<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1999
REGISTRATION NO. 333-73455
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
STUDENT LOAN FUNDING 1998 - A/B TRUST
(ISSUER)
STUDENT LOAN FUNDING LLC
(DEPOSITOR)
(Exact name of registrant as specified in its charter)
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Delaware 6159 31-1599686
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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ONE WEST FOURTH STREET, SUITE 210
CINCINNATI, OHIO 45202
(513) 763-4415
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
THOMAS L. CONLAN, JR., PRESIDENT
ONE WEST FOURTH STREET, SUITE 210
CINCINNATI, OHIO 45202
(513) 352-4300 (513) 763-4340 (TELECOPY)
(Name, address, including zip code and telephone number,
including area code, of agent for service)
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COPIES TO: ROBERT A. SELAK AND TO: PAUL F. SEFCOVIC
THOMPSON HINE & FLORY LLP SQUIRE, SANDERS & DEMPSEY L.L.P.
312 WALNUT STREET, SUITE 1400 41 SOUTH HIGH STREET, SUITE 1300
CINCINNATI, OHIO 45202 COLUMBUS, OHIO 43215
(513) 352-6700 (614) 365-2700
(513) 241-4771 (TELECOPY) (614) 365-2499 (TELECOPY)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
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CALCULATION OF REGISTRATION FEE
===============================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF
SECURITIES OFFERING PRICE PER PROPOSED MAXIMUM PROPOSED MAXIMUM REGISTRATION
BEING REGISTERED REGISTERED(1) OFFERING PRICE UNIT AGGREGATE OFFERING PRICE FEE(2)(3)
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Series 1998A1-3 Notes $385,000,000 100% $385,000,000 $107,030
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Series 1998A1-4 Notes $93,300,000 100% $93,300,000 $ 25,937
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Series 1998A1-5 Notes $90,000,000 100% $90,000,000 $ 25,020
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Series 1998A1-6 Notes $90,000,000 100% $90,000,000 $ 25,020
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Series 1998B1-3 Notes $54,500,000 100% $54,500,000 $ 15,151
===============================================================================================================
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(1) Equals the aggregate principal amount of the securities being registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being offered.
(3) Previously paid.
THE REGISTRANT 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.
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<PAGE> 2
PROSPECTUS
STUDENT LOAN FUNDING 1998 - A/B TRUST
(ISSUER)
OFFER TO EXCHANGE
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All of its outstanding for its
$385,000,000 Senior Asset-Backed Notes, Series $385,000,000 Senior Asset-Backed Notes, Series
1998A-3 (LIBOR Floating Rate) 1998A1-3 (LIBOR Floating Rate)
$93,300,000 Senior Asset Backed Callable Notes, $93,300,000 Senior Asset-Backed Callable Notes,
Series 1998A-4 (Auction Rate) Series 1998A1-4 (Auction Rate)
$90,000,000 Senior Asset Backed Callable Notes, $90,000,000 Senior Asset-Backed Callable Notes,
Series 1998A-5 (Auction Rate) Series 1998A1-5 (Auction Rate)
$90,000,000 Senior Asset-Backed Callable Notes, $90,000,000 Senior Asset-Backed Callable Notes,
Series 1998A-6 (Auction Rate) Series 1998A1-6 (Auction Rate)
$54,500,000 Subordinate Asset-Backed Notes, $54,500,000 Subordinate Asset-Backed Notes,
Series 1998B-3 (Fixed Rate) Series 1998B1-3 (Fixed Rate)
</TABLE>
The principal features of the exchange offer are as follows:
o The exchange offer expires at 5:00 p.m., New York City time, on
________________, 1999, unless extended.
o If you decide to participate in the exchange offer, the new notes issued to
you will have the same terms as your old notes, except that the new notes
will be registered under the federal securities laws and will be freely
transferrable. Any old notes that are not exchanged for new notes will
continue to have restrictions on their transfer.
o There is no existing public market for your old notes. The new notes issued
will constitute a new issue of securities without an established trading
market. The new notes will not be listed on any securities exchange or
automated quotation system.
- --------------------------------------------------------------------------------
The notes are payable solely from the financed student loans and other assets of
the trust.
The principal amount of the notes, at _________________, 1999, exceeds the sum
of principal and accrued interest on the financed student loans and other assets
pledged to secure the notes by approximately $__________________.
In certain cases, holders of auction rate notes may be required to tender their
notes for purchase.
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SEE "RISK FACTORS" BEGINNING ON PAGE [18] OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE DECIDING TO PARTICIPATE IN THE
EXCHANGE OFFER OR TO PURCHASE NOTES IN RESALES BY BROKER-DEALERS.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Each broker-dealer receiving new notes in exchange for old notes acquired for
its own account through market-marking or other trading activities must deliver
a prospectus in connection with any resale of the new notes. We have agreed
that, starting on the expiration date of the exchange offer and ending on the
close of business 120 days after the expiration of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution" for more information.
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The dealer manager for the exchange offer is:
SALOMON SMITH BARNEY INC.
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The date of this prospectus is April __, 1999.
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<PAGE> 3
TABLE OF CONTENTS
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Prospectus Summary..........................................................................5
Risk Factors...............................................................................18
Where You Can Find More Information........................................................27
The Issuer.................................................................................27
The Trust.............................................................................27
Co-owner Trustee......................................................................29
Owner Trustee.........................................................................29
The Administrator and Master Servicer.................................................29
The Depositor..............................................................................31
Use of Proceeds............................................................................34
The Exchange Offer.........................................................................34
Purpose of the Exchange Offer.........................................................34
Effect of the Exchange Offer..........................................................35
Terms of the Exchange Offer...........................................................36
Expiration Date; Extensions; Amendments...............................................37
Procedures for Tendering..............................................................37
Acceptance of Old Notes for Exchange; Delivery of New Notes...........................40
Guaranteed Delivery Procedures........................................................41
Withdrawal of Tenders.................................................................41
Certain Conditions to the Exchange Offer..............................................42
The Financed Student Loans.................................................................44
Transfer and Sale Agreement................................................................50
Conveyance of Financed Student Loans; Representations and Warranties..................50
Maturity and Prepayment Considerations.....................................................52
Description of the FFEL Program............................................................54
Loan Terms............................................................................58
Contracts with Guarantee Agencies.....................................................68
Servicing..................................................................................74
Master Servicer.......................................................................74
The Guarantee Agencies.....................................................................78
Guarantee Agency Information..........................................................81
Description of the New Notes...............................................................92
Interest..............................................................................93
Determination of LIBOR................................................................95
Determination of the Auction Rate.....................................................96
Auction Procedures....................................................................97
Specific Limitations on Determinations of Auction Rate................................98
Auction Period Adjustment............................................................100
Auction Period Conversion of and Mandatory Tender of the Auction Rate Notes..........101
Principal............................................................................101
Book-entry Registration..............................................................103
Redemption................................................................................107
Security for the Notes....................................................................109
The Trust............................................................................109
Subordination of the Series B-3 Notes................................................110
Reserve Fund.........................................................................110
Interest Rate Exchange Agreements....................................................111
The Indenture.............................................................................112
Indenture Trustee....................................................................112
Eligible Lender Trustee..............................................................112
Reports to Holders...................................................................112
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Acquisition Fund.....................................................................114
Student Loan Portfolio Fund..........................................................114
Collection Fund......................................................................116
Reserve Fund.........................................................................122
Events of Default....................................................................125
Amendment and Supplemental Indentures................................................130
Federal Income Tax Consequences...........................................................134
Characterization of the Notes as Indebtedness........................................136
Characterization of the Trust........................................................137
Original Issue Discount..............................................................137
Market Discount......................................................................141
Gain or Loss or Disposition..........................................................143
Backup Withholding, Foreign Holders, and Other Tax Matters...........................143
State Tax Considerations..................................................................144
ERISA Considerations......................................................................145
Legal Matters.............................................................................145
Rating....................................................................................145
Plan of Distribution......................................................................146
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT
COVER. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS ACCURATE AS OF ANY OTHER DATE.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION ABOUT THE EXCHANGE OFFER
AND THE NEW NOTES AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU FIND
IMPORTANT IN MAKING YOUR DECISION TO PARTICIPATE IN THE EXCHANGE OFFER. THIS
PROSPECTUS CONTAINS MORE DETAILED TERMS ABOUT THE EXCHANGE OFFER AND THE NEW
NOTES BEING OFFERED TO YOU, AS WELL AS SELECTED BUSINESS INFORMATION AND
FINANCIAL DATA. YOU ARE STRONGLY ENCOURAGED TO READ THIS ENTIRE PROSPECTUS
BEFORE DECIDING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
EXCEPT AS OTHERWISE REQUIRED BY THE CONTEXT, REFERENCES IN THIS PROSPECTUS TO
THE "ISSUER," THE "TRUST," "WE" OR "US" ARE REFERENCES TO STUDENT LOAN FUNDING
1998-A/B TRUST AND FIRSTAR BANK, N.A., NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY
AS CO-OWNER TRUSTEE OF THE TRUST.
THE EXCHANGE OFFER
You are entitled to exchange your old notes for new notes that have been
registered under the Securities Act. The new notes will have the same terms as
the old notes that you currently hold, except that the new notes will be
registered under the 1933 securities act and will not have registration rights.
The new notes will be backed by the same pool of financed student loans as the
old notes. Following the exchange offer, any old notes held by you that are not
exchanged will continue to have the existing restrictions on their transfer, and
we will have no further obligation to register your old notes under the 1933
securities act.
Student Loan Funding LLC entered into a registration rights agreement with the
initial purchasers of the old notes. Student Loan Funding LLC, as the depositor,
formed the issuer as a common law trust. Subsequently, the depositor sold the
financed student loans, eligible investments and certain accounts to the issuer
and the issuer assumed all of the depositor's obligations under the indenture,
the registration rights agreement and the old notes. Under the registration
rights agreement, the issuer, as the successor to the depositor's obligations,
is required to deliver this prospectus to you and to file a registration
statement with the SEC to register the new notes. You should read the discussion
under the heading "The Exchange Offer" for more detailed information about the
exchange offer and resales of the new notes. You should also read the discussion
under the headings "Prospectus Summary - Summary of Terms of the New Notes" for
further information regarding the new notes.
SUMMARY OF THE EXCHANGE OFFER
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THE DEPOSITOR .............................. Student Loan Funding LLC
THE ISSUER ................................. Student Loan Funding 1998-A/B Trust
SECURITIES OFFERED ......................... $385,000,000 in principal amount
of Senior Asset-Backed Notes,
Series 1998A1-3 (LIBOR Floating
Rate)
$93,300,000 in principal amount of
Senior Asset-Backed Callable
Notes, Series 1998A1-4 (Auction
Rate)
$90,000,000 in principal amount of
Senior Asset-Backed Callable
Notes, Series 1998A1-5 (Auction
Rate)
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$90,000,000 in principal amount of
Senior Asset-Backed Callable
Notes, Series 1998A1-6 (Auction
Rate)
$54,500,000 in principal amount of
Subordinate Asset-Backed Notes,
Series 1998B1-3 (Fixed Rate).
All of the financed student loans
are FFELP loans. The guarantee
agencies that collectively
guarantee more than 99% of the
initial pool of financed student
loans are the following:
o Florida Department of
Education, Office of
Student Financial
Assistance
o Georgia Higher Education
Assistance Corporation
o United Student Aid Funds,
Inc.
o Kentucky Higher Education
Assistance Authority
o Great Lakes Higher
Education Guaranty
Corporation
REGISTRATION RIGHTS AGREEMENT .............. Student Loan Funding LLC sold the
old notes to the initial
purchasers on December 18, 1998 in
a private placement pursuant to
certain exemptions from
registration available under the
1933 securities act. In connection
with the private placement,
Student Loan Funding LLC entered
into the registration rights
agreement with the initial
purchasers and the issuer
subsequently assumed Student Loan
Funding LLC's obligations under
the registration rights agreement.
Under the registration rights
agreement, we are required to file
this registration statement in
connection with the exchange
offer.
After the exchange offer is
complete, you will no longer be
entitled to exchange your old
notes for new notes.
THE EXCHANGE OFFER .......................... We are offering to exchange new
notes in principal amount equal to
the principal amount of the old
notes held by you. In order to be
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exchanged, your old notes must be
properly tendered and accepted.
All old notes that are validly
tendered and not validly withdrawn
will be exchanged. We will issue
new notes on or promptly after the
expiration of the exchange offer.
ABILITY TO RESELL NEW NOTES ................. The issuer has obtained an opinion
of its counsel that you may offer
or sell your new notes without
compliance with the registration
and prospectus delivery
requirements of the 1933
securities act if:
o you acquire the new notes in
the ordinary course of your
business;
o you are not participating, do
not intend to participate and
have no arrangement or
understanding with any person
to participate in the
distribution of new notes; and
o you are not our affiliate.
The exchange offer is not being
made to:
o holders of old notes in any
jurisdiction in which the
exchange offer or its
acceptance would not comply
with the applicable securities
or blue sky laws of that
jurisdiction; or
o holders of old notes who are
our affiliates.
CONSEQUENCES OF FAILURE TO EXCHANGE If you do not exchange your old
YOUR NOTES .................................. notes for new notes, the
restrictions on transfer provided
in the old notes and in the
indenture governing the old notes
will continue to apply to your old
notes.
EXPIRATION DATE ............................ The exchange offer will expire at
5:00 p.m., New York City time, on
_______________, 1999, unless it
is extended. The expiration date
is the latest date and time to
which we extend the exchange
offer.
WITHDRAWAL RIGHTS .......................... You may withdraw the tender of
your old notes at any time prior
to 5:00 p.m., New York City time,
on the expiration date.
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FEDERAL TAX CONSIDERATIONS .................. Thompson Hine & Flory LLP has
rendered an opinion, included as
Exhibit 8.1 to the registration
statement of which this prospectus
is a part, regarding the following
items that constitute all material
federal income tax consequences of
participating in the offering:
o there will be no federal
income tax consequences to you
if you exchange your old notes
for new notes in the exchange
offer, and
o the new notes will be
characterized as debt for
federal income tax purposes.
By acceptance of your new notes,
you will be deemed to have agreed
to treat your new notes as debt
instruments for purposes of
federal and state income tax,
franchise tax and any other tax
measured in whole or in part by
income.
For additional information
regarding federal income tax
considerations, you should read
the discussion under the heading
"Federal Income Tax Consequences."
USE OF PROCEEDS ............................ We will not receive any proceeds
from the issuance of the new notes
in the exchange offer. We will pay
all expenses incident to the
exchange offer.
EXCHANGE AGENT .............................. Firstar Bank, N.A. is serving as
the exchange agent for the
exchange offer. The exchange
agent's address, telephone number
and facsimile number is: Firstar
Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202 Attention:
Brian J. Gardner Phone Number:
(513) 762-8870 Facsimile: (513)
632-5511
DEALER MANAGER .............................. Salomon Smith Barney Inc. is
serving as the dealer manager for
the exchange offer. See "The
Exchange Offer - Dealer Manager."
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Please review the information contained under the heading "The Exchange Offer"
for more detailed information concerning the exchange offer.
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<PAGE> 9
SUMMARY OF TERMS OF THE NEW NOTES
The new notes to be issued to you in the exchange offer will evidence the same
obligations of the trust as the old notes you currently hold. You should be
aware that the indenture that currently governs your old notes will be the same
indenture that will govern the new notes, except that there will be no
restrictions on your ability to transfer the new notes. A more detailed
description of the indenture can be found under the heading "Description of the
New Notes."
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THE DEPOSITOR ............................. Student Loan Funding LLC organized
the trust and acquired the pool of
student loans that secure the new
notes.
THE ISSUER ................................. Student Loan Funding 1998-A/B
Trust will assume the obligations
under the old notes and will issue
and exchange the new notes for the
outstanding old notes.
SECURITY FOR THE NOTES ..................... The notes are secured by the
financed student loans. At
March 31, 1999, $57,998,358
(8.86%) of the financed student
loans were more than 60 days
delinquent. The notes are also
secured by the reserve fund and
other funds held under the
indenture. No other party is
providing any other security or
credit enhancement for the notes.
THE SERVICER ............................... Student Loan Funding Resources,
Inc., as the master servicer, will
arrange for the servicing of the
student loans pursuant to a master
servicing agreement. The master
servicer will arrange for one or
more other institutions to service
the student loans on a day-to-day
basis. Currently, the servicers
servicing the financed student
loans are the following:
o InTuition, Inc.
o USA Group Loan Services, Inc.
o Great Lakes Higher Education
Loan Servicing
o UNIPAC Servicing Corporation
InTuition, Inc. services
approximately 88% of the financed
student loans.
THE TRUSTEES ............................... The institutional bank trustees
are as follows:
o Firstar Bank, N.A., a national
banking association, is the
eligible lender trustee. One
or more additional eligible
lender trustees may be added
or substituted for Firstar
Bank, N.A. from time to time;
o First Union Trust Company,
National Association, is the
owner trustee for purposes of
the trust's
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beneficial ownership of the
student loans;
o Firstar Bank, N.A., is the
co-owner trustee for purposes
of the trust's beneficial
ownership of the student
loans; and
o Firstar Bank, N.A., a national
banking association, is the
indenture trustee.
ISSUE DATE ................................. Issuance of the new notes is
scheduled for June ____, 1999.
INTEREST ................................... We will pay you interest as
described below on the new notes
in the same manner as we have paid
interest on the old notes, from
available funds.
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Payment Date Interest Rate Maximum Rate
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Series A-3 Notes Last business day One-month LIBOR Lesser of 17% or
of each month plus 0.38% the net loan rate
Series A-4 Notes Business day Auction rate Lesser of 17% or
Series A-5 Notes following each the net loan rate
Series A-6 Notes auction period
Series B-3 Notes Last business 6.25%
day of each
month
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Example: On March 29, 1999, LIBOR
was 4.93875% and the interest rate
on the Series A-3 Notes for the
period from March 31, 1999 to
April 29, 1999 was 5.31875%.
The net loan rate is an annualized
percentage rate and for a monthly
interest period equals the
weighted average interest rate of
the student loans as of the first
day of the applicable collection
period, minus the program
operating expenses. Program
operating expenses means all
reasonable and proper expenses,
including both operating expenses
and capital expenditures incurred
or to be incurred in connection
with the program of financing the
financed student loans pursuant to
the indenture.
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PRINCIPAL .................................. We will pay principal as described
below on the new notes in the same
manner as we have paid principal
on the old notes, from available
funds.
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Priority of Amount of
Payment Date Payment Payment
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Series A-3 Notes Last business day Equal to the reduction in
day of each month the student loan principal
balance, minus, for each
monthly payment date after June
30, 2003, the amount of
principal paid on such date on
the Series B-3 Notes
Series A-4 Notes Business day following After the Series A-3 Notes Equal to the reduction in
each auction period have been paid in full the student loan principal
balance, minus, for each
monthly payment date after June
30, 2003, the amount of
principal paid on such date on
the Series B-3 Notes
Series A-5 Notes Business day following After the Series A-3 Notes Equal to the reduction in
each auction period and the Series A-4 Notes the student loan principal
have been paid in full balance minus, for each
monthly payment date after June
30, 2003, the amount of principal
paid on such date on the Series B-3
Notes
Series A-6 Notes Business day following After the Series A-3 Notes Equal to the reduction in in the
each auction period the Series A-4 Notes and student loan principal balance
Series A-5 Notes have been minus, for each monthly
paid in full payment date after June 30,
2003, the amount of principal
paid on such date on the
Series B-3 Notes
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Priority of Amount of
Payment Date Payment Payment
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Series B-3 Notes Last business day of After the Series A-3 Notes, Equal to the reduction in the
each month the Series A-4 Notes, the student loan principal
Series A-5 Notes and the balance
Series A-6 Notes have been
paid in full
After June 30, 2003, principal
payments on the Series B-3
Notes will equal the lesser of:
o An amount generally equal
to the reduction in the student
loan principal balance and
o The greatest amount that
would result in a senior parity
percentage of not less than
109% and a parity percentage
of not less than 101% after
such payment of principal on
the Series B-3 Notes.
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If an event of default occurs,
principal will be paid pro rata on
the Series A-3 Notes, the Series
A-4 Notes, the Series A-5 Notes
and the Series A-6 Notes.
ACCELERATED PRINCIPAL ...................... The notes entitled to principal
payments also will receive on each
monthly payment date or auction
period payment date, as
applicable, parity percentage
payments of principal until the
parity percentage equals 101%.
PARITY PERCENTAGE ........................... The parity percentage basically is
determined by dividing:
o The principal amount
(including capitalized
interest) of the student loans
plus accrued interest,
interest subsidies and special
allowance payments, and all
amounts in the acquisition
fund, the collection fund and
the reserve fund, by
o The principal balance of all
notes plus accrued and unpaid
interest and expenses. See
"Description of the New Notes
- Principal."
SENIOR PARITY PERCENTAGE ................... The senior parity percentage
basically is determined by
dividing:
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o The principal amount
(including capitalized
interest) of the student loans
plus accrued interest,
interest subsidies and special
allowance payments, and all
amounts in the acquisition
fund, the collection fund and
the reserve fund, by
o The principal balance of all
Series 1998A Notes plus
accrued and unpaid interest
thereon and expenses relating
to all notes.
FINAL MATURITY ............................. The final payment of principal and
interest will be made no later
than these dates:
o December 1, 2006 on the Series
A-3 Notes
o December 1, 2019 on the Series
A-4 Notes
o December 1, 2019 on the Series
A-5 Notes
o December 1, 2019 on the Series
A-6 Notes
o December 1, 2019 on the Series
B-3 Notes
The financed student loans include
loans that mature prior to the
final maturity of each series of
the notes. For this and other
reasons, the actual maturity of
each series may occur sooner. See
"Maturity and Prepayment
Considerations."
PRIORITY OF PAYMENTS ....................... On each payment date, we will
apply funds available after paying
expenses in the following
priority. See "The Indenture
Collection Fund."
o FIRST, to pay interest on the
Series A-3 Notes, the Series
A-4 Notes, the Series A-5
Notes and the Series A-6 Notes
and to pay any related
interest rate exchange
payment;
o SECOND, to pay interest on the
Series B-3 Notes and any
related interest rate exchange
payment;
o THIRD, to pay principal on the
Series A-3 Notes and, subject
to limitations, to pay
principal after June 30, 2003
on the Series B-3 Notes;
o FOURTH, after the principal
balance of the Series A-3
Notes has been paid, to pay
principal on the Series A-4
Notes and, subject to
limitations, to pay principal
occurring after June 30, 2003
on the Series B-3 Notes;
o FIFTH, after the principal
balance of the Series A-3
</TABLE>
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<TABLE>
<S> <C>
Notes and Series A-4 Notes has
been paid, to pay principal on
the Series A-5 Notes and,
subject to limitations, to pay
principal after June 30, 2003
on the Series B-3 Notes;
o SIXTH, after the principal
balance of the Series A-3
Notes, the Series A-4 Notes
and the Series A-5 Notes has
been paid, to pay principal on
the Series A-6 and, subject to
limitations, to pay principal
after June 30, 2003 on the
Series B-3 Notes;
o SEVENTH, after the principal
balance of the Series A-3
Notes, the Series A-4 Notes,
the Series A-5 Notes and the
Series A-6 Notes has been
paid, to pay principal on the
Series B-3 Notes;
o EIGHTH, to the reserve fund
the amount, if any, necessary
to attain the specified
reserve fund balance;
o NINTH, if the parity
percentage is not at least
101%, to pay principal until
the parity percentage equals
101%:
first on the Series A-3 Notes
until the principal balance
has been paid, then
on the Series A-4 Notes until
the principal balance has been
paid, then
on the Series A-5 Notes until
the principal balance has been
paid, then
on the Series A-6 Notes until
the principal balance has been
paid, and then,
on the Series B-3 Notes;
o TENTH, to pay carryover
interest, if any:
first, on the Series A-3
Notes, then
on the Series A-4 Notes, then
on the Series A-5 Notes, and
then
on the Series A-6 Notes;
o ELEVENTH, the amount, if any,
owed an exchange
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
counterparty in respect of an
early termination or as a
result of a default by the
issuer; and
o TWELFTH, any remainder will be
transferred to the excess
surplus account established
under the indenture. See "The
Indenture -- Collection Fund."
