION
Notice is hereby given that STUDENT LOAN FUNDING 1999-A TRUST, by
Firstar Bank, National Association, not in its individual capacity, but solely
in its capacity as the co-owner trustee of the Student Loan Funding 1999-A Trust
on behalf of the Trust, proposes to change for the captioned Notes the length of
one or more Auction Periods pursuant to an Auction Period Conversion under the
Indenture as follows:
1. The change shall take effect on __________________, the
Distribution Date for the current Auction Period and the date of commencement of
the next Auction Period (the "Auction Period Conversion Date").
2. The Auction Period Conversion in Paragraph 1 shall take
place only if the provisions set forth in Sections 2.03.2.9 and 2.03.2.10 of the
Indenture are fully satisfied. In connection with such proposed Auction Period
Conversion, the Auction Agent shall not conduct an Auction on the Interest
Determination Date immediately preceding the Auction Period Conversion Date.
3. Regardless of whether the provisions in Sections 2.03.2.9
and 2.03.2.10 of the Indenture are met or are not met, the Auction Agent shall
resume conducting an Auction on the Interest Determination Date that immediately
succeeds such Auction Period Conversion Date.
4. Terms not defined in this Notice shall have the meanings
set forth in the Indenture entered into in connection with the captioned Notes.
STUDENT LOAN FUNDING 1999-A TRUST,
By Firstar Bank, National
Association, not in its
individual capacity, but solely
as the co-owner trustee of the
Student Loan Funding 1999-A
Trust on behalf of the Trust
Date:______________________ By:___________________________
K-1
<PAGE> 79
EXHIBIT L
STUDENT LOAN FUNDING 1999-A TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
NOTICE ESTABLISHING AUCTION PERIOD CONVERSION
Notice is hereby given that STUDENT LOAN FUNDING 1999-A TRUST,
by Firstar Bank, National Association, not in its individual capacity, but
solely in its capacity as the co-owner trustee of the Student Loan Funding
1999-A Trust on behalf of the Trust, hereby establishes for the captioned Notes
new lengths for one or more Auction Periods pursuant an Auction Period
Conversion under the Indenture:
1. The Auction Period Conversion is effective _______________,
being the Distribution Date for the Auction Period immediately preceding the
date of commencement of the Auction Period with respect to which the Auction
Period Conversion is initially effective (the "Effective Date").
2. Terms and provisions applicable to the new Auction Periods
established pursuant to the Auction Period Conversion are set forth in the
Supplemental Indenture attached hereto as Attachment 1 and effective on the
Effective Date.
3. Attached hereto as Attachment 2 is the written evidence
required by Section 2.03.2.9 of the Indenture to the effect that the Auction
Period Conversion described herein will not adversely affect the ratings on the
obligations described in such Section 2.03.2.9.
4. Terms not defined in this Notice shall have the meanings
set forth in the Indenture relating to the captioned Notes.
STUDENT LOAN FUNDING 1999-A TRUST,
By Firstar Bank, National
Association, not in its
individual capacity, but solely
as the co-owner trustee of the
Student Loan Funding 1999-A
Trust on behalf of the Trust
Date:______________________ By:___________________________
L-1
<PAGE> 1
Exhibit 5.1
[Thompson Hine & Flory LLP Letterhead]
March 22, 1999
Student Loan Funding Riverfront LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding Riverfront LLC Registration Statement on Form S-3
(No. 333-64283)
Ladies and Gentlemen:
We have acted as counsel to Student Loan Funding Riverfront LLC, a
Delaware limited liability company (the "Company"), in connection with the
Company's registration statement on Form S-3 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, with respect to the Student Loan Asset-Backed Notes (the
"Notes") to be issued from time to time by separate common law trusts
established by the Company (each, an "Issuer"). Capitalized terms used but not
defined herein shall have the definitions assigned to such terms in the
Registration Statement. The Notes will be issued from time to time pursuant to
Indentures to be entered into from time to time among the applicable Issuer, one
or more Eligible Lender Trustees and an Indenture Trustee.
In the course of rendering this opinion, our review has been limited
solely to the following documents or certificates authenticated or certified to
our satisfaction:
(i) the Registration Statement;
(ii) the Certificate of Formation and Limited Liability Company
Agreement of the Company;
(iii) the form of Trust Agreement attached to the Registration
Statement as Exhibit 3.3;
(iv) the form of Indenture and form of Terms Supplement to the
Indenture attached to the Registration Statement as Exhibits
4.1 and 4.2, respectively; and
<PAGE> 2
Student Loan Funding Riverfront LLC
March 22, 1999
Page 2
(v) such other documents as we deemed necessary and appropriate
under the circumstances.
In such examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures (of parties other than the Company
and the applicable Issuer) on original documents and the conformity to the
original documents of all copies submitted to us. We have also assumed the due
execution and delivery by and enforceability against the parties thereto (as to
all parties other than the Company and the applicable Issuer) of all documents
which we have examined where due execution and delivery or enforceability is a
prerequisite to the effectiveness thereof. As to various facts material to our
opinion, we have relied upon statements or certificates of officers and
representatives of the Company.
Based upon the foregoing examinations and assumptions and subject to
the further assumptions, exceptions and qualifications set forth below, it is
our opinion that:
1. When the Notes have been validly authorized and executed by or on
behalf of the applicable Issuer, issued and authenticated in accordance with the
provisions of the applicable Indenture and issued, delivered to and paid for by
the purchasers thereof in accordance with the provisions of the applicable
underwriting agreement, the Notes will constitute valid and binding obligations
of the applicable Issuer enforceable in accordance with their terms and entitled
to the benefits of the applicable Indenture, except as follows:
(A) the enforceability of the Notes and the applicable
Indenture may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, rearrangement, liquidation, conservatorship
or other similar laws affecting creditors' rights generally, including
court decisions interpreting such laws, statutes of limitations and
personal jurisdiction;
(B) the enforceability of the Notes and the applicable
Indenture and the availability of specific performance, injunctive
relief and other forms of equitable relief are subject to principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law), commercial reasonableness and
conscionability, under which a court might, among other things, decline
to permit acceleration of indebtedness with respect to breach of a
covenant deemed not material by the court, or to require a party
thereto to act with reasonableness and good faith;
<PAGE> 3
Student Loan Funding Riverfront LLC
March 22, 1999
Page 3
(C) no opinion is expressed with respect to the
enforceability of any provisions of the Notes or the applicable
Indenture that purport to require payment or reimbursement of
attorneys' fees or litigation expenses of another party.
We are members of the Bar of the State of Ohio and we express no
opinion as to matters covered by any laws other than those of the State of Ohio,
the federal laws of the United States and the Limited Liability Company Act of
the State of Delaware.
This opinion is provided as a legal opinion only. No opinion may be
inferred or implied beyond the matters expressly stated herein. This opinion
speaks as of its date only and we disclaim any undertaking or obligation to
advise you of changes that hereafter may come to our attention.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement constituting a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Securities Act
of 1933, as amended, or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
Very truly yours,
/s/ Thompson Hine & Flory LLP
PMS:RAS:DAN:PFH
<PAGE> 1
Exhibit 8.1
[Thompson Hine & Flory LLP Letterhead]
March 22, 1999
Student Loan Funding Riverfront LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1999-A Trust Registration Statement on Form S-3
(No. 333-64283)
Ladies and Gentlemen:
We have acted as special tax counsel for Student Loan Funding 1999-A Trust, a
Delaware common law trust (the "Issuer"), and Student Loan Funding Riverfront
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 certain Asset Backed Notes (the "Notes") to be sold from time to time
in one or more series in amounts to be determined at the time of sale as set
forth in one or more Supplements (each, a "Prospectus Supplement") to the
Prospectus (the "Prospectus") included in the Registration Statement.
We are familiar with the proceedings to date in connection with the proposed
issuance and sale of the 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 Notes
(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.
-1-
<PAGE> 2
Student Loan Funding Riverfront LLC
March 22, 1999
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
opinion with respect to the federal income tax characterization of the Notes and
the federal income tax treatment of the issuance of such Notes set forth under
the caption "Federal Income Tax Consequences" in the Prospectus. In our opinion,
for federal income tax purposes, the Notes will be characterized as debt.
However, if the IRS were to assert successfully that the Notes should not be
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. Also, 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 the Depositor that for 1999 and
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 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 Supplement under the heading "Summary of Terms --
Federal Income Tax Consequences" and in the Prospectus under the heading
"Federal Income Tax Consequences" are a fair and accurate summary of the
material tax consequences of the issuance and holding of the 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 note that the Prospectus does not relate to a specific transaction.
Accordingly, the above-referenced description of federal income tax consequences
may, under certain circumstances, require modification in the context of an
actual transaction.
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
Supplement under the caption "Legal Matters" and in the Prospectus under the
caption "Federal Income Tax Consequences."
No opinion has been sought and none has been given concerning the tax treatment
of the issuance and sale of the Notes under the laws of any state.
-2-
<PAGE> 3
Student Loan Funding Riverfront LLC
March 22, 1999
Very truly yours,
/s/ Thompson Hine & Flory LLP
<PAGE> 1
EXHIBIT 10.1
- --------------------------------------------------------------------------------
ADMINISTRATION AGREEMENT
BETWEEN
STUDENT LOAN FUNDING 1999-A TRUST
AS ISSUER
AND
STUDENT LOAN FUNDING RESOURCES, INC.
AS ADMINISTRATOR
DATED AS OF _____________, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Definitions..................................................................................... 2
Section 2. Indenture and Related Documents................................................................. 2
Section 3. Basic Documents................................................................................. 4
Section 4. Sale Purchase Agreements........................................................................ 5
Section 5. Higher Education Act............................................................................ 6
Section 6. Other Duties with Respect to the Indenture and Basic Documents.................................. 6
Section 7. Other Administrative Services................................................................... 6
Section 8. Exceptions...................................................................................... 7
Section 9. Employees; Offices.............................................................................. 8
Section 10. Non-Ministerial Matters......................................................................... 8
Section 11. Compensation.................................................................................... 8
Section 12. Representations and Warranties of the Issuer.................................................... 9
Section 13. Representations and Warranties of the Administrator............................................. 9
Section 14. Term............................................................................................ 10
Section 15. Obligation to Supply Information................................................................ 11
Section 16. Liability of Administrator...................................................................... 11
Section 17. Merger or Consolidation of, or Assumption of the Obligations of,
the Administrator............................................................................... 12
Section 18. [Intentionally Left Blank]...................................................................... 12
Section 19. Administrator Default........................................................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 20. Appointment of Successor........................................................................ 13
Section 21. Reliance on Information Obtained from Third Parties............................................. 14
Section 22. Notices......................................................................................... 14
Section 23. Amendment....................................................................................... 14
Section 24. Assignment...................................................................................... 14
Section 25. Independence of Administrator................................................................... 15
Section 26. No Joint Venture................................................................................ 15
Section 27. Other Activities of Administrator............................................................... 15
Section 28. No Petition..................................................................................... 15
Section 29. Limited Recourse................................................................................ 15
Section 30. Governing Law................................................................................... 15
Section 31. Entire Agreement................................................................................ 15
Section 32. Successors; Counterparts........................................................................ 15
Section 33. Captions........................................................................................ 16
</TABLE>
ii
<PAGE> 4
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT (the "Administration Agreement") is made
as of and effective _____________, 1999 between Student Loan Funding 1999-A
Trust (the "Issuer") and Student Loan Funding Resources, Inc., an Ohio
corporation, as administrator (the "Administrator") under the following
circumstances:
A. The Issuer will be engaged in the acquisition of student loans (the
"Student Loans") guaranteed under a guaranty program established pursuant to the
requirements of the Higher Education Act of 1965, as amended, and the
regulations promulgated thereunder (the "Higher Education Act"). All references
herein to the Issuer shall be deemed to be references to Firstar Bank, National
Association, not in its individual capacity, but solely as Co-owner Trustee,
under the Trust Agreement dated as of _____________,1999 (the "Co-owner
Trustee"), on behalf of the Issuer.
B. To finance the acquisition of such Student Loans, the Issuer will
execute and deliver that certain Indenture of Trust, dated as of _____________,
1999 (the "Indenture") among the Issuer, Firstar National Bank as Eligible
Lender Trustee, on behalf of the Issuer (the "Eligible Lender Trustee"), and
Firstar Bank, National Association, as Indenture Trustee (the "Indenture
Trustee").
C. The Issuer has entered or will enter into certain agreements in
connection with the acquisition of Student Loans, including without limitation
one or more Servicing Agreements with any Servicer (the "Servicing Agreements"),
the Transfer and Sale Agreement, dated as of __________, 1999 by and among
Student Loan Funding Riverfront LLC (the "Depositor"), Firstar Bank, National
Association, as eligible lender trustee on behalf of the Depositor, the Issuer,
and the Eligible Lender Trustee (the "Transfer and Sale Agreement"), and the
Master Servicing Agreement, dated as of ____________, 1999 by and between the
Issuer and Student Loan Funding Resources, Inc., as Master Servicer (the "Master
Servicing Agreement") (collectively being referred to herein as the "Basic
Documents").
D. Pursuant to the Indenture and the Basic Documents, the Issuer is
obligated to perform certain duties and responsibilities under the Indenture and
in connection with the assets and obligations thereunder.
E. The Issuer has requested that the Administrator provide advice and
assistance to the Issuer and perform various services for and duties of the
Issuer, including the duties and responsibilities of the Issuer under the
Indenture and in connection with the assets and obligations thereunder.
F. The Issuer desires to avail itself of the experience, advice and
assistance of the Administrator and to have the Administrator perform various
financial, statistical, accounting and other services for and duties of the
Issuer, and the Administrator has the capacity and is willing to furnish such
services on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises and covenants
set forth herein and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 5
SECTION 1. DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided herein or unless the context requires, capitalized
terms not otherwise defined herein shall have the following meanings:
"Affiliate" means any corporation or other entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Administrator or the Issuer. For purposes of this definition,
"control" means the power to direct management and policies of such entity,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Guarantee Agency" means any guarantee agency that provides guarantees
for Student Loans.
"Servicer" means any servicing entity selected by the Master Servicer
to provide servicing of Student Loans, including but not limited to application,
review, disbursement, collection, due diligence and claims services.
SECTION 2. INDENTURE AND RELATED DOCUMENTS. The Administrator shall
cause the duties and responsibilities of the Issuer under the Indenture to be
performed, including but not limited to the actions set forth below. The
Administrator shall advise the Issuer when action by the Issuer is necessary to
comply with the Issuer's duties under the Indenture and the agreements relating
thereto. The Administrator shall prepare for execution, if required, by the
Issuer, or shall cause the preparation by other appropriate persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to the Indenture.
In furtherance of the foregoing, the Administrator shall take all appropriate
action, including but not limited to, the following:
a. obtaining and preserving the Issuer's legal right to do
business in any jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability
of the Indenture, and each instrument and agreement included
in the trust estate of the Indenture;
b. preparing all supplements, amendments, financing statements,
continuation statements, instruments of further assurance and
other instruments, in accordance with the relevant provisions
of the Indenture, necessary to protect the trust estate of the
Indenture;
c. arranging for the delivery of any opinions of counsel and
certificates of officers of the Issuer and other statements
required under the relevant provisions of the Indenture;
d. preparing and obtaining documents and instruments required for
the release of the Issuer from its obligations under the
Indenture;
2
<PAGE> 6
e. monitoring the Issuer's obligations as to the satisfaction and
discharge of the Indenture and preparing any certificates of
officers of the Issuer and obtaining any opinions of counsel
required in connection therewith;
f. preparing, obtaining or filing the instruments, opinions and
certificates and other documents required for the release of
collateral;
g. taking such actions as may be required of the Issuer under the
Indenture upon the occurrence and continuance of an event of
default thereunder;
h. preparing and, after execution by the Issuer, filing with the
Securities and Exchange Commission (the "Commission"), any
applicable State agencies and the Indenture Trustee, documents
required to be filed on a periodic basis with, and summaries
thereof as may be required by rules and regulations prescribed
by, the Commission and any applicable State agencies including
without limitation, the requirements under any continuing
disclosure agreements;
i. causing the directions of the Issuer to be carried out in
connection with opening one or more accounts in the Issuer's
name, preparing any orders of the Issuer and certificates of
officers of the Issuer and obtaining opinions of counsel
required, and taking all other actions necessary, with respect
to investment and reinvestment of funds in trust funds and
accounts established under the Indenture in accordance with
the investment criteria and requirements of the Indenture and
applicable investment policies.
j. preparing any requests of the Issuer and certificates of
officers of the Issuer and obtaining any opinions of counsel
required for the release of the trust estate of the Indenture;
k. preparing all certificates of officers of the Issuer, and
coordinating obtaining opinions of counsel as required with
respect to any requests by the Issuer of the Indenture Trustee
to take any action under the Indenture;
l. preparing orders of the Issuer and obtaining opinions of
counsel as necessary or required for the execution of any
amendments or supplements to the Indenture;
m. preparing and delivering certificates of officers of the
Issuer, if necessary, for the release of property from the
lien of Indenture;
n. preparing and delivering to the Indenture Trustee any
agreements with respect to notice provisions;
o. preparing and delivering investment instructions to the
Indenture Trustee, as necessary or required under the terms of
the applicable Indenture and in accordance with the applicable
investment policy, adopted from time to time; and
3
<PAGE> 7
p. taking such actions as may be required of the Issuer under any
agreement between the Issuer and other parties relating to the
Indenture.