The above payment order will be
modified if, after giving effect
to such payments on any payment
date, either:
o The aggregate principal amount
of the Series A-3 Notes, the
Series A-4 Notes, the Series
A-5 Notes and the Series A-6
Notes would exceed the sum of
the principal amount of the
student loans (including
capitalized interest) and
amounts in the indenture funds
and accounts as of the end of
the preceding collection
period, or
o a payment event of default has
occurred under the indenture,
but prior to the acceleration
of maturity of the notes.
As long as either of the above
conditions exist, the Series B-3
Notes will not receive any
payments. As long as any Series
A-3 Notes, Series A-4 Notes,
Series A-5 Notes or Series A-6
Notes remain outstanding, any
deferral of payments on the Series
B-3 Notes will not constitute an
event of default under the
indenture unless the deferral
exists on the maturity date for
the Series B-3 Notes. Where an
event of default has occurred, we
will allocate pro rata, without
preference or priority of any kind
principal distributions on the
Series A-3 Notes, the Series A-4
Notes, the Series A-5 Notes and
the Series A-6 Notes. See "The
Indenture -- Collection Fund."
RESERVE FUND ............................... In any case, we will make
principal payments on the Series
A-4 Notes, the Series A-5 Notes
and the Series A-6 Notes only in
multiples of $50,000.
The indenture trustee made an
initial deposit of $10,917,000
from the proceeds of the original
sale of the old notes into a
reserve fund for the notes. This
amount is the reserve fund's
specified reserve fund balance
which is subject to reduction as
the principal balance of the notes
is paid. To the extent necessary,
the initial deposit will be
supplemented on each monthly
payment date with all amounts
remaining after making all
required prior distributions on
that date until
</TABLE>
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<TABLE>
<S> <C>
the specified reserve fund balance
is attained. See "Security for the
Notes -- Reserve Fund" and "The
Indenture -- Reserve Fund."
REDEMPTION ................................. On or after May 31, 2007, if the
AUCTION OF THE FINANCED STUDENT LOANS principal balance of the student
loans (including capitalized
interest) is equal to or less than
10% of the initial principal
amount of the student loans in the
trust, the indenture trustee will
offer the student loans for sale.
If the indenture trustee receives
at least two bids (which may
include bids from the issuer or
its affiliates), the indenture
trustee will accept the higher bid
if it will pay transaction costs
and all amounts due to the
holders, including carryover
interest, after application of
funds on deposit in the reserve
fund. If the bid proceeds are not
sufficient to pay transaction
costs and all amounts due to the
holders, the indenture trustee
may, but shall be under no
obligation to, solicit bids for
the sale of student loans on
future payment dates. The proceeds
of any such sale will be used to
redeem any outstanding notes at
par plus accrued interest on the
next applicable payment date. The
indenture trustee can give no
assurance as to whether it will be
successful in soliciting
acceptable bids to purchase the
student loans on any such auction
date. See "Redemption -- Auction
of the Financed Student Loans."
OPTIONAL REDEMPTION All outstanding series of notes
will be subject to redemption in
whole on any applicable payment
date in the event the depositor
exercises its option to repurchase
all remaining student loans, and
cause the early retirement of the
notes, on any payment date on or
after the monthly payment date on
which the pool balance is equal to
10% or less of the initial pool
balance, at a price at least equal
to, for each student loan, the
outstanding principal balance of
such student loan as of the end of
the preceding collection period,
together with all accrued interest
thereon and unamortized premiums,
if any, and sufficient to pay
transaction costs and all amounts
due to the holders, including
carryover interest, after
application of funds on deposit in
the reserve fund. Such an optional
purchase of the student loans will
result in the prepayment of all
outstanding notes.
In addition, on and after the
payment date that the Series A-3
Notes have been paid in full, the
Series A-4 Notes, the Series A-5
Notes and the Series A-6 Notes
will be subject to redemption in
whole or in part on any applicable
auction period payment date at the
option of the issuer, upon 15
days' notice given by the
indenture
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<PAGE> 17
<TABLE>
<S> <C>
trustee, at a redemption price
equal to their principal amount,
plus all accrued interest
including carryover interest,
provided that after any such
redemption, the parity percentage
must be no less than 101% and
certain other conditions must be
satisfied. See "Redemption --
Optional Redemption."
ERISA CONSIDERATIONS ....................... The new notes are expected to be
treated as debt obligations
without significant equity
features for purposes of the
regulations of the Department of
Labor set forth in 29 C.F.R.
2510.3-101. See "ERISA
Considerations."
REGISTRATION, CLEARING AND SETTLEMENT ...... Your new notes will be held
through DTC in the United States
or through Cedel Bank, societe
anonyme or the Euroclear System in
Europe. You will not receive a
definitive note representing your
interest, except in certain
limited circumstances. See
"Description of the Notes --
Book-entry Registration."
The Series 1998A1-3 Notes will be
offered in minimum denominations
of $50,000 and integral multiples
of $1,000 in excess of $50,000,
reduced by the amount of principal
payments made before the exchange
offer, if any.
The Series 1998A1-4 Notes, the
Series 1998A1-5 Notes and the
Series 1998A1-6 Notes will be
offered in minimum denominations
of $50,000 and any integral
multiple of $50,000.
The Series 1998B1-3 Notes will be
offered in minimum denominations
of $50,000 and integral multiples
of $1,000 in excess of $50,000.
RATING ...................................... It is a condition to the issuance
of the new notes that they be
rated by the following rating
agencies as follows:
Moody's Fitch
------- -----
Series 1998A1-3 Notes Aaa AAA
Series 1998A1-4 Notes Aaa AAA
Series 1998A1-5 Notes Aaa AAA
Series 1998A1-6 Notes Aaa AAA
Series 1998B1-3 Notes A2 A
These ratings are the same ratings
that currently apply to the
related series of old notes.
See "Risk Factors -- Credit
Ratings Address Only a Limited
Scope of Investor Concerns" and
"Rating."
</TABLE>
17
<PAGE> 18
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS TOGETHER WITH THE OTHER
MATTERS SET FORTH IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO EXCHANGE YOUR
OLD NOTES FOR NEW NOTES IN THE EXCHANGE OFFER.
CONSEQUENCES OF FAILURE TO If you do not exchange old notes for new notes
EXCHANGE in this exchange offer, you will be restricted
from transferring your old notes in the future.
In general, outside of the exchange offer, you
may not offer or sell your old notes unless
they have been registered under the federal and
state securities laws or you offer or sell them
in a transaction that is exempt from such laws.
We do not currently intend to register your old
notes except in connection with this exchange
offer.
LIMITED TRADING MARKET MAY The new notes will constitute a new issue of
NOT BE SUFFICIENTLY LIQUID securities without any established trading
TO ALLOW YOU TO RESELL YOUR market. The initial purchasers may assist in
NEW NOTES resales of the new notes but they are not
required to do so. A secondary market for any
series of new notes may not develop. If a
secondary market does develop, it might not
continue or it might not be sufficiently active
or liquid to allow you to resell any of your
new notes.
THE TRUST WILL HAVE LIMITED The trust will not have any significant assets
ASSETS WITH WHICH TO PAY or sources of funds except for the student
PRINCIPAL AND INTEREST loans and related assets. Your new notes are
secured by and payable solely from the assets
of the trust and will not be insured or
guaranteed by the depositor, the administrator,
the master servicer, the guarantee agencies,
the eligible lender trustee, any of their
affiliates, or the Department of Education. You
must rely for repayment upon proceeds realized
from the student loans and other assets in the
trust. See "Security for the Notes" and "The
Indenture -- Collection Fund."
FAILURE BY LOAN HOLDERS The Higher Education Act requires loan holders
OR SERVICERS TO COMPLY and servicers to follow specified procedures to
WITH STUDENT LOAN ensure that the FFELP Loans are properly
ORIGINATION AND SERVICING originated and serviced. Failure to follow
PROCEDURES COULD ADVERSELY these procedures may result in:
AFFECT ABILITY TO PAY PRINCIPAL
ON INTEREST ON YOUR NEW (i) LOSS OF REINSURANCE PAYMENTS,
NOTES INTEREST SUBSIDIES AND SPECIAL
ALLOWANCE PAYMENTS. The Department
of Education's refusal to make
reinsurance payments to the
guarantee agencies or to make
interest subsidy payments and
special allowance payments to the
eligible lender trustee with
respect to the FFELP Loans; and
(ii) LOSS OF GUARANTEE PAYMENTS. The
guarantee agencies' inability or
refusal to make guarantee payments
with respect to the FFELP Loans.
The loss of any of these payments may adversely
affect the ability to pay principal and
interest on your new notes. See "Description of
the FFEL Program" and "Servicing -- Servicing
Procedures."
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<PAGE> 19
SUBORDINATION WITH RESPECT TO Your Series B-3 Notes and any exchange
HOLDERS OF SERIES B-3 NOTES counterparties under an interest rate exchange
COULD CAUSE THEM TO BEAR agreement relating to your Series B-3 Notes are
LOSSES subordinated to the Series 1998A Notes and any
exchange counterparties under an interest rate
exchange agreement relating to the Series 1998A
Notes. In some circumstances payment of
interest on and any interest rate exchange
payments relating to your Series B-3 Notes may
be deferred and payment of principal of the
Series B-3 Notes may be suspended until all
Series 1998A Notes have been paid in full.
Consequently, as holders of Series B-3 Notes,
you will bear losses on the student loans
before such losses are borne by the holders of
the Series 1998A Notes. In addition, as holders
of the Series B-3 Notes, you may be limited in
the legal remedies that are available to you
until the holders of the Series 1998A Notes and
any exchange counterparties under an interest
rate exchange agreement on a parity with the
Series 1998A Notes are paid in full. See "The
Indenture -- Collection Fund" and "Security for
the Notes - The Trust."
OFFSET BY GUARANTEE AGENCIES If the Department of Education or a guarantee
OR A REDUCTION IN THE AMOUNT agency determines that the eligible lender
OF AVAILABLE FUNDS BY THE trustee owes a liability to the Department of
DEPARTMENT OF EDUCATION Education or the guarantee agency on any FFELP
COULD ADVERSELY AFFECT Loan for which the eligible lender trustee is
THE ABILITY TO PAY PRINCIPAL or was legal titleholder, including FFELP loans
AND INTEREST ON NEW NOTES held under the indenture or other indentures,
the Department of Education or the guarantee
agency might seek to collect that liability by
offsetting against payments due the eligible
lender trustee under the trust. Such offsetting
or shortfall of payments due to the eligible
lender trustee with respect to the trust could
adversely affect the amount of available funds
for any collection period and the ability to
pay interest and principal on your new notes.
Indentures of the depositor, the administrator
and their affiliates prior to September, 1998
do not contain provisions for
cross-indemnification with respect to such
payments and offsets. The indenture for your
new notes and other indentures of the
depositor, the administrator and their
affiliates entered into after September, 1998
will contain such cross-indemnification
provisions. Although these indentures will
include such provisions, there can be no
assurance that the amount of funds available to
the trust with respect to such right of
indemnification may be adequate to compensate
the trust and you for any previous reductions
in the available funds for a collection period.
Also, the fact that prior indentures did not
contain such provisions could adversely affect
the amount of available funds for any
collection period to the extent any shortfall
or offset affects the trust and the trust
cannot be adequately compensated. See
"Description of the FFEL Program" and "The
Guarantee Agencies."
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<PAGE> 20
A DECLINE IN THE FINANCIAL The FFELP Loans are not secured by any
HEALTH OF GUARANTEE AGENCIES collateral of the borrowers. Payments of
COULD ADVERSELY AFFECT THE principal and interest are guaranteed by
ABILITY TO PAY PRINCIPAL AND guarantee agencies to the extent described in
INTEREST ON YOUR NEW NOTES this prospectus. Excessive borrower defaults
could impair a guarantee agency's ability to
meet its guarantee obligations. In addition,
recently enacted legislation is expected to
reduce the guarantee agencies' reserves under
the FFEL Program. The financial health of a
guarantee agency could affect the timing and
amount of available funds for any collection
period and the ability to pay principal of and
interest on the new notes. Although a holder of
FFELP Loans could submit claims for payment
directly to the Department of Education if the
Department determines that a guarantee agency
is unable to meet its insurance obligations,
there is no assurance that the Department of
Education would ever make that determination or
that it would pay claims in a timely manner.
The eligible lender trustee may receive claim
payments directly from the Department of
Education under Section 432(o) of the Higher
Education Act if that determination is made.
See "Description of the FFEL Program" and "The
Guarantee Agencies."
A DECLINE IN THE FINANCIAL If any interest rate exchange agreement
HEALTH OF ANY EXCHANGE relating to the notes is ever executed, any
COUNTERPARTY OR ANY time that the exchange rate being paid by an
PROVIDER OF AN EXCHANGE exchange counterparty is greater than the
COUNTERPARTY GUARANTEE exchange rate being paid by the issuer, the
COULD REDUCE THE FUNDS ability to make principal and interest payments
AVAILABLE TO PAY YOUR0 on your notes will be adversely affected by
NEW NOTES such exchange counterparty's ability or the
ability of any provider of an exchange
counterparty guarantee to meet its net payment
obligation to the indenture trustee. In
addition, under certain circumstances, the
failure by the issuer to make an exchange
payment (other than an early termination
payment) under such interest rate exchange
agreement may constitute an event of default
under the indenture. See "Security for the
Notes -- Exchange Agreements" and "The
Indenture -- Events of Default."
CHANGES TO FFEL PROGRAM The Higher Education Act and other relevant
COULD ADVERSELY AFFECT THE modified in the future. In particular, the
ABILITY TO PAY PRINCIPAL AND level of guarantee payments may be adjusted
INTEREST ON YOUR NEW NOTES from time to time which may effect the ability
to pay interest and principal on your notes.
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.
INCREASED COMPETITION FROM The Federal Direct Student Loan Program has
THE FEDERAL DIRECT STUDENT been established under the Higher Education
LOAN PROGRAM COULD Act. This program could result in reductions in
ADVERSELY AFFECT THE ABILITY the volume of loans made under the FFEL
TO PAY PRINCIPAL AND INTEREST Program. If so, the depositor, the
ON YOUR NEW NOTES 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
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<PAGE> 21
the FFELP Loans and lower prices available in
the secondary market for those loans. All of
these possibilities could effect the ability to
pay interest and principal on your notes.
The Department of Education also has
implemented a direct consolidation loan
program, which may reduce the volume of loans
made under the FFEL Program and is expected to
result in prepayments of student loans. See
"Description of the FFEL Program."
REINVESTMENT RISK AND Student loans may be prepaid by borrowers at
PREPAYMENTS MAY REDUCE any time without penalty. The rate of
YOUR YIELD 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. In
addition, under certain circumstances, the
depositor will be obligated to repurchase
student loans form the trust pursuant to the
transfer and sale agreement as a result of
breaches of the depositor's representations and
warranties. See "Transfer and Sale Agreement."
To the extent borrowers elect to borrow money
through consolidation loans, you will receive
as a prepayment of principal the aggregate
principal amount of the loan.
If loan prepayments result in a series of notes
being prepaid before its expected maturity
date, you may not be able to reinvest your
funds at the same yield as the yield on the
notes. The issuer cannot predict the prepayment
rate of any notes, and reinvestment risks
resulting from a faster or slower prepayment
speed will be borne entirely by you and the
other holders of the notes. Generally, the
effect of such prepayments initially will be to
increase the rate of payment on each series of
notes on which principal is then being paid.
Reinvestment risk resulting from prepayments is
expected to be borne first by the holders of
senior series of notes, and then by the holders
of more subordinated series of notes. See
"Maturity and Prepayment Considerations."
UNCERTAINTY OF THE MATURITY Scheduled payments on the student loans and the
OF YOUR INVESTMENT MAY maturities of the student loans may be extended
CREATE REINVESTMENT RISK 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."
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<PAGE> 22
BORROWERS OF STUDENT LOANS Collections on the student loans during a
ARE SUBJECT TO A VARIETY OF collection period may vary greatly in both
FACTORS THAT MAY ADVERSELY timing and amount from the payments actually
AFFECT THEIR REPAYMENT due on the student loan for that collection
ABILITY period for a variety of economic, social and
other factors.
Failures by borrowers to pay timely the
principal and interest on the student loans or
an increase in deferments or forbearances could
affect the timing and amount of available funds
for any collection period and the trust's
ability to pay principal and interest on your
new notes. The effect of such factors,
including the effect on the timing and amount
of available funds for any collection period
and the ability to pay principal and interest
on your new notes is impossible to predict. See
"Maturity and Prepayment Considerations."
THE INTEREST RATES ON THE The maximum rate of interest on the Series
NOTES ARE SUBJECT TO 1998A Notes will be limited by the net loan
LIMITATIONS WHICH MAY rate for each series which will equal the
CREATE AN INTEREST SHORTFALL weighted average effective interest rate of the
ON YOUR NEW NOTES WHICH student loans, less the program operating
MAY NOT BE RECOVERED expenses. For a payment date on which the net
loan rate applies, the shortfall resulting
from the difference between the amount of
interest which would otherwise be borne by the
Series 1998A Notes at the applicable variable
rate, auction rate or fixed rate and the amount
of interest at the net loan rate will be paid
on succeeding payment dates to the extent of
available funds and may never be paid. See
"Description of the New Notes -- Interest."
THE INTEREST RATES ON STUDENT The interest rate on the financial student
LOANS AND OTHER INVESTMENTS loans underlying your notes may be lower than
MAY BE INSUFFICIENT TO COVER the interest rate on your notes. A shortfall
INTEREST ON THE NOTES DUE TO may occur which would effect the issuer's
RATE-INDEX DIFFERENCES ability to pay interest and principal on your
notes.
The interest rates on your notes (except the
Series B-3 Notes) are variable and will
fluctuate from one interest period to another
in response to changes in benchmark rates or
general market conditions. The issuer can make
no representation as to what such rates may be
in the future.
As a result of these differences between the
indices used to determine the interest rates on
student loans and the interest rates on the
notes, there could be periods of time when the
interest rates on student loans are inadequate
to cover the interest due on the notes and
expenses required under the indenture. To the
extent that the interest rates on student loans
decrease or do not increase as fast as the
interest rates on the notes, the interest rates
with respect to the notes may be limited to the
net loan rate or may be deferred to future
periods. There can be no assurance that
sufficient funds will be available in future
periods to make up for any shortfalls in the
current payments of interest on the notes.
Further, if there is a decline in the interest
rates on student loans, the amount of funds
representing interest deposited in to the
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<PAGE> 23
trust may be reduced and, even if there is a
similar reduction in the interest rates
applicable to any series of notes, there may
not necessarily be a similar reduction in the
other amounts required to be paid out of such
funds (such as certain administrative
expenses). In addition, proceeds of and
revenues relating to the notes in the funds and
accounts under the indenture will be used to
acquire investment agreements at fluctuating
interest rates. Although the issuer expects to
structure such investment agreements to
minimize the risk resulting from differences in
the fluctuation of the interest rates on the
investment agreements and your notes, there can
be no assurance that it will be successful. See
"Description of the New Notes--Interest" and
"The Indenture--Investment."
IF PRINCIPAL BALANCE OF NOTES The principal amount of the notes exceeds the
EXCEEDS POOL BALANCE THE principal amount of all assets in the trust.
TRUST MAY NOT HAVE Payment of principal and interest on the notes
SUFFICIENT FUNDS TO REPAY is dependent upon collections on the student
YOUR NEW NOTES loans, particularly interest thereon. If the
yield on the student loans does not generally
exceed the interest rate on the notes and
program operating expenses, the trust may not
have sufficient funds to repay your notes.
If an event of default occurs and the assets of
the trust are liquidated, the student loans
would have to be sold at a premium for the
holders of the Series B-3 Notes and possibly
the holders of the Series 1998A Notes to avoid
a loss. Neither the issuer, the depositor nor
the administrator can predict the rate or
timing of accelerated payments of principal or
when the aggregate principal amount of the
notes may be reduced to the aggregate principal
amount of the student loans.
IF THE INDENTURE TRUSTEE Generally, during an event of default, the
HAS DIFFICULTY LIQUIDATING indenture trustee is authorized to sell the
FINANCED STUDENT LOANS student loans. However, the indenture trustee
YOU MAY SUFFER A LOSS 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, there
may not be sufficient funds to pay principal
and interest on the notes and you may suffer a
loss.
THE INSUFFICIENCY OF FUNDS FOR The principal amount required to be paid on the
PRINCIPAL DISTRIBUTIONS IS NOT notes on any payment date under the indenture
AN EVENT OF DEFAULT 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, If the depositor becomes bankrupt, and the
ISSUER OR STUDENT LOAN assets and liabilities of the trust are
FUNDING RESOURCES, INC. included in the depositor's bankruptcy estate,
COULD RESULT IN ACCELERATED the United States Bankruptcy Code could
PREPAYMENT ON THE NOTES, materially limit or prevent the enforcement of
REDUCTIONS OF PAYMENT OR the issuer's obligations, including, without
DELAYS IN PAYMENT limitation, its obligations under the notes.
The depositor's trustee in bankruptcy (or the
depositor itself as debtor-in-possession) may
seek to accelerate payment on the notes and
liquidate the assets in the trust. If the
principal on your notes is declared due and
payable, you may lose the right to future
payments and face the reinvestment risks
mentioned above.
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<PAGE> 24
The depositor has structured the issuer as a
common law trust under Delaware law, rather
than as a business trust. Business trusts
generally are eligible for relief under the
United States Bankruptcy Code. If a court were
to conclude that the issuer was a business
trust and, therefore, eligible to be a debtor
under the United States Bankruptcy Code, a
bankruptcy filing by or against the issuer
could result in delays in payments on your new
notes or reductions in the amounts of such
payments.
The depositor is organized to prevent any
voluntary or involuntary application for relief
by Resources under the United States Bankruptcy
Code or other insolvency laws, as the case may
be, resulting in the consolidation of the
assets and liabilities of the depositor with
those of Resources.