SECTION 3. BASIC DOCUMENTS.
The Administrator shall cause the duties and responsibilities of the
Issuer under each of the Student Loans and the Basic Documents to be performed,
including but not limited to the duties set forth below. The Administrator shall
advise the Issuer when action by the Issuer is necessary to comply with the
Issuer's obligations under the Student Loans and the Basic Documents. The
Administrator shall prepare for execution, if required, by the Issuer or shall
cause the preparation by other appropriate persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Issuer to prepare, file or deliver pursuant to the Student Loans and the
Basic Documents. In furtherance of the foregoing, the Administrator shall take
all appropriate action, including but not limited to the following:
a. pursuant to the Servicing Agreements, providing to each
Servicer (or such Servicer's bailee) from time to time, as
necessary, and requiring that each Servicer (or such
Servicer's bailee) maintain physical custody and possession
of, documentation and information relating to Student Loans
transferred to the Issuer pursuant to the Transfer and Sale
Agreement and, on and after each applicable date on which
Student Loans are to be purchased (the "Loan Purchase Date"),
Student Loans sold and transferred to the Issuer on each such
Loan Purchase Date, including the documents evidencing such
Student Loans and such additional documentation or information
relating to such Student Loans as is reasonably required for
the Student Loans to be properly serviced by such Servicer;
b. cause to be paid solely from Indenture assets, all amounts to
be paid by the Issuer pursuant to the Transfer and Sale
Agreement;
c. promptly after each Loan Purchase Date, ensuring that
notification as required under the Higher Education Act and by
the applicable Guarantee Agencies is made to the borrower
under each Student Loan and to the Secretary of Education and
the applicable Guarantee Agencies, as appropriate;
d. promptly after each Loan Purchase Date, notifying the
applicable Servicer of the Indenture Trustee to which each
Student Loan purchased on such Loan Purchase Date has been
assigned and such other information as may be required under
the applicable Servicing Agreement;
e. causing to be paid to each Servicer on behalf of the Issuer,
but solely from Indenture assets, all fees required to be paid
by the Issuer pursuant to the applicable Servicing Agreement;
f. performing all audits of records and accounts that the Issuer
from time to time may be permitted or required to perform
under the Servicing Agreements;
4
<PAGE> 8
g. preparing all other documents, reports, filings, instruments,
certificates and opinions as it is the duty of the Issuer to
prepare, file or deliver pursuant to the Basic Documents;
h. in the event of the default of any Servicer under any
Servicing Agreement, or default of any other party to any
other Basic Document, taking all reasonable steps available to
enforce the Issuer's rights under such documents in respect of
such default;
SECTION 4. TRANSFER AND SALE AGREEMENT. The Administrator shall take
the actions necessary to cause the duties of the Issuer to be carried out under
the provisions of the Transfer and Sale Agreement and any of the rights or
obligations thereunder. The Administrator also shall enforce the rights of the
Issuer under the applicable provisions of the Transfer and Sale Agreement to
require the Depositor to repurchase certain Student Loans that have been
transferred to the Issuer, including but not limited to providing notice to the
applicable Servicer of each such repurchase request, endorsing to the Servicer
each Student Loan to be repurchased by the Depositor and taking all other
actions necessary to enforce the Issuer's rights of recourse against the
Depositor.
SECTION 5. HIGHER EDUCATION ACT. The Administrator shall take the
actions that are necessary to cause the Issuer to comply with the requirements
of the Higher Education Act and the applicable Guarantee Agencies with respect
to the Student Loans acquired by the Issuer.
SECTION 6. OTHER DUTIES WITH RESPECT TO THE INDENTURE AND BASIC
DOCUMENTS.
A. In addition to the duties of the Administrator set forth above, the
Administrator shall perform such calculations and shall prepare for execution by
the Issuer or shall cause the preparation by other appropriate persons of all
such documents, reports, filings, instruments, certificates and opinions as it
shall be the duty of the Issuer to prepare, file or deliver pursuant to the
Indenture or the Basic Documents, and shall take all appropriate action that it
is the duty of the Issuer to take pursuant to the Indenture or the Basic
Documents. The Administrator shall administer, perform or supervise the
performance of such other activities in connection with the trust estate of the
Indenture (including the Basic Documents) as the Issuer is obligated to perform
and are not covered by any of the foregoing provisions and as are reasonably
within the capability of the Administrator.
B. In carrying out the foregoing duties or any of its other obligations
under this Agreement, the Administrator may enter into transactions with or
otherwise deal with any of its Affiliates; provided, however, that the terms of
any such transactions or dealings shall be, in the Administrator's opinion, no
less favorable to the Issuer than would be available from unaffiliated parties.
SECTION 7. OTHER ADMINISTRATIVE SERVICES. The Issuer hereby authorizes
the Administrator, as its agent, to perform, and the Administrator hereby agrees
to perform, all administrative services necessary or desirable in connection
with the Issuer's existence as a bankruptcy-remote special purpose entity
holding the assets described hereunder, including but not limited to the
following:
5
<PAGE> 9
a. subject to the directions of the authorized representatives of
the Issuer, carrying out and performing the day to day
business activities of the Issuer;
b. providing, or causing to be provided, all clerical and
bookkeeping services necessary and appropriate for the Issuer,
including, without limitation, the following services:
(i) maintaining general accounting records of the Issuer,
and preparing for audit such periodic financial
statements as may be necessary or appropriate;
(ii) maintaining records of deposit accounts of the Issuer
established under the Indenture and the Basic
Documents or otherwise, authorizing withdrawals from
such accounts on behalf of the Issuer and taking all
other actions on behalf of the Issuer as may be
necessary with respect to such accounts;
(iii) (A) preparing for execution by the Issuer and causing
to be filed on behalf of the Issuer such income,
franchise or other tax returns of the Issuer as shall
be required to be filed by applicable law, and (B)
causing to be paid by the Issuer, solely out of funds
of the Issuer, any taxes required to be paid by the
Issuer by applicable law;
(iv) assisting in preparing for execution by the Issuer
amendments to and waivers under the Basic Documents
and any other documents or instruments deliverable by
the Issuer thereunder or in connection therewith;
(v) holding, maintaining and preserving executed copies
of the Basic Documents (to the extent applicable) and
other documents or instruments executed by the Issuer
thereunder or in connection therewith;
(vi) assisting in giving such other notices, consents and
other communications that the Issuer may from time to
time be required or permitted to give under any of
the Basic Documents or other documents executed by
the Issuer thereunder or in connection therewith;
(vii) facilitating the annual audit of the financial
statements of the Issuer; and
(viii) taking such other actions as may be incidental or
reasonably necessary to accomplish the actions of the
Administrator authorized under this subsection b.
c. assisting the Issuer in carrying out the investment and
reinvestment of the funds of the Issuer in accordance with
applicable investment policies; and
d. undertaking such other administrative services as may be
required by the Issuer.
6
<PAGE> 10
If the Administrator or the Issuer deems it necessary or desirable, any
of the foregoing administrative services may be subcontracted by the
Administrator. Costs and expenses associated with such subcontracting incurred
by the Administrator shall be paid by the Issuer in accordance with Section 11
hereof.
SECTION 8. EXCEPTIONS. Notwithstanding anything to the contrary in this
Agreement, the Administrator shall not be obligated to, and shall not, (1) make
any payments to the holder of the Notes issued under the Indenture, (2) sell the
trust estates of the Indenture to unrelated third parties, or (3) take any other
action that the Issuer directs the Administrator not to take on its behalf.
SECTION 9. EMPLOYEES; OFFICES. All services to be furnished by the
Administrator under this Agreement may be furnished by an officer or employee of
the Administrator or any other person or agent designated or retained by the
Administrator.
The Administrator agrees to provide office space, together with
appropriate materials and any necessary support personnel, for performing the
day to day business activities of the Issuer, all for the compensation provided
in Section 11 hereof.
SECTION 10. NON-MINISTERIAL MATTERS. With respect to matters that in
the reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not take any action unless within a reasonable time before
the taking of such action, the Administrator shall have notified the Issuer of
the proposed action and the Issuer shall not have withheld consent or provided
an alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include:
a. the amendment of or any supplement to the Indenture;
b. the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or
against the Issuer (other than in connection with the
collection of the Student Loans);
c. the amendment, change or modification of the Basic Documents;
d. the appointment of successor Indenture Trustee pursuant to the
Indenture or the appointment of successor administrators or
successor servicers, or the consent to the assignment by the
Indenture Trustee of its obligations under the Indenture; and
e. the removal of the Indenture Trustee.
SECTION 11. COMPENSATION. On or before the last day of each month (the
"Payment Date"), the Issuer shall pay to the Administrator, as compensation for
its services specified hereunder, a fee in the amount of .25% (on a per annum
basis) of the total aggregate principal amount of the assets of the Issuer
subject to this Administration Agreement. The monthly fee will be determined on
the basis of the total aggregate principal amount of assets of the Issuer
subject to the Administration Agreement as of the first day of the month of such
Payment Date. If at any time
7
<PAGE> 11
the Issuer requests the Administrator to perform any additional services not
specified hereunder, the Issuer shall pay the Administrator such additional fees
in respect thereof as shall be agreed to by the Issuer and the Administrator.
The Issuer agrees to reimburse the Administrator for all reasonable expenses,
disbursements and advances incurred or made by the Administrator in connection
with the performance of this Agreement, including, but not limited to, the fees
and expenses of subcontracting, any independent accountants and outside counsel,
which reimbursement shall relate to amounts incurred in a calendar month and
shall be payable by the Issuer to the Administrator on the next succeeding
Payment Date.
The Issuer and the Administrator agree that payments to the
Administrator shall be made out of the Collection Fund held under the Indenture.
SECTION 12. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
makes the following representations:
A. Organization and Good Standing. The Issuer is duly organized and
validly existing with the power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted.
B. Power and Authority. The Issuer has the power and authority to
execute and deliver this Agreement and to carry out its terms, and the
execution, delivery and performance of this Agreement have been duly authorized
by the Issuer by all necessary action.
C. Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Issuer enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and similar laws
relating to creditors' rights generally and subject to general principles of
equity.
D. No Proceedings. There are no proceedings or investigations pending
against the Issuer or, to its best knowledge, threatened against the Issuer,
before any court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Issuer or its properties: (i)
asserting the invalidity of this Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or (iii)
seeking any determination or ruling that could reasonably be expected to have a
material and adverse effect on the performance by the Issuer of its obligations
under, or the validity or enforceability of, this Agreement.
E. All Consents. All authorizations, consents, orders or approvals of
or registrations or declarations with any court, regulatory body, administrative
agency or other governmental instrumentality required to be obtained, effected
or given by the Issuer in connection with the execution and delivery by the
Issuer of this Agreement and the performance by the Issuer of the transactions
contemplated by this Agreement have been duly obtained, effected or given and
are in full force and effect.
SECTION 13. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR. The
Administrator makes the following representations:
8
<PAGE> 12
A. Organization and Good Standing. The Administrator is duly organized
and validly existing with the power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted.
B. Power and Authority. The Administrator has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms, and
the execution, delivery and performance of this Agreement have been duly
authorized by the Administrator by all necessary corporate action.
C. Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Administrator enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization and similar
laws relating to creditors' rights generally and subject to general principles
of equity.
D. No Proceedings. There are no proceedings or investigations pending
against the Administrator or, to its best knowledge, threatened against the
Administrator, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Administrator or its
properties: (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that could reasonably be
expected to have a material and adverse effect on the performance by the
Administrator of its obligations under, or the validity or enforceability of,
this Agreement.
E. All Consents. All authorizations, consents, orders or approvals of
or registrations or declarations with any court, regulatory body, administrative
agency or other governmental instrumentality required to be obtained, effected
or given by the Administrator in connection with the execution and delivery by
the Administrator of this Agreement and the performance by the Administrator of
the transactions contemplated by this Agreement have been duly obtained,
effected or given and are in full force and effect.
SECTION 14. TERM. Subject to the terms hereof, the Administrator may
resign at any time. The Administrator or the Issuer may terminate this Agreement
upon at least 45 days' written notice to the other party. Notwithstanding the
foregoing, no resignation or termination shall be effective until 45 days after
written notice has been delivered to the Indenture Trustee and the
Administrative Agent under the Indenture.
SECTION 15. OBLIGATION TO SUPPLY INFORMATION. The Issuer shall prepare
and supply, or cause the other parties to the Indenture or the Basic Documents
to prepare and supply, the Administrator with such information regarding the
performance of the Indenture or the Basic Documents as the Administrator may
from time to time reasonably request in connection with the performance of its
obligations hereunder.
SECTION 16. LIABILITY OF ADMINISTRATOR. The Administrator shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Administrator under this Agreement.
9
<PAGE> 13
The Administrator shall indemnify, defend and hold harmless the Issuer,
and any of the officers, directors, employees and agents of the Issuer, from and
against any and all costs, expenses, losses, claims, damages and liabilities to
the extent that any such cost, expense, loss, claim, damage or liability arose
out of, or was imposed upon the Issuer through, the gross negligence, willful
misfeasance or bad faith of the Administrator in the performance of its duties
under this Agreement or by reason of reckless disregard of its obligations and
duties hereunder or thereunder. The Issuer shall notify the Administrator
promptly of any claim for which it may seek indemnity. The Administrator shall
defend the claim and the Administrator shall not be liable for the legal fees
and expenses of the Issuer after it has assumed such defense.
For purposes of this Section 16, in the event of the termination of the
rights and obligations of the Administrator (or any successor thereto pursuant
to Section 20) pursuant to Section 14 or the resignation by such Administrator
pursuant to this Agreement, unless the Issuer elects not to appoint a successor
Administrator, such Administrator shall be deemed to be the Administrator
pending appointment of a successor Administrator pursuant to Section 20.
Indemnification under this Section 16 shall survive the termination of
this Agreement and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Administrator has made any indemnity payments
pursuant to this Section 16 and the Issuer thereafter collects any of such
amounts from others, the Issuer promptly shall repay such amounts to the
Administrator, without interest.
Neither the Administrator nor any of its directors, officers, employees
or agents shall be under any liability to the Issuer except as provided under
this Agreement for any action taken or for refraining from the taking of any
action pursuant to this Agreement or for errors in judgment; provided, however,
that these provisions shall not protect the Administrator or any such person
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties under this Agreement. The
Administrator and any of its directors, officers, employees or agents may rely
in good faith on the advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any person respecting any matters
arising hereunder.
Except as provided in this Agreement, the Administrator shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its duties hereunder and that in its opinion may
involve it in any expense or liability; provided, however, that the
Administrator may undertake any reasonable action that it may deem necessary or
desirable in respect of this Agreement, the Indenture and the Basic Documents
and the rights and duties of the parties to this Agreement, the Indenture and
the Basic Documents and the interests of the holders of the Notes and the Bonds
under the Indenture.
SECTION 17. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE ADMINISTRATOR. Any person (a) into which the Administrator
may be merged or consolidated, (b) which may result from any merger or
consolidation to which the Administrator shall be a party or (c) which may
succeed to the properties and assets of the Administrator substantially as a
whole, shall be the successor to the Administrator without the execution or
filing of any documents or any
10
<PAGE> 14
further act by any of the parties to this Agreement; provided, however, that the
Administrator hereby covenants that, if the surviving Administrator is other
than Student Loan Funding Resources, Inc. or an Affiliate, it will not
consummate any of the foregoing transactions except upon satisfaction of the
following: (i) the surviving Administrator executes an agreement of assumption
to perform every obligation of the Administrator under this Agreement, (ii)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 13 has been breached and no Administrator
Default, and no event that, after notice or lapse of time, or both, would become
an Administrator Default has occurred and is continuing, (iii) the surviving
Administrator has delivered to the Indenture Trustee a certificate of an officer
of the surviving Administrator and an opinion of counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this section and that all conditions precedent, if any, provided for in this
Agreement relating to such transaction have been complied with, and (iv) such
transaction will not result in a material adverse Federal or state tax
consequence to the holders of Notes or Bonds under the Indenture. Anything in
this Section 17 to the contrary notwithstanding, the Administrator may at any
time assign its rights, obligations and duties under this Agreement to an
Affiliate.
SECTION 18. [INTENTIONALLY LEFT BLANK]
SECTION 19. ADMINISTRATOR DEFAULT. The occurrence and continuance of
any one of the following events shall constitute an "Administrator Default":
a. any act or omission by the Administrator that results in a failure
to pay principal or interest on the Note when such principal or interest becomes
due and payable;
b. any failure by the Administrator duly to observe or to perform in
any material respect any covenant or agreement of the Administrator set forth in
this Agreement, which failure continues unremedied for a period of 30 days after
the date on which written notice of such failure has been given to the
Administrator by the Issuer;
c. (i) having entered involuntarily against it an order for relief
under the Bankruptcy Code of 1978, as amended, (ii) not paying, or admitting in
writing its inability to pay, its debts generally as they become due or
suspending payment of its obligations, (iii) making an assignment for the
benefit of creditors, (iv) applying for, seeking, consenting to, or acquiescing
in, the appointment of a receiver, custodian, trustee, conservator, liquidator
or similar official for it or any substantial part of its property, (v)
instituting any proceeding seeking to have entered against it an order for
relief under the Bankruptcy Code of 1978, as amended, to adjudicate it
insolvent, or seeking dissolution, winding up, liquidation, reorganization,
arrangement, marshaling of assets, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization, or relief of
debtors or failing to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) failing to contest in
good faith any appointment or proceeding described in Section 19(d) hereof or
(vii) taking any action in furtherance of any of the foregoing purposes; or
d. the appointment of a custodian, receiver, trustee, conservator,
liquidator or similar official for the Administrator or any substantial part of
the property of the Administrator, or the
11
<PAGE> 15
institution of a proceeding described in Section 19(c)(v) against the
Administrator, which appointment continues undischarged or which proceeding
continues undismissed or unstayed for a period of 60 or more days.
In the case of any Administrator Default, so long as such Administrator
Default has not been remedied, the Issuer or the Indenture Trustee shall, by
written notice to the Administrator of such Administrator Default, terminate all
of the rights and obligations (other than the obligations set forth in Section
16) of the Administrator under this Agreement with respect to such Indenture. On
or after the receipt by the Administrator of such written notice, all authority
and power of the Administrator under this Agreement shall, without further
action, be carried out by the Issuer or shall pass to and be vested in such
successor Administrator as may be appointed under Section 20; and, without
limitation, the Issuer is hereby authorized and empowered to execute and
deliver, for the benefit of the predecessor Administrator, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination. The predecessor Administrator shall
cooperate with the successor Administrator in effecting the termination of the
responsibilities and rights of the predecessor Administrator under this
Agreement. All reasonable costs and expenses (including attorneys' fees)
incurred in connection with amending this Agreement to reflect such succession
as Administrator pursuant to this Section 19 shall be paid by the predecessor
Administrator upon presentation of reasonable documentation of such costs and
expenses.
SECTION 20. APPOINTMENT OF SUCCESSOR.
A. Upon receipt by the Administrator of notice of termination pursuant
to Section 14, or the resignation by the Administrator in accordance with the
terms of this Agreement, the predecessor Administrator shall continue to perform
its functions as Administrator under this Agreement, in the case of termination,
only until the date specified in such termination notice or, if no such date is
specified in a notice of termination, until receipt of such notice and, in the
case of resignation, until the date a successor Administrator is appointed by
the Issuer. In the event of the termination or resignation hereunder of the
Administrator, the Issuer may appoint a successor Administrator. Any such
successor Administrator shall accept its appointment by a written assumption.
B. Upon appointment, the successor Administrator shall be the successor
in all respects to the predecessor Administrator and shall be subject to all of
the responsibilities, duties and liabilities placed on the predecessor
Administrator that arise thereafter or are related thereto and shall be entitled
to payment of compensation in accordance with the terms of this Agreement, or
such other terms as are agreed to by the Issuer, and all of the rights granted
to the predecessor Administrator by the terms and provisions of this Agreement.
SECTION 21. RELIANCE ON INFORMATION OBTAINED FROM THIRD PARTIES. The
Issuer recognizes that the accuracy and completeness of the records maintained
and the information supplied by the Administrator hereunder is dependent upon
the accuracy and completeness of the information obtained by the Administrator
from the parties to the Indenture and the Basic Documents and other sources and
the Administrator shall not be responsible for any inaccuracy in
12
<PAGE> 16
the information so obtained or for any inaccuracy in the records maintained by
the Administrator hereunder which may result therefrom.
SECTION 22. NOTICES. All notices, demands, instructions and other
communications required or permitted to be given to or made upon either party
hereto shall be in writing (including by facsimile transmission) and shall be
personally delivered or sent by guaranteed overnight delivery or by facsimile
transmission (to be followed by personal or guaranteed overnight delivery) and
shall be deemed to be given for purposes of this Agreement on the date that such
writing is received by the intended recipient thereof in accordance with the
provisions of this Section 22. Unless otherwise specified in a notice sent or
delivered in accordance with the foregoing provisions of this Section 22,
notices, demands, instructions and other communications in writing shall be
given to or made upon the respective parties thereto at their respective
addresses as follows:
The Issuer:
Firstar Bank, National Association, as Co-owner Trustee of
Student Loan Funding 1999-A Trust
425 Walnut Street
ML5125 P.O. Box 1118
Cincinnati, Ohio 45202-1118
The Administrator:
Student Loan Funding Resources, Inc.
One West Fourth Street, Suite 200
Cincinnati, Ohio 45202
Attention: Treasurer
SECTION 23. AMENDMENT. This Agreement may be amended in writing by the
Administrator and the Issuer. Promptly after the execution of any such
amendment, the Administrator shall furnish written notification of the substance
of such amendment to the Indenture Trustee.
SECTION 24. ASSIGNMENT. Except as provided in Section 17 hereof or as
contemplated by the Indenture, this Agreement may not be assigned by either
party hereto without the prior written consent of the other party.
SECTION 25. INDEPENDENCE OF ADMINISTRATOR. For all purposes of this
Agreement, the Administrator shall be an independent contractor. Unless
expressly authorized by the Issuer, the Administrator shall have no authority to
act for or represent the Issuer in any way and shall not otherwise be deemed an
agent of the Issuer.
SECTION 26. NO JOINT VENTURE. Nothing contained in this Agreement shall
constitute the Issuer and the Administrator as members of any partnership, joint
venture, association, syndicate, unincorporated business or other separate
entity or shall be deemed to confer on either of them any express, implied or
apparent authority to incur any obligation or liability on behalf of the other.
13
<PAGE> 17
SECTION 27. OTHER ACTIVITIES OF ADMINISTRATOR. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other business or,
in its sole discretion, from acting in a similar capacity as an administrator
for any other person or entity even though such person or entity may engage in
business activities similar to those of the Issuer.
SECTION 28. NO PETITION. The Administrator covenants and agrees that,
notwithstanding the termination of this Agreement the Administrator will not
institute against, or join in instituting against the Issuer, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any Federal or state bankruptcy or similar law ordering the
winding up or liquidation of the Issuer's affairs or appointing a receiver,
liquidator, trustee, or other similar official, of the Issuer or any substantial
part of its property, for one year and a day after the termination of this
Agreement. This Section 28 shall survive the termination of this Agreement.
SECTION 29. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio, without regard to
its conflict of law provisions.
SECTION 30. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters covered hereby
and supersedes all prior agreements and understandings between the parties.
SECTION 31. SUCCESSORS; COUNTERPARTS.
(a) This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the respective successors and assigns of each of the Issuer
and the Administrator.
(b) This Agreement may be executed in several counterparts, each of
which shall be deemed an original hereof and all of which taken together shall
constitute one and the same instrument.
SECTION 33. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
STUDENT LOAN FUNDING 1999-A TRUST
By Firstar Bank, National Association , not
in its individual capacity, but solely
as Co-owner Trustee, on behalf of the
Issuer
By: _______________________________________
Name:
Title:
14
<PAGE> 18
STUDENT LOAN FUNDING RESOURCES, INC.
as Administrator
By: _______________________________________
Name:
Title:
15
<PAGE> 19
Firstar Bank, National Association, as the Eligible Lender Trustee
under the Indenture, hereby agrees to take such actions and execute such
documents as may be reasonably requested by the Administrator in order for the
Administrator to provide the services and perform its duties and
responsibilities under the foregoing Agreement.
Firstar Bank, National Association,
as Eligible Lender Trustee
By: _______________________________________
Name:
Title:
Firstar Bank, National Association, as the Indenture Trustee under the
Indenture, hereby agrees to take such actions and execute such documents as may
be reasonably requested by the Administrator in order for the Administrator to
provide the services and perform its duties and responsibilities under the
foregoing Agreement.
Firstar Bank, National Association,
as Indenture Trustee
By: _______________________________________
Name:
Title:
<PAGE> 1
Exhibit 10.2
ELIGIBLE LENDER TRUST AGREEMENT
-------------------------------
This Trust Agreement (the "Agreement") is entered into as
of____________, 1999 (the "Effective Date"), between Student Loan Funding 1999-A
Trust (the "Issuer") and FIRSTAR BANK, NATIONAL ASSOCIATION, as eligible lender
trustee (the "Eligible Lender Trustee") on behalf of the Issuer. All references
to the Issuer shall be deemed to be references to 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 ______________, 1999
(the "Trust Agreement") acting on behalf of the Issuer.
WITNESSETH:
WHEREAS, the Eligible Lender Trustee is an "eligible lender" under the
Higher Education Act; and
WHEREAS, the Issuer 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 Issuer; 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 the Issuer and
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 Issuer 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 Issuer (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.
<PAGE> 2
SECTION 1.2. CREATION AND ACCEPTANCE OF TRUST FOR THE BENEFIT OF THE
ISSUER. The Issuer 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 Issuer as set forth in the
Trust Agreement and herein. At the request of the Issuer 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 Issuer.
SECTION 1.3. AUTHORITY TO ENTER INTO AND EXECUTE DOCUMENTS.
(a) The Issuer 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 Issuer hereby authorizes and directs the Eligible Lender
Trustee to enter into, execute and deliver, from time to time as the Issuer 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 Issuer 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 Issuer;
(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;
(d) if requested by the Issuer (with respect to Financed
Student Loans held on behalf of the Issuer 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 Issuer
as are necessary or appropriate in order for the Issuer 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 Issuer pursuant to the terms and
conditions of this Agreement until otherwise directed by the Issuer and
(ii) shall execute such agreements and documents as requested by the
Issuer providing for the administration of and receipt by the Issuer of
the cash flows and other interests in such Financed Student Loans.
SECTION 1.5. DUTIES OF THE ISSUER. The Issuer, 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.
-3-
<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
Issuer 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 Issuer 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 Issuer
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 Issuer 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. ss. 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 Issuer 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
Lender Trustee has been appointed within 90 days after notice of resignation or
removal, as the case may be,
-4-
<PAGE> 5
the Eligible Lender Trustee may request a court of competent jurisdiction to (i)
require the Issuer 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 Issuer 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 Issuer
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. In fulfillment of these obligations, the Issuer has entered into a Master
Servicing Agreement with Student Loan Funding Resources, Inc. as Master
Servicer. The Issuer acknowledges that the Eligible Lender Trustee is not
required to monitor the actions taken by the Servicers. The Issuer 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 Issuer or the
Master Servicer has with each Servicer.
SECTION 1.14. INDEMNIFICATION BY THE ISSUER OF THE ELIGIBLE LENDER
TRUSTEE. The Issuer 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 the part of
the Eligible Lender Trustee in the performance of its duties hereunder;
provided, however, that the Issuer's
-5-
<PAGE> 6
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 Issuer.
SECTION 1.15. TERMINATION. This Agreement and the trusts created hereby
shall terminate with respect to the Issuer, 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 Issuer.
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.
-6-
<PAGE> 7
"Guarantor" shall mean any guarantee agency as is agreed to in
writing by the Issuer 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.
"Master Servicing Agreement" shall mean the agreement dated
_______, 1999, entered into between the Issuer and the Master Servicer.
"Master Servicer" shall mean Student Loan Funding
Resources, Inc.
"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 Issuer; and (ii) if to
Firstar, addressed to 425 Walnut Street, ML5125; P.O. Box 1118; Cincinnati, Ohio
45201-
-7-
<PAGE> 8
1118, Attention: Corporate Trust Division, or to such other address as may
have been filed by the Issuer 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 ___________, 1999 by and
among the Issuer, 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 Issuer 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.
STUDENT LOAN FUNDING FIRSTAR BANK, NATIONAL
1999-A TRUST ASSOCIATION
By Firstar Bank, National Association, as Eligible Lender Trustee
not in its individual capacity, but
solely as Co-owner Trustee, on
behalf of the Issuer
By: By:
------------------------------------- ------------------------
Title: Title:
------------------------------------- ------------------------
-9-
<PAGE> 1
Exhibit 10.4
MASTER SERVICING AGREEMENT
between
STUDENT LOAN FUNDING 1999-A TRUST,
Issuer
and
STUDENT LOAN FUNDING RESOURCES, INC.,
Master Servicer
Dated as of , 1999
----------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
Definitions
SECTION 1.1. Definitions ................................................ 1
ARTICLE II
Administration and Servicing of Student Loans
SECTION 2.1. Duties of Master Servicer .................................. 2
SECTION 2.2. Compensation ............................................... 3
SECTION 2.3. Cooperation by the Issuer .................................. 3
ARTICLE III
The Master Servicer
SECTION 3.1. Representations of Master Servicer ......................... 3
SECTION 3.2. Indemnities of Master Servicer ............................. 4
SECTION 3.3. Merger or Consolidation of, or Assumption of the
Obligations of, Master Servicer ............................ 5
SECTION 3.4. Limitation on Liability of Master Servicer and Others ...... 5
ARTICLE IV
Default
SECTION 4.1. Master Servicer Default ................................... 6
SECTION 4.2. Appointment of Successor .................................. 7
SECTION 4.3. Payment of Master Servicing Fee ........................... 7
ARTICLE V
SECTION 5.1. Term; Termination ......................................... 7
ARTICLE VI
Miscellaneous Provisions
SECTION 6.1. Amendment ................................................. 7
SECTION 6.2. Notices ................................................... 7
SECTION 6.3. Assignment ................................................ 8
SECTION 6.4. Limitations on Rights of Others ........................... 8
SECTION 6.5. Severability .............................................. 8
SECTION 6.6. Separate Counterparts ..................................... 8
SECTION 6.7. Headings .................................................. 8
SECTION 6.8. Governing Law ............................................. 8
SECTION 6.9. Independence of the Master Servicer ....................... 8
SECTION 6.10. No Joint Venture .......................................... 9
SECTION 6.11. Other Activities of Master Servicer ....................... 9
SECTION 6.12. No Petition ............................................... 9
SECTION 6.13. Limited Recourse .......................................... 9
SECTION 6.14. Entire Agreement .......................................... 9
i
<PAGE> 3
MASTER SERVICING AGREEMENT
MASTER SERVICING AGREEMENT dated as of ________, 1999 (the
"Agreement"), between STUDENT LOAN FUNDING 1999-A TRUST, a Delaware common law
trust (the "Issuer"), and STUDENT LOAN FUNDING RESOURCES, INC., an Ohio
corporation, as master servicer (the "Master Servicer"). References to the
Issuer shall be deemed to be references to FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as Co-owner Trustee under the Trust
Agreement dated as of ______________, 1999 (the "Co-owner Trustee"), on behalf
of the Issuer
WHEREAS, the Issuer, directly or through an eligible lender trustee,
owns a portfolio of student loans; and
WHEREAS, the Master Servicer is willing to arrange for the servicing
of such student loans.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. DEFINITIONS. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
"Affiliate" means any corporation or other entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Master Servicer or the Issuer. For purposes of this
definition, "control" means the power to direct management and policies of such
entity, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Master Servicing Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Guarantee Agency" means a state agency or private nonprofit
corporation which guarantees certain payments of principal and interest on
Student Loans pursuant to a guarantee agreement.
"Guarantee Payments" means those payments made by a Guarantee Agency
with respect to a Student Loan.
"Higher Education Act" means the Higher Education Act of 1965, as
amended, together with any rules and regulations promulgated by the U.S.
Department of Education or the Guarantee Agencies.
"Indenture" means the Indenture of Trust, dated as of _________, 1999,
by and among the Issuer, Firstar Bank, National Association, as Eligible Lender
Trustee, and Firstar Bank, National Association, as Indenture Trustee.
"Master Servicer Default" means an event specified in Section 4.1.
"Master Servicing Fee" has the meaning specified in Section 2.2.
"Noteholder" means a holder of a note of the Issuer issued pursuant to
the Indenture.