If a court were to conclude that the assets and
liabilities of the depositor should be
consolidated with those of Resources in a
bankruptcy or other proceeding under any
insolvency law, then any "true sale" to the
depositor would not be effective to remove the
student loans and other assets from the
bankruptcy estate of Resources and you could
experience delays in payments on your notes or
reductions in the amount of such payments. See
"Risk Factors -- If Sale of the Student Loans
From the Depositor to the Issuer Is Not a True
Sale Delays or Reductions in Payments to You
Could Result."
CHANGES IN INCENTIVE AND Under borrower incentive programs, the
REPAYMENT TERMS RESULT IN depositor may terminate or change the terms of
YIELD UNCERTAINTIES FOR the incentives with respect to any or all of a
INVESTORS borrower's loans. The issuer cannot predict
which borrowers will qualify or decide to
participate in these programs. The effect of
these incentive programs may be to reduce the
yield on the student loans.
CONSUMER PROTECTION Consumer protection laws impose substantial
LAWS MAY INCREASE requirements upon lenders and servicers. Some
COSTS AND UNCERTAINTIES state laws impose finance charge ceilings and
OF YOUR INVESTMENT 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 Your notes may be represented by one or more
MAY LIMIT INVESTORS' certificates registered in the name of Cede &
ABILITY TO PARTICIPATE Co., the nominee for DTC, and will not be
DIRECTLY AS A HOLDER registered in your name. If so, you will only
be able to exercise your rights indirectly
through DTC and its participating
organizations. See "Description of the New
Notes -- Book-entry Registration."
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<PAGE> 25
CREDIT RATINGS ADDRESS A rating agency will rate each series of notes
ONLY A LIMITED SCOPE OF in one of its four highest rating categories. A
INVESTOR CONCERNS rating is not a recommendation to buy, hold or
sell notes or a comment concerning the market
price or suitability for any investor. A rating
only addresses the likelihood of the ultimate
payment of principal and stated interest and
does not address the likelihood of prepayments
on the notes or the likelihood of the payment
of carryover interest. A rating may not remain
in effect for the life of the notes. Any
reduction or withdrawal of a rating may have an
adverse effect on the liquidity and market
price of the notes. See "Rating."
IF A SALE OF THE STUDENT LOANS The depositor has taken steps in structuring
FROM THE DEPOSITOR TO THE its purchase of student loans from affiliates
ISSUER IS NOT A TRUE SALE to increase the likelihood that each purchase
DELAYS OR REDUCTIONS will be deemed a "true sale."
IN PAYMENTS TO YOU COULD
RESULT If any transfer by an affiliate to the
depositor of student loans is deemed by a court
to be a secured financing rather than a "true
sale," other persons may have an interest in
the loans superior to the interest of the
issuer, the depositor, or the eligible lender
trustee, as applicable. Also, if an affiliate
became a debtor under the United States
Bankruptcy Code and a creditor, or trustee in
bankruptcy or the affiliate itself took the
position that its transfer of student loans to
the depositor was a secured financing instead
of a "true sale," then delays in payments on
your notes could occur or (should the court
rule in favor of such creditor, trustee or
affiliate) reductions in the amount of payments
to you could result.
In addition, the issuer and the eligible lender
trustee will treat the transfer of the student
loans from the depositor to the eligible lender
trustee as a "true sale" and will take all
actions that are required so that the issuer,
or the eligible lender trustee on behalf of the
issuer, will be treated as the legal owner of
the student loans. Despite such efforts, if the
depositor or the issuer were to become a debtor
in a bankruptcy case and a creditor or trustee
in the bankruptcy of the debtor or the debtor
itself were to take the position that the
transfer should instead be treated as a secured
financing, then delays in payments on the new
notes could occur. If the court ruled in favor
of any such trustee, debtor or creditor,
reductions in the amount of payments on the new
notes could occur.
DELAY IN RECEIPT OF GUARANTEE If there is a default on any of the financed
PAYMENTS ON DEFAULTED student loans, a claim for default cannot be
STUDENT LOANS COULD REDUCE submitted by the indenture trustee to a
AMOUNT OF FUNDS TO PAY guarantee agency for either 180 or 270 days
PRINCIPAL AND INTEREST ON depending on when the student loan originated.
YOUR NEW NOTES It may be up to 60 days after submission of the
claim before the indenture trustee receives
payment from the guarantee agency. This delay
may decrease the issuer's funds available to
pay interest and principal on your notes.
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<PAGE> 26
REGIONAL GEOGRAPHIC Approximately 78% of the borrowers of the
CONCENTRATION INCREASES RISK financed student loans are concentrated in
OF NEGATIVE IMPACT OF Ohio, Florida, Georgia and Kentucky. A regional
BORROWING DEFAULTS DUE TO economic downturn in any of these areas could
REGIONAL ECONOMIC increase the likelihood of borrower defaults on
CONSIDERATIONS financed student loans. Any borrower default
may decrease the ability to pay interest and
principal on your notes.
ABILITY OF MAJORITY HOLDERS TO Under the indenture, holders of a majority in
WAIVE DEFAULTS UNDER THE principal amount of notes may amend or
INDENTURE MAY ADVERSELY AFFECT supplement certain provisions of the indenture
YOU and the notes and to waive certain defaults,
events of defaults and compliance provisions
without the consent of the other holders. You
have no recourse if the majority votes and you
disagree with the majority vote on these
matters. The majority of holders may vote in a
manner which impairs the ability to pay
interest and principal on your notes.
DEPOSITOR MAY NOT HAVE The depositor is obligated to repurchase
RESOURCES TO MEET ITS student loans if it breaches any of its
OBLIGATIONS TO PURCHASE representations, warranties or obligations and
FINANCED STUDENT LOANS FOR such breach results in a loss of insurance or
ITS BREACH OF A REPRESENTATION guarantee payments. The depositor may not have
OR WARRANTY the financial resources to repurchase any
student loan. The failure of the depositor to
repurchase a student loan is a breach of the
transfer and sale agreement, enforceable by the
trust or by the indenture trustee, but is not
an event of default under the indenture. See
"Transfer and Sale Agreement."
INABILITY OF SELLER TO MEET ITS The eligible lender trustee on behalf of the
REPURCHASE OBLIGATIONS MAY issuer, as the successor to the depositor under
ADVERSELY AFFECT YOUR NOTES 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 the
seller with respect to the student loan. There
can be no assurance, however, that any seller
will have the financial resources to do so. The
failure of 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 If computer programs and information systems
YEAR 2000 ISSUES COULD used by the administrator, the master servicer
RESULT IN REDUCTIONS OR or third parties upon which the issuer depends
DELAYS IN PAYMENT for its programming and financial operations or
with which it conducts business (including
without limitation, guarantee agencies, the
Department of Education, the trustee, the
eligible lender trustee, DTC and others
providing services to the master servicer, the
administrator or such parties), are not year
2000 compliant, the administrator's, the master
servicer's and such parties' ability to provide
services required in connection with the
administration of the administrator's student
loan program and the payment of the principal
of and interests on your notes may be adversely
affected. See "The Depositor -- Year 2000."
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<PAGE> 27
PROBLEMS CAUSED BY YEAR If computer programs and information systems
2000 ISSUES WITH THE used by the Department of Education are not
DEPARTMENT OF EDUCATION year 2000 compliant, the master servicer, the
COULD RESULT IN REDUCTIONS servicers and the guarantee agencies ability to
OR DELAYS IN PAYMENT provide services required in connection with
administration of student loan programs and the
payment of reimbursement payments to guarantee
agencies and of special allowance payments and
interest subsidy payments and the payment of
principal of and interest on your notes may be
adversely affected.
All terms that are unique to our industry and this transaction are defined in
"Appendix A -- Glossary" of this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
The issuer has filed with the SEC a registration statement on Form S-4
pursuant to the Securities Act and the rules and regulations thereunder covering
the new notes being offered by this prospectus. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto, as certain portions have been omitted as permitted by the
rules and regulations of the SEC. For further information with respect to the
issuer and the new notes offered by this prospectus, reference is made to the
registration statement which is on file at the offices of the SEC and may be
obtained upon payment of the fee prescribed by the SEC or may be examined
without charge at the offices of the SEC. Statements contained in this
prospectus as to the contents of any documents referred to are not necessarily
complete, and, in each such instance, are qualified in all respects by reference
to the applicable documents filed with the SEC.
The issuer is not currently subject to the information reporting
requirements of the 1934 securities exchange act. The issuer will become subject
to such requirements upon the effectiveness of the registration statement, and
in accordance therewith will file certain reports and other information with the
SEC. The registration statement and periodic reports and other information filed
by the issuer with the SEC can be inspected and copied at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C., or at its regional
offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048 at prescribed rates. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a web site that contains reports and other information regarding
registrants that file electronically with the SEC. The address of such site is
http://www.sec.gov.
THE ISSUER
THE TRUST
Student Loan Funding 1998-A/B Trust is a common law trust formed under the laws
of the State of Delaware. The trust will not engage in any activity other than
(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.
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<PAGE> 28
The old notes were issued by the depositor pursuant to an indenture dated as of
December 1, 1998 between the depositor and Firstar Bank, N.A., as trustee. The
proceeds from the sale of the old notes were used by the eligible lender
trustee, on behalf of the depositor, to acquire the initial financed student
loans. The trust was formed and initially capitalized with nominal equity
represented by a trust certificate held by the depositor. The trust purchased
the financed student loans from the depositor by assuming the obligations of the
depositor under the old notes and the indenture. Subsequent to the assumption of
the old notes, the trust entered into the Second Amended and Restated Indenture
of Trust and amended and Restated Terms Supplement, each dated as of
____________, 1999 between itself and Firstar Bank, N.A. under which the new
notes will be issued. The assumption by the trust was completed on April 20,
1999.
The assets of the trust include:
(1) the pool of financed student loans, legal title to which is held by the
eligible lender trustee on behalf of the trust;
(2) all funds in respect thereof collected on or after the applicable
cut-off date; and
(3) all moneys and investments on deposit in the collection account, note
payment account, expense account, reserve account and excess surplus
account.
All of these accounts are held in the name of the indenture trustee. To
facilitate servicing and to minimize administrative burden and expense, the
related servicer will be appointed custodian of the promissory notes
representing the financed FFELP loans by the eligible lender trustee.
Under the trust agreement, the co-owner trustee, on behalf of the trust, will
not engage in any activity other than
(1) assigning, granting, transferring, pledging, mortgaging and conveying
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;
(2) issuing and exchanging the new notes for the outstanding old notes;
(3) making payments on the notes of the issuer; and
(4) 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 as opposed to a
business trust. Business trusts generally are eligible for relief under the
United States Bankruptcy Code or other insolvency laws. Common law trusts may
not be eligible to be debtors under the insolvency laws if their activities are
insufficient to allow them to be characterized as business trusts. The depositor
has restricted the activities of the issuer in the trust agreement so that it
would not be characterized as a business trust eligible to be a debtor under the
insolvency laws. If a court were to conclude that the issuer was a business
trust and, therefore, eligible to be a debtor under the insolvency laws, a
bankruptcy filing by or against the issuer could result in delays in payments on
your new notes or reductions in the amounts of such payments.
The trust's principal offices are located in the offices of the co-owner
trustee, c/o Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202.
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<PAGE> 29
The new notes are obligations of the trust only and are payable solely from the
assets of the trust in accordance with the indenture. See "Security for the
Notes -- The Trust Assets."
CO-OWNER TRUSTEE
Firstar Bank, N.A., a national banking corporation, will serve as co-owner
trustee of the trust. Its address is 425 Walnut Street, Cincinnati, Ohio 45202.
The trust, the depositor, the administrator or their affiliates may maintain
other banking relationships with Firstar Bank, N.A. and its affiliates from time
to time.
OWNER TRUSTEE
First Union Trust Company, National Association, a national banking corporation,
will serve as owner trustee of the trust. Its address is One Rodney Square,
Suite 100, 920 King Street, Wilmington, Delaware 19801. The trust, the
depositor, the administrator or their affiliates may maintain other banking
relationships with First Union Trust Company and its affiliates from time to
time.
THE ADMINISTRATOR AND MASTER SERVICER
Student Loan Funding Resources, Inc., an Ohio corporation, offers a broad range
of educational related financial services, including student loan secondary
market services for lenders, education information outreach, and technical and
other assistance to colleges and universities. 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. Under an Administration Agreement
between Resources and the co-owner trustee, on behalf of the issuer, Resources,
as administrator, will provide management and administrative services to the
issuer. The administrator will receive an administration fee as compensation for
the performance of its obligations and as reimbursement for its expenses related
thereto. Under a master servicing agreement between Resources, as master
servicer, and the co-owner trustee, on behalf of the issuer, Resources will
provide for the servicing of the financed student loans. The master servicer
will receive a master servicing fee as compensation for the performance of the
obligations and the reimbursement for its expenses related thereto. However, the
notes are neither obligations of nor guaranteed or insured by Resources in its
capacity as the administrator or the master servicer.
Resources is a wholly-owned subsidiary of the Thomas L. Conlan Education
Foundation (formerly known as The Student Loan Funding Corporation), an Ohio
nonprofit corporation. 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>
<CAPTION>
STUDENT LOAN FUNDING RESOURCES, INC. BOARD OF DIRECTORS INFORMATION
==================================================================================================================
BOARD
JOINED TERM POSITIONS OCCUPATION
DIRECTOR AGE BOARD ENDING AND OFFICES PRINCIPAL ADDRESS (PAST FIVE YEARS)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Susan E. Arnold 45 1998 2002 One Procter & Gamble Vice President & General
Plaza Manager, Procter & Gamble
Cincinnati, Ohio North America
45201
- ------------------------------------------------------------------------------------------------------------------
Ronald D. Brown 45 1998 2000 4701 Marburg Avenue Senior Vice President &
Cincinnati, Ohio CFO, Milacron, Inc.
45209
- ------------------------------------------------------------------------------------------------------------------
Scott S. Brown 42 1998 2002 Tucker Foundation Dean, William Jewett
Dartmouth College Tucker Foundation,
Hanover, NH 03755 Dartmouth College
Previously:
Conflict Management Group
(1992-96)
==================================================================================================================
</TABLE>
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<PAGE> 30
<TABLE>
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Thomas L. Conlan, Jr. 60 1998 2001 President & One West 4th St., President & CEO
CEO Su. 200 Student Loan Funding
Cincinnati, Ohio Resources, Inc.
45202
- ------------------------------------------------------------------------------------------------------------------
Lawrence A. Leser 63 1998 2001 Chairman P.O. Box 5380 Chairman,
Cincinnati, Ohio The E.W. Scripps Company
45201 Chairman & CEO (1994-96)
Serves as Director of:
The E.W. Scripps Company,
Union Central Life
Insurance Company & AK
Steel Holding Company
- ------------------------------------------------------------------------------------------------------------------
William S. Newcomb, 55 1998 2001 Vice Chairman 52 East Gay Street Partner,
Jr. Columbus, Ohio 43215 Vorys, Sater, Seymour &
Pease LLP
- ------------------------------------------------------------------------------------------------------------------
Walker J. Wallace 55 1998 2001 1017 Choctawhatchee Retired, Vice President,
Dr. Procter & Gamble
Niceville, FL 32578
- ------------------------------------------------------------------------------------------------------------------
Patrician Mann 53 Ex-offico Ex-officio Secretary 312 Walnut St., Su. Partner,
Smitson 1400 Thompson Hine & Flory LLP
Cincinnati, Ohio
45202
==================================================================================================================
</TABLE>
The following sets forth certain information with respect to the key officers of
Resources:
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.
Stephen T. MacConnell, 52, is Senior Vice President of Legal Services and Human
Resources of Resources. Prior to serving Resources, Mr. MacConnell was a named
partner for 21 years in a prominent Cincinnati law firm. Mr. MacConnell is a
trustee and/or officer of several national and local legal and nonprofit
organizations and is currently the immediate past president of the Cincinnati
Bar Association. He received his Juris Doctorate from the University of
Cincinnati and Bachelor of Arts from Miami University (Ohio). Through May, 1998,
Mr. MacConnell was Senior Vice President of Legal Services and Human Resources
for The Student Loan Funding Corporation.
James H. Eickhoff, Jr., 37, is Senior Vice President of Business Development and
Marketing Services of Resources. Mr. Eickhoff has 14 years of sales and
marketing leadership experience within the health care and education fields. He
has served on several state and national committees promoting literacy and
school-to-work initiatives. He has a Bachelor of Arts from Hope College,
Holland, Michigan.
Perry D. Moore, 36, is Vice President and Interim Chief Financial Officer of
Resources. Mr. Moore has over 10 years of financial management experience. He
has also been employed by a major public accounting firm where he participated
in the audits of numerous financial institutions including The Student Loan
Funding Corporation. Mr. Moore has over 7 years experience in the student loan
industry in the areas of accounting, finance, product development and
operations. He holds a bachelor's degree in Accounting from Bowling Green State
University and is a member of the American Institute of Certified Public
Accountants, Ohio Society of Certified Public Accountants and Institute of
Management Accountants.
YEAR 2000
For information describing the level of the trust's, the depositor's and the
administrator's readiness for year 2000, see "The Depositor - Year 2000."
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<PAGE> 31
THE DEPOSITOR
Student Loan Funding LLC, a Delaware limited liability company organized as a
bankruptcy remote special purpose entity, is the depositor. The members of the
depositor are Resources (99% ownership) and SLF Enterprises, Inc. (1%
ownership), an Ohio corporation and wholly-owned subsidiary of Resources.
The depositor is governed by a five-member management committee, which consists
of the following individuals: Christopher P. Chapman, Thomas L. Conlan, Jr.,
Mark A. Ferrucci, Kim Lutthans and Perry D. Moore. Mr. Conlan, Mr. Chapman and
Mr. Moore are officers and employees of Resources and Ms. Lutthans and Mr.
Ferrucci are independent members of the management committee. The depositor has
no full-time employees. The principal executive offices of the depositor are
located at One West Fourth Street, Suite 210, Cincinnati, Ohio 45202. The
telephone number of such offices is (513) 352-0570.
On June 1, 1998, the Foundation, in connection with an election under Section
150(d)(3) the Internal Revenue Code of 1986, transferred to Resources
substantially all of the assets and liabilities of Foundation, and Resources
subsequently transferred substantially all of the transferred assets and
liabilities to the depositor. As a result of these transfers and assumptions,
the depositor became the sole obligor on approximately $1.9 billion of debt that
was previously debt of the Foundation, which is all non-recourse debt of the
depositor, and Foundation and Resources have no liability on that debt. Until
June 1, 1998, the Foundation was a tax-exempt charitable organization under
Section 501(c)(3) of the Internal Revenue Code and a "qualified scholarship
funding corporation" within the meaning of Section 150(d) of the Internal
Revenue Code engaged in acting as a secondary market for student loans
originated under the Higher Education Act. On May 28, 1998, the Foundation made
the tax election pursuant to Section 150(d)(3) of the Internal Revenue Code to
terminate its status as a qualified scholarship funding corporation while
continuing to qualify as a tax-exempt charitable organization under Section
501(c)(3) of the Internal Revenue Code.
Under the depositor's limited liability company agreement, the depositor will
not engage in any activity other than (i) acquiring, holding, selling and
managing student loans and other assets (consisting of moneys and investment
securities on deposit in the funds and accounts under its indentures and the
depositor's rights under certain contracts) in any of the trusts established by
the depositor, (ii) issuing one or more series of notes or other debt
obligations under one or more indentures of the depositor, (iii) making payments
on the notes or other debt obligations of the depositor, and (iv) engaging in
other activities that are necessary, suitable or convenient to accomplish in
connection with those activities.
Resources has taken steps in structuring the depositor that are intended to
prevent any voluntary or involuntary application for relief by Resources under
insolvency laws from resulting in consolidation of the assets and liabilities of
the depositor with those of Resources. These steps include the creation of the
depositor as a separate, special purpose subsidiary pursuant to a limited
liability company agreement containing certain limitations (including
restrictions on the nature of the depositor's business and a restriction on the
depositor's ability to commence a voluntary case or proceeding under 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 laws.
The depositor has received the advice of counsel to the effect that subject to
certain facts, assumptions and qualifications, it would not be a proper exercise
by a court of its equitable discretion to disregard the separate corporate
existence of the depositor and to require the consolidation of the assets and
liabilities
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<PAGE> 32
of the depositor with the assets and liabilities of Resources in the event of
the application of any insolvency laws to Resources. Among other things, it is
assumed by counsel that the depositor will follow certain procedures in the
conduct of its affairs, including maintaining records and books of accounts
separate from those of Resources, refraining from commingling its assets with
those of Resources and refraining from holding itself out as having agreed to
pay, or being liable for, the debts of Resources. The depositor intends to
follow and has represented to such counsel that it will follow these and other
procedures related to maintaining its separate identity. However, there can be
no assurance that a court would not conclude that the assets and liabilities of
the depositor should be consolidated with those of Resources. If a court were to
reach such a conclusion, or a filing were made under any insolvency laws by or
against the depositor, or if an attempt were made to litigate any of the
foregoing issues, delays in distributions on the notes could occur or reductions
in the amounts of such distributions could result.
After the occurrence of any of event of bankruptcy or insolvency with respect to
the depositor, the financed student loans and other assets constituting the
trust may be liquidated. The proceeds from that liquidation would be treated as
collections on such assets and deposited in trust under the indenture. There can
be no assurance that the proceeds from the liquidation of such assets and
amounts (if any) on deposit in the funds and accounts held under the indenture
would be sufficient to pay the notes in full.
RELATIONSHIP WITH INTUITION HOLDINGS, INC. AND INTUITION, INC.
Resources also will serve as the administrator and master servicer. On November
30, 1998, Resources completed a transaction wherein Resources acquired a 50%
ownership interest in InTuition Holdings, Inc. and has the right to appoint two
members of the board of directors (which consists of four members) of InTuition
Holdings, Inc. As of September 30, 1998, InTuition Holdings, Inc. had $4.1
million in assets, $3.1 million in liabilities and $1.0 million in shareholders'
equity. InTuition, Inc. is wholly owned by InTuition Holdings, Inc.
Approximately 88% of the financed student loans in the initial pool balance were
acquired from InTuition Holdings, Inc. with recourse for breach of
representations, warranties and covenants with respect to the financed student
loans solely to InTuition Holdings, Inc. In only certain circumstances and
subject to certain limitations, InTuition Holdings, Inc. has the right to cause
the seller of certain loans to InTuition Holdings, Inc. to repurchase such
student loans in the event of a breach of the representations, warranties or
covenants of such seller with respect to such student loans pursuant to the
purchase agreement between InTuition Holdings, Inc. and such seller. See "Risk
Factors -- Inability of Seller to Meet its Repurchase Obligations May Adversely
Affect Your Notes" and "Servicing -- InTuition, Inc."
YEAR 2000
The "year 2000" issue refers to a wide variety of potential computer program and
electronic processing and functionality issues that may arise from the inability
to properly process date-sensitive information relating to the year 2000, years
thereafter and to a lesser degree, the year 1999. As a result of computer
programs and other electronic devices historically being programmed using two
digits rather than four to define the applicable year, time-sensitive software
may not properly recognize a year that begins with "20" instead of the familiar
"19," which could result in system failure or miscalculations. The inability or
failure to adequately address year 2000 issues by any of the parties below
(including by any party on which any of the parties rely) could have a material
adverse impact on the timely receipt and amount of collections on the financed
student loans. If the collections were to be so affected, the timing and amount
of payments on the notes could be adversely affected.