1
<PAGE> 4
"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Servicer" means any servicing entity selected by the Master Servicer,
including without limitation the Master Servicer and/or any Affiliate of the
Master Servicer, to provide servicing for all or a part of the Student Loans,
including but not limited to application, review, disbursement, administration,
collection, due diligence and claims services, provided, that such entity is
qualified to be a servicer of such Student Loans in accordance with any
indentures or other documents of the Issuer relating to such Student Loans.
"Servicing Agreement" means an agreement between a Servicer and the
Issuer and/or the Master Servicer for the servicing of all or part of the
Student Loans subject to this Agreement.
"Student Loan" means a student loan incurred under the Higher Education
Act by eligible students attending eligible post secondary educational
institutions.
ARTICLE II
Administration and Servicing of Student Loans
SECTION 2.1. DUTIES OF MASTER SERVICER. (a) Subject to the written
direction of the Issuer, the Master Servicer, for the benefit of the Issuer (to
the extent provided herein), shall provide for, arrange and maintain, or take
such actions as are necessary to provide for, arrange and maintain, the
servicing and administration of the Student Loans in accordance with prudent
industry practices with one or more Servicers in accordance with this Agreement
and shall perform the other actions required by the Master Servicer under this
Agreement, with reasonable care. The Master Servicer shall have full authority
to do anything it reasonably deems appropriate in connection with providing for,
arranging and maintaining such servicing and administration relationships with
Servicers, including without limitation (1) entering into one or more Servicing
Agreements with the Servicers and/or with the Issuer and the Servicers, (2)
providing or arranging for the replacement of any Servicing Agreement that
expires or is terminated, (3) consulting with any Servicer regarding the
negotiation, execution and performance of any Servicing Agreement or the
servicing and administration of any related Student Loan, and (4) terminating
any Servicing Agreement that may exist in accordance with the terms and
conditions of such Servicing Agreement, provided, that upon termination of any
such Servicing Agreement, the Master Servicer shall arrange for an appropriate
Servicing Agreement with a Servicer pertaining to and maintaining continuous
servicing of the Student Loans previously serviced under the terminated
Servicing Agreement. The servicing arrangements provided for by the Master
Servicer shall maintain servicing standards in accordance in all material
respects with all applicable agreements and indentures of the Issuer and all
applicable federal and state laws, including all applicable standards,
guidelines and requirements of the Higher Education Act and any Guarantee
Agreement with respect to the Student Loans, the failure to comply with which
would adversely affect the eligibility of one or more of the Student Loans for
Guarantee Payments or would have a material adverse effect on the Noteholders.
The Master Servicer may perform its responsibilities hereunder through other
agents or independent contractors, but shall not thereby be released from any of
its responsibilities as hereinafter set forth.
As part of its master servicing responsibilities hereunder, the Master
Servicer, for the benefit of the Issuer, shall oversee, administer and enforce
the obligations of each Servicer under the related Servicing Agreement. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of such Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Student Loans.
2
<PAGE> 5
(b) EXCEPTIONS. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein, the Master Servicer, in its
capacity hereunder, shall not be obligated to, and shall not, (1) make any
payments to the noteholders , or (2) take any other action that the Issuer
directs the Master Servicer in writing not to take on its behalf.
SECTION 2.2. MASTER SERVICING FEE. On or before the last day of each
month (the "Payment Date"), the Issuer shall pay to the Master Servicer, as
compensation for its services specified hereunder, a fee in the amount of .02%
(on a per annum basis) of the total aggregate principal amount of the Student
Loans subject to this Agreement. The monthly fee will be determined on the basis
of the total aggregate principal amount of Student Loans subject to this
Agreement as of the first day of the month of each such Payment Date. The Issuer
agrees to reimburse the Master Servicer for all reasonable expenses,
disbursements and advances incurred or made by the Master Servicer in connection
with the performance of this Agreement, including, but not limited to, the fees
and expenses of obtaining Servicers, subcontracting, any independent accountants
and outside counsel, which reimbursement shall relate to amounts incurred in a
calendar month and shall be payable by the Issuer to the Master Servicer on the
next succeeding Payment Date.
SECTION 2.3. COOPERATION BY THE ISSUER. The Issuer agrees to cooperate
and assist the Master Servicer in any manner reasonably requested by the Master
Servicer in connection with the servicing and administration of the Student
Loans subject to this Agreement and the prompt and full performance of the
Master Servicer's duties hereunder, including without limitation, executing,
delivering and performing Servicing Agreements and all other agreements,
documents or certificates relating, directly or indirectly, to the servicing and
administration of the Student Loans subject to this Agreement and the prompt and
full performance of the Master Servicer's duties hereunder.
ARTICLE III
The Master Servicer
SECTION 3.1. REPRESENTATIONS OF MASTER SERVICER. The Master Servicer
makes the following representations on which the Issuer is deemed to have relied
in executing and delivering this Agreement. The representations speak as of the
date of execution and delivery of the Agreement and shall survive such date.
(a) ORGANIZATION AND GOOD STANDING. The Master Servicer is duly
organized and validly existing as a corporation in good standing under the laws
of the State of Ohio with the corporate power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the power, authority and legal right to perform its obligations as required
by this Agreement.
(b) DUE QUALIFICATION. The Master Servicer is duly qualified to do
business and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of its
business (including the performance of its obligations as required by this
Agreement) shall require such qualifications.
(c) POWER AND AUTHORITY OF THE MASTER SERVICER. The Master Servicer has
the corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and the execution, delivery and performance
of this Agreement have been duly authorized by the Master Servicer by all
necessary corporate action. All authorizations, consents, orders or approvals of
or registrations or declarations with any court, regulatory body, administrative
agency or other government instrumentality required to be obtained, effected or
given by the Master Servicer in connection with the
3
<PAGE> 6
execution and delivery by the Master Servicer of this Agreement and the
performance by the Master Servicer of the transactions contemplated by this
Agreement have been duly obtained, effected or given and are in full force and
effect, except where failure to obtain the same would not have a material
adverse effect upon the rights of the Issuer hereunder.
(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid and
binding obligation of the Master Servicer, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization and similar laws now or hereafter in effect relating
to creditors' rights generally, and subject to general principles of equity
(whether applied in a proceeding of law or in equity).
(e) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not result in any
breach of any of the terms and provisions of, or constitute (with or without
notice or lapse of time or both) a default under the Articles of Incorporation
or Code of Regulations of the Master Servicer, or any material indenture,
agreement or other instrument to which the Master Servicer is a party or by
which it shall be bound; nor result in the creation or imposition of any lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument; or violate any law or, to the best of its
knowledge, any order, rule or regulation applicable to the Master Servicer of
any court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Master Servicer
or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations pending
against the Master Servicer, or, to its best knowledge, threatened against the
Master Servicer, before any court, regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Master Servicer
or its properties: (i) asserting the invalidity of this Agreement, (ii) seeking
to prevent the consummation of any of the transactions contemplated by this
Agreement, or (iii) seeking any determination or ruling that could reasonably be
expected to have a material and adverse effect on the performance by the Master
Servicer of its obligations under, or the validity or enforceability of this
Agreement.
SECTION 3.2. INDEMNITIES OF MASTER SERVICER. The Master Servicer shall
be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Master Servicer under this Agreement.
The Master Servicer shall indemnify, defend and hold harmless the
Issuer and any of the officers, employees and agents of the Issuer, from any and
all costs, expenses, losses, claims, damages and liabilities (including
reasonable attorneys' fees and expenses) to the extent arising out of, or
imposed upon any such Person through, the negligence, willful misfeasance or bad
faith of the Master Servicer in the performance of its obligations and duties
under this Agreement or by reason of the reckless disregard of its obligations
and duties under this Agreement, where the final determination that any such
cost, expense, loss, claim, damage or liability arose out of, or was imposed
upon any such Person through, any such negligence, willful misfeasance, bad
faith or recklessness (other than errors in judgment) on the part of the Master
Servicer is established by a court of law, by an arbitrator or by way of
settlement agreed to in writing by the Master Servicer. Notwithstanding the
foregoing, if the Master Servicer is rendered unable, in whole or in part, by
virtue of an act of God, act of war, fire, earthquake or other natural disaster,
to satisfy its obligations under this Agreement, the Master Servicer shall not
be deemed to have breached any such obligation upon the sending of written
notice of such event to the other parties hereto, for so long as the Master
Servicer remains unable to perform such obligation as a result of such event.
This provision shall not be construed to limit the Master Servicer's or any
other party's rights, obligations, liabilities, claims or defenses which arise
as a matter of law or pursuant to any other provision of this Agreement.
4
<PAGE> 7
The Issuer shall notify the Master Servicer promptly of any claim for
which it may seek indemnity. The Master Servicer shall defend the claim and the
Master Servicer shall not be liable for the legal fees and expenses of the
Issuer after it has assumed such defense.
Indemnification under this Section 3.2 shall survive the termination of
this Agreement and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Master Servicer has made any indemnity payments
pursuant to this Section 3.2 and the Issuer thereafter collects any of such
amounts from others, the Issuer promptly shall repay such amounts to the Master
Servicer, without interest.
Anything in this Agreement to the contrary notwithstanding, neither the
Master Servicer nor any of its directors, officers, employees or agents shall be
liable for any cost, expense, loss, claim damage or liability that arises out
of, or was imposed upon any Person seeking indemnity under this Section 3.2
through any negligence, willful misfeasance, bad faith, recklessness or other
act, error or omission on the part of any Servicer under a Servicing Agreement,
provided, that this provision shall not protect the Master Servicer or any such
Person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of its duties
(except for errors in judgment) or by reason of reckless disregard of its
obligations and duties under this Agreement.
SECTION 3.3. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, MASTER SERVICER. Any Person (a) into which the Master Servicer
may be merged or consolidated, (b) which may result from any merger or
consolidation to which the Master Servicer shall be a party or (c) which may
succeed to the properties and assets of the Master Servicer, substantially as a
whole, shall be the successor to the Master Servicer without the execution or
filing of any document or any further act by any of the parties to this
Agreement; provided, that the Master Servicer hereby covenants that, if the
surviving Master Servicer is other than Student Loan Funding Resources, Inc. or
an Affiliate, it will not consummate any of the foregoing transactions except
upon satisfaction of the following: (i) the surviving Master Servicer executes
an agreement of assumption to perform every obligation of the Master Servicer
under this Agreement, (ii) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Section 6.1 shall have been
breached and no Master Servicer Default, and no event that, after notice or
lapse of time, or both, would become a Master Servicer Default shall have
occurred and be continuing, (iii) the surviving Master Servicer shall have
delivered to the Issuer a certificate of an officer of the surviving Master
Servicer and an opinion of counsel each stating that such consolidation, merger
or succession and such agreement of assumption comply with this Section 3.3 and
that all conditions precedent, if any, provided for in this Agreement relating
to such transaction have been complied with, and (iv) such transaction will not
result in a material adverse federal or state tax consequence to the Issuer or
the noteholders of any bonds, notes or other indebtedness of the Issuer.
SECTION 3.4. LIMITATION ON LIABILITY OF MASTER SERVICER AND OTHERS.
Neither the Master Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Issuer except as provided under this
Agreement for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment or for any action or
omission by any Servicer pursuant to a Servicing Agreement; provided, that this
provision shall not protect the Master Servicer or any such Person against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence (except for errors in judgment) in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement. Without limiting the generality of the foregoing, the Master
Servicer in particular shall not be liable for any servicing errors or
interruptions resulting from any failure of any Servicer to maintain computer
and other information systems that are year-2000 compliant. The Master Servicer
and any of its respective directors, officers, employees or agents may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Master Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that shall be
5
<PAGE> 8
incidental to its duties in accordance with this Agreement and that in its
opinion may involve it in any expense or liability.
ARTICLE IV
Default
SECTION 4.1. MASTER SERVICER DEFAULT. The occurrence and continuance of
any one of the following events shall constitute a "Master Servicer Default":
(a) any failure on the part of the Master Servicer duly to observe or
to perform in any material respect any of the covenants or agreements of the
Master Servicer set forth in this Agreement, which failure shall (i) materially
and adversely affect the rights of the Noteholders and (ii) continue unremedied
for a period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master Servicer
by the Issuer (or for such longer period, not in excess of 120 days, as may be
reasonably necessary to remedy such default; provided that such default is
capable of remedy within 120 days and the Master Servicer delivers a certificate
of an officer of the Master Servicer to the Issuer to such effect and to the
effect that the Master Servicer has commenced or will promptly commence, and
will diligently pursue, all reasonable efforts to remedy such default); or
(b) (i) having entered involuntarily against it an order for relief
under the any applicable Federal or state bankruptcy, insolvency or similar law
now or hereafter in effect, (ii) not paying, or admitting in writing its
inability to pay, its debts generally as they become due or suspending payment
of its obligations, (iii) making an assignment for the benefit of creditors,
(iv) applying for, seeking, consenting to, or acquiescing in, the appointment of
a receiver, custodian, trustee, conservator, liquidator or similar official for
it or any substantial part of its property, (v) instituting any proceeding
seeking to have entered against it an order for relief under any applicable
Federal or state bankruptcy, insolvency or similar law now or hereafter in
effect, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, marshaling of assets, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization, or relief of debtors or failing to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it, (vi) failing to contest in good faith any appointment or proceeding
described in Section 4.1(c) hereof or (vii) taking any action in furtherance of
any of the foregoing purposes; or
(c) the appointment of a custodian, receiver, trustee, conservator,
liquidator or similar official for the Master Servicer or any substantial part
of the property of the Master Servicer, or the institution of a proceeding
described in Section 4.1(b)(v) against the Master Servicer, which appointment
continues undischarged or which proceeding continues undismissed or unstayed for
a period of 60 or more consecutive days.
In the case of any Master Servicer Default, so long as the Master Servicer
Default shall not have been remedied, the Issuer, by notice then given in
writing to the Master Servicer of such Master Servicer Default, may terminate
all the rights and obligations (other than the obligations set forth in Section
3.2 and Section 6.12) of the Master Servicer under this Agreement. On or after
the receipt by the Master Servicer of such written notice, all authority and
power of the Master Servicer under this Agreement shall, without further action,
pass to and be vested in the Issuer or such successor Master Servicer as may be
appointed under Section 4.2; and, without limitation, the Issuer is hereby
authorized and empowered to execute and deliver, on behalf of the predecessor
Master Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Student Loans and related
documents, or otherwise. The predecessor Master Servicer shall cooperate with
the successor Master Servicer and the Issuer in effecting the termination of the
responsibilities and rights of the
6
<PAGE> 9
predecessor Master Servicer under this Agreement. All reasonable costs and
expenses (including attorneys' fees) incurred in connection with transferring
the duties of the predecessor Master Servicer to the successor Master Servicer
and amending this Agreement to reflect such succession as Master Servicer
pursuant to this Section shall be paid by the predecessor Master Servicer upon
presentation of reasonable documentation of such costs and expenses.
SECTION 4.2. APPOINTMENT OF SUCCESSOR. (a) Upon the Master Servicer's
receipt of notice of termination, pursuant to Section 4.1 or the Master
Servicer's resignation in accordance with the terms of this Agreement, the
predecessor Master Servicer shall continue to perform its functions as Master
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the date 30 days from the delivery to the Issuer of written
notice of such resignation (or written confirmation of such notice) in
accordance with the terms of this Agreement. In the event of the Master
Servicer's termination hereunder, the Issuer, may appoint a successor Master
Servicer, and the successor Master Servicer shall accept its appointment by a
written assumption in form acceptable to the Issuer.
(b) Upon appointment, the successor Master Servicer shall be
the successor in all respects to the predecessor Master Servicer and shall be
subject to all the responsibilities, duties and liabilities arising thereafter
relating thereto placed on the predecessor Master Servicer and shall be entitled
to the Master Servicing Fee, or such other terms as are agreed to by the Issuer,
and all the rights granted to the predecessor Master Servicer by the terms and
provisions of this Agreement. No successor Master Servicer shall be liable for
any acts or omissions of any predecessor Master Servicer.
SECTION 4.3. PAYMENT OF MASTER SERVICING FEE. If the Master Servicer
shall change, the predecessor Master Servicer shall be entitled to receive any
accrued and unpaid Master Servicing Fees through the date of the successor
Master Servicer's acceptance hereunder.
ARTICLE V
Term; Termination
SECTION 5.1.TERM; TERMINATION. The Master Servicer or the Issuer may
terminate this Agreement upon not less than 45 days' prior written notice to the
other party.
ARTICLE VI
Miscellaneous Provisions
SECTION 6.1. AMENDMENT. The provisions of this Agreement may not be
amended, waived or modified unless such amendment, waiver or modification is in
writing and signed by the Master Servicer and the Issuer. Inaction or failure to
demand strict performance shall not be deemed a waiver.
SECTION 6.2. NOTICES. All demands, notices, instructions and
communications required or permitted to be given to or made upon either party
hereto shall be in writing (including by facsimile transmission) and shall be
personally delivered or sent by guaranteed overnight delivery, by facsimile
transmission (to be followed by personal or guaranteed overnight delivery) or by
postage prepaid registered or certified mail, return receipt requested, and
shall be deemed to be given for purposes of this Agreement on the date that such
writing is received by the intended recipient thereof in accordance with the
provisions of this Section 6.2. Unless otherwise specified in a notice sent or
delivered in accordance with the foregoing provisions of this Section 6.2,
notices, demands, instructions and other communications in writing shall be
given to or made upon the respective parties thereto at their respective
addresses as follows:
7
<PAGE> 10
The Issuer:
Firstar Bank, National Association, as Co-owner Trustee
of Student Loan Funding 1999-A Trust
425 Walnut Street
ML5125 P.O.Box 1118
Cincinnati, Ohio 45202-1118
The Master Servicer:
Student Loan Funding Resources, Inc.
One West Fourth Street, Suite 200
Cincinnati, Ohio 45202
Attention: Senior Vice President and CFO
SECTION 6.3. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 2.1, 3.3 and as provided in the
provisions of this Agreement concerning the resignation and succession of the
Master Servicer, this Agreement may not be assigned by the Issuer or the Master
Servicer without the prior written consent of the other party.
SECTION 6.4. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Issuer and the Master Servicer, and
nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim under or
in respect of this Agreement or any covenants, conditions or provisions
contained herein.
SECTION 6.5. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 6.6. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.7. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 6.8. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio , without reference to principles
of conflicts of law, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
SECTION 6.9. INDEPENDENCE OF THE MASTER SERVICER. For all purposes of
this Agreement, the Master Servicer shall be an independent contractor and shall
not be subject to the supervision of the Issuer with respect to the manner in
which it accomplishes the performance of its obligations hereunder. Unless
expressly authorized by the Issuer, the Master Servicer shall have no authority
to act for or represent the Issuer in any way and shall not otherwise be deemed
an agent of the Issuer.
8
<PAGE> 11
SECTION 6.10. NO JOINT VENTURE. Nothing contained in this Agreement (i)
shall constitute the Master Servicer and the Issuer as members of any
partnership, joint venture, association, syndicate, unincorporated business or
other separate entity, (ii) shall be construed to impose any liability as such
on any of them or (iii) shall be deemed to confer on any of them any express,
implied or apparent authority to incur any obligation or liability on behalf of
the others.
SECTION 6.11. OTHER ACTIVITIES OF MASTER SERVICER. Nothing herein shall
prevent the Master Servicer or its Affiliates from engaging in other business
or, in its sole discretion, from acting in a similar capacity as a master
servicer for any other Person or entity even though such Person or entity may
engage in business activities similar to those of the Issuer.
SECTION 6.12 NO PETITION. The Master Servicer covenants and agrees
that, notwithstanding the termination of this Agreement, the Master Servicer
will not institute against, or join in instituting against, the Issuer, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding under any Federal or state bankruptcy or similar law
ordering the winding up or liquidation of the Issuer's affairs or appointing a
receiver, liquidator, trustee, or other similar official, of the Issuer or any
substantial part of its property, for one year and a day after the termination
of this Agreement. This Section 6.12 shall survive the termination of this
Agreement.
SECTION 6.13. LIMITED RECOURSE. Notwithstanding anything to the
contrary contained herein, the obligations of the Issuer hereunder shall not be
recourse to the Issuer (or any Person or organization acting on behalf of the
Issuer or any affiliate, officer, member, Management Committee member, agent or
employee of the Issuer), and shall be paid solely from moneys in the Collection
Fund established under the Indenture. The Master Servicer agrees that to the
extent such funds are insufficient or unavailable to pay any amounts owing to
the Master Servicer from the Issuer pursuant to this Agreement, it shall not
institute a claim against the Issuer.
SECTION 6.14. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters covered hereby
and supercedes prior agreements and understandings between the parties.
9
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the day and year first above written.
STUDENT LOAN FUNDING 1999-A TRUST,
By Firstar Bank, National Association, not in its
Individual capacity, but solely as Co-owner
Trustee, on behalf of the Issuer
By:
--------------------------------------------------
Name:
Its:
STUDENT LOAN FUNDING RESOURCES, INC., as
the Master Servicer
By:
--------------------------------------------------
Name:
Its:
10
<PAGE> 1
Exhibit 10.5
AGREEMENT BETWEEN THE CALIFORNIA STUDENT AID COMMISSION AND
STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING RELATING TO THE
GUARANTEE OF LOANS FOR
ATTENDANCE AT EDUCATIONAL INSTITUTIONS
Parties
- -------
The California Student Aid Commission ("CSAC") is an agency of the State of
California. Since 1978 CSAC has been a guarantee agency in the various programs
created under the Higher Education Act (HEA) of 1965, as amended, and
administered by the United States Department of Education relating to guaranteed
loans for attendance at educational institutions.
STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING is a lending institution
desirous of making and acquiring loans having a CSAC guarantee.
Warranties
- ----------
STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING warrants that it is
eligible, as defined under the HEA, and will remain eligible to make or acquire
any loan having a CSAC guarantee.
STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING Warrants that any loan it
makes or acquires having a CSAC guarantee will be a legally valid, legally
binding, and legally enforceable obligation of the borrower pursuant to all
applicable federal, state and local laws and regulations.
Agreement by STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING
- ----------------------------------------------------------------
In consideration of the agreements made by CSAC, STAR BANK, N.A. AS TRUSTEE FOR
STUDENT LOAN FUNDING agrees to the following: STAR BANK, N.A. AS TRUSTEE FOR
STUDENT LOAN FUNDING agrees that, respecting any loan it makes or acquires
having a CSAC guarantee, it will comply with all applicable federal, state, and
local laws and regulations including, but not limited to, the HEA, the Fair Debt
Collection Practices Act, the Fair Credit Reporting Act and the Equal Credit
Opportunity Act, as well as all applicable written policy and procedure
documents issued by CSAC. STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING
agrees that for any failure of its warranties, responsibilities and/or
representations made in this agreement the guarantee is void for all affected
loans and it will indemnify and hold harmless CSAC from any resulting financial
loss of any kind, including, but not limited to, the repurchase of any loans
upon which a claim payment was made by CSAC.
Agreement by CSAC
- -----------------
In consideration of the warranties and agreements made by STAR BANK, N.A. AS
TRUSTEE FOR STUDENT LOAN FUNDING, CSAC agrees to guarantee loans made and
acquired by STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING within the
parameters provided for under the HEA.
<PAGE> 2
Incorporations by Reference
- ---------------------------
Any provision of federal, state, or local law or regulation which is required to
be set forth in this agreement is hereby incorporated as though fully set forth.
Severability of Provisions
- --------------------------
The parties agree that the provisions of this agreement are severable, and that
if any provision be declared judicially unenforceable all other provisions
nevertheless remain in full force and effect.
CSAC Failure to Enforce Provisions of Agreement
- -----------------------------------------------
The parties agree that any CSAC failure to enforce any provision of this
agreement shall not in any way diminish the power of CSAC to enforce that
provision subsequently.
Address and Federal Tax Number
- ------------------------------
The address of STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN FUNDING is:
425 Walnut Street, ML 5125
---------------------------------------------
P.O. Box 1118
---------------------------------------------
Cincinnati, OH 45201-1118
---------------------------------------------
---------------------------------------------
The Employer Identification Number for STAR BANK, N.A. AS TRUSTEE FOR STUDENT
LOAN FUNDING is 31-0841368
-----------------------
Signature: /s/ Brian J. Gardner Date: 4/28/98
---------------------------- --------------------
Title Senior Trust Officer
--------------------------------
Authorized representative of STAR BANK, N.A. AS TRUSTEE FOR STUDENT LOAN
FUNDING,
Signature: /s/ Adreinne Wright Date: 5/4/98
--------------------------- --------------------
Title: Chief of Management Services
-----------------------------------------
Authorized representative of CSAC
<PAGE> 3
CALIFORNIA STUDENT AID COMMISSION
CERTIFICATE OF COMPREHENSIVE INSURANCE
(FOR CONSOLIDATION LOANS MADE IN ACCORDANCE WITH TITLE IV,
PART B OF THE HIGHER EDUCATION ACT OF 1965, AS AMENDED)
THE CALIFORNIA STUDENT AID COMMISSION, herein referred to as the "Agency",
certifies that all Consolidation Loans made by STAR BANK, N.A. AS TRUSTEE FOR
STUDENT LOAN FUNDING., herein referred to as the "Lender", in conformity with
the requirement of Part B of Title IV of the Higher Education Act of 1965, as
amended, are fully insured against loss of principal and interest provided:
1. The 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) that the insurance on such loan is in full force and effect.
2. This certificate shall apply to loans made after September 5, 1996 and
prior to the expiration of the authority in Section 428C of the Act to
make and insure consolidation loans.
3. That the total principal amount of all Consolidation Loans insured
under this certificate is equal to or less than $100,000,000.
4. That, if the lender, prior to the expiration of this certification no
longer proposes to make Consolidation Loans, the Lender will so notify
the Agency in order that the certificate may be terminated. Such
termination shall not affect the insurance on any Consolidation Loan
made prior to such termination.
5. That the Lender's loan consolidation program practices are subject to
the Agency's guaranteed Loan Program Lender Participation Limitations,
Suspension or Termination procedures. The insurance on any
Consolidation Loans made under this certificate prior to the Agency's
imposition of a limitation, suspension or termination action shall not
be affected by such action.
6. That the Lender complies with the Agency's and US Department of
Education's reporting and due diligence requirements.
7. That the Lender attaches to this Certificate, as appendix A, a
statement of the alternative repayment terms which it will offer to
borrowers.
/s/ Adreinne Wright
-------------------------
AGENCY OFFICIAL
5/4/98
--------------
DATE
<PAGE> 1
EXHIBIT 10.6
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 10.7
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> 1
Exhibit 10.8
<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
------------------------------------
<PAGE> 1
Exhibit 10.9
Lender Participation
Agreement and
Contract of Insurance
================================================================================
[LOGO} KHEAA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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> 9
[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> 10
[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> 11
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 10.10
LENDER AGREEMENT FOR GUARANTEE OF
STUDENT LOANS WITH FEDERAL REINSURANCE
(SECONDARY MARKET LENDER)
For loans eligible for guarantee under the Higher Education Act of
1965, as amended (the "Act").
WHEREAS, Star Bank, N.A. as Trustee for Student Loan Funding located at
425 Walnut Street, Cincinnati, OH 45202, using DE Lender ID number (*See below)
(the "Lender") wishes to secure loan guarantees with the Nebraska Student Loan
Program, Inc. ("NSLP") on federal student loans made to "Eligible Borrowers" (as
hereinafter defined) purchased by Lender from eligible institutions pursuant to
the Act; and
WHEREAS, Lender represents that it is an eligible secondary market
lender under the provisions of the Act and the "Program Rules" (as hereinafter
defined).
NOW, THEREFORE, it is mutually agreed that:
1. The following words and terms shall have the following
meanings unless otherwise herein provided or unless the
context or use clearly indicates another or differing meaning
or intent:
(a) "Act" shall mean Title IV, Part B, of the Higher
Education Act of 1965, as amended, the regulations
promulgated thereunder, and all official
interpretations of federal requirements as issued by
the U.S. Department of Education ("ED");
(b) "Agreement" shall mean this Agreement;
(c) "Eligible Borrower" shall mean a borrower as defined
by the Act;
(d) "Eligible Loan" shall mean a loan as defined by the
Act; and
(e) "Program Rules" shall include, but are not limited
to, the Act, the Common Manual - Unified Student Loan
Policy, NSLP Operations Alerts and NSLP correspondent
materials. All such Program Rules, as amended from
time to time, are specifically incorporated into and
made a part of this Agreement.
2. NSLP shall guarantee Eligible Loans held by the Lender which
have been acquired in conformance with the Program Rules. For
each twelve month term commencing with the date of this
Agreement and continuing with the anniversary date thereof for
all years thereafter, Lender shall purchase Eligible Loans in
an amount not to exceed $60,000,000. In conjunction with the
purchase of Eligible Loans, NSLP shall provide guarantee and
related services to Lender in conformance with the Act and the
Program Rules. NSLP shall review the principal amount of
Eligible Loans on a quarterly basis to determine compliance
with respect to this provision.
*829626, 830631, 831008, 831299, 831455, 831640, 831692, 831785, 833361, 833207
<PAGE> 2
3. NSLP and the Lender agree that upon the default of a
promissory note and the filing of a claim on such promissory
note by the Lender, such claim shall be processed as provided
for in the Program Rules.
4. NSLP agrees to maintain reserves as defined by the Act for the
payment of claims/purchase of loans pursuant to the
reinsurance contracts with the Secretary of Education.
5. Lender shall only purchase Eligible Loans made by qualified
lenders to Eligible Borrowers permitted by the Program Rules.
6. The Lender shall determine that each Eligible Loan obligation
is a legal, valid and binding obligation of the Eligible
Borrower, and shall engage in the requisite due diligence
relative to the purchase, servicing, and collection of
Eligible Loans as required by the Program Rules. Lender shall
document in the loan file the basis on which it made its
determination and due diligence and retain the same for the
term required by the Program Rules. Lender acknowledges that
NSLP has no responsibility to review determinations or due
diligence activity of Lender.
7. Lender shall notify NSLP in writing if any servicing or
management of the Lender's Eligible Loans guaranteed by NSLP
is done by an entity other than Lender.
8. Each Eligible Loan purchased by Lender has been made at an
interest rate not otherwise prohibited by the Act.
9. Each Eligible Loan shall be subject to repayment on the terms
stated in the Act.
10. The Lender agrees to remit to NSLP any fees permitted by the
Act and the Program Rules or as otherwise required by NSLP
11. NSLP and the Lender agree that the guarantee on any particular
Eligible Loan shall be effective for the term of that Eligible
Loan on the effective date determined in accordance with the
Program Rules.
12. In purchasing and servicing Eligible Loans from Eligible
Borrowers, the Lender agrees to comply with all applicable
federal and state laws in addition to (and not in conflict
with) the Program Rules.
13. In the event the Lender, its servicing agent, any prior
transferor, transferees or subsequent servicing agent shall
violate or fail to comply with the Program Rules with respect
to any Eligible Loan, Lender shall assume liability for and
agrees to indemnify and keep harmless NSLP, its successors,
assigns, directors, officers and agents from and against any
and all liabilities, losses, damages, penalties, claims,
actions, expenses and disbursements, including legal fees and
expenses, imposed on, incurred by or asserted against them or
any
<PAGE> 3
of them, in any way relating to or arising out of such
violation or failure to comply with the Program Rules,
irrespective of whether NSLP shall have purchased such
Eligible Loans from the Lender.
14. The Lender shall maintain for all Eligible Loans guaranteed a
system of records and accounts, shall afford access thereto,
and shall furnish such periodic and separate reports as may
reasonably be required by the ED and NSLP under the Program
Rules. For Eligible Loans paid in full or otherwise
discharged, the records shall be retained by the Lender as
required by the Program Rules.
15. NSLP shall guarantee Eligible Loans without regard to sex,
age, race, color, religion, handicapped status, income,
national origin, or any other basis prohibited by applicable
law. The Lender will not discriminate in the acquisition of
Eligible Loans from originating lenders or in the treatment of
Eligible Borrowers on any prohibited basis.
16. This Agreement shall inure to the benefit of and be binding
upon NSLP, the Lender and their respective successors;
provided, however, this Agreement may not be assigned by
either party hereto, either in whole or in part, without the
prior written consent of the other party, which consent may
not be unreasonably withheld.
17. Subject to the prior written approval of the Lender, which
approval shall not be unreasonably withheld, NSLP may transfer
Eligible Loans which are guaranteed to any other guarantor
which has given NSLP its prior written approval of such
transfer. Lender may likewise transfer Eligible Loans to
another NSLP-approved lender or eligible holder, and shall
notify NSLP of any proposed transfer of NSLP guaranteed loans
by sale, payoff or pledge to such approved lender or eligible
holder.
18. This Agreement may be terminated by the Lender upon ninety
(90) days advance written notice to NSLP. The Lender is
required to give NSLP ninety (90) days advance written notice
of termination if the Lender intends to cease making Eligible
Loans under this Agreement. This Agreement may be terminated,
suspended or limited by NSLP in any manner provided for in the
Program Rules. Such termination, suspension or limitation
shall not affect the coverage of Eligible Loans previously
guaranteed.
In addition, this Agreement may be terminated by NSLP upon
ninety (90) days written notice to the Lender in the event
NSLP intends to cease guaranteeing Eligible Loans of Lender.
Lender will have 90 days from receipt of the termination
notice to obtain a guarantee from NSLP on all Eligible Loans
acquired prior to receipt of the termination notice.