The issuer is wholly dependent upon the administrator's information systems.
Currently, the administrator is in the process of migration to a new loan
acquisitions system. Migration is expected to
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<PAGE> 33
be complete by November 30, 1999. If by June 1, 1999, the administrator
determines that the migration will not be completed by November 30, a
contingency plan will be executed whereby the existing system will be remediated
on or before July 31, 1999. The administrator is conducting a review of its own
information systems and expects to have completed all critical modifications to
those systems by July 31, 1999, allowing time in 1999 for any system refinements
that may be needed. The administrator has also developed high level contingency
plans for its mission-critical applications and will refine these plans in 1999.
Nevertheless, it is not clear whether adequate contingency plans can be
developed for all possible problems. Costs of the administrator's year 2000
efforts are not expected to have a material adverse impact on operation of the
Program or the timely payment of the notes. The administrator spent
approximately $43,000 in 1998 and expects to spend approximately an additional
$40,000 in 1999 on the project. 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 student loan program due to year 2000 issues, then the
operation of the student loan program could be adversely affected, and the
timing and amount of payments on the notes could be adversely affected.
The administrator has made inquiries of the indenture trustee, the eligible
lender trustee, each of the servicers and each of the guarantee agencies that
guarantee more than 10% of the initial financed student loans, and each of these
parties has confirmed to the administrator that it is reviewing its own
information systems and is taking the necessary steps to make any necessary
modifications to those systems. The administrator made follow-up inquiries to
material servicers to reasonably assure the adequacy of Year 2000 testing and
contingency plans. The administrator visited key servicers as necessary to
review such test plans, test results and contingency plans. However, there can
be no assurance that the computer systems of these entities or other companies
on which the issuer, the depositor, the administrator, the indenture trustee,
the eligible lender trustee, any servicer or any guarantee agency relies will be
compliant on a timely basis, or that a failure to resolve year 2000 issues by
any such party or another party on which such party relies, or a remediation or
conversion that is incompatible with the administrator's, indenture trustee's,
eligible lender trustee's, any guarantee agency's or any servicer's computer
systems, will not have a material adverse effect on the issuer, the depositor,
the administrator, the indenture trustee, the eligible lender trustee, a
guarantee agency or a servicer. Also, to the extent any additional eligible
lender trustee, guarantee agency or servicer is added for financed student loans
in the trust, or a replacement or successor to the initial indenture trustee is
necessary, the relative state of preparedness or unpreparedness of such entities
with regard to year 2000 issues may have an adverse impact on the issuer, the
depositor or the administrator and the timing and amount of payments on the
notes. The administrator will continue to monitor the progress of the indenture
trustee, the eligible lender trustee, each of the servicers and each of the
guarantee agencies in addressing their respective year 2000 issues. For
information regarding the efforts of DTC in addressing year 2000 issues, see
"Description of the New Notes -- Book-entry Registration."
The administrator maintains other material third party vendor relationships with
human resources, finance and facilities providers. The administrator made
inquiries of those vendors whose failure of Year 2000 readiness would constitute
a potential material impact on its business. Such inquiries have confirmed that
such vendors have taken, or are taking reasonable necessary steps toward
resolution of Year 2000 issues, if any, which may materially affect the
administrator. The administrator will continue to monitor the process of third
party vendors and has developed or is developing reasonable contingency plans to
address any material Year 2000 failures or deficiencies.
The administrator has also made inquiries to the Department of Education, and
the Department of Education has confirmed to the administrator that it is
reviewing its own information systems and is taking the necessary steps to make
any necessary modifications to those systems. The Department of Education has
undertaken a year 2000 compliance project to address year 2000 issues.
Information
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<PAGE> 34
regarding the Department of Education's year 2000 efforts can be obtained at the
Department of Education's site on the world wide web at http://www.ed.gov. This
website indicates that the Department of Education has completed the five phases
recommended by the General Accounting office for all its mission critical
systems. In addition, the Department of Education's Year 200 Progress Report
Card has been upgraded to a grade of "A-" by the U.S. House of Representatives
Committee on Government Reform and Oversight. Any failure by the Department of
Education to resolve any year 2000 issues or any adverse effect on the
Department of Education caused by a party on which the Department of Education
relies as a result of year 2000 issues may have a material adverse effect on the
FFEL program and the timely receipt of payments on financed FFELP loans, such as
interest subsidy payments and special allowance payments.
Even if the depositor or the administrator does not incur significant direct
costs in modifying its own information systems, there can be no assurance that
the failure or delay of the indenture trustee, any eligible lender trustee, any
servicer, any guarantee agency, the Department of Education or any other third
parties (including any party on which any of these parties rely or any 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.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
The net proceeds to depositor from the sale of the $727,800,000 of old notes
were $727,397,583 after deducting discounts and paying offering expenses. The
depositor used the proceeds from the offering of the old notes in the following
amounts:
<TABLE>
<CAPTION>
Percentage of
Fund or Account Amount Proceeds
--------------- ------ --------
<S> <C> <C>
acquisition fund $708,205,483 97.36%
reserve fund 10,917,000 1.50%
collection account 5,000,000 0.69%
expense account 3,275,100 0.45%
------------ ------
Total Uses $727,397,583 100.00%
============ ======
</TABLE>
We paid the initial purchasers a fee of $2,602,595 from moneys in the expense
account.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The depositor sold the old notes in a private offering on December 22, 1998, to
Salomon Smith Barney Inc., Fifth Third/The Ohio Company and NationsBanc
Montgomery Securities LLC, the initial
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<PAGE> 35
purchasers, pursuant to a purchase agreement dated December 18, 1998 among the
depositor and the initial purchasers. The initial purchasers subsequently resold
the old notes to institutional investors.
Under the registration rights agreement that the depositor and the initial
purchasers entered into in connection with the private offering of the old notes
and that was subsequently assumed by the issuer, we are required to file the
registration statement of which this prospectus is a part. The assumption by the
trust was completed on April 20, 1999. The registration statement provides for a
registered exchange offer of new notes identical in all material respects to the
old notes, except that the new notes will be issued by the trust, will be freely
transferable and will not have any covenants regarding exchange and registration
rights. Under the registration rights agreement, we are required to use our best
efforts to:
o cause the registration statement to be declared effective no later May
31, 1999; and
o consummate the exchange offer as promptly as practicable, but no later
than June 30, 1999.
We are also required to keep the exchange offer open for not less than 20
business days (or longer if required by applicable law) after the date that
notice of the exchange offer is mailed to holders of the old notes.
For a more complete understanding of your exchange and registration rights, you
should refer to the registration rights agreement, which is included as an
exhibit to the registration statement of which this prospectus is a part.
EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the staff of the SEC set forth in no-action letters
issued to third parties, Thompson Hine & Flory LLP, counsel to the issuer, has
rendered an opinion that you may offer for resale, resell and otherwise transfer
the new notes issued to you pursuant to the exchange offer in exchange for your
old notes without compliance with the registration and prospectus delivery
provisions of the 1933 securities act, so long as by tendering old notes in
exchange for new notes and by executing the letter of transmittal that
accompanies this prospectus you represent that:
o you are not our "affiliate" (as defined in Rule 405 of the 1933
securities act);
o you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new notes; and
o you are acquiring the new notes in the ordinary course of your business.
In addition, each broker-dealer that receives new notes for its own account in
exchange for old notes, where such old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. See "Plan of Distribution." In the registration agreement,
depositor has agreed that it will allow exchanging dealers (and any other
persons subject to similar prospectus delivery requirements) to use this
prospectus in connection with such resale.
To the extent old notes are tendered and accepted in the exchange offer, the
principal amount of outstanding old notes will decrease with a resulting
decrease in the liquidity in the market for the old notes. Old notes that are
still outstanding following the consummation of the exchange offer will continue
to be subject to certain transfer restrictions.
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<PAGE> 36
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal, we will accept any and all old notes validly tendered
and not validly withdrawn prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. As of the date of this prospectus, a
total of [$727.8 less A-3 payments] million principal amount of the old notes is
outstanding. We will issue and exchange new notes of each series in principal
amounts equal to the principal amounts of outstanding old notes of each series
accepted in the exchange offer. You may tender some or all of your old notes
pursuant to the exchange offer.
You only may tender and exchange your old notes for a corresponding series of
new notes, such that you may tender and exchange:
o Series 1998A-3 Notes for Series 1998A1-3 Notes;
o Series 1998A-4 Notes for Series 1998A1-4 Notes;
o Series 1998A-5 Notes for Series 1998A1-5 Notes;
o Series 1998A-6 Notes for Series 1998A1-6 Notes; and
o Series 1998B-3 Notes for Series 1998B1-3 Notes.
The form and terms of the new notes will be identical in all material respects
to the form and terms of the old notes, except that:
o the new notes will be issued by the trust;
o the offering of the new notes has been registered under the 1933
securities act;
o the new notes will not be subject to transfer restrictions; and
o the new notes will be issued free of any covenants regarding exchange
and registration rights.
The new notes will evidence the same debt as the old notes and will be entitled
to the benefits of the indenture under which the old notes were, and the new
notes will be, issued.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of old notes on or about
______________, 1999. The exchange offer is not conditioned upon any minimum
aggregate principal amount of old notes being tendered. However, the exchange
offer is subject to certain customary conditions, which we may waive, and to the
terms and provisions of the registration agreement. See "--Certain Conditions to
the Exchange Offer."
You do not have any appraisal or dissenters' rights under law or the indenture
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the applicable requirements of the 1934 securities exchange
act and the rules and regulations of the SEC established under the 1934
securities exchange act.
If we do not accept for exchange any tendered old notes because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
for another reason, certificates for any such unaccepted old notes will be
returned, without expense to you, as promptly as practicable after the
expiration date of
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<PAGE> 37
the exchange offer.
If you tender old notes in the exchange offer you will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of old notes pursuant
to the exchange offer. We will pay all charges and expenses, other than certain
applicable taxes, in connection with the exchange offer. See "--Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York City time, on ____________, 1999,
unless we, in our sole discretion, extend the exchange offer, in which case the
expiration date will be the latest date and time to which the exchange offer is
extended.
We have the right to delay accepting any old notes, to extend the exchange offer
or, if any of the conditions set forth under the heading "--Certain Conditions
to the Exchange Offer" have been satisfied, to terminate the exchange offer, by
giving oral or written notice of the delay, extension or termination to the
exchange agent. We also have the right to amend the terms of the exchange offer.
If we delay acceptance of any old notes, or terminate or amend the exchange
offer, we will make a public announcement to that effect as promptly as
practicable. If we believe that we have made a material amendment of the terms
of the exchange offer, we will promptly disclose the amendment in a manner
reasonably calculated to inform you of such amendment and we will extend the
exchange offer to the extent required by law. We will notify the exchange agent
of any extension of the exchange offer in writing or orally (which we will
promptly confirm in writing). Unless otherwise required by applicable law or
regulation, we will make a public announcement of any extension of the
expiration date before 9:00 a.m., New York City time, on the first business day
after the previously scheduled expiration date. We have no obligation to
publish, advise or otherwise communicate any public announcement, other than by
making a timely press release.
INTEREST ON THE NEW NOTES
Interest on the new notes will accrue from the last interest payment date on
which we paid interest on the old notes surrendered in exchange for them. See
"Description of the New Notes--Interest."
PROCEDURES FOR TENDERING
Each holder of old notes wishing to accept the exchange offer must:
(1) complete, sign and date the letter of transmittal, or a facsimile of it;
(2) have the signatures on it guaranteed if required by the letter of
transmittal; and
(3) mail or otherwise deliver the letter of transmittal or the facsimile,
together with the old notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer (unless such tender is being effected
pursuant to the procedure for book-entry transfer described below).
Any financial institution that is a participant in the book-entry transfer
facility system of The Depository Trust Company may make book-entry delivery of
the old notes by causing DTC to transfer such old notes into the exchange
agent's account and to deliver an agent's message (as described below) on or
prior to the expiration date of the exchange offer in accordance with DTC's
procedures for such transfer and delivery. If delivery of old notes is made
through book-entry transfer into the exchange agent's account at
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<PAGE> 38
DTC and an agent's message is not delivered, the letter of transmittal (or
facsimile of it), with any required signature guarantees and any other required
documents must be transmitted to and received or confirmed by the exchange agent
at its addresses set forth under the heading"--Exchange Agent" prior to 5:00
p.m., New York City time, on the expiration date of the exchange offer. DELIVERY
OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
The term agent's message means a message that states that DTC has received an
express acknowledgment from the tendering DTC participant that such DTC
participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the letter of transmittal and that
we may enforce the letter of transmittal against such DTC participant. The
agent's message is transmitted by DTC to, and received by, the exchange agent
and forms a part of the confirmation of the book-entry tender of old notes into
the exchange agent's account at DTC.
A holder's tender (as set forth above) of old notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
You must deliver of all documents to the exchange agent at its address set forth
in this prospectus under "--Exchange Agent." Holders may also request that their
respective brokers, dealers, commercial banks, trust companies or nominees
effect such tender for the holders.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the election and risk of the
holders. Instead of delivery by mail, we recommend that holders use an overnight
or hand delivery service. In all cases, you should allow enough time to assure
timely delivery. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US.
Only a person in whose name old notes are registered on the register maintained
by the trustee or any other person who has obtained a properly completed bond
power from the registered holder, or any person whose old notes are held of
record by DTC who desires to deliver such old notes by book-entry transfer at
DTC may tender such old notes in the exchange offer.
Any beneficial holder whose old notes are registered in the name of his broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on his behalf. If the beneficial holder wishes to tender on his
own behalf, he must, prior to completing and executing the letter of transmittal
and delivering his old notes, obtain a properly completed bond power from the
registered holder. THE TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
o a commercial bank or trust company having an office or correspondent in
the United States; or
o an eligible guarantor institution within the meaning of Rule 17Ad-15
under the 1934 securities exchange act,
unless the old notes tendered pursuant to the letter of transmittal are
tendered:
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<PAGE> 39
o by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
o for the account of an eligible guarantor institution.
If a person other than the registered holder of any old notes signs the letter
of transmittal, such old notes must be endorsed or accompanied by appropriate
bond powers that authorize such person to tender the old notes on behalf of the
registered holder, and, in either case, signed as the name of the registered
holder or holders appears on the old notes.
If a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other acting as a fiduciary or representative signs the letter of
transmittal or any old notes or bond powers, that person should so indicate when
signing, and, unless we waive the requirement, must submit with the letter of
transmittal evidence satisfactory to us of their authority to so act.
The validity, form, eligibility (including time of receipt), acceptance and
withdrawal of the tendered old notes will be determined by us in our sole
discretion. Our determination will be final and binding. We reserve the absolute
right to reject any and all old notes not properly tendered or any old notes
that, in the opinion of our counsel, it would be unlawful for us to accept. We
also reserve the absolute right to waive any irregularities or conditions of
tender as to particular old notes. Our interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. Neither we, the exchange agent nor any
other person is under any duty to give notification of defects or irregularities
with respect to tenders of old notes. Also, neither we, the exchange agent nor
any other person has any liability for failure to give such notification.
Tenders of old notes will not be deemed to have been made until any
irregularities have been cured or waived. Any old notes received by the exchange
agent that are not properly tendered, and as to which the defects or
irregularities have not been cured or waived, will be returned without cost by
the exchange agent to the tendering holder of such old notes unless otherwise
provided in the letter of transmittal as soon as practicable following the
expiration date of the exchange offer.
In addition, we reserve the right in our sole discretion to:
o purchase or make offers for any old notes that remain outstanding after
the expiration date of the exchange offer, or (as set forth under the
heading "--Certain Conditions to the Exchange Offer") to terminate the
exchange offer; and
o to the extent permitted by applicable law, purchase old notes in the
open market, in privately negotiated transactions or other ways.
The terms of any of these purchases or offers may differ from the terms of the
exchange offer.
By tendering, you represent to us that, among other things:
o the new notes acquired pursuant to the exchange offer in exchange for
your old notes are being obtained in the ordinary course of your
business;
o you do not have an arrangement or understanding with any person to
participate in the distribution of the new notes; and
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<PAGE> 40
o you are not an "affiliate" of depositor within the meaning of Rule 405
under the 1933 securities act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer, we
will accept, promptly after the expiration date of the exchange offer, all old
notes properly tendered and will issue the new notes promptly after acceptance
of the old notes. See "--Certain Conditions to the Exchange Offer." For each old
note that we accept for exchange, the holder of such old note will receive a new
note having a principal amount equal to that of the surrendered old note.
For purposes of the exchange offer, we will have accepted properly tendered old
notes for exchange when, as and if we give oral or written notice to that effect
to the exchange agent, with written confirmation of any oral notice to be given
promptly afterwards.
In all cases, we will issue new notes for old notes that we
accept for exchange pursuant to the exchange offer only after timely receipt by
the exchange agent of:
o certificates for such old notes,
o a properly completed and duly executed letter of transmittal, and
o all other required documents or a timely book-entry confirmation of such
old notes into the exchange agent's account at DTC.
If we do not accept any tendered old notes for any reason set forth in the terms
and conditions of the exchange offer or if old notes are submitted for a greater
principal amount than the holder desired to exchange, we will return these
unaccepted or non-exchanged old notes without expense to the tendering holder
(or, in the case of old notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry procedures described below,
such non-exchanged old notes will be credited to an account maintained with such
book-entry transfer facility) as promptly as practicable after the expiration
date of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the old notes at DTC for purposes of the exchange offer within two business days
after the date of this prospectus, and any financial institution that is a
participant in DTC's systems may make book-entry delivery of old notes by
causing DTC to transfer such old notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. Although delivery of old notes
may be effected through book-entry transfer at DTC, either:
o the letter of transmittal (or a facsimile of it or an agent's message in
lieu of it), with any required signature guarantees and any other
required documents, must always be transmitted to and received by the
exchange agent at one of the addresses set forth under the
heading"--Exchange Agent" on or prior to the expiration date of the
exchange offer, or
o the guaranteed delivery procedures described below must be complied
with.
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<PAGE> 41
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and who cannot deliver their old
notes, the letter of transmittal, or any other required documents to the
exchange agent prior to the expiration date of the exchange offer, or holders
who cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:
o the tender is made through an eligible guarantor institution;
o prior to the expiration date of the exchange offer, the exchange agent
receives from the eligible guarantor institution a properly completed
and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery): (1) setting forth the name and
address of the holder of the old notes, the certificate number or
numbers of such old notes and the principal amount of old notes
tendered, (2) stating that the tender is being made, and (3)
guaranteeing that, within three business days after the expiration date
of the exchange offer, the letter of transmittal (or facsimile of it),
together with the certificate(s) representing the old notes to be
tendered in proper form for transfer and any other documents required by
the letter of transmittal, will be deposited by the eligible guarantor
institution with the exchange agent; and
o the properly completed and executed letter of transmittal (or facsimile
of it), together with the certificate(s) representing all tendered old
notes in proper form for transfer (or confirmation of a book-entry
transfer into the exchange agent's account at DTC of old notes delivered
electronically) and all other documents required by the letter of
transmittal are received by the exchange agent within three business
days after the expiration date of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will sent to
holders who wish to tender their old notes according to the delivery procedures
set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of old notes in the exchange offer, the exchange agent must
receive a facsimile transmission or letter notice of withdrawal at its address
set forth in this prospectus prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. A notice of withdrawal must:
o specify the name of the person having deposited the old notes to be
withdrawn;
o include a statement that the note depositor is withdrawing its election
to have old notes exchanged and identify the old notes to be withdrawn
(including the certificate number or numbers and principal amount of
such old notes);
o be signed by the note depositor in the same manner as the original
signature on the letter of transmittal by which such old notes were
tendered (including any required signature guarantees) or be accompanied
by documents of transfer that will permit the trustee with respect to
the old notes to register the transfer of such old notes into the name
of the note depositor withdrawing the tender; and
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<PAGE> 42
o specify the name in which any such old notes are to be registered, if
different from that of the note depositor.
If you have tendered old notes pursuant to the procedures for book-entry
transfer set forth under the headings "--Procedures for Tendering" and
"--Book-entry Transfer," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of old notes, in
which case a notice of withdrawal will be effective if delivered to the exchange
agent by written, telegraphic, telex or facsimile transmission.
The validity, form and eligibility (including time of receipt) of withdrawal
notices will be determined by us, and our determination will be final and
binding on all parties. Any old notes withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer and no new notes will be
issued with respect to them unless the old notes that have been withdrawn are
validly re-tendered. Properly withdrawn old notes may be re-tendered by
following one of the procedures set forth under the heading "--Procedures for
Tendering," at any time prior to the expiration date of the exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is not subject to any conditions, other than that:
o the exchange offer does not violate any applicable law or interpretation
of the staff of the SEC; and
o there is no injunction, order or decree issued by any court or any
governmental agency that would prohibit, prevent or otherwise materially
impair our ability to proceed with the exchange offer.
We cannot assure you that any such condition will not occur. Holders of old
notes will have certain rights under the registration rights agreement if we
fail to consummate the exchange offer. If we determine that we may terminate the
exchange offer, as set forth above, we may:
o refuse to accept any old notes and return any old notes that have been
tendered to their holders;
o extend the exchange offer and retain all old notes tendered before the
expiration date of the exchange offer, subject to the rights of such
holders of tendered old notes to withdraw their tendered old notes; or
o waive such termination event with respect to the exchange offer and
accept all properly tendered old notes that have not been withdrawn.
If a waiver constitutes a material change in the exchange offer, we will
disclose the change by means of a supplement to this prospectus that will be
distributed to each registered holder of old notes, and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the old notes, if the exchange offer would otherwise expire during
such period.
DEALER MANAGER
Salomon Smith Barney Inc., as dealer manager, has agreed to solicit exchanges of
the old notes. The depositor will pay the dealer manager specified expenses
payable as of the completion of the exchange offer. Additional solicitation may
be made by telecopier, by telephone, or in person by officers and
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<PAGE> 43
regular employees of the depositor and its affiliates. No additional
compensation will be paid to any officers or employees who engage in soliciting
exchanges.
The depositor has agreed to indemnify the dealer manager against certain
liabilities, including civil liabilities under the 1933 securities act, and to
contribute to payments that the dealer manager may be required to make in
respect thereof.
The dealer manager engages in transactions with, and from time to time has
performed services for, the depositor.
EXCHANGE AGENT
Firstar Bank, N.A., the trustee under the indenture, has been appointed as
exchange agent for the exchange offer. Questions and requests for assistance and
inquiries for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent addressed as follows:
By mail: By hand or overnight delivery:
Corporate Trust Department Corporate Trust Department
425 Walnut Street 425 Walnut Street
Mail Location 5155 6th Floor
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Brian J. Gardner Attention: Brian J. Gardner
(if by mail, registered or certified mail recommended)
facsimile transmission number: (for eligible institutions only)
(513) 632-5511
confirm by telephone:
(513) 762-8870
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will pay the cash expenses to be incurred
in connection with soliciting tenders pursuant to the exchange offer. These
expenses include fees and expenses of the exchange agent and the indenture
trustee, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to pay any
transfer taxes in connection with the tender, except that holders will be
responsible for the payment of any applicable transfer tax if they instruct us
to register new notes in the name of, or request that old notes not tendered
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<PAGE> 44
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes on
the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes. The expenses of the exchange offer and the unamortized
expenses relating to the issuance of the old notes will be amortized over the
term of the new notes.