19. Lender agrees to indemnify and hold harmless NSLP from any
obligations arising out of or related to Eligible Loans not
originated, acquired or serviced in the manner required by the
Act and the Program Rules.
20. This Agreement shall be governed by the laws of the State of
Nebraska, except to the extent federal law and/or regulations
apply to the subject matter hereof. This Agreement shall not
be varied by oral agreement but only by an instrument in
writing duly executed by both
<PAGE> 4
parties. Any legal or equitable judicial proceeding arising
out of or related to this Agreement shall be heard solely in
the courts located in the City of Lincoln, Lancaster County,
Nebraska, as the forum of choice of the parties to this
Agreement. This Agreement represents the entire understanding
of the parties with respect to the subject matter and
supersedes all other communications between the parties.
This Agreement is made this 1st day of June, 1998 .
----- ----- -----
<TABLE>
<S> <C>
LENDER: Corporate Name:
Star Bank, N.A. as Trustee for Student Loan
Funding
-----------------------------------------------------
Lender ID.#: 829626, 830631, 831008,
ATTEST: 831299, 831455, 831640, 831692,
831785, 833361, 833207
----------------------------------------
By: /s/ Robert Jones By: /s/ Brian J. Gardner
------------------------------------ --------------------------------------------------
Title: SENIOR TRUST OFFICER Title: Senior Trust Officer
--------------------------------- -----------------------------------------------
Signature Date: 4/21/98
--------------------------------------
ATTEST: NEBRASKA STUDENT LOAN PROGRAM, INC.
By: /s/ Shaunda L. Poppe By: /s/ Nancy J. Wiederspan
------------------------------------ --------------------------------------------------
Title: Supervisor, Admin. Services Title: President
--------------------------------- -----------------------------------------------
Signature Date: 4/29/98
--------------------------------------
</TABLE>
<PAGE> 5
LENDER AGREEMENT FOR GUARANTEE OF
FEDERAL CONSOLIDATION LOANS WITH FEDERAL REINSURANCE
For loans eligible for guarantee under the Higher Education Act of
1965, as amended (the "Act")
WHEREAS, Star Bank, N.A. as Trustee for Student Loan Funding located at
Cincinnati, OH 45202, using DE Lender ID number (*See below) _____________ (the
"Lender") wishes to secure loan guarantees with the Nebraska Student Loan
Program, Inc. ("NSLP") on "Federal Consolidation Loans" (as hereinafter defined)
made to "Eligible Borrowers" (as hereinafter defined); and
WHEREAS, Lender represents that it is an "eligible lender" under the
provisions of the Act and the "Program Rules" (as hereinafter defined); and
WHEREAS, Lender has previously executed the NSLP Lender Agreement for
Guarantee of Student Loans with Federal Reinsurance.
NOW, THEREFORE, it is mutually agreed that:
1. The following words and terms shall have the following
meanings unless otherwise herein provided or unless that
context or use clearly indicates another or differing meaning
or intent;
(a) "Act" shall mean Title IV, Part B, of the Higher
Education Act of 1965, as amended, the regulations
promulgated thereunder, and all official
interpretations of federal requirements as issued by
the U.S. Department of Education ("ED");
(b) "Agreement" shall mean this Agreement;
(c) "Eligible Borrower" shall mean a borrower as defined
by the Act:
(d) "Eligible Loan" shall mean a loan as defined by the
Act;
(e) "Federal Consolidation Loan" shall mean a student
loan which has been consolidated pursuant to and as
defined by the Act;
(f) "Initial Principal Amount" shall mean the principal
amount of a Federal Consolidation Loan when made; and
(g) "Program Rules" shall include, but are not limited
to, the Act, all correspondence, the Common Manual -
Unified Student Loan Policy, NSLP Operations Alerts
and NSLP correspondent materials. All such Program
Rules, as amended from time to time, are specifically
incorporated into and made a part of this Agreement.
2. NSLP shall guarantee Federal Consolidation Loans made or
acquired by the Lender which have been made in conformance
with the Program Rules.
*829626, 830631, 831008, 831299, 831455, 831640, 831692, 831785, 833361, 833207
<PAGE> 6
3. NSLP and the Lender agree that upon the default with respect
to a promissory note and the filing of a claim on such
promissory note by the Lender, such claim shall be processed
as provided for in the Program Rules.
4. NSLP agrees to maintain reserves as defined by the Act for the
payment of claims/purchase of loans pursuant to the
reinsurance contracts with the Secretary of Education.
5. Lender shall make a Federal Consolidation Loan only to
discharge Eligible Loans upon an Eligible Borrower's request.
6. Lender shall make a Federal Consolidation Loan only to those
Eligible Borrowers permitted by the Program Rules.
7. With respect to each Federal Consolidation Loan, the Lender
shall determine as to each Eligible Loan obligation to be
consolidated that each obligation:
(a) is a legal, valid and binding obligation of the
Eligible Borrower;
(b) was made and has been continuously serviced in
accordance with applicable laws and regulations and,
if guaranteed, requirements of the guarantor;
(c) each underlying loan is currently guaranteed under
the Act as of the date of the consolidation; and
(d) is not in default status as defined under the Act or
the Program Rules.
Lender shall document in the loan file the basis on which it
made its determination and retain that documentation for the
term required by the Program Rules. Lender acknowledges that
NSLP has no responsibility to review such determination of
Lender.
8. Unless otherwise required by the Act, each Federal
Consolidation Loan shall be made in a principal amount which
is equal to the sum of the unpaid principal and accrued unpaid
interest and late charges of the Eligible Loans to be
consolidated. The proceeds of each Federal Consolidation Loan
will be paid to the holder of each loan to be consolidated to
discharge the liability on such loans.
9. Each Federal Consolidation Loan shall be made at the interest
rate designated by the Act.
10. Each Federal Consolidation Loan shall be subject to repayment
on the terms stated in the Act.
11. The Lender agrees to remit to NSLP any fees permitted by the
Act and required by NSLP.
12. NSLP and the Lender agree that the guarantee on any particular
Federal Consolidation Loan shall be effective for the term of
that Federal Consolidation Loan determined in accordance with
the Program Rules, the effective date beginning on the date of
receipt by NSLP of any fee with respect to that Federal
Consolidation Loan or, if no fee is permitted or required,
beginning on the date of disbursement by Lender of that
Federal Consolidation Loan.
<PAGE> 7
13. In making Federal Consolidation Loans to Eligible Borrowers,
the Lender agrees to comply with all applicable federal and
state laws in addition to (and not in conflict with) the
Program Rules.
14. The Lender agrees to notify NSLP in writing within 60 days
from the date that each Federal Consolidation Loan is made.
15. The Lender shall maintain for all Federal Consolidation Loans
guaranteed a system of records and accounts, shall afford
access thereto, and shall furnish such periodic and separate
reports as may reasonably be required by the ED and NSLP under
the Program Rules. For Federal Consolidation Loans paid in
full or otherwise discharged, the records shall be retained by
the Lender as required by the Program Rules.
16. NSLP shall guarantee Federal Consolidation Loans without
regard to sex, age, race, color, religion, handicapped status,
income, national origin, or any other basis prohibited by
applicable law. The Lender will not discriminate in the making
of loans to Eligible Borrowers or in the treatment of such
Eligible Borrowers on any prohibited basis.
17. This Agreement shall inure to the benefit of and be binding
upon NSLP, the Lender, and their respective successors;
provided, however, that this Agreement may not be assigned by
either party hereto, either in whole or in part, without the
prior written consent of the other party, which consent may
not be unreasonably withheld.
18. Subject to the prior written approval of the Lender, which
approval shall not be unreasonably withheld, NSLP may transfer
Federal Consolidation Loans which are guaranteed to any other
guarantor which has given NSLP its prior written approval of
such transfer. (**See below)
19. This Agreement may be terminated by the Lender upon ninety
(90) days advance written notice to NSLP. The Lender is
required to give NSLP ninety (90) days advance written notice
of termination if the Lender intends to cease making Federal
Consolidation Loans under this Agreement. This Agreement may
be terminated, suspended or limited by NSLP in any manner
provided for in the Program Rules. Such termination,
suspension, or limitation shall not affect the coverage of
Federal Consolidation Loans previously guaranteed.
In addition, this Agreement may be terminated by NSLP upon
ninety (90) days written notice to the Lender, in the event
that NSLP intends to cease guaranteeing Federal Consolidation
Loans of Lender. Upon receipt of the termination notice,
Lender shall immediately cease origination and disbursement of
all Consolidation Loans. Lender will have 90 days from receipt
of the termination notice to obtain a guarantee from NSLP on
all Consolidation Loans originated and disbursed prior to
receipt of the termination notice.
20. Lender agrees to indemnify and hold harmless NSLP from any
obligations arising out of or related to Federal
Consolidation Loans not originated and serviced in the manner
required by the Act and the Program Rules.
**Lender may likewise transfer Eligible Loans to another NSLP-approved Lender or
Eligible Holder, and shall notify NSLP of any proposed transfer of NSLP
guaranteed loans by sale, payoff or pledge to such approved Lender or Eligible
Holder.
<PAGE> 8
21. This Agreement shall be governed by the laws of the State of
Nebraska, except to the extent federal law and or regulations
apply to the subject matter hereof. This Agreement shall not
be varied by oral agreement but only by an instrument in
writing duly executed by both parties. Any legal or equitable
judicial proceeding arising out of or related to this
Agreement shall be heard solely in the courts located in the
City of Lincoln, Lancaster County, Nebraska, as the forum of
choice of the parties to this Agreement. This Agreement
represents the entire understanding of the parties with
respect to the subject matter and supersedes all other
communications between the parties.
22. Nothing contained in this Agreement amends or modifies in any
way the Nebraska Student Loan Program, Inc. Lender Agreement
for Guarantee of Student Loans with Federal Reinsurance
between Lender and NSLP, including any addendum or amendment
to that agreement.
This Agreement is made this 1st day of June , 1998 .
----- ------ -----
<TABLE>
<S> <C>
Star Bank, N.A. as Trustee for
LENDER: Student Loan Funding
-----------------------------------------------------
Lender ID.#: 829626, 830631, 831008,
ATTEST: 831299, 831455, 831640, 831692,
831785, 833361, 833207
----------------------------------------
By: /s/ Robert Jones By: /s/ Brian J. Gardner
------------------------------------ --------------------------------------------------
Title: SENIOR TRUST OFFICER Title: Senior Trust Officer
--------------------------------- -----------------------------------------------
Signature Date: 4/21/98
--------------------------------------
</TABLE>
The above contract accepted in Lincoln, Nebraska this 1st day of June,
---- ------
1998, by NSLP, which date is the effective date of this Agreement.
---
<TABLE>
<S> <C>
ATTEST: NEBRASKA STUDENT LOAN PROGRAM, INC.
By: /s/ Shaunda L. Poppe By: /s/ Nancy J. Wiederspan
------------------------------------ --------------------------------------------------
Title: Supervisor, Admin. Services Nancy J. Wiederspan, President
</TABLE>
<PAGE> 9
NEBRASKA STUDENT LOAN PROGRAM, INC. ("NSLP")
LINCOLN, NEBRASKA
CERTIFICATE OF GUARANTEE
WITH RESPECT TO
FEDERAL CONSOLIDATION LOANS
<TABLE>
<S> <C>
DE Lender ID #: 829626, 830631, 831008, 831299, 831455, 831640, 831692, 831785, 833361, 833207
-------------------------------------------------------------------------------
</TABLE>
WHEREAS, the Nebraska Student Loan Program, Inc. ("NSLP"), located in
Lincoln, Nebraska and Star Bank, N.A. as Trustee for Student Loan Funding
located in Cincinnati, OH 45202 (the "Lender") have entered into a Lender
Agreement for Guarantee of Federal Consolidation Loans with Federal Reinsurance
dated April 21, 1998 (the "Agreement"), and
WHEREAS, under the Agreement, the Lender has agreed to make Federal
Consolidation Loans for the purpose of discharging Eligible Loans of Eligible
Borrowers; and
WHEREAS, NSLP has agreed that such Federal Consolidation Loans, if made
by Lender in accordance with the terms of the Agreement, will be guaranteed by
NSLP.
NOW, THEREFORE, to evidence its intent to guarantee, NSLP issues this
Certificate of Guarantee ("Certificate") upon the following terms and
conditions:
1. All capitalized terms in this Certificate not otherwise
defined herein shall have the same meaning as those
capitalized terms defined in the Agreement. Such capitalized
terms and definitions are specifically incorporated by
reference in this Certificate.
2. This Certificate shall be effective with respect to Federal
Consolidation Loans made by Lender, from the date of the
Agreement, until one of the parties terminates the Agreement.
3. Federal Consolidation Loans guaranteed under this Agreement
and this Certificate shall carry terms and conditions as
required by the Act and Program Rules.
4. Repayment of each Federal Consolidation loan will be required
by the Act and Program Rules.
5. This Certificate shall be cancelled and be of no further
effect in the event that the Agreement is terminated by either
party in accordance with the terms of the Agreement.
6. This Certificate shall be cancelled by NSLP, either finally or
temporarily or the effectiveness of this Certificate may be
limited by NSLP, as appropriate, in accordance with the terms
of the Act and Program Rules.
7. No cancellation or limitation of this Certificate shall affect
the guarantee coverage of Federal Consolidation Loans made
prior to the effective date of such cancellation or
limitation.
<PAGE> 10
8. Claims under this Certificate shall be made to NSLP as
described in the Act and Program Rules.
9. The Lender's right to make a claim under this Certificate may
be assigned to a subsequent owner/transferee of a Federal
Consolidation Loan guaranteed under this Certificate.
However, with respect to a Federal Consolidation Loan
transferred, any such transferee must be an Eligible Lender,
a signatory to the NSLP Lender Agreement, and bound by the
terms of the Agreement and this Certificate prior to the date
of transfer of ownership.
Dated: 4/27/98
-----------------------------
NEBRASKA STUDENT LOAN PROGRAM, INC.
Approved by:
/s/ Nancy J. Wiederspan
-----------------------------------
Nancy J. Wiederspan, President
<PAGE> 1
Exhibit 10.11
<TABLE>
<S> <C>
PENNSYLVANIA HIGHER EDUCATION LENDER AGREEMENT FOR GUARANTEE OF
ASSISTANCE AGENCY LOAN GUARANTY STUDENT LOANS WITH FEDERAL
AGREEMENT REINSURANCE (for loans to students and parents of
students pursuant to the Higher Education Act of 1965.
as amended)
<S> <C>
WHEREAS Star Bank, N.A. as Trustee for Student Loan Funding ,
---------------------------------------------------------------------------------------
(Corporate Name)
Located at 425 Walnut Street, ML 5125. P.O. Box 1118 ,
-------------------------------------------------------------------------------
(Street Address)
Cincinnati, OH 45201-1118 ,
-------------------------------------------------------------------------------
(City) (State) (Zip Code)
</TABLE>
hereinafter referred to as the "Lender," wishes to be able to secure guarantee
of loans made to students pursuing programs of higher or vocational education at
eligible institutions, and to parents of such students pursuant to the Higher
Education Act of 1965, as amended, hereinafter referred to as the "Act;" and
WHEREAS, the Pennsylvania Higher Education Assistance Agency, hereinafter
referred to as the "Agency," was created by the Act of August 7, 1963, P.L. 549
for the purpose of improving higher educational opportunities and to that end
the Agency is empowered to guarantee loans; and
WHEREAS, the lender wishes to participate in the Agency's Guaranty Program.
NOW THEREFORE, it is mutually agreed that:
1. Within such limits as may be set by it, the Agency shall guarantee the
full amount of all loans made by the Lender, or for loans with a first
disbursement on or after October 1, 1993, 98% of the full amount of
all loans made by the Lender, which are eligible for such guarantee
under the Act, the regulations issued under the Act and the Rules and
Regulations and policies of the Agency with the exception of those
pertaining to Pennsylvania Residency/Domicile, which Act, regulations,
Rules and Regulations and policies as they may be from time to time
amended are made part of this Agreement.
2. The Agency shall guarantee loans without regard to sex, age, race,
color, religion, handicapped status, income, national origin or any
other basis prohibited by applicable law and the Lender will not
discriminate in the making of loans to eligible borrowers or in the
treatment of such borrowers on any prohibited basis.
3. On all loans guaranteed, the Agency agrees to obtain maximum
reinsurance by means of an agreement with the Federal Government
pursuant to the Act.
4. The Lender authorizes the Agency to act as its representative with
respect to retaining the school's statement of the student's
enrollment and need. This document will be retained for the five-year
period as required of the lender by federal regulations.
5. The Lender shall maintain for all loans guaranteed a system of records
and accounts, shall afford access thereto, and shall furnish such
periodic and separate reports as may reasonably be required by the
U.S. Secretary of Education and the Agency, under the Act,
regulations, Rules and Regulations and policies identified above. For
loans paid in full or otherwise discharged, the records shall be
retained by the lender as required by the Act, regulations, Rules and
Regulations, and policies identified above.
6. The Agency agrees to purchase eligible loans made by the lender
provided that such loans are in default (as defined by the Act,
regulations, Rules and Regulations and policies identified above); the
loan was made in accordance with the Act, regulations, Rules and
Regulations and policies identified above; the Lender has otherwise
exercised due diligence in the making, servicing, and collection of
such loans; and, title to the loan note has been subrogated to the
Agency by the Lender.
7. Failure of the Lender to comply with the terms hereof with respect to
an individual loan shall not invalidate the guarantee of the Agency to
the Lender with respect to other loans held in compliance with the
terms of this Agreement.
-1-
<PAGE> 2
8. Either party may terminate this agreement at any time upon 120 days'
notice in writing to the other party by registered or certified mail.
All rights, duties and obligations hereunder shall immediately cease
upon termination, except the rights and obligations of the parties
which existed as of the date of termination.
9. The lender wishes to participate in the following programs: (Please
check all applicable programs)
X Federal Stafford Loan Programs (includes Subsidized and
----- Unsubsidized)
X Federal PLUS Loan Program (Parent Loan Program)
-----
X Federal Consolidation Loan Program
-----
IN WITNESS WHEREOF, the Lender and the Agency have caused this Agreement to be
duly executed and delivered this day of _______________, 19___.
<TABLE>
<S> <C>
Star Bank, N.A. as Trustee for
Student Loan Funding PENNSYLVANIA HIGHER EDUCATION
- ---------------------------------------------- ASSISTANCE AGENCY
Lender Name
/s/ Brian J. Gardner /s/ Michael H. Hershock
- ---------------------------------------------- -----------------------------------------------
Authorized Signature
Michael H. Hershock
President & CEO
Senior Trust Officer
- ---------------------------------------------- -----------------------------------------------
Title Title
829626, 830631, 831008, 831299, 831455,
831640 831692, 831785, 833361, 833207
- ----------------------------------------------
D.E. Lender Code Number
31-0841368
- ----------------------------------------------
Federal Tax Identification Number
Approved as to form and legality this 20th day
of May, 1998.
THE ATTACHED AGREEMENT HAS
BEEN PRE-APPROVED BY THE
/s/ Sheila Dow Ford OFFICE OF THE ATTORNEY GENERAL.
- ---------------------------------------------- DOC. NO. _______________________
PHEAA Legal Counsel -----------------------------------------------
Deputy Attorney General
</TABLE>
-2-
<PAGE> 1
EXHIBIT 10.12
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
-5-
<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
-6-
<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.
-7-
<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.
Star Bank, N.A. as Trustee for
Student Loan Funding UNITED STUDENT AID FUNDS, INC.
- --------------------------------------
Lender
By: /s/ Brian J. Gardner By: /s/ June M. McCormick
----------------------------------- ------------------------------
Authorized Signature Authorized Signature
Brian J. Gardner, Senior Trust Officer June M. McCormick
- ----------------------------------------- ------------------------------
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.
-2-
<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
-3-
<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.
-4-
<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.
-5-
<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.
-6-
<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.
-7-
<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: /s/ Brian J. Gardner By: /s/ June M. McCormick
----------------------------------- ------------------------------
Authorized Signature Authorized Signature
Brian J. Gardner, Senior Trust Officer June M. McCormick
- ------------------------------------------ ---------------------------------
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.
Star Bank N.A. as Trustee for
Student Loan Funding UNITED STUDENT AID FUNDS, INC.
- --------------------------------------
Lender
By: /s/ Brian J. Gardner By: /s/ June M. McCormick
- --------------------------------------- ----------------------------------
Authorized Signature Authorized Signature
Brian J. Gardner, Senior Trust Officer June M. McCormick
- ------------------------------------------ ----------------------------------
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 25.1
Securities Act of 1933 File No. 333-50269
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------------------------------------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
PURSUANT TO SECTION 305(b)(2) [X]
--------------------------------------------------
FIRSTAR BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A National Banking Association 31-0841368
(IRS Employer Identification No.)
425 Walnut Street
Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
Brian J. Gardner
Vice President
Firstar Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
(513) 762-8870
(Name, address, and telephone number of agent for services)
STUDENT LOAN FUNDING 1999 A TRUST
BY FIRSTAR BANK, NATIONAL ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS
CO-OWNER TRUSTEE UNDER THE TRUST AGREEMENT
DATED AS OF___________, 1999
(Exact name of obligor as specified in its charter)
DELAWARE APPLIED FOR
(State of Incorporation) (IRS Employer Identification No.)
ONE WEST FOURTH STREET, SUITE 310, CINCINNATI, OH 45202
(Address of principal executive offices) (Zip Code)
STUDENT LOAN FUNDING 1999-A TRUST STUDENT LOAN ASSET-BACKED NOTES
(Title of the Indenture securities)
1
<PAGE> 2
1. General Information. Furnish the following information as Trustee --
(a) Name and address of each examining or supervising authority to
which it is subject.
COMPTROLLER OF THE CURRENCY, WASHINGTON, D.C.
FEDERAL RESERVE BANK OF CLEVELAND, OHIO
FEDERAL DEPOSIT INSURANCE CORPORATION, WASHINGTON, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
THE TRUSTEE IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
2. Affiliations with obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
THE OBLIGOR IS NOT AN AFFILIATE OF THE TRUSTEE (INCLUDING
ITS PARENT AND ANY AFFILIATES).
3. Voting Securities of the trustee. Furnish the following information as
to each class of voting securities of the trustee (and its parent). As
of _____________ (insert date within 31 days)
Col A. Col B
(Title of Class) (Amount Outstanding)
4. Trusteeships under other Indentures. If the trustee is a trustee under
another Indenture under which any other securities, or certificates of
interest or participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other
indenture.
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of
Section 310(b)(1) of the Act arises as a result of the
trusteeship under any such other indenture, including a
statement as to how the indenture securities will rank as
compared with the securities issued under such other
indenture.
5. Interlocking directorates and similar relationships with the obligor or
underwriters. If the trustee (including its parent and any other
affiliates) or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the
nature of each such connection.
2
<PAGE> 3
6. Voting securities of the trustee (including its parent and any
affiliate) owned by the obligor or its officials. Furnish the following
information as to the voting securities of the trustee (including its
parent and any affiliates) owned beneficially by the obligor and each
director, partner and executive officer of the obligor:
As of _______________________ (insert date within 31 days)
Col. A. Col. B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
7. Voting securities of the trustee (including its parent and any
affiliates) owned by underwriters or their officials. Furnish the
following information as to the voting securities of the trustee
(including its parent and any affiliates) owned beneficially by each
underwriter for the obligor and each director, partner, and executive
officer of each such underwriter:
As of ___________________(insert date within 31 days)
Col. A. Col B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
8. Securities of the obligor owned or held by the trustee (including its
parent and any affiliates). Furnish the following information as to
securities of the obligor owned beneficially or held as collateral
security for obligations default by the trustee (including its parent
and any affiliates):
As of ___________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Whether the Percent of
Securities Are Collateral
Voting or Security for Class Represented
Nonvoting obligations in by Amount Given
Title of Class Securities Default in Col. C
3
<PAGE> 4
9. Securities of underwriters owned or held by the trustee (including its
parent and any affiliates). If the trustee (including its parent and
any affiliates) owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter any of which are so owned or held by the
trustee:
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
10. Ownership or holdings by the trustee (including its parent and any
affiliates) of voting securities of certain affiliates or security
holders of the obligor. If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10% or more of the voting securities
of the obligor or (2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting securities
of such person:
As of _______________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
11. Ownership or holdings by the trustee (including its parent and any
affiliates) of any securities of a person owning 50 percent or more of
the voting securities of the obligor. If the trustee (including its
parent and any affiliates) owns beneficially or holds as collateral
security for obligations in default any securities of a person who, to
the knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to each
class of securities of such person any of which are so owned or held by
the trustee (including its parent and affiliates):
As of ______________________(insert date within 31 days)
4
<PAGE> 5
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
12. Indebtedness of the Obligor to the Trustee. Except as noted in the
instructions, if the obligor is indebted to the trustee, furnish the
following information:
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C
Nature of Amount
Indebtedness Outstanding Due Date
13. Defaults by the Obligor.
a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
b) If the Trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series or securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
5
<PAGE> 6
14. Affiliations with the Underwriters.If any underwriter is an affiliate
of the trustee (including its parent and any affiliates), described
each such affiliation.
15. Foreign Trustee. Identify the order or rule pursuant to which the
foreign trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
16. List of Exhibits. List below all exhibits filed as part of this
statement of eligibility.
1. Office of the Comptroller of the Currency Amendment Letter
2. A copy of the Articles of Association of Firstar Bank,
National Association, as now in effect
3. A copy of the certificate of authority of The First National
Bank of Cincinnati (now Star Bank, National Association) to
commence business dated September 1, 1922.
4. A copy of the authorization of The First National Bank of
Cincinnati (now Star Bank, National Association) to exercise
corporate trust powers.
5. A copy of existing By-Laws to Star Bank, National Association
(now Firstar Bank, National Association)
6. The consent of the Trustee required by section 321(b) of the
Trust Indenture Act of 1939.
7. A copy of the latest report of condition of Star Bank,
National Association, published pursuant to law or the
requirements of its supervising or examining authority.
6
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Firstar Bank, National Association, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Cincinnati and State
of Ohio on the 15TH DAY OF MARCH, 1999.
FIRSTAR BANK, NATIONAL ASSOCIATION
By: /S/ BRIAN J. GARDNER
------------------------------------
BRIAN J. GARDNER
VICE PRESIDENT & TRUST OFFICER
7
<PAGE> 8
EXHIBIT 1
Comptroller of the Currency
Administrator of National Banks
Central District Office
One Financial Place, Suite 2700
440 South LaSalle Street
Chicago, Illinois 60605
February 11, 1999
Mr. Richard J. Hidy
Vise president and
Deputy General Counsel
StarBanc Corporation
425 Walnut Street
P.O. Box 1038, ML 9140
Cincinnati, OH 45201-1038
Dear Mr. Hidy:
The Office of the Comptroller of the Currency has received your letter
concerning the title change and the appropriate amendment to the bank's articles
of association. The Office has recorded that as of FEBRUARY 12, 1999, the title
of STAR BANK, NATIONAL ASSOCIATION, CINCINNATI, OHIO, Charter No. 24, was
changed to "FIRSTAR BANK, NATIONAL ASSOCIATION."
As a result of the Garn-St. Germain Depository Institutions Act of 1982, the OCC
is no longer responsible for the approval of national bank name changes nor does
it maintain official records on the use of alternate titles. The use of other
titles or the retention of the rights to any previously used title is the
responsibility of the bank's board of directors. Legal counsel should be
consulted to determine whether or not the new title, or any previously used
title, could be challenged by competing institutions under the provisions of
federal and state law.
Sincerely,
/S/ David J. Rogers
National Bank Examiner
8
<PAGE> 9
EXHIBIT 2
FIRSTAR BANK, NATIONAL ASSOCIATION
CHARTER NO. 24
ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be "Firstar Bank, National
Association".
SECOND: The main office of the Association shall be in the city of Cincinnati,
County of Hamilton, State of Ohio. The general business of the Association shall
be conducted at its main office and its branches.
THIRD: The Board of Directors of this Association shall consist of not less than
five (5) nor more than twenty-five (25) shareholders, the exact number of
Directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
FOURTH: The annual meeting of the shareholders for the election of Directors and
the transaction of whatever other business may be brought before said meeting
shall be held at the main office or such other place as the Board of Directors
may designate, on the day of each year specified thereof by the Bylaws, but of
no election is held on that day, it may be held on any subsequent day according
to the provisions of law; and all elections shall be held according to the
provisions of law; and all elections shall be held according to such lawful
regulations as may be prescribed by the Board of Directors.
FIFTH: The authorized amount of capital stock of this Association shall be
3,640,000 shares of common stock of the par value of five dollars ($5.00) each,
but said capital stack may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association issued or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion, may from time to time determine and at such
price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of the
shareholders.
9
<PAGE> 10
SIXTH: The Board of Directors shall appoint one of its members President of this
Association, who shall be Chairman of the Board, unless the Board appoints
another Director to be the Chairman. The Board of Directors shall have the power
to appoint one or more Vice Presidents; and to appoint a Cashier and such other
officers and employees as may be required to transact the business of this
Association. The Board of Directors shall have the power to define the duties of
the officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH: The Board of Directors, without need for approval of shareholders,
shall have the power to change the location of the main office of this
Association, subject to such limitations as from time to time may be provided by
law; and shall have the power to establish or change the location of any branch
or branches of the Association to any other location, without the approval of
the shareholders, but subject to the approval of the Comptroller of the
Currency.
EIGHTH: The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH: The Board of Directors of this Association, the Chairman of the Board,
the President, or any three of more shareholders owning, in the aggregate, not
less than twenty-five percent of the stock of this Association, may call a
special meeting of shareholders at any time. Unless otherwise provided by the
laws of the United States, a notice of the time, place, and purpose of every
annual and special meeting of the shareholders shall be given by first-class
mail, postage prepaid, mailed at least ten days prior to the date of such
meeting to each shareholder of record at his address as shown upon the books of
this Association.
TENTH: Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the Association for reasonable expenses actually incurred in
connection with any action, suit, or proceeding, civil or criminal, to which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Association or of any firm, corporation, or
organization which he served in any such capacity at the request of the
Association. Provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the Association. And, provided further, that no person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been made the subject of a compromise settlement except
with the approval of a court of competent jurisdiction, or the holders of record
of a majority of the outstanding shares of the Association, or the Board of
Directors, acting by vote of Directors not parties to the same or substantially
the same action, suit or proceeding, constituting a majority of the whole number
of Directors. And, provided further, that no director, officer or employee shall
be so indemnified or reimbursed for expenses, penalties or other payments
incurred in an administrative proceeding or action instituted by an appropriate
bank regulatory agency where said proceeding or action results in a final order
10
<PAGE> 11
TENTH (continued) assessing civil money penalties or requiring affirmative
action by an individual or individuals in the form of payments to this
Association. The foregoing right of indemnification shall not be exclusive of
other rights to which such person, his heirs, executors, or administrators, may
be entitled as a matter of law. The Association may, upon the affirmative vote
of a majority of its Board of Directors, purchase insurance for the purpose of
indemnifying its directors, officers and other employees to the extent that such
indemnification is allowed in the preceding paragraph. Such insurance may, but
need not, be for the benefit of all directors, officers, or employees.
ELEVENTH: These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law and in that case by the vote of the holders
of such greater amount.
11
<PAGE> 12
EXHIBIT 3
COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS:
NO. 24
E Pluribus Unum
TREASURY DEPARTMENT
Office of Comptroller of the Currency
Washington, D.C., September 1, 1992
WHEREAS, the Act of Congress of the United States, entitled, "An Act to
amend section 5136, Revised Statutes of the United States, relating to corporate
powers of associations, so as to provide succession thereof for a period of
ninety-nine years or until dissolved, and to apply said section as so amended to
all national banking association", approved by the President on July 1, 1922,
provided that all national banking associations organized and operating under
any law of the United States on July 1, 1922 should have succession until
ninety-nine years from that date, unless such association should be sooner
dissolved by the act of its shareholders owning two-thirds of its stock, or
unless its franchise should become forfeited by reason of violation of law, or
unless it should be terminated by an Act of Congress hereinafter enacted;
NOW THEREFORE, I, D. R. Crissinger Comptroller of the Currency, do
hereby certify that The First National Bank of Cincinnati and State of Ohio ,
was organized and operating under the laws of the United States on July 1, 1922,
and that its corporate existence was extended for the period of ninety-nine
years from that date in accordance with and subject to the condition in the Act
of Congress hereinbefore recited.
(SEAL) IN TESTIMONY WHEREOF, witness my hand
& seal of office this first day of September, 1922
(Signed) D. R. Crissinger
---------------------------------
Comptroller of the Currency
12
<PAGE> 13
EXHIBIT 4
THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS:
FEDERAL RESERVE BOARD
Washington, D.C.
October 9, 1919
Pursuant to authority vested in the Federal Reserve Board by the Act of
Congress approved December 23, 1913, known as the Federal Reserve Act, as
amended by the Act of September 26, 1918, the
FIRST NATIONAL BANK OF CINCINNATI
has been granted the right to act, when not in contravention of State or local
law, as TRUSTEE, EXECUTOR, ADMINISTRATOR, REGISTRAR OF STOCKS AND BONDS,
GUARDIAN OF ESTATES, ASSIGNEE, RECEIVER OR IN ANY OTHER FIDUCIARY CAPACITY IN
WHICH STATE BANKS, TRUST COMPANIES OR OTHER CORPORATIONS WHICH COME INTO
COMPETITION WITH NATIONAL BANKS ARE PERMITTED TO ACT UNDER THE LAWS OF THE STATE
OF OHIO. The exercise of such rights shall be subject to regulations prescribed
by the Federal Reserve Board.