THE FINANCED STUDENT LOANS
The notes are secured by and payable solely from the assets of the trust. The
trust includes:
(1) a pool of financed student loans and moneys payable with respect thereto
after their respective dates of acquisition or origination from moneys
under the indenture;
(2) money and investment securities in the funds and accounts held by the
indenture trustee under the indenture; and
(3) all rights of the issuer and the eligible lender trustee in and to
certain contracts. See "Security for the Notes -- The Trust."
Financed in the case of financed student loans refers to student loans made or
acquired through the eligible lender trustee, with the proceeds of the old notes
or moneys in the acquisition fund or the collection account. Financed also
refers to the exchange of financed student loans pursuant to the indenture, and
included in the student loan portfolio fund. The pool of financed student loans
includes the student loans to be financed by the issuer or the eligible lender
trustee of the issuer.
As a result of variation in the effective rates of interest applicable, the
distribution by weighted average interest rate, may be different from the tables
below. The information set forth below with respect to the original and
remaining terms to maturity of financed student loans may vary significantly
from the actual term to maturity of any of the financed student loans as a
result of deferral and forbearance periods being granted.
The financed student loans were acquired on or about December 31, 1998 in an
amount equal to their principal balance as of their purchase date. Below are
tables and other information describing certain characteristics, as of March 31,
1999 of the financed student loans expected to be acquired. The financed student
loans will include FFELP loans that meet several criteria. Each financed student
loan:
(1) 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,
(2) 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;
(3) contains terms in accordance with those required by the FFEL program,
the guarantee agreements and other applicable requirements, and
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<PAGE> 45
(4) is not more than 120 days past due as of the date such financed student
loan is financed. See "Description of the FFEL Program" and "The
Guarantee Agencies."
<TABLE>
<CAPTION>
Percent of Initial
Aggregate Financed Student Loans
Outstanding by Outstanding
Days Delinquent Principal Balance Principal Balance
--------------- -------------------- -----------------
<S> <C> <C>
0 - 30...................... 563,349,557 86.13%
31 - 60...................... 32,733,891 5.01
61 - 90 ..................... 18,799,141 2.87
91 - 120 .................... 22,697,079 3.47
121 and above ............... 16,502,138 2.52
Total................. 654,081,806 100.00%
</TABLE>
For this purpose, delinquency refers to the number of days for which any part of
a payment is past due. All of the financed student loans in the trust are FFELP
loans.
Each financed student loan is required to be guaranteed as to principal and
interest by a guarantee agency and reinsured by the Department of Education as
provided under the Higher Education Act. Each financed student loan is eligible
for special allowance payments, those that are subsidized Stafford loans are
eligible for interest subsidy payments paid by the Department of Education. See
"Description of the FFEL Program."
Additional student loans that may be financed after the closing date include
certain financed student loans that may be substituted for other financed
student loans in the trust meeting certain specified characteristics. See "The
Indenture -- Student Loan Portfolio Fund" and "The Indenture -- Collection
Fund."
Although characteristics of additional financed student loans are expected to be
similar to the initial loans, the aggregate characteristics of the entire pool
will vary from them, because additional financed student loans may be financed
after the closing date. The aggregate characteristics include the composition of
the financed student loans, the borrowers of the financed student loans and the
distribution by interest and by principal balance described by the tables below.
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.
The interest installment 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 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
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<PAGE> 46
the period since the preceding payment was made, will be less than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if a borrower pays a monthly installment after its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case,
subject to any applicable grace periods, deferment periods or forbearance
periods, the borrower pays a regular installment until the final scheduled
payment date, at which time the amount of the final installment is increased or
decreased as necessary to repay the then outstanding principal balance of such
financed student loan.
A total of approximately $680,000,000 of financed student loans have been
acquired. The tables below describe certain additional characteristics of
$642,838,655 of the initial financed student loans as of March 31, 1999. The
remaining $37,161,345 of expected financed student loans will be student loans
with similar characteristics.
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance $654,081,806
Aggregate Outstanding Accrued Interest $ 5,293,278
Number of Borrowers 73,687
Average Outstanding Principal Balance Per Borrower $ 8,876
Number of Loans 205,667
Average Outstanding Principal Balance Per Loan $ 3,180
Weighted Average Annual Borrower Interest Rate 8.33%
Weighted Average Remaining Term (months) (does not include the months
remaining for the In-School, Grace, Deferment or Forbearance periods)(1) 108
Weighted Average Remaining Term (months) (including the months
remaining for the In-School, Grace, Deferment or Forbearance periods)(1) 109
</TABLE>
- ---------------
(1)Refers to the payment status of the borrower of each financed student loan as
of March 31, 1999: the borrower may still be attending school, may be in a grace
period after completing school and prior to repayment commencing, may be
currently required to repay such loan or may have temporarily ceased repaying
such loan through a deferral or a forbearance period. See "Description of the
FFEL Program."
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY LOAN TYPE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Loan Type Loans Balance Balance
- --------- ----- ------- -------
<S> <C> <C> <C>
Stafford-Subsidized 45,431 $133,844,830 20.46%
Stafford-Unsubsidized 153,782 478,927,034 73.22
Consolidation 696 16,230,557 2.48
PLUS 2,619 11,560,539 1.77
SLS 3,139 13,518,845 2.07
--------- -- ---------- --------
Total 205,667 $654,081,806 100.00%
</TABLE>
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<PAGE> 47
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY MINIMUM GUARANTEE LEVEL
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Minimum Guarantee Level Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100% 94,273 $270,606,537 41.37%
FFELP Loan Guaranteed 98% 111,394 383,475,268 58.63
------- ----------- -------
Total 205,667 $654,081,806 100.00%
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Guarantee Agency Loans Balance Balance
- ---------------- ----- ------- -------
<S> <C> <C> <C>
Florida Department of Education, Office of Student 128,819 $393,724,755 60.20%
Financial Assistance
Georgia Higher Education Assistance Corporation 14,394 44,695,738 6.83
United Student Aid Funds, Inc. 31,659 139,594,151 21.34
Kentucky Higher Education Assistance Authority 18,803 41,438,957 6.34
Great Lakes Higher Education Guaranty Corporation 10,650 24,987,155 3.82
Other Guarantee Agencies 1,342 9,641,050 1.47
------- ------------ -----
Total 205,667 $654,081.086 100.00%
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER INTEREST RATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Interest Rate (1) Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than 7.50% 1,575 $ 3,685,723 0.56%
7.50% to 7.99% 2,252 6,396,610 0.98
8.00% to 8.49% 173,081 506,185,361 77.39
8.50% to 8.99% 25,127 95,121,099 14.54
9.00% to 9.49% 3,248 41,843,853 6.40
9.50% or greater 384 849,162 0.13
------- ----------- -----
Total 205,667 $654,081,806 100.00%
</TABLE>
(1) Determined using the interest rates applicable to the initial financed
student loans as of March 31, 1999. However, because 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."
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<PAGE> 48
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY RANGE OF OUTSTANDING PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Principal Balance Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than $500 13,134 $ 3,735,490 0.57%
$500-$999.99 20,410 15,479,574 2.37
$1,000-$1,999.99 46,224 68,374,285 10.45
$2,000-$2,999.99 50,031 119,730,367 18.31
$3,000-$3,999.99 24,664 83,201,016 13.68
$4,000-$5,999.99 28,917 138,729,564 21.21
$6,000-$7,999.99 8,797 56,341,809 8.61
$8,000-$9,999.99 5,982 50,096,525 7.66
$10,000-$14,999.99 4,693 50,368,484 7.70
$15,000-$19,999.99 1,251 18,127,451 2.77
$20,000 or greater 1,564 43,670,667 6.67
------ ---------- -----
Total 205,667 $654,081,806 100.00%
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY BORROWER PAYMENT STATUS
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Borrower Payment Status Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
In School 5,187 $ 14,856,181 2.27%
Grace 3,953 11,029,437 1.69
Repayment 137,108 413,714,224 63.25
Deferment 28,710 93,224,498 14.25
Forbearance 30,475 120,463,282 18.42
Claim 234 794,184 0.12
------- ----------- -----
Total 205,667 $654,081,806 100.00%
</TABLE>
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<PAGE> 49
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY
<TABLE>
<CAPTION>
Percent of
Loans by
Remaining Months Outstanding Outstanding
Until Scheduled Number of Principal Principal
Maturity Loans Balance Balance
- -------- ----- ------- -------
<S> <C> <C> <C>
1 to 12 5,935 $ 3,260,671 0.50%
13 to 24 9,231 10,485,667 1.60
25 to 36 17,262 29,295,045 4.48
37 to 48 28,015 67,461,528 10.31
49 to 60 96,233 338,077,083 51.69
61 to 72 5,051 12,680,581 1.94
73 to 84 5,196 20,917,908 3.20
85 to 96 5,386 21,632,009 3.31
97 to 108 5,871 26,188,855 4.00
109 to 120 27,451 123,158,273 18.82
121 to 180 22 360,435 0.06
181 to 240 10 330,423 0.05
241 to 300 4 233,329 0.04
Over 300 0 0 0.00
------ ------------ -----
Total 205,667 $654,081,806 100.00%
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Location (1) Loans Balance Balance
- ------------ ----- ------- -------
<S> <C> <C> <C>
Ohio 9,999 $20,228,679 3.09%
Florida 115,925 382,156,038 59.36
Georgia 17,088 54,702,836 8.36
Kentucky 14,660 32,327,979 4.94
Others (57) 47,995 164,666,274 24.25
------- ----------- -----
Total 205,667 $654,081,806 100.00%
</TABLE>
(1) Based on the current permanent billing addresses of the borrowers of the
initial financed student loans shown on the Servicer's records.
(2) Consist of locations that include 46 other states, U.S. territories,
possessions and commonwealths, foreign countries, overseas military
establishments, and unknown locations, none of the aggregate principal balance
of the financed student loans relating to which exceeds 2.00% of the initial
pool balance.
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.
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<PAGE> 50
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY SCHOOL TYPES
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
School Type Loans Balance Balance
- ----------- ----- ------- -------
<S> <C> <C> <C>
4 Year Institution 133,265 $408,774,525 62.96%
2 Year Institution 31,364 94,455,833 14.44
Graduate 25,733 99,584,662 15.23
Proprietary 844 2,649,950 0.41
Other/Unknown 14,461 45,492,763 6.96
------- ------------ -----
Total 205,667 $654,081,806 100.00%
</TABLE>
INCENTIVE PROGRAMS
Some of the financed student loans, known as reduced rate loans, are eligible
for a reduction in interest rate that is less than the maximum rate permitted by
the Higher Education Act. Reduced rate loans are Stafford loans and unsubsidized
Stafford loans originated on or after July 1, 1996, wherein the applicable
interest rate on such a reduced rate loan is reduced by 2.00% per annum The
reduction in interest rate is effective upon the receipt of the initial 48
consecutive monthly payments, with no missed or late payments, following
commencement of repayment status, and continuing as long as no payments are
missed on such reduced rate loans. In addition, after receipt of the initial 24
consecutive monthly payments following commencement of repayment status, a
borrower is entitled to receive a credit to their principal balance of any
origination fee paid by such borrower in excess of $250. The indenture provides
that 15% of the financed student loans are eligible to become reduced rate
loans.
TRANSFER AND SALE AGREEMENT
The depositor caused its eligible lender trustee to contribute and assign to the
eligible lender trustee of the trust, without recourse, its entire interest in
the financed student loans as described in the transfer and sale agreement and
all collections received and to be received with respect to the transfer and
sale agreement.
CONVEYANCE OF FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES.
The depositor made certain representations and warranties with respect to the
financed student loans to the trust, including, among other things, that:
(1) each financed student loan, at the time of transfer to the trust, was
free and clear of all security interests, liens, charges and
encumbrances, and no offsets, defenses or counterclaims have been
asserted or, to the depositor's knowledge, threatened;
(2) the information provided with respect to the financed student loans was
true and correct in all material respects; and
(3) to the depositor's knowledge, each financed student loan, at the time it
was originated, complied and, at the time of execution of the transfer
and sale agreement, complied in all material respects with applicable
federal and state laws and applicable restrictions imposed by the FFEL
program or under any guarantee agreement with respect to FFELP loans.
These laws include, without
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<PAGE> 51
limitation, the Higher Education Act, consumer credit, truth-in-lending,
equal credit opportunity and disclosure laws.
Following the discovery by or notice to the depositor of a breach of any such
representation or warranty that results in the failure of a guarantee agency to
make a guarantee payment to the eligible lender trustee, the depositor will
repurchase such financed student loan from the eligible lender trustee, at a
price equal to the sum of
(1) the then outstanding principal balance of such financed student loan;
(2) interest payable by the obligor accrued and unpaid with respect to such
financed student loan to and including the date of purchase;
(3) an amount equal to any special allowance payments or interest subsidy
payments, if applicable, in respect of such financed student loan for
such period as the financed student loan was held by or on behalf of the
depositor to which the depositor was not entitled due to ineligibility
of such financed student loan; and
(4) any unamortized premium; provided, however, that in the event of the
occurrence described in the immediately preceding item (3) above, the
depositor shall have the option of (a) repurchasing the subject financed
student loan upon request of the co-owner trustee or (b) deferring such
repurchase until the lack of legal enforceability of such financed
student loan has been determined by a court of law, arbitration
proceeding or other legal process.
The depositor is required to repurchase such financed student loan after
receiving written notice by the co-owner trustee requesting repurchase from the
depositor and setting forth the reason therefor. Any financed student loan
returned to the depositor which has been endorsed to the co-owner trustee shall
be endorsed by the eligible lender trustee on behalf of the trust to the
eligible lender trustee of the depositor on the form supplied by the eligible
lender trustee on behalf of the trust. Notwithstanding the foregoing, the
co-owner trustee shall make a good faith effort to work with the depositor to
resolve any circumstance that would cause a repurchase.
The liability of the co-owner trustee in connection with the loss of or damage
to any financed student loan to be returned to the depositor pursuant to a
repurchase, is limited to such compensatory loss including failure to maintain
the eligibility of such financed student loan for its guarantee, special
allowance payments and interest subsidy payments, if applicable, up to a maximum
amount equal to the unpaid principal and unpaid accrued interest and any other
payments attributable to such financed student loan occurring as a result of its
negligence or willful misconduct in handling or safekeeping such financed
student loan.
AMENDMENT.
The transfer and sale agreement may be amended in writing by its parties, with
the consent of the indenture trustee, for the purpose of adding any provisions
to or changing in any manner, or eliminating any of the provisions of the
transfer and sale agreement. It may also be amended by modifying in any manner,
the rights of holders of notes, provided that no such amendment may:
(1) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments with respect to the financed
student loans or distributions that are required to be made for the
benefit of the holders of notes; or
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<PAGE> 52
(2) reduce the percentage of the notes which are required to consent to any
such amendment, without the consent of the holders of all the
outstanding notes affected thereby.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the notes and the yield on the notes will be
affected by
(1) prepayments of the financed student loans that may occur as described
below;
(2) the sale by the issuer of financed student loans;
(3) parity percentage payments; and
(4) deferrals or delays in payments on the financed student loans resulting
from defaults, grace periods, deferment periods and, under certain
circumstances, forbearance periods.
All the financed student loans, including those resulting from consolidation
loans, are prepayable in whole or in part by the borrowers at any time without
penalty and may be prepaid as a result of
(1) borrower's default, death, disability or bankruptcy;
(2) a closing of or false certification by the borrower's school;
(3) subsequent liquidation or collection of guarantee payments with respect
thereto; and
(4) as a result of financed student loans being repurchased by depositor or
the respective sellers as a result of a breach of a representation and
warranty.
The rate of prepayments cannot be predicted and may be influenced by a variety
of economic, social and other factors, including those described below. 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, these
financed student loans will be prepaid. See "Description of the FFEL Program --
Loan Terms -- Consolidation Loans." See also "Redemption."
The redemption contained in this document gives further information regarding
the auction by the indenture trustee of any financed student loans remaining in
the trust on or after May 31, 2007. If the outstanding pool balance is equal to
or less than 10% of the initial pool balance, the depositor's option to
repurchase all remaining financed student loans in the trust if the outstanding
pool balance is equal to or less than 10% of the initial pool balance, and the
depositor's option to redeem the Series A-4 Notes, the Series A-5 Notes and the
Series A-6 Notes.
Scheduled payments with respect to, and maturities of, the financed student
loans may be extended pursuant to grace periods, deferment periods and, under
certain circumstances, forbearance periods. The rate of payment of principal of
the notes and the yield on the notes may also be affected by the rate of
defaults resulting in losses on financed student loans, by the severity of those
losses, and by the timing of
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<PAGE> 53
those losses, which may affect the ability of the guarantee agencies to make
guarantee payments with respect to financed student loans.
The rate of prepayment on the financed student loans cannot be predicted, and
any reinvestment risks resulting from a faster or slower incidence of prepayment
of financed student loans will be borne entirely by the holders. These
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time holders
receive payments from the trust than such interest rates and such spreads would
otherwise have been had such prepayments not been made or had such prepayments
been made at a different time.
THE FOLLOWING INFORMATION IS GIVEN SOLELY TO ILLUSTRATE THE EFFECT OF
PREPAYMENTS ON THE FINANCED STUDENT LOANS ON THE WEIGHTED AVERAGE LIFE OF THE
NOTES UNDER THE ASSUMPTIONS STATED BELOW AND IS NOT A PREDICTION OF THE
PREPAYMENT RATE THAT MIGHT ACTUALLY BE EXPERIENCED BY THE FINANCED STUDENT LOANS
IN THE TRUST.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes will be primarily
a function of the rate at which payments are made on the financed student loans
in the trust. Payments on such financed student loans may be in the form of
scheduled amortization of principal or prepayments, including guarantee
payments. For this purpose, the term prepayments includes prepayments resulting
from making consolidation loans, in full or in part as a result of:
(1) borrower default, death, disability or bankruptcy;
(2) a closing of or a false certification by the borrower's school;
(3) subsequent liquidation of guarantee payments with respect thereto; and
(4) as a result of financed student loans being repurchased by the
respective depositor or the sellers as a result of a breach of a
representation and warranty.
All of the financed student loans are prepayable at any time without penalty by
the borrower. See "Risk Factors."
The constant prepayment rate prepayment model represents an assumed constant
rate of prepayment of financed student loans in the trust, outstanding as of the
beginning of each quarter expressed as a 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
(1) scheduled payments of principal on the financed student loans are
received in a timely manner and prepayments are made at the percentages
of the prepayment model set forth in the table;
(2) the initial principal balance of the financed student loans is
$680,000,000 and such financed student loans have the characteristics
described under the heading "The Financed Student Loans;"
(3) payments are made on the Series A-3 Notes on the last business day of
each month;
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<PAGE> 54
(4) payments are made on the auction rate notes on the business day
following the expiration of each auction period commencing June 30,
2003. This determination is made on the assumption on an auction period
of 28 days with no auction period adjustments or auction period
conversions;
(5) payments are made on the Series B-3 Notes on the last business day each
month commencing July 31, 2003;
(6) the financed student loans in the trust are auctioned on May 31, 2007;
and
(7) the new notes are issued on the closing date.
No representation is made that these assumptions will be correct, including the
assumption that the financed student loans in the trust will not experience
delinquencies or unanticipated losses.
In making an investment decision with respect to the notes, investors should
consider a variety of possible prepayment scenarios, including the limited
scenarios described in the table below.
WEIGHTED AVERAGE LIFE OF THE NOTES AT THE RESPECTIVE CPRS SET FORTH BELOW:
<TABLE>
<CAPTION>
Weighted Average Life (years)
0% CPR 3% CPR 5% CPR 7% CPR 9% CPR 15% CPR
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Series A-3 Notes 2.92 2.41 2.15 1.95 1.78 1.39
Series B-3 Notes 5.73 5.55 5.46 5.37 5.31 5.31
</TABLE>
DESCRIPTION OF THE FFEL PROGRAM
The Higher Education Act sets forth provisions establishing the FFEL program,
according to which state agencies or private nonprofit corporations
administering student loan insurance programs are reimbursed for losses
sustained in the operation of their programs, and holders of certain loans made
under such programs are paid subsidies for owning such loans. These programs
administering student loan insurance programs are known as guarantee agencies.
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:
o the Higher Education Amendments of 1998 (the 1998 Reauthorization Bill);
o the Intermodal Surface Transportation Efficiency Act of 1998;
o the 1997 Budget Reconciliation Act (P.L. 105-33);
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<PAGE> 55
o the Emergency Student Loan Consolidation Act of 1997;
o the Higher Education Technical Amendments Act of 1993;
o the Omnibus Budget Reconciliation Act of 1993 (the 1993 Amendments);
o the Higher Education Amendments of 1992, which reauthorized the FFEL
program;
o the Omnibus Budget Reconciliation Acts of 1990, 1989, 1987;
o the Higher Education Technical Amendments Act of 1987;
o the Higher Education Amendments of 1986, which reauthorized the FFEL
program;
o the Consolidated Omnibus Budget Reconciliation Act of 1985;
o the Postsecondary Student Assistance Amendments of 1981; and
o the Education Amendments of 1980.
Omnibus Budget Reconciliation Act of 1993. Under the 1993 Amendments, Congress
made a number of changes that may adversely affect the financial condition of
the guarantee agencies, as such changes reduce certain financial benefits
previously enjoyed by guarantee agencies and give the Department of Education
broad powers over guarantee agencies and their reserves. See "Contracts with
Guarantee Agencies" and "The Guarantee Agencies" for a more detailed description
of the impact of this legislation on guarantee agencies. The changes create a
significant risk that the resources available to the guarantee agencies to meet
their guarantee obligations will be significantly reduced.
In addition, this legislation sought to greatly expand the loan volume under the
direct lending program of the Department of Education known as the Federal
Direct Student Loan Program, to a target of approximately 60% of student loan
demand in academic year 1998-1999. Only about 35% of such loan demand is
currently being met under the direct lending program. The expansion of this
program in the future could result in increasing reductions in the volume of
loans made under the FFEL program.
Under the Federal Direct Student Loan Program, the Department of Education
directly originates and holds student loans without the involvement of private
lenders. If the Federal Direct Student Loan Program expands, the master servicer
or the servicers may experience increased costs due to reduced economies of
scale or other adverse effects on their business to the extent the volume of
loans serviced by the servicers is reduced. Such reductions or effects could
occur as a result of reductions in the volume of new loans made under the FFEL
program or the consolidation of existing loans under the Federal Direct Student
Loan Program. These cost increases could affect the ability of the master
servicer or the servicers to satisfy their obligations to service the financed
student loans or to purchase financed student loans in the event of certain
breaches of the servicers' covenants. See "Servicing -- Servicer Covenants."
Volume reductions could further reduce revenues received by the guarantee
agencies available to pay claims on defaulted financed FFELP loans. Finally, the
level of competition currently in existence in the secondary market for loans
made under the FFEL program could be reduced, resulting in fewer potential
buyers of the financed FFELP loans and lower prices available in the secondary
market for those loans.