Federal Reserve Board,
By W. P. G. Harding
Governor.
ATTEST:
W. T. Chapman
Secretary.
STATE OF OHIO
DEPARTMENT OF BANKS AND BANKING
Certificate of Authority No. 17
NATIONAL BANKS
I, Philip C. Berg, Superintendent of Banks, do hereby certify that the
First National Bank of Cincinnati, Hamilton County, Ohio has complied with all
the requirements provided by law and is authorized to transact the business of a
trust company and to perform all the functions granted to such companies by the
laws of this state.
Given under my hand and official Seal at Columbus,
Ohio, this twenty-fifth day of November, A.D. 1919
Philip C. Berg,
Superintendent of Banks.
(SEAL)
13
<PAGE> 14
EXHIBIT 5
BY-LAWS
STAR BANK, N.A.
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING
The annual meeting of shareholders shall be held in the main banking house of
the Association at 11:00 a.m. on the second Tuesday in February of each year.
Notice of such meeting shall be mailed to shareholders not less than ten (10)
nor more than sixty (60) days prior to the meeting date.
SECTION 2. SPECIAL MEETINGS
Special meetings of shareholders may be called and held at such times and upon
such notice as is specified in the Articles of Association.
SECTION 3. QUORUM
A majority of the outstanding capital stock represented in person or by proxy
shall constitute a quorum of any meeting of the shareholders, unless otherwise
provided by law, but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held as adjourned without further notice.
SECTION 4. INSPECTORS
The Board of Directors may, and in the event of its failure so to do, the
Chairman of the Board shall appoint Inspectors of Election who shall determine
the presence of a quorum, the validity of proxies, and the results of all
elections and all other matters voted upon by shareholders at all annual and
special meetings of shareholders.
SECTION 5. VOTING
In deciding on questions at meetings of shareholders, except in the election of
directors, each shareholder shall be entitled to one vote for each share of
stock held. A majority of votes cast shall decide each matter submitted to the
shareholders, except where by law a larger vote is required. In all elections of
directors, each shareholder shall have the right to vote the number of shares
owned by him for as many persons as there are directors to be elected, or to
cumulate such shares and give one candidate as many votes as the number of
directors multiplied by the number of his shares equal, or to distribute them on
the same principle among as many candidates as he shall think fit.
14
<PAGE> 15
SECTION 6. WAIVER AND CONSENT
The shareholders may act without notice and/or a meeting by a unanimous written
consent by all shareholders.
ARTICLE II
SECTION 1. TERM OF OFFICE
The directors of this Association shall hold office for one year and until their
successors are duly elected and qualified.
SECTION 2. REGULAR MEETINGS
The organization meeting of the Board of Directors shall be held as soon as
practical following the annual meeting of shareholders at the main banking
house. Other regular meetings of the Board of Directors shall be held without
notice at 11:00 a.m. on the second Tuesday of each month except February, at the
main banking house, or, provided notice is given by telegram, letter, telephone
or in person to every Director, at such time and place as may be designated in
the notice of the meeting. When any regular meeting of the Board falls on a
holiday, the meeting shall be held on the next banking business day, unless the
Board shall designate some other day.
SECTION 3. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman of the
Board of the Association, or at the request of three or more Directors. Notice
of the time, place and purposes of such meetings shall be given by telegram,
letter, telephone or in person to every Director.
SECTION 4. QUORUM
A majority of the entire membership of the Board shall constitute a quorum at
any meeting of the Board.
SECTION 5. NECESSARY VOTE
A majority of those Directors present and voting at any meeting of the Board of
Directors shall decide each matter considered, except where otherwise required
by law or the Articles or By-Laws of this Association.
SECTION 6. COMPENSATION
Directors, excluding full-time employees of the Bank, shall receive such
reasonable compensation as may be fixed from time to time by the Board of
Directors.
SECTION 7. ELECTION-AGE LIMITATION
No person shall be elected or reelected a Director after reaching his seventieth
(70th) birthday, provided that any person who is a Director on December 10,
1985, may continue to be reelected
15
<PAGE> 16
SECTION 7. ELECTION-AGE LIMITATION (continued)
a Director until he reaches his seventy-fifth (75th) birthday.
SECTION 8 RETIREMENT-AGE LIMITATION
Every Director of the Bank shall retire no later than the first month next
following his seventieth (70th) birthday, except for any person who was a
Director on December 10, 1985, who shall retire not later that the first of the
next month following his seventy-fifth (75th) birthday.
SECTION 9 DIRECTORS EMERITUS
The Board shall have the right from time to time to choose as Directors Emeritus
persons who have had prior service as members of the Board and who may receive
such compensation as shall be fixed from time to time by the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1 WHO SHALL CONSTITUTE
The Officers of the Association shall be a Chairman of the Board, a President, a
Secretary, and other officers such as Chairman of the Executive Committee, Vice
Chairman of the Board, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Assistant Secretaries, Trust Officers, Trust Investment Officers,
Trust Real Estate Officers, Assistant Trust Officers, a Controller, Assistant
Controller, an Auditor and Assistant Auditors, as the Board may appoint from
time to time. Any person may hold two offices. The Chairman of the Board, all
Vice Chairmen of the Board and the President shall at all times be members of
the Board of Directors.
SECTION 2 TERM OF OFFICE
All officers shall be elected for and shall hold office for one year and until
their successors are elected and qualified, subject to the right in the Board of
Directors by a majority vote of the entire membership to discharge any officer
at any time.
SECTION 3. CHAIRMAN OF THE BOARD
The Chairman of the Board shall have general executive powers and duties and
shall perform such other duties as may be assigned from time to time by the
Board of Directors. In addition, unless the Board of Directors shall have
designated the President to be the Chief Executive Officer, the Chairman of the
Board shall be the Chairman Executive Officer and shall have all the powers and
duties of the Chief Executive Officer. He shall, when present, preside at all
meetings of shareholders and directors and shall be ex officio a member of all
committees of the Board. He shall name all members of the committees of the
Board, subject to the confirmation thereof by the Board.
16
<PAGE> 17
SECTION 3. CHAIRMAN OF THE BOARD (continued)
If he is Chief Executive Officer, in the event that there is a vacancy in the
position of President or in the event of the absence or incapacity of the
President, the Chairman may appoint, or in the event of his failure to do so,
the Board of Directors or the Executive Committee thereof may designate any Vice
Chairman of the Board, any Executive Vice President or any Senior Vice President
of the Association temporarily to exercise the powers and perform the duties of
the Chairman as Chief Executive Officer when the Chairman is absent or
incapacitated.
If the President has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the President
or in the event of the absence or incapacity of the President, the Chairman
shall be the Chief Executive Officer of the Association and shall have all the
powers and perform all the duties of the President, including the powers to name
temporarily a Chief Executive Officer to serve in the absence of the Chairman.
SECTION 4 PRESIDENT
The President shall have general executive powers and duties and shall perform
such other duties as may be assigned from time to time by the Board of
Directors. In addition, if designated by the Board of Directors, the President
shall be the Chief Executive Officer and shall have all the powers and duties of
the Chief Executive Officer, including the same power to name temporarily a
Chief Executive Officer to serve in the absence of the president if there is a
vacancy in the position of the Chairman or in the event of the absence or
incapacity of the Chairman.
If the Chairman has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the Chairman
of the Board or in the event of the absence or incapacity of the Chairman of the
Board, the President shall be the Chief Executive Officer of the Association and
shall have all the powers and perform all the duties of the Chairman of the
Board, including the same power to name temporarily a Chief Executive Officer to
serve in the absence of the President.
SECTION 5 CHAIRMAN OF THE EXECUTIVE COMMITTEE
The Board of Directors shall have the power to elect a Chairman of the Executive
Committee. Any such Chairman of the Executive Committee shall participate in the
formation of the policies of the Association and shall have such other duties as
may be assigned to him from time to time by the President or by the Board of
Directors.
SECTION 6 VICE CHAIRMEN OF THE BOARD
The Board of Directors shall have the power to elect one or more Vice Chairmen
of the Board of Directors. Any such Vice Chairmen of the Board shall participate
in the formation of the policies of the Association and shall have such other
duties as may be assigned to him from time to time by the Chairman of the Board
or by the Board of Directors.
17
<PAGE> 18
SECTION 7 OTHER OFFICERS
The Secretary and all other officers appointed by the Board of Directors shall
have such duties as defined by law and as may from time to time be assigned to
them by the Chief Executive Officer or the Board of Directors.
SECTION 8 RETIREMENT
Every officer of the Association shall retire not later than the first of the
month next following his sixty-fifth (65th) birthday. The Board of Directors
may, in its discretion, set the retirement date and terms of retirement of an
officer at a date later than provided above.
ARTICLE IV
COMMITTEES
SECTION 1 EXECUTIVE COMMITTEE
There shall be a standing committee of Directors in this Association to be known
as the Executive Committee. This Committee shall meet at 11:00 a.m. on the first
and fourth Tuesday of each month. It shall have all of the powers of the Board
of Directors between meetings of the Board, except as the Board only by law is
authorized to perform or exercise. All actions of the Executive Committee shall
be reported to the Board of Directors.
In the event that any member of the Executive Committee is unable to attend a
meeting of that committee, the Chairman of the Board or the President may, at
his discretion, appoint another Director to attend said meeting of the Executive
Committee and for that meeting to serve as a member of the Executive Committee
with full power to act in place of the absent regular member of the committee.
SECTION 2 COMPENSATION COMMITTEE
There shall be a standing committee of directors of this Association to be known
as the Compensation Committee who shall review the compensation of all Executive
Officers and those officers who participate in the Profit Sharing Pool as well
as fees for directors of the Association. They will recommend specific
compensation arrangements to the Board of Directors for their confirmation.
SECTION 3 COMMITTEE ON AUDIT
There shall be a standing committee of Directors of this Association to be known
as the Committee on Audit, none of whose members shall be active officers of the
Association. This Committee shall make or cause to be made a suitable
examination of the affairs of the
18
<PAGE> 19
SECTION 3. COMMITTEE ON AUDIT (continued)
Association and the Trust Department at least once during each period of twelve
months. The results of such examination shall be reported in writing to the
Board at the next regular meeting thereafter stating whether the Association
and/or Trust Department is in a sound solvent condition, whether adequate
internal audit controls and procedures are being maintained and make such
recommendations as it deems advisable.
SECTION 4 TRUST COMMITTEE
There shall be a standing committee of Directors of this Association to be known
as the Trust Committee. The Trust Committee shall determine policies of the
Department and review actions of the Trust Investment Committee. All actions of
the Trust Committee shall be reported to the Board of Directors.
SECTION 5 TRUST INVESTMENT COMMITTEE
There shall be a standing committee of this Association to be known as the Trust
Investment Committee composed of officers of the Association. The Trust
Investment Committee or such officers as may be duly designated by the Trust
Investment Committee, shall pass upon the acceptance of all trusts, the closing
out or relinquishment of all trusts and the making, retention, or disposition of
all investments of trust funds in conformity with policies established by the
Trust Committee. Actions of the Trust Investment Committee shall be reported to
the Trust Committee.
SECTION 6 PENSION COMMITTEE
There shall be a standing committee of directors or officers of this Association
to be known as the Pension Committee, who shall have the powers and duties as
set forth in the Association's Employees' Pension Plan. A report of the
condition of the pension fund shall be submitted annually to the Board of
Directors.
SECTION 7 OTHER COMMITTEES
The Chairman may appoint, from time to time, other committees for such purposes
and with such powers as he or the Board may direct.
ARTICLE V
SEAL
SECTION 1 IMPRESSION
The following is an impression of the seal of this Association.
February 27, 1992
19
<PAGE> 20
RESOLVED, That Article I, Section 1, Article II, Section 2 and Article IV,
Section 5 of the By-Laws of the Association be amended to state as follows:
ARTICLE I
SECTION 1 ANNUAL MEETING
The annual meeting of the shareholders shall be held in the main banking house
of the Association at 11:00 a.m. on the second Tuesday in March of each year.
Notice of such meeting shall be mailed to shareholders not less than ten (10)
nor more than sixty (60) days prior to the meeting date.
ARTICLE II
SECTION 2. REGULAR MEETINGS
The organizational meeting of the Board of directors shall be held on the same
date as soon as practical following the annual meeting of shareholders at the
main banking house. Other regular meetings of the Board of Directors shall be
held without notice at 11:00 a.m. on the second Tuesday of June, September, and
December, at the main banking house, or, provided notice given by telegram,
letter, telephone or in person to every Director, at such time and place as may
be designated in the notice of the meeting. When any regular meeting of the
Board falls on a holiday, the meeting shall be held on the next banking business
day, unless the Board shall designate some other day.
ARTICLE IV
SECTION 5. TRUST POLICY COMMITTEE
There shall be a standing committee of this association to be known as the Trust
Policy Committee composed of officers of the Association. The Trust Policy
Committee or such officers as may be duly designated by the Trust Policy
Committee, shall pass upon the acceptance of all trusts, the closing out or
relinquishment of all trusts and the making, retention, or disposition of all
investments of trust funds in conformity with policies established by the Trust
Committee. Actions of the Trust policy committee shall be reported to the Trust
Committee.
20
<PAGE> 21
EXHIBIT 6
THE CONSENT OF THE TRUSTEE
REQUIRED BY 321(b) OF THE ACT
Firstar Bank, National Association, the Trustee executing the statement
of eligibility and qualification to which this Exhibit is attached does hereby
consent that reports of examinations of the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor in accordance with the
provisions of 321(b) of the Trust Indenture Act of 1939.
FIRSTAR BANK, NATIONAL ASSOCIATION
MARCH 15, 1999 BY: /S/ Brian J. Gardner
---------------- ----------------------------------
Date Brian J. Gardner
Vice President & Trust Officer
21
<PAGE> 22
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION
STAR BANK, NATIONAL ASSOCIATION
FOR DECEMBER 31, 1998
All schedules are to be reported in thousands of dollars.
Unless otherwise indicated, report the amount outstanding
as of the last business day of the quarter.
BALANCE SHEET
<TABLE>
<CAPTION>
Dollar Amounts in
Thousands
<S> <C>
ASSETS
1. Cash and balances due from depository institutions
a. Noninterest-bearing balances and currency and coin $ 894,736
b. Interest-bearing balances 20,242
2. Securities:
a. Held-to-maturity securities 135,407
b. Available-for-sale securities 2,291,155
3. Federal funds sold and securities purchased under agreements to resell in 22,000
domestic offices of the bank and of its Edge and Agreements
subsidiaries, and in YBFs
a. Federal funds sold 0.00
b. Securities purchased under agreements to resell 0.00
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income 12,552,139
b. LESS: Allowance for loan and lease losses 165,213
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and reserve 12,386,926
5. Trading assets 2,957
6. Premises and fixed assets (including capitalized leases) 246,230
7. Other real estate owned 4,350
8. Investments in unconsolidated subsidiaries and associated companies 5,815
9. Customers' liability to this bank on acceptances outstanding 20,025
10. Intangible assets 795,811
11. Other assets 505,084
12. Total assets $17,330,738
</TABLE>
22
<PAGE> 23
CONSOLIDATED REPORT OF CONDITION STAR BANK, NATIONAL ASSOCIATION
FOR DECEMBER 31, 1998 CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
<S> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices $ 13,305,896
(1) Noninterest-bearing $ 2,641,858
(2) Interest-bearing 10,664,028
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs 34,556
(1) Noninterest-bearing 0
(2) Interest-bearing 34,556
14. Federal funds purchased and securities sold under agreements 1,476,746
to repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal funds purchased
b. Securities sold under agreements to repurchase
15. a. Demand notes issued to the U.S. Treasury 18,659
b. Trading liabilities 0.00
16. Other borrowed money:
a. With original maturity of one year or less 0
b. With original maturity of more than one year 103,690
17. Mortgage indebtedness and obligations under capitalized leases
18. Bank's liability on acceptances executed and outstanding 20,025
19. Subordinated notes and debentures 337,998
20. Other liabilities 349,618
21. Total liabilities 15,672,188
22. Limited-life preferred stock and related surplus 0.00
23. Perpetual preferred stock and related surplus 0.00
24. Common Stock 18,200
25. Surplus [exclude all surplus related to preferred stock] 900,651
26. a. Undivided profits and capital reserves 717,823
b. Net unrealized holding gains (losses) on
available-for-sale securities 21,876
27. Cumulative foreign currency translation adjustments 0.00
28. Total equity capital 1,658,550
29. Total liabilities, limited-life preferred stock, and equity capital $ 17,330,738
</TABLE>
23
#169163