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<PAGE> 56
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."
1998 Amendments. On May 22, 1998, Congress passed, and on June 9, 1998, the
President signed into law, a temporary measure relating to the Higher Education
Act and FFELP loans as part of the Intermodal Surface Transportation Efficiency
Act of 1998, known as the 1998 Amendments, that revised interest rate changes
under the FFEL program that were scheduled to become effective on July 1, 1998.
For loans made during the period July 1, 1998 through September 30, 1998, the
borrower interest rate for Stafford loans and unsubsidized Stafford loans is
reduced to a rate of 91-day Treasury Bill rate plus 2.30% (1.70% during school,
grace and deferment), subject to a maximum rate of 8.25%. As described below,
the formula for special allowance payments on Stafford loans and unsubsidized
Stafford loans is calculated to produce a yield to the loan holder of 91-day
Treasury Bill rate plus 2.80% (2.20% during school, grace and deferment).
1998 Reauthorization Bill. On October 7, 1998, President Clinton signed into law
the 1998 Reauthorization Bill, which enacted significant reforms in the FFEL
program. The major provisions of the 1998 Reauthorization Bill include the
following:
o All references to a "transition" to full implementation of the
Federal Direct Student Loan Program were deleted from the FFEL
program statute.
o Guarantee agency reserve funds were restructured so that guarantee
agencies are provided with additional flexibility in choosing how to
spend certain funds they receive.
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o Additional recall of reserve funds by the Secretary of Education was
mandated, amounting to $85 million in fiscal year 2002, $82.5
million in fiscal year 2006, and $82.5 million in fiscal year 2007.
However, certain minimum reserve levels are protected from recall.
o The administrative cost allowance was replaced by two new payments,
a student loan processing and issuance fee equal to 65 basis points
(40 basis points for loans made on or after October 1, 2003) paid at
the time a loan is guaranteed, and an account maintenance fee of 12
basis points (10 basis points for fiscal years 2001-2003) paid
annually on outstanding guaranteed student loans.
o The percentage of collections on defaulted student loans a guarantee
agency is permitted to retain is reduced from 27% to 24% plus the
complement of the reinsurance percentage applicable at the time a
claim was paid to the lender of the student loan. This percentage
will be further reduced to 23% beginning on October 1, 2003.
o Federal reinsurance provided to guarantee agencies is reduced from
98% to 95% for student loans first disbursed on or after October 1,
1998.
o The delinquency period required for a loan to be declared in default
is increased from 180 days to 270 days for loans on which the first
day of delinquency occurs on or after the date of enactment of the
1998 Reauthorization Bill.
o Interest rates charged to borrowers on Stafford loans, and the yield
for Stafford loans holders established by the 1998 Amendments, were
made permanent.
o Consolidation loan interest rates were revised to equal the weighted
average of the loans consolidated rounded up to the nearest
one-eighth of 1%, capped at 8.25%. When the 91-day Treasury Bill
rate plus 3.1% exceeds the borrower's interest rate, special
allowance payments are made to make up the difference.
o The lender-paid offset fee on consolidation loans of 1.05% is
reduced to .62% for loans made pursuant to applications received on
or after October 1, 1998 and on or before January 31, 1999.
o The consolidation loan interest rate calculation was revised to
reflect the rate of consolidation loans, and will be effective for
loans on which applications are received on or after October 1, 1998
and before July 1, 2003.
o Lenders are required to offer extended repayment schedules to new
borrowers after the enactment of the 1998 Reauthorization Bill who
accumulate after such date outstanding loans under the FFEL program
totaling more than $30,000; under these extended schedules the
repayment period may extend up to 25 years subject to certain
minimum repayment amounts.
o The Secretary of Education is authorized to enter into six voluntary
flexible agreements with guarantee agencies under which various
statutory and regulatory provisions can be waived.
o Consolidation loan lending restrictions are revised to allow lenders
who do not hold one of the borrower's underlying FFELP loans to
issue a consolidation loan to a borrower whose underlying FFELP
loans are held by multiple holders.
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o Inducement restrictions were revised to permit guarantee agencies
and lenders to provide assistance to schools comparable to that
provided to schools by the Secretary of Education under the Federal
Direct Student Loan Program.
o The Secretary of Education is now required to pay off student loan
amounts owed by borrowers due to failure of the borrower's school to
make a tuition refund allocable to the student loan.
o Discharge of FFELP loans and certain other student loans in
bankruptcy is now limited to cases of undue hardship regardless of
whether the student loan has been due for more than seven years
prior to the bankruptcy filing.
The new recall of reserves and reduced reinsurance for guarantee agencies
increase the risk that resources available to the guarantee agencies to meet
their guarantee obligations will be significantly reduced.
There can be no assurance that relevant federal laws, including the Higher
Education Act, will not be changed in a manner that may adversely affect the
receipt of funds by the guarantee agencies or by the issuer or the eligible
lender trustee with respect to financed FFELP loans.
This is only a summary of certain provisions of the Higher Education Act.
Reference is made to the text of the Higher Education Act for full and complete
statements of its provisions.
LOAN TERMS
Four types of loans are currently available under the FFEL program:
o Stafford loans;
o Unsubsidized Stafford loans;
o PLUS loans; and
o Consolidation loans.
These loan types vary as to eligibility requirements, interest rates, repayment
periods, loan limits, eligibility for interest subsidies and special allowance
payments. Some of these loan types have had other names in the past. References
herein to the various loan types include, where appropriate, predecessors to
such loan types.
The primary loan under the FFEL Program is the Stafford loan. Students who are
not eligible for Stafford loans based on their economic circumstances may be
able to obtain unsubsidized Stafford loans. Parents of students may be able to
obtain PLUS loans. Consolidation loans are available to borrowers with existing
loans made under the FFEL Program and certain other federal programs to
consolidate repayment of such existing loans. For periods of enrollment
beginning prior to July 1, 1994, SLS Loans were available to students with costs
of education that were not met by other sources and that exceeded the Stafford
or unsubsidized Stafford loan limits.
Eligibility
General. A student is eligible for loans made under the FFEL Program only if he
or she:
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o has been accepted for enrollment or is enrolled in good standing at an
eligible institution of higher education, which includes certain
vocational schools;
o 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;
o has agreed to notify promptly the holder of the loan concerning any
change of address;
o if presently enrolled, is maintaining satisfactory progress in the
course of study he or she is pursuing;
o 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;
o has filed with the eligible institution a statement of educational
purpose;
o meets the citizenship requirements; and
o 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 is eligible for an unsubsidized Stafford loan without regard
to need. Unsubsidized Stafford loans were not available before October 1, 1992.
PLUS Loans. PLUS loans are made only to borrowers who are parents, certain legal
guardians and, under certain circumstances, spouses of remarried parents of
dependent undergraduate students. For PLUS loans made on or after July 1, 1993,
the parent borrower must not have an adverse credit history, as determined
pursuant to criteria established by the Department of Education. Prior to the
Higher Education Amendments of 1986, the Higher Education Act did not
distinguish between PLUS loans and SLS Loans. Student borrowers were eligible
for PLUS loans; however, parents of graduate and professional students were
ineligible.
SLS Loans. Eligible borrowers for SLS Loans were limited to:
o graduate or professional students;
o independent undergraduate students; and
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o under certain circumstances, dependent undergraduate students, if such
student's parents were unable to obtain a PLUS loan and were also unable to
provide such student's expected family contribution.
Except as described in clause (c), eligibility was determined without regard to
need.
Consolidation Loans. To be eligible for a consolidation loan a borrower must:
o have outstanding indebtedness on student loans made under the FFEL Program
and/or certain other federal student loan programs; and
o be in repayment status or in a grace period, or be a defaulted borrower who
has made arrangements to repay the defaulted loan(s) satisfactory to the
holder of the defaulted loan(s).
A married couple, each of whom has outstanding loans under the FFEL program, and
agrees to be jointly liable on a consolidation loan, for which the application
is received on or after January 1, 1993, may be treated as an individual for
purposes of obtaining a consolidation loan. For consolidation loans disbursed
prior to July 1, 1994, the borrower was required to have outstanding student
loan indebtedness of at least $7,500. Prior to the adoption of the Higher
Education Technical Amendments Act of 1993, PLUS loans could not be included in
the consolidation loan. For consolidation loans for which the applications were
received prior to January 1, 1993, the minimum student loan indebtedness was
$5,000 and the borrower could not be delinquent more than 90 days in the payment
of 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. A new borrower is one who does not have an outstanding balance
on a previous loan made under the FFEL program. For a Stafford loan made before
July 1, 1994, the applicable interest rate for a new borrower:
(1) is 7% per annum for a loan covering a period of instruction
beginning before January 1, 1981;
(2) is 9% per annum for a loan covering a period of instruction
beginning on or after January 1, 1981, but before September 13,
1983;
(3) is 8% per annum for a loan covering a period of instruction
beginning on or after September 13, 1983, but before July 1, 1988;
(4) for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, is 8% per annum
for the period from the disbursement of the loan to the date which
is four years after the loan enters repayment, and thereafter
shall be adjusted annually, and for any 12-month period commencing
on a July 1 shall be equal to the bond equivalent rate of 91-day
Treasury Bills auctioned at the final auction prior to the
preceding June 1, plus 3.25% per annum, not to exceed 10% per
annum; or
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(5) for a loan made on or after October 1, 1992 shall be adjusted
annually, and for any 12-month period commencing on a July 1 shall
be equal to the bond equivalent rate of 91-day Treasury Bills
auctioned at the final auction prior to the preceding June 1, plus
3.1 % per annum, not to exceed 9% per annum.
A repeat borrower is one who does have an outstanding balance on a previous loan
made under the FFEP Program. For a Stafford loan made before July 1, 1994, the
applicable interest rate for a repeat borrower is:
(6) for a loan made prior to July 23, 1992, is the applicable interest
rate on the previous loan or, if such previous loan is not a
Stafford loan, 8% per annum, or
(7) for a loan made on or after July 23, 1992, shall be adjusted
annually, and for any twelve month period commencing on a July 1,
shall be equal to the bond equivalent rate of 91-day Treasury
Bills auctioned at the final auction prior to the preceding June
1, plus 3.1 % per annum but not to exceed:
(a) 7% per annum in the case of a Stafford loan made to a
borrower who has a loan described in clause (a) above;
(b) 8% per annum in the case of:
(A) a Stafford loan made to a borrower who has a loan
described in clause (3) above;
(B) a Stafford loan which has not been in repayment for
four years and which was made to a borrower who has a
loan described in clause (4) above;
(C) a Stafford loan for which the first disbursement was
made prior to December 20, 1993 to a borrower whose
previous loans do not include a Stafford loan or an
unsubsidized Stafford loan;
(c) 9% per annum in the case of:
(A) a Stafford loan made to a borrower who has a loan
described in clauses (2) or (5) above; or
(B) a Stafford loan for which the first disbursement was
made on or after December 20, 1993 to a borrower whose
previous loans do not include a Stafford loan or an
unsubsidized Stafford loan; and
(d) 10% 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 (4) above.
The interest rate on all Stafford loans made on or after July 1, 1994 but before
July 1, 1998, regardless of whether the borrower is a new borrower or a repeat
borrower, is the rate described in clause (7) above, but the rate shall not
exceed 8.25% 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
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periods. During such periods, the formula described in clause (7) above is
applied, except that 2.5% is substituted for 3.1%, and the rate shall not exceed
8.25% per annum.
For Stafford loans made on or after July 1, 1998 but before July 1, 2003, the
applicable interest rate shall be adjusted annually, and for any twelve month
period commencing on a July 1 shall be equal to the bond equivalent rate of
91-day Treasury Bills auctioned at the final auction prior to the proceeding
June 1, plus (x) 1.7% per annum prior to the time the loan enters repayment and
during any deferment periods, and (y) 2.3% per annum during repayment, but not
to exceed 8.25% per annum.
Unsubsidized Stafford Loans. Unsubsidized Stafford loans are subject to the same
interest rate provisions as Stafford loans.
PLUS Loans. The applicable interest rate on a PLUS loan:
(1) made on or after January 1, 1981, but before October 1, 1981, is
9% per annum;
(2) made on or after October 1, 1981, but before November 1, 1982, is
14% per annum;
(3) made on or after November 1, 1982, but before July 1, 1987, is 12%
per annum;
(4) made on or after July 1, 1987, but before October 1, 1992 shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week Treasury
Bills auctioned at the final auction prior to the preceding June
1, plus 3.25% per annum, not to exceed 12% per annum;
(5) made on or after October 1, 1992, but before July 1, 1994, shall
be adjusted annually, and for any 12-month period beginning on
July 1 shall be equal to the bond equivalent rate of 52-week
Treasury Bills auctioned at the final auction prior to the
preceding June 1, plus 3.1% per annum, not to exceed 10% per
annum;
(6) made on or after July 1, 1994, but before July 1, 1998, is the
same as that described in clause (e) above, except that such rate
shall not exceed 9% per annum; or
(7) made on or after July 1, 1998, but before July 1, 2003, shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 91-day Treasury
Bills auctioned at the final auction prior to the proceeding June
1, plus 3.1% per annum, 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. This
consolidation shall not be treated as the making of a new loan. In addition, at
the request of the borrower, a lender may refinance an existing fixed rate SLS
or PLUS loan. This includes an SLS or PLUS loan held by a different lender who
has refused so to refinance 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.
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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.
In addition, the portion, if any, of a consolidation loan that repaid a loan
made under Title VII, SectionSection700-721 of the Public Health Services Act,
as amended, has a different variable interest rate. This portion is adjusted on
July 1 of each year, but is the sum of the average of the Treasury Bill rates
auctioned for the quarter ending on the preceding June 30, plus 3.0%, without
any cap on the interest rate. For a discussion of required payments that reduce
the return on consolidation loans. See "Fees -- Rebate Fees on Consolidation
Loans."
Loan Limits
Every type of loan other than consolidation loans, is subject to limits as to
the maximum principal amount, both with respect to a given year and in the
aggregate. All of the loans are limited to the difference between the cost of
attendance and the other aid available to the student. Stafford loans are also
subject to limits based upon the needs analysis as described above under
"Eligibility -- Stafford Loans". Additional limits are described below.
Stafford and Unsubsidized Stafford Loans. Except as described in the next
paragraph, Stafford and Unsubsidized Stafford loans are generally treated as one
loan type for loan limit purposes. A student who has not successfully completed
the first year of a program of undergraduate education may borrow up to $2,625
in an academic year. A student who has successfully completed such first year,
but who has not successfully completed the second year may borrow up to $3,500
per academic year. An undergraduate student who has successfully completed the
first and second year, but who has not successfully completed the remainder of a
program of undergraduate education, may borrow up to $5,500 per academic year.
For students enrolled in programs of less than an academic year in length, the
limits are generally reduced in proportion to the amount by which such programs
are less than one year in length.
A graduate or professional student may borrow up to $8,500 in an academic year.
The maximum aggregate amount of Stafford and unsubsidized Stafford loans
(including that portion of a consolidation loan used to repay such loans) which
an undergraduate student may have outstanding is $23,000. The maximum aggregate
amount for a graduate and professional student, including loans for
undergraduate education, is $65,500. The Secretary of Education is authorized to
increase the limits applicable to graduate and professional students who are
pursuing programs which the Secretary of Education determines to be
exceptionally expensive.
At the time that SLS loans were eliminated, the loan limits for unsubsidized
Stafford loans to independent students, or dependent students whose parents
cannot borrow a PLUS loan, were increased by amounts equal to the prior SLS loan
limits.
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
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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 for undergraduate students and
$73,000 for graduate and professional students. Prior to the 1992 changes, SLS
loans were available in amounts of $4,000 per academic year, up to a $20,000
aggregate maximum. Prior to the 1986 changes, a graduate or professional student
could borrow $3,000 of SLS Loans per academic year, up to a $15,000 maximum, and
an independent undergraduate student could borrow $2,500 of SLS loans per
academic year minus the amount of all other FFEL program loans to 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 similarly to the
limits of Stafford loans.
Repayment
Loans, other than consolidated loans, made under the FFEL program must provide
for repayment of principal in periodic installments over a period of not less
than five nor more than ten years. A consolidation loan must be repaid during a
period not more than 30 years, agreed to by the borrower and lender, subject to
maximum repayment periods which vary depending upon the principal amount of the
borrower's outstanding student loans. For consolidation loans for which the
application was received prior to January 1, 1993, the repayment period could
not exceed 25 years. The repayment period commences
(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.
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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 deferment periods prescribed
by the Higher Education Act. For loans to a borrower who first obtained a loan
which was disbursed before July 1, 1993, deferments are available
(1) during a period not exceeding three years while the borrower is a member
of the armed forces, an officer in the Commissioned Corps of the Public
Health Service or, with respect to a borrower who first obtained a
student loan disbursed on or after July 1, 1987, or a student loan to
cover the cost of instruction for a period of enrollment beginning on or
after July 1, 1987, an active duty member of the National Oceanic and
Atmospheric Administration Corps;
(2) during a period not in excess of three years while the borrower is a
volunteer under the Peace Corps Act;
(3) during a period not in excess of three years while the borrower is a
full-time volunteer under the Domestic Volunteer Act of 1973;
(4) during a period not exceeding three years while the borrower is in
service, comparable to the service referred to in clauses (2) and (3),
as a full-time volunteer for an organization which is exempt from
taxation under Section 501(c)(3) of the code;
(5) during a period not exceeding two years while the borrower is serving an
internship, the successful completion of which is required to receive
professional recognition required to begin professional practice or
service, or a qualified internship or residency program;
(6) during a period not exceeding three years while the borrower is
temporarily totally disabled, as established by sworn affidavit of a
qualified physician, or while the borrower is unable to secure
employment by reason of the care required by a dependent who is so
disabled;
(7) during a period not to exceed 24 months while the borrower is seeking
and unable to find full-time employment;
(8) during any period that the borrower is pursuing a full-time course of
study at an eligible institution (or, with respect to a borrower who
first obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of enrollment
beginning on or after July 1, 1987, is pursuing at least a half-time
course of study for which the
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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;
(9) during a period, not in excess of six months, while the borrower is on
parental leave; and
(10) only with respect to a borrower who first obtained a student loan
disbursed on or after July 1, 1987, or a student loan to cover the cost
of instruction for a period of enrollment beginning on or after July 1,
1987;
(A) during a period not in excess of three years while the borrower is
a full-time teacher in a public or nonprofit private elementary or
secondary school in a "teacher shortage area" (as prescribed by
the Secretary of Education), and
(B) during a period not in excess of 12 months for mothers, with
preschool age children, who are entering or re-entering the work
force and who are compensated at a rate not exceeding $1 per hour
in excess of the federal minimum wage. For loans to a borrower who
first obtains a loan on or after July 1, 1993, deferments are
available:
(a) during any period that the borrower is pursuing at least a
half-time course of study at an eligible institution or a
course of study 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
(6) and (7) (with respect to the parent borrower) and the deferment period
described in clause (8) (with respect to the parent borrower or a student on
whose behalf the parent borrowed) were available to PLUS loan borrowers, and
only the deferment periods described above in clauses (6), (7) and (8) were
available to consolidation loan borrowers. Prior to the 1986 changes, PLUS loan
borrowers were not entitled to deferment periods. Deferment periods extend the
ten-year maximum term.
The Higher Education Act also provides for forbearance periods during which the
borrower, in case of temporary financial hardship, may defer any payments. A
borrower is entitled to forbearance for a period not to exceed three years while
the borrower's debt burden under Title IV of the Higher Education Act, 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
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Mexico, the Prime Minister of Canada, or by the governor of a state. In other
circumstances, forbearance is at the lender's option. Such forbearance also
extends the ten year maximum term.
As described under the heading "-- Contracts with Guarantee Agencies -- Federal
Interest Subsidy Payments" below, the Secretary of Education makes interest
payments on behalf of the borrower of 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
All loans, except consolidation loans, made under the FFEL program generally
must be disbursed in two or more installments, none of which may exceed 50% of
the total principal amount of the loan.
Fees
Guarantee Fee. A guarantee agency is authorized to charge a premium, or
guarantee fee, of up to 1% of the principal amount of the loan, which must be
deducted proportionately from each installment payment of the proceeds of the
loan to the borrower. Guarantee fees may not currently be charged to borrowers
of consolidation loans. However, lenders may be charged an insurance fee to
cover the costs of increased or extended liability with respect to consolidation
loans. For loans made prior to July 1, 1994, the maximum guarantee fee was 3% of
the principal amount of the loan, but no such guarantee fee was authorized to be
charged with respect to unsubsidized Stafford loans.
Origination Fee. An eligible lender is authorized to charge the borrower of a
Stafford or unsubsidized Stafford loan an origination fee in an amount not to
exceed 3% of the principal amount of the loan, and is required to charge the
borrower of a PLUS loan an origination fee in the amount of 3% of the principal
amount of the loan. These fees must be deducted proportionately from each
installment payment of the loan proceeds prior to payment to the borrower and
are not retained by the lender, but must be passed on to the Secretary of
Education. For loans made prior to July 1, 1994, the maximum authorized fee for
Stafford, PLUS and SLS loans was 5% and the required fee for unsubsidized
Stafford loans was 6.5% of the principal amount of the loan.
Lender Origination Fee. The lender of any loan under the FFEL Program made on or
after October 1, 1993 is required to pay to the Secretary of Education an
origination fee equal to 0.5% of the initial principal amount of such loan.
Rebate Fee on Consolidation Loans. The holder of any consolidation loan is
required to pay to the Secretary of Education a monthly fee at an annualized
rate of 1.05% (.62% for applications received between October 1, 1998 and
January 31, 1999) of the principal amount of, and accrued interest on, such
consolidation loan.
Loan Guarantees
Under the FFEL program, guarantee agencies are required to guarantee the payment
of not less than 100% of the principal amount of loans made prior to October 1,
1993 and covered by their respective guarantee programs. For a description of
the requirements for loans to be covered by such guarantees, see "The Guarantee
Agencies." 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
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accrued interest on such a loan. The 1998 Reauthorization Bill further reduces
the maximum reinsurance rate to guarantee agencies from 98% to 95% for loans
made on or after October 1, 1998. Under certain circumstances, guarantees may be
assumed by the Secretary of Education or another guarantee agency. See
"Contracts with Guarantee Agencies."
CONTRACTS WITH GUARANTEE AGENCIES
Under the FFEL program, the Secretary of Education is authorized to enter into
guaranty and interest subsidy agreements with guarantee agencies. The FFEL
program provides for reimbursements to guarantee agencies for default claims
paid by guarantee agencies, support payments to guarantee agencies for
administrative and other expenses, advances for a guarantee agency's reserve
funds, and interest subsidy payments and special allowance payments to the
holders of qualifying student loans made pursuant to the FFEL program.
The Secretary of Education has certain oversight powers over guarantee agencies.
Guarantee agencies are required to maintain their reserves at certain levels
based on the amount of outstanding loans that they have guaranteed. If a
guarantee agency falls below the required level in two consecutive years, or its
claims rate exceeds 5% in any year, or if the Secretary of Education determines
that the agency's administrative or financial condition jeopardizes its ability
to meet its obligations, the Secretary of Education can require the guarantee
agency to submit and implement a plan by which it will correct such problem(s).
If a guarantee agency fails to timely submit an acceptable plan or fails to
improve its condition, or if the Secretary of Education determines that the
guarantee agency is in danger of financial collapse, the Secretary of Education
may terminate the guarantee agency's reimbursement contract. The circumstances
under which the Secretary of Education may terminate such reimbursement
contracts also includes a determination that such action is necessary to protect
the federal fiscal interest or to ensure continued availability of student
loans. See "Direct Loans."
The Secretary of Education is authorized to assume the guarantee obligations of
a guarantee agency. The Higher Education Act now provides that, if the Secretary
of Education terminates a guarantee agency's agreements under the FFEL program,
the Secretary of Education shall assume responsibility for all functions of the
guarantee agency under its program. To that end, the Secretary of Education is
authorized to, among other options, transfer the guarantees to another guarantee
agency or assume the guarantees. It also provides that in the event the
Secretary of Education has determined that a guarantee agency is unable to meet
its guarantee obligations, holders of loans guaranteed by such guarantee agency
may submit claims directly to the Secretary of Education for payment, unless the
Secretary of Education has provided for the assumption of such guarantees by
another guarantee agency.
Federal Reimbursement
A guarantee agency's right to receive federal reimbursements for various
guarantee claims paid by such guarantee agency is governed by the Higher
Education Act and various contracts entered into between guarantee agencies and
the Secretary of Education. See "The Guarantee Agencies -- Federal Agreements."
Under the Higher Education Act and the federal reimbursement contracts, the
Secretary of Education currently agrees to reimburse a guarantee agency for the
amounts expended by the guarantee agency in the discharge of its guarantee
obligation (i.e., the unpaid principal balance of and accrued interest on loans
guaranteed by the guarantee agency s a result of the default of the borrower.
With respect to loans made prior to October 1, 1993, the Secretary of Education
currently agrees to reimburse the guarantee agency for up to 100% of the amounts
so expended. For loans made on or after October 1, 1993, the Secretary of
Education currently agrees to reimburse the guarantee agency for a maximum of
98% of the amount expended with respect to guaranteed loans. The 1998
Reauthorization
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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, and in the case of a PLUS loan, the death of
the student on behalf of whom the loan was borrowed. In the instance of school
closures, reimbursements are not to be included in the calculations of the
guarantee agency's claims rate experience for the purpose of federal
reimbursement under the federal reimbursement contracts.
The formula for computing the percentage of federal reimbursement under the
federal reimbursement contracts is not accumulated over a period of years, but
is measured by the amount of federal reimbursement payments in any one federal
fiscal year as a percentage of the original principal amount of loans under the
FFEL program guaranteed by the guarantee agency and in repayment at the end of
the preceding fiscal year. Under the formula, federal reimbursement payments to
a guarantee agency in any one fiscal year not exceeding 5% of the original
principal amount of loans in repayment at the end of the preceding fiscal year,
are to be paid by the Secretary of Education at 100%. The amount of payment is
98% for loans made on or after October 1, 1993 and 95% for loans made on or
after October 1, 1998.
Beginning at any time during any fiscal year that federal reimbursement payments
exceed 5%, and until 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%. This amount is 78% for
loans made on or after October 1, 1993 and 75% for loans made on or after
October 1,1998). The original principal amount of loans in repayment for
purposes of computing reimbursement payments to a guarantee agency means the
original principal amount of all loans guaranteed by 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:
(1) a percentage amount equal to the complement of the reimbursement
percentage in effect at the time the loan was reimbursed; and
(2) an amount equal to 24% (23% beginning October 1, 2003) or 18-1/2% in the
case of a payment from the proceeds of a consolidation loan of 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
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guarantee agency, and no amount of any recoveries shall be paid to the guarantee
agency. Prior to the 1998 changes, the percentage of collections which guarantee
agencies could retain was 27%.
A guarantee agency may enter into an addendum to its interest subsidy agreement,
which addendum provides for the guarantee agency to refer to the Secretary of
Education 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. These rules and regulations include borrower
eligibility, loan amount, disbursement, interest rate, repayment period and
guarantee fee provisions described herein and the other requirements set forth
in Section 428(b) of the Higher Education Act.
Under the Higher Education Act, a guaranteed loan must be delinquent for 180
days (or 270 days for loans on which the first day of delinquency occurs on or
after October 7, 1998) if it is repayable in monthly installments or 330 days if
it is payable in less frequent installments before a lender may obtain payment
on a guarantee from the guarantee agency. The guarantee agency must pay the
lender for the defaulted loan prior to submitting a claim to the Secretary of
Education for reimbursement. The guarantee agency must submit a reimbursement
claim to the Secretary of Education within 45 days after it has paid the
lender's default claim.
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
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becomes delinquent in repaying a loan, a lender must perform certain collection
procedures that vary depending upon the length of time a loan is delinquent.
Federal Interest Subsidy Payments
Interest subsidy payments are interest payments paid with respect to an eligible
loan during the period prior to the time that the loan enters repayment and
during grace and deferment periods. The Secretary of Education and the guarantee
agencies entered into the interest subsidy agreements as described in "The
Guarantee Agencies -- Federal Agreements," 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. However,
consolidation loans for which the application is received by an eligible lender
on or after November 13, 1997 and before October 1, 1998, are eligible for
interest subsidy payments on that portion of the consolidation loan that repays
Stafford loans or similar subsidized loans made under the direct loan program.
In addition, to be eligible for interest subsidy payments, guaranteed loans must
be made by an eligible lender under the applicable guarantee agency's guarantee
program, and must meet requirements prescribed by the rules and regulations
promulgated under the Higher Education Act, including the borrower eligibility,
loan amount, disbursement, interest rate, repayment period and guarantee fee
provisions described herein and the other requirements set forth in Section
428(b) of the Higher Education Act.
The Secretary of Education makes interest subsidy payments quarterly on behalf
of the borrower to the holder of a guaranteed loan in a total amount equal to
the interest which accrues on the unpaid principal amount prior to the
commencement of the repayment period of the loan or during any deferment period.
A borrower may elect to forego interest subsidy payments, in which case the
borrower is required to make interest payments.
Federal Administrative Expense Allowances
Prior to the adoption of the 1993 Amendments, each guarantee agency was entitled
to receive from the Secretary of Education an administrative cost allowance
equal to 1% of the total principal amount of the loans other than consolidation
loans guaranteed by the guarantee agency in any fiscal year, for the purposes of
administrative costs of pre-claims assistance for default prevention and
collection of defaulted guaranteed loans, administrative costs of promoting
commercial lender participation, administrative costs of monitoring the
enrollment and repayment status of students, and for other such costs related to
the guarantee agency's guarantee program. The 1993 Amendments repealed such
entitlement, effective October 1, 1993. The 1993 Amendments, however, authorized
payments for transition support to guarantee agencies, in connection with the
transition to direct lending. See "Direct Loans."
Budget legislation adopted since that time has provided for the payment to
guarantee agencies of an administrative expense allowance equal to 0.85% of the
agency's annual new guarantee volume, which has been extended through the fiscal
year ending September 30, 2002. After the fiscal year ending September 30, 1997,
such amounts are subject to decreasing aggregate limits.
Under the 1998 Reauthorization Bill, the administrative cost allowance was
replaced by two new payments:
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(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. This average is considered the Treasury Bill rate. The
quarterly rate for special allowance payments for student loans made on or after
October 1, 1981, and generally before November 16, 1986, is computed by
subtracting the applicable interest rate on such loans from the Treasury Bill
rate, adding 3.5% to the resulting per centum, and dividing the resulting per
centum by four. For loans disbursed on or after November 16, 1986, or loans to
cover the costs of instruction for periods of enrollment beginning on or after
November 16, 1986, 3.25% has been substituted for 3.5% in the foregoing formula.
For loans disbursed on or after October 1, 1992, 3.1% has been substituted for
3.5% in such formula. For Stafford and unsubsidized Stafford loans made on or
after July 1, 1995, 2.5% has been substituted for 3.1% in such formula prior to
the time such loans enter repayment and during any deferment periods. For
Stafford and unsubsidized Stafford loans made on or after July 1, 1998, the 1998
amendments to the Higher Education Act substitute 2.2% for 3.1% in such formula
prior to the time such loans enter repayment and during any deferment periods,
and substitute 2.8% for 3.1% in such formula while such loans are in repayment.
For PLUS and SLS loans which bear interest at rates adjusted annually, special
allowance payments are made only in years during which the interest rate ceiling
on such loans operates to reduce the rate that would otherwise apply based upon
the applicable formula. See "Loan Terms -- Interest Rates -- PLUS Loans" and "--
SLS Loans." 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, SectionSection700-721 of the Public Health
Services Act, as amended, is ineligible for special allowance payments.
The Higher Education Act provides that if special allowance payments or interest
subsidy payments have not been made within 30 days after the Secretary of
Education receives an accurate, timely and complete
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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 1998-1999 academic years.
The loan terms are generally the same under the Federal Direct Student Loan
Program as under the FFEL program, though more flexible repayment provisions are
available under the Federal Direct Student Loan program. At the discretion of
the Secretary of Education, students attending schools that participate in the
Federal Direct Student Loan Program, or their parents, may still be eligible for
participation in the FFEL program, though no borrower could obtain loans under
both programs.
It is difficult to predict the impact of the Federal Direct Student Loan
Program. There is no way to accurately predict the number of schools that will
participate in future years, or, if the Secretary of Education authorizes
students attending participating schools to continue to be eligible for FFEL
program loans, how many students will seek loans under the Federal Direct
Student Loan Program instead of the FFEL program. In addition, it is impossible
to predict whether future legislation will eliminate, limit or expand the
Federal Direct Student Loan Program or the FFEL program.
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SERVICING
MASTER SERVICER
Resources, in its capacity as the master servicer, will arrange for the
servicing of the financed student loans pursuant to the Master Servicing
Agreement, dated as of March 15, 1999, between the depositor and the master
servicer and attached as an exhibit to the registration statement of which this
prospectus is part. The following is a summary of the servicing arrangements
entered, or to be entered, into with the master servicer and various approved
servicers to arrange for the servicing of the financed student loans.
Under the terms of the master servicing agreement between the master servicer
and the depositor, the master servicer has agreed to provide, arrange for and
maintain the continuous servicing and administration of the financed student
loans with one or more approved servicers. The master servicer has full
authority to do anything it deems reasonably necessary in providing for,
arranging and maintaining servicing relationships with servicers. The master
servicer is obligated to assure that adequate arrangements exist at all times to
provide for servicing of the financed student loans.
The master servicer and the depositor have entered or will enter into one or
more servicing agreements pursuant to which the related servicer will agree to
service, and perform all other related tasks with respect to, all or a portion
of the financed student loans.
The master servicer will not have any liability for any act, error or omission
on the part of any servicer under a servicing agreement but will have liability
for its own willful misfeasance, bad faith or negligence in the performance of
its duties under the master servicing agreement. The master servicer will not be
liable for servicing errors or interruptions as a result of Year 2000 failures.
The occurrence of any of the following will constitute default by the master
servicer:
(1) failure to observe or perform in any material respect any covenants
or agreements set forth in the master servicing agreement, which
shall materially affect the rights of holders and which continues
for 60 days after written notice of the failure; or
(2) judgment in bankruptcy, defaulting on debts, or making creditor
assignment; or
(3) appointing a custodian or similar official for the master servicer
or any substantial part of its property.
The master servicer will be entitled to receive a fee as compensation for its
services under the master servicing agreement. This fee is payable out of
available funds as part of the program operating expenses. The master servicing
agreement may be terminated by either party with at least 95 days' notice. This
summary does not purport to be complete and is qualified 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.
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SERVICING PROCEDURES
Pursuant to each servicing agreement, the related servicer will agree to
service, and perform all other related tasks with respect to, all or a portion
of the financed student loans. Each servicer is obligated to perform all
services and duties customary to the servicing of financed student loans,
including all collection practices, and to do so with reasonable care and in
compliance with all standards and procedures provided for in the Higher
Education Act, the guarantee agreements and all other applicable federal and
state laws.
Without limiting the foregoing, the duties of the servicer include, but are not
limited to, collecting and depositing all payments with respect to the financed
student loans, including any guarantee payments, interest subsidy payments and
special allowance payments; responding to inquiries from borrowers on the
financed student loans; and investigating delinquencies and sending out
statements, payment coupons and tax reporting information to borrowers. In
addition, the servicer will keep ongoing records with respect to such financed
student loans and collections thereon and will furnish monthly and annual
statements to the related indenture trustee with respect to such information, in
accordance with the customary standards and as otherwise required in the
indenture.
A servicer's failure to properly service financed student loans or otherwise so
comply may result in the refusal of the United States Department of Education to
make reimbursement payments to a guarantee agency on such loans or in a
guarantee agency's refusal to honor its guarantee or make a guarantee payment on
such loans to the issuer and/or in the limitation, suspension or termination of
such servicer's eligibility to contract to service financed student loans.
SERVICER COVENANTS
In each servicing agreement, the related servicer covenants that:
(1) it will duly satisfy or cause to be duly satisfied all obligations
on its part to be fulfilled under or in connection with the
financed student loans, maintain in effect all qualifications
required to service the financed student loans and, if applicable,
comply in all material respects with all requirements of law in
connection with servicing the financed student loans; and
(2) it will not permit any rescission or cancellation of a financed
student loan except as ordered by a court of competent jurisdiction
or other government authority or as otherwise consented to by the
issuer.
Following the discovery by or notice to the servicer of a breach of any such
obligations with respect to any financed student loan that results in the
failure of a guarantee agency to make a guarantee payment, the servicer is
obligated to purchase such financed student loan and reimburse the issuer for
certain payments, all on the terms of the applicable servicing agreement. The
servicer's purchase and reimbursement obligations are contractual obligations
pursuant to the servicing agreement that may be enforced against the servicer,
but the breach thereof will not constitute an event of default under the notes.
SERVICING COMPENSATION
Each servicer will be paid a servicing fee for the servicing of the financed
student loans. The servicing fee is payable out of available funds as part of
the program operating expenses.
The servicing fee is intended to compensate the servicers for performing the
functions of a third party servicer of student loans as an agent for their
beneficial owner, including collecting and posting all
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payments, responding to inquiries of borrowers on the financed student loans,
investigating delinquencies, pursuing, filing and collecting any guarantee
payments, including litigation costs, accounting for collections and furnishing
monthly and annual statements to the administrator. The servicing fee also will
reimburse the servicers for certain taxes, accounting fees, outside auditor
fees, data processing costs and other costs incurred in connection with
administering the financed student loans.
Initially, InTuition, Inc., USA Group Loan Services, Inc., in part, through a
subservicing agreement with InTuition, Inc., Great Lakes Higher Education
Servicing Corporation and UNIPAC Service Corporation will be the servicers for
financed student loans. Initially, InTuition, Inc. (including through its
subservicing agreement with USA Group Loan Services, Inc.) is responsible for
servicing approximately 88% of the financed student loans. The financed student
loans will be serviced by servicers as may be selected by the master servicer
from time to time, subject to the approval of the rating agencies, and servicers
may be replaced or added from time to time by the master servicer.
Information relating to the particular servicers set forth herein, which is
particularly within each servicer's knowledge, has been requested of and has
been provided by the respective servicers. Such information and information
included in the reports referred to herein have not been verified or
independently confirmed by the issuer, the administrator, the master servicer,
the initial purchasers or their respective counsel, and comprises all
information in respect of each such servicer that the issuer obtained after a
reasonable request and inquiry. With the exception of InTuition, Inc., no
servicer is affiliated with the issuer, the administrator, the master servicer
or any initial purchaser. See "The Issuer -- Relationship with InTuition
Holdings, Inc. and InTuition, Inc."
INTUITION, INC.
InTuition, Inc. ("InTuition") was incorporated in 1991 as a Florida corporation.
InTuition is a wholly owned subsidiary of InTuition Holdings, Inc., a Florida
corporation, which is 50% owned by the administrator and 50% owned by parties
unrelated to the administrator and the issuer. See "The Depositor-- Relationship
with InTuition Holdings, Inc. and InTuition, Inc." InTuition provides complete
student loan servicing and administration to lending institutions and secondary
markets nationwide. InTuition has approximately 182 employees, all of whom are
in its Jacksonville, Florida office.
As of September 30, 1998, InTuition serviced 481,088 student loan accounts with
an outstanding balance of $1.966 billion for 14 lenders and secondary markets
nationwide. Approximately 10% of the portfolio serviced by InTuition is made up
of loans to students at for-profit trade schools. As of September 30, 1998, 61%
of the portfolio serviced by InTuition was in repayment status, 8% was in grace
status and the remaining 31% was in interim status. InTuition is located at 6420
Southpoint Parkway, Jacksonville, Florida 32216. Telephone: (904) 281-7100.
Approximately 23% of the financed student loans serviced by InTuition are
subserviced by USA Group Loan Services, Inc. pursuant to a subservicing
arrangement between InTuition and USA Group Loan Services, Inc. Recourse by the
issuer with respect to servicing errors on such financed student loans
subserviced by USA Group Loan Services, Inc. is limited solely to InTuition
pursuant to the servicing agreement between the issuer and InTuition.
InTuition has recently received an audit report stating that InTuition was in
material compliance with the requirements specified under Compliance Audits
(Attestation Engagements) for Lenders and Lender Servicers Participating in the
Federal Family Education Loan Program. This compliance audit guide is issued,
monitored and mandated by the Department of Education, Office of Inspector
General, and is relative to InTuition's administration of the Federal Family
Education Loan Program on behalf of its lender clients for the year ended
December 31,
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1998. Critical aspects of third party loan servicing are addressed and reviewed
to be compliant with Federal Family Education Loan Program participation as a
recognized servicer. The report identified one immaterial finding relating to
treatment of loans rejected by the guaranty agency. It was noted that the
findings only occurred when the date of the violation was prior to conversion to
InTuition's current servicing system. No other findings were noted indicating
InTuition's compliance with acceptable servicing standards.
InTuition understands the concerns and importance regarding the effectiveness of
computer systems beyond December 31, 1999. InTuition has developed a plan to
deal with year 2000 issues and has begun converting its computer systems to be
year 2000 compliant. It is InTuition's intent to have all systems and processes
year 2000 compliant on or before December 31, 1998 and is planning to be ready
to perform normal business functions after January 1, 2000. No representations
or warranty is made with respect to whether any third parties are or will be
year 2000 compliant. InTuition is unable to give any assurance at this time that
all year 2000 related problems will be avoided.
USA GROUP LOAN SERVICES, INC.
USA Group Loan Services, Inc., now referred to as Loan Services, formerly known
as Educational Loan Servicing Center, Inc., is a private, nonprofit, non-stock
membership corporation which was organized in 1982 under and pursuant to the
provisions of the General Corporation Law of the State of Delaware. Loan
Services is an affiliate of USA Group, Inc., a nonprofit corporation which is
also affiliated with USA Funds, a student loan guarantee agency and one of the
issuer's guarantee agencies. As of September 30, 1998 (Loan Services' fiscal
year end), Loan Services provided loan servicing for in excess of 3,500,000
student and parent loans with outstanding balances of over $13.4 billion for
approximately 150 different lenders and secondary market corporations. Loan
Services' principal office is located in Indianapolis, Indiana, where, as of
September 30, 1998, it had nearly 800 full-time employees.
Loan Services is aware of concerns relating to the functional effectiveness and
usage of computer systems beyond December 31, 1999 known as year 2000. Loan
Services is dedicated to resolving the potential impact of the year 2000 on the
ability of Loan Services' computerized information systems to accurately process
information that may be date sensitive. Loan Services is seeking to assure
itself that both the internal systems and the systems of third parties, which
include but are not limited to the U.S. Department of Education, which provide
services to Loan Services or on whose computer software and operating systems
Loan Services may rely are taking sufficient actions to avoid year 2000 related
problems. No representation or warranty is made with respect to whether 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.
(Source: USAGLS)
GREAT LAKES HIGHER EDUCATION SERVICING CORPORATION
As of October 31, 1998, Great Lakes Higher Education Servicing Corporation
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
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from the twentieth and twenty-first centuries. GLHESC is seeking to minimize, if
not eliminate, the risk of error, interruption or loss of functionality for the
lenders, schools, and borrowers who rely on its systems. The remedies available
to the issuer or other third parties shall be subject to the terms and
limitations of its servicing agreement with GLHESC.
GLHESC has adopted a structured management approach to ensuring its systems are
compliant. The Chief Information Officer has been assigned overall
responsibility for year 2000 compliance. GLHESC has not evaluated any computer
system, product or procedure of any third party with whom GLHESC exchanges data,
including but not limited to, the U.S. Department of Education, schools or
lenders. Accordingly, GLHESC is unable to provide any assurances regarding the
year 2000 compliance of any third parties or their effect on GLHESC's ability to
properly perform its activities.
GLHESC will provide a copy of its most recent audited financial statements upon
receipt of a written request directed to 2401 International Lane, Madison,
Wisconsin 53704, Attention:
Vice President and Chief Financial Officer.
(Source: GLHESC.)
UNIPAC SERVICE CORPORATION
UNIPAC Service Corporation, a Nebraska corporation, began its education loan
servicing operations on January 1, 1978, and provides education loan servicing,
time sharing, administration and other services to lenders, secondary market
purchasers and guarantee agencies throughout the United States. UNIPAC is a
privately held corporation, owned primarily by Union Bank and Trust Company,
Lincoln, Nebraska. UNIPAC offers student loan servicing to lending institutions
and secondary markets. UNIPAC's corporate headquarters is located in Aurora,
Colorado, where UNIPAC employs approximately 733 people. In December 1989,
UNIPAC opened a second servicing center in Lincoln, Nebraska, which as of
October 31, 1998 employed approximately 262 people. In November 1997, UNIPAC
opened a third servicing center in St. Paul, Minnesota, which as of October 31,
1998, employed approximately 167 people. As of October 31, 1998, UNIPAC's
servicing volume was approximately $8.8 billion for its full-service and
secondary market clients.
The following information covers UNIPAC's year 2000 plan and provides a status
of UNIPAC's year 2000 compliance initiative to date. UNIPAC's student loan
servicing system, UNISTAR, has been modified to process dates into the next
century. UNIPAC's Private Loan System (STAR) is written in a combination of SQL
Server version 6.5 and Visual Basic version 4.0. These software programming
languages are believed to be year 2000 compliant and address year 2000 dates.
Since 1994, UNIPAC has been planning system changes for the year 2000. As a
result, UNIPAC completed major program changes for its student loan servicing
mainframe system during 1997. As of May 1997, all date fields, stored in the
files and processed in program logic, contain 8 digits for the expanded century
usage. All phases of the project were completed relative to the 8 byte dates
usage. These processes have been documented as part of UNIPAC's quality
assurance processes. Systems integration testing was completed in April 1997 and
production implementation occurred May 1997.
(Source: UNIPAC)
THE GUARANTEE AGENCIES
A guarantee agency guarantees loans made to students or parents of students by
lending institutions such as banks, credit unions, savings and loan
associations, certain schools, pension funds and insurance
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companies. A guarantee agency generally purchases defaulted student loans which
it has guaranteed from its cash and reserves, considered its guarantee fund. A
lender may submit a default claim to the guarantee agency after the student loan
has been delinquent for at least 180 days, or 270 days for loans made on or
after October 7, 1998. However, lenders are strongly encouraged not to file a
claim until a loan is at least 300 days delinquent.
The default claim package must include all information and documentation
required under the FFEL program regulations and the guarantee agency's policies
and procedures. Under the guarantee agencies' current procedures, assuming that
the default claim package complies with the guarantee agency's loan procedures
manual or regulations, the guarantee agency pays the lender for a default claim
within 90 days of the lender's filing the claim with the guarantee agency.
Generally, the lender is expected to be 300 days following the date a loan
becomes delinquent. The guarantee agency will pay the lender interest accrued on
the loan for up to 360 days after delinquency. The guarantee agency must file a
reimbursement claim with the Department of Education within 45 days after the
guarantee agency has paid the lender for the default claim.
In general, a guarantee agency's guarantee fund has been funded principally by
administrative cost allowances paid by the Secretary of Education, guarantee
fees paid by lenders, investment income on moneys in the guarantee fund, and a
portion of the moneys collected from borrowers on guaranteed loans that have
been reimbursed by the Secretary of Education to cover the guarantee agency's
administrative expenses.
Various changes to the Higher Education Act have adversely affected the receipt
of revenues by the guarantee agencies and their ability to maintain their
guarantee funds at previous levels, and may adversely affect their ability to
meet their guarantee obligations. These changes include the various recalls of
reserves by the Department of Education, the reduction in reinsurance payments
from the Secretary of Education because of reduced reimbursement percentages;
the reduction in maximum permitted guarantee fees from 3% to 1% for loans made
on or after July 1, 1994; and the reduction in 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 Loan Program, and, under
certain circumstances, the Secretary of Education may demand payment of amounts
in the guarantee fund.
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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."
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."
There are no assurances as to the Secretary of Education's actions if a
guarantee agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a guarantee agency transfer
additional portions or all of its guarantee fund to the Secretary of Education.
FEDERAL AGREEMENTS
Each guarantee agency and the Secretary of Education have entered into federal
reimbursement contracts pursuant to Section 428(c) of the Higher Education Act.
These include, for older guarantee agencies, a supplemental contract pursuant to
former Section 428A of the Higher Education Act. The reimbursement contracts
provide for the guarantee agency to receive 75% to 100% reimbursement of
insurance payments that the guarantee agency makes to eligible lenders with
respect to loans guaranteed by the guarantee agency prior to the termination of
the federal reimbursement contracts or the expiration of the authority of the
Higher Education Act. The 1998 Reauthorization Bill reduced the reimbursement
percentages referred to above with respect to claims on most loans made on or
after October 1, 1998. See "Effect of Annual Claims Rate." The federal
reimbursement contracts provide for termination under 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. These entitle the holders of
eligible loans guaranteed by the guarantee agency to receive interest subsidy
payments from the Secretary of Education on behalf of 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.
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United States Courts of Appeals have held that the federal government, through
subsequent legislation, has the right unilaterally to amend the contracts
between the Secretary of Education and the guarantee agencies described herein.
Amendments to the Higher Education Act in 1986, 1987, 1992, 1993, 1997 and 1998,
respectively:
(1) 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;
(2) 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;
(3) added new reserve level requirements for guarantee agencies and
authorized the Secretary of Education to terminate the federal
reimbursement contracts under circumstances that did not previously
warrant such termination; and
(4) 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 for its guarantee program to exceed
the 5% and 9% levels described below, and result in the Secretary of Education
reimbursing the guarantee agency at lower percentages of default claims payments
made by the guarantee agency.
In general, guarantee agencies are currently entitled to receive reimbursement
payments under the federal reimbursement contracts in amounts that vary
depending on the claims rate experience of the guarantee agency. The claims rate
is computed by dividing total default claims since the previous September 30 by
the total original principal amount of the guarantee agency's guaranteed loans
in repayment on such September 30. On October 1 of each year the claims rate
begins at zero, regardless of the experience in preceding years. For loans made
prior to October 1, 1998, if the claims rate remains equal to or below 5% within
a given federal fiscal year (October 1 through September 30), the Secretary of
Education is obligated to provide 98% reimbursement; if and when the claims rate
exceeds 5% and until such time, if any, as it exceeds 9% during the fiscal year,
the reimbursement rate is at 88%. If and when the claims rate exceeds 9% during
the fiscal year, the reimbursement rate for the remainder of the fiscal year is
at 78%. For loans made prior to October 1, 1998, each guarantee agency is
entitled to at least 78% reimbursement from the Secretary of Education on
default claims that it purchases, regardless of its claims rate. The
reimbursement percentages for loans made on or after October 1, 1998 are reduced
from 98%, 88% and 78% to 95%, 85% and 75%, respectively. See "Description of the
FFEL Program."
GUARANTEE AGENCY INFORMATION
Florida Department of Education, Office of Student Financial Assistance, Georgia
Higher Education Assistance Corporation, United Student Aid Funds, Inc.,
Kentucky Higher Education Assistance Authority and Great Lakes Higher Education
Guaranty Corporation are the principal guarantee agencies
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for the financed FFELP loans. Information relating to these particular guarantee
agencies is set forth below. These guarantee agencies collectively guarantee in
excess of 99% of the financed FFELP loans.
Information relating to the particular guarantee agencies set forth herein,
which is particularly within each guarantee agency's knowledge, has been
requested of and has been provided by the respective guarantee agencies. Such
information and information included in the reports referred to herein have not
been verified or independently confirmed by the issuer, the depositor, the
administrator, the master servicer, the initial purchasers or their respective
counsel, and comprises all information in respect of each such guarantee agency
that the issuer obtained after a reasonable request and inquiry. No guarantee
agency is affiliated with the issuer, the depositor, the administrator, the
master servicer or any initial purchaser.
FLORIDA DEPARTMENT OF EDUCATION, OSFA
The Florida Department of Education is authorized to administer or contract for
the administration of the State's student financial assistance programs. Since
1966, the Department of Education has been authorized to administer federally
guaranteed student loans under what is now known as the Federal Family Education
Loan Program, in compliance with the Higher Education Act of 1965, as amended.
Chapter 240, Florida Statutes. The Department of Education performs these
functions through its Office of Student Financial Assistance (OSFA).
The head of the Department of Education is the Commissioner of Education, who is
a member of the Cabinet. Section 20.15(2), Florida Statutes. The State Board of
Education is the chief policymaking body of public education in Florida as
provided in Chapter 229, Florida Statutes. Section 20.15(1), Florida Statutes.
The State Board is composed of the Governor and Cabinet, who are elected by a
vote of the qualified electors of the state. The members of the State Board are:
the Governor who is the chair, the Secretary of State, the Attorney General, the
Comptroller, the Treasurer, the Commissioner of Agriculture, and the
Commissioner of Education, who is the secretary and executive officer, and in
the absence of the Governor serves as chair.
The director of OSFA reports to the Director of the Division of Support
Services, Florida Department of Education. In addition to the OSFA Director's
Office, OSFA's FFEL Program has three sections, each headed by a program
director. These sections are: Institutional Oversight and Compliance; Policy,
Training, and Customer Service; and Contract Management and Program Operations.
OSFA, in its capacity as a guarantee agency, has a staff of 71 people.
OSFA has participated in FFEL Programs for over 30 years. In its capacity as a
guarantee agency, OSFA has made gross guarantees of approximately $6.06 billion
since its inception. OSFA's gross guarantees for federal fiscal year 1997-98
were approximately $645 million and approximately $95 million in student loan
claims were paid during the same period. According to the U.S. Department of
Education the net default rate is approximately 10.7 percent, with recoveries.
The foregoing figures are estimates only and may differ from those derived
through precise calculations.
OSFA is aware of concerns relating to the functional effectiveness and usage of
computer systems beyond December 31, 1999. OSFA is dedicated to resolving the
potential impact of the year 2000 on the ability of OSFA's computerized
information systems to accurately process information that may be date
sensitive. OSFA is seeking to assure itself that both internal systems and the
systems of third parties, which include but are not limited to the United States
Department of Education, which provide services to OSFA or on whose computer
software and operating systems OSFA may rely are taking sufficient actions to
avoid year 2000 related problems. No representation or warranty is made with
respect to whether such third parties are or will be year 2000 compliant. OSFA
is planning to be ready to perform normal
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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.
(Source: OSFA)
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.
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<TABLE>
<CAPTION>
LOANS PERCENTAGE OF
TYPE OF SCHOOL OUTSTANDING LOANS OUTSTANDING
- -------------- ----------- -----------------
<S> <C> <C>
Two-year $ 160,905,318 4.5%
Four-year 1,192,162,129 85.3
Proprietary 109,708,171 10.2
-------------- -----
$1,462,775,618 100.0%
</TABLE>
NOTE: THE AMOUNT AND PERCENTAGE OF LOANS BY SCHOOL TYPE ARE AN EXTRAPOLATION
OF THE AVERAGE OF FIVE YEARS' GUARANTEES BY SCHOOL TYPE.
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.
(Source: GHEAC)
UNITED STUDENT AID FUNDS, INC.
United Student Aid Funds, Inc. was organized as a private, nonprofit corporation
under the General Corporation Law of the State of Delaware in 1960. In
accordance with its Certificate of Incorporation, USA Funds:
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(1) maintains facilities for the provision of guarantee services with
respect to approved education loans made to or for the benefit of
eligible students who are enrolled at or plan to attend approved
educational institutions;
(2) guarantees education loans made pursuant to certain loan programs under
the Higher Education Act loan programs as well as loans made under
private loan programs; and
(3) serves as the designated guarantor for education loan programs under the
Higher Education Act in Alaska, Arizona, Hawaii, Indiana, Kansas,
Maryland, Mississippi, Nevada, Wyoming, and certain Pacific Islands.
In addition to the above identified activities, USA Funds is affiliated with USA
Group Guarantee Services, Inc. (formerly known as USA Services, Inc.), a
Delaware private, nonprofit corporation, which provides varying degrees of
services to the following guarantee agencies:
(1) Student Loan Guarantee Foundation of Arkansas,
(2) Iowa College Student Aid Commission,
(3) Louisiana Office of Student Financial Assistance,
(4) Finance Authority of Maine,
(5) Michigan Guaranty Agency,
(6) Montana Guaranteed Student Loan Program,
(7) New Mexico Student Loan Guarantee Corporation,
(8) Northwest Education Loan Association,
(9) Oklahoma Guaranteed Student Loan Program,
(10) Oregon State Scholarship Commission,
(11) Rhode Island Higher Education Assistance Authority.
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 federal reimbursement agreements with the
Secretary. 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
60
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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% 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 separate funds: a federal reserve fund, which is property of the United
States, and an operating fund, which is 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 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 for the fiscal years 1997-1993, was as
follows: 1997 - 4.65%; 1996 - 4.65%; 1995 - 4.69%; 1994 - 4.99%; 1993 - 6.89%.
These rates exclude Arizona, Hawaii and certain Pacific Islands.
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
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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.
(Source: USA Funds)
KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY
The Kentucky Higher Education Assistance Authority (KHEAA) is a public
corporation and governmental agency and instrumentality of the Commonwealth of
Kentucky established in 1966 to serve the public purpose of improving
opportunities for higher education by insuring student loans for students
eligible under the Higher Education Act; providing loans, grants, and
scholarship awards to qualified Kentucky students; and offering information
relating to KHEAA programs to Kentucky residents. The powers of KHEAA with
respect to insuring student loans include:
(1) providing loan insurance within the limitations of Kentucky law and the
Higher Education Act, the loan in each case to be subject to agreements
providing for interest payments, reimbursements, reinsurance and other
benefits to the extent provided by the Higher Education Act;
(2) entering into agreements and undertakings with the Secretary in order to
constitute KHEAA as a state agency qualified to insure student loans
under the Higher Education Act and to qualify such student loans for
interest subsidies, reimbursement, reinsurance, and other benefits
available under the Higher Education Act;
(3) entering into contracts with eligible lenders and eligible education
institutions to provide for the administration of student financial
assistance programs;
(4) collecting from the borrower amounts due under a student loan on which
KHEAA has fulfilled its insurance obligations following the inability of
the holders to collect such loan;
(5) approving, limiting, suspending, or terminating the eligibility of
educational institutions or lenders to participate in the KHEAA's loan
guarantee program, subject to the provisions of the Higher Education Act
and applicable Kentucky law;
(6) if any conflict exists between applicable State law and the Higher
Education Act that would result in a loss by KHEAA of federal funds,
adopting rules, regulations, and policies consistent with the Higher
Education Act, but which are not in derogation of the Constitution and
general laws of the Commonwealth;
(7) administering federal funds allotted to the Commonwealth in respect of
student loans, administrative costs, and other matters; and
(8) receiving funds and acquiring property from any source, public or
private, except that KHEAA has no power to make its debts payable out of
any funds other than those of KHEAA.
In addition to its student loan guarantee functions, KHEAA offers origination
services to lenders, administers two state grant 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
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Commonwealth of Kentucky supplemented by Federal Funds. Effective May 10, 1990,
responsibilities for the Kentucky Educational Savings Plan Trust (KHEAA Trust)
were transferred to KHEAA pursuant to Executive Order 90-433, ratified by the
1992 Kentucky General Assembly. The KHEAA Trust offers opportunities for
families to save for future college costs. KHEAA Trust funds are fully
segregated from all other funds managed by KHEAA.
KHEAA is governed by its Board of Directors, which may officially act by a
majority of its voting members. The Board of Directors of KHEAA consists of
seven voting members appointed by the Governor of the Commonwealth for terms of
four years each and the Executive Director of the Council on Postsecondary
Education of the Commonwealth and the Secretary of the Finance and
Administration Cabinet of the Commonwealth, each of whom serve as non-voting, ex
officio members.
The Executive Director of KHEAA is Paul P. Borden; the Chief Operating Officer
is Londa L. Wolanin. KHEAA's office is located at 1050 U.S. 127 South,
Frankfort, Kentucky 40601, telephone number (502) 696-7200.
KHEAA's Loan Guarantee Program. In November 1978, KHEAA commenced guaranteeing
student loans as the state guarantee agency of the Commonwealth of Kentucky
under Section 428(c) of the Higher Education Act and in accordance with Kentucky
law, and KHEAA's agreements with the Secretary.
Pursuant to the KHEAA's loan guarantee program, any eligible holder of a loan
guaranteed by the KHEAA, is entitled to reimbursement from KHEAA to the maximum
extent permitted by the Higher Education Act for any proven loss incurred
resulting from the default, death, permanent and total disability, or discharge
in bankruptcy of the borrower and with respect to certain other claims. At the
time KHEAA pays a claim for reimbursement of a defaulted loan, the holder must
assign to KHEAA all rights accruing to the holder under the note.
On April 18, 1995, an agreement between the Alabama Commission on Higher
Education (ACHE) and the Authority was approved by the U.S. Department of
Education for the transition of the Alabama Guarantee Student Loan Program to
KHEAA. KHEAA began to guarantee Federal Family Education Loans for lenders and
students in the state of Alabama on June 2, 1995. KHEAA was designated by the
U.S. Department of Education as the guarantor for Alabama effective July 1,
1996.
Loan Insurance Fund. Pursuant to the Kentucky Revised Statutes Sections 164.740
through 164.785, KHEAA has established a loan insurance fund used to account for
all loan guarantee functions.
Sources of funds for the loan insurance fund are insurance premiums for loans
guaranteed, administrative expense allowance from the Secretary, reinsurance
from the Secretary for default and other claims paid, default collections, and
investment income derived from such funds; uses of funds are default and other
claims on loans guaranteed, and operating expenses for loan guarantee functions.
Pursuant to Kentucky Revised Statutes Sections 164.740 to 164.785 as amended
KHEAA is authorized to issue loan guarantees to eligible lenders on any loans to
qualified students, provided that no additional loans may be guaranteed if the
total amount of all outstanding student loans guaranteed by KHEAA exceeds
seventy-five times the funds available in the loan insurance fund. Funds
available in the loan insurance fund are calculated on the basis of the net
assets before deducting unearned insurance premiums, which equals the fund
balance plus unearned insurance premiums. Funds available in the loan insurance
fund are restricted by federal regulations and the Higher Education Act.
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
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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.
(Source: KHEAA)
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.
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(Source: U.S. Department of Education Loan Programs Data Book 1994 through 1996,
4th Quarter ED Volume Report for 1997 and ED Form 1130 for 1998.)
Reserve Ratio. Following are GLHEGC's reserve fund levels as calculated in
accordance with 34 CFR 5682.410(a)(10) for the last five fiscal years ending
September 30.
<TABLE>
<CAPTION>
Federal Guaranty Federal Guaranty
Fiscal Reserve Total Loans Reserve
Year Fund Balance outstanding* Fund Level
---- ------------ ------------ ----------
<S> <C> <C> <C>
1994 $50,938,050 $4,836,782,111 1.05%
1995 62,438,430 5,441,840,211 1.15
1996 71,964,949 6,048,428,342 1.19
1997 81,625,095 6,858,162,170 1.19
1998 107,534,663 7,493,233,844 1.44
</TABLE>
* Does not include loans transferred from Higher Education Assistance
Foundation, Northstar Guarantee, Ohio Student Aid Commission or Puerto Rico
guarantee agencies.
(Source: ED Forms 1130 and 1189 Reports submitted to U.S. Department of
Education)
Recovery Rate. The recovery rate is a key performance indicator in evaluating
the effectiveness of a student loan guarantor's collection efforts after the
loans have defaulted. The rate is determined by dividing the amount recovered by
the cumulative amount of default claims paid by the guarantee agency. Following
are GLHEGC's recovery rates as of the end of each of the last seven fiscal years
for which data is available, the national averages for each year and GLHEGC's
recovery rate ranking among all student loan guarantors.
<TABLE>
<CAPTION>
Fiscal Great Lakes' National Average Great Lakes'
Year Recovery Rate Recovery Rate Ranking
---- ------------- ------------- -------
<S> <C> <C> <C>
1993 36.2% 34.7% 33
1994 35.2 39.3 37
1995 35.8 40.7 36
1996 39.8 43.4 31
1997 43.9 45.0 25
</TABLE>
(Source: Joseph Boyd & Associates, Guaranty Agency Report.)
Proprietary Loans. Default rates for proprietary loans have been much higher
than default rates for loans made to borrowers attending two-year and four-year
schools. GLHEGC's original principal amount of student loans guaranteed and
outstanding (in whole or in part) and percentage of proprietary, two-year and
four-year guaranteed loans as of September 30, 1998 are set forth below.
<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>
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Claims Rate. For the past five fiscal years, GLHEGC's claims rate has not
exceeded 3.3% and, as a result, the highest allowable reinsurance has been paid
on all GLHEGC's claims. GLHEGC's claims rate for fiscal year 1998 was lower than
its 1997 claims rate. The actual claims rates are as follows:
<TABLE>
<CAPTION>
Fiscal Year Claims Rate
----------- -----------
<S> <C>
1994 3.3%
1995 3.0
1996 2.3
1997 2.1
1998 1.8
</TABLE>
(Source: U.S. Department of Education Guaranty Agency Activity Report except for
fiscal year 1998 which is based on unadjusted default experience data submitted
to ED.)
The staff and management at GLHEGC take the issue of year 2000 compliance very
seriously. GLHEGC is committed to take the reasonable and necessary actions to
prepare its systems to accurately process dates from the twentieth and
twenty-first centuries. GLHEGC is seeking to minimize, if not eliminate, the
risk of error, interruption or loss of functionality for the lenders, schools,
and borrowers who rely on its systems.
GLHEGC has adopted a structured management approach to ensuring its systems are
compliant. The Chief Information Officer has been assigned overall
responsibility for year 2000 compliance. GLHEGC has not evaluated any computer
system, product or procedure of any third party with whom GLHEGC exchanges data,
including but not limited to, the U.S. Department of Education, schools or
lenders. Accordingly, GLHEGC is unable to provide any assurances regarding the
year 2000 compliance of any third parties or their effect on GLHEGC's ability to
properly perform its activities.
(Source: GLHEGC)
The following table provides information with respect to the portion of financed
student loans guaranteed by each guarantor:
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Guarantee Agency Loans Balance Balance
- ---------------- ----- ------- -------
<S> <C> <C> <C>
Florida Department of Education, Office of Student 128,819 $393,724,755 61.09%
Financial Assistance
Georgia Higher Education Assistance Corporation 14,394 44,695,738 6.83
United Student Aid Funds, Inc. 31,659 139,594,151 21.34
Kentucky Higher Education Assistance Authority 18,803 41,438,957 6.34
Great Lakes Higher Education Guaranty Corporation 10,650 24,987,155 3.82
Other Guarantee Agencies 1,342 9,641,050 0.58
------- ------------ -----
Total 205,667 $654,081.086 100.00%
</TABLE>
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DESCRIPTION OF THE NEW NOTES
The depositor issued the old notes pursuant to an indenture dated as of December
1, 1998 between the depositor and Firstar Bank, N.A. The eligible lender
trustee, on behalf of the depositor, used the proceeds of the old notes to
acquire the initial financed student loans. The trust was formed and initially
capitalized with nominal equity represented by a trust certificate held by the
depositor. The trust purchased the financed student loans by assuming the
obligations of the depositor under the old notes and the indenture. The issuer
will offer the new notes pursuant to an amended and restated indenture, dated as
of March 15, 1999, between itself and Firstar Bank, N.A. The trust completed the
assumption of the old notes and the obligations thereunder on April 20, 1999.
The terms of the new notes include those stated in the indenture and those made
part of the indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the entire indenture. We urge you to read the
indenture because it, not this description, defines your rights as holders. We
have filed a copy of the indenture as an exhibit to the registration statement
of which this prospectus is a part.
You can find the definitions of certain capitalized terms under the heading
"Summary of Terms" or in Appendix A "Glossary of Terms." In this description
notes means the outstanding old notes and the new notes we will issue to you in
the exchange offer. References to a holder or holders mean you, or all holders
of the notes.
The new notes will be limited obligations of the issuer payable solely from the
assets of the trust. The following description describes the material terms of
the new notes and does not purport to be complete and is qualified by reference
to the provisions of the new notes and the indenture.
The Series A-3 Notes, the Series A-4 Notes, the Series A-5 Notes and the Series
A-6 Notes are referred to herein collectively as the Series 1998A Notes. The
Series A-4 Notes, the Series A-5 Notes and the Series A-6 Notes are referred to
herein collectively as the auction rate notes.
The Series A-3 Notes and the Series B-3 Notes will be available for purchase in
authorized denominations of $50,000 (original issue amounts) and integral
multiples of $1,000 in excess thereof in book-entry form only, and the auction
rate notes will be offered in minimum authorized denominations of $50,000
original issue amounts and any integral multiples of $50,000 in book-entry form
only. The notes will initially be represented by one or more notes registered in
the name of DTC's nominee, the security depository. The issuer may select a
successor depository to DTC. The depositor has been informed by DTC that DTC's
nominee will be Cede & Co. Accordingly, Cede & Co. is expected to be the holder
of record of the notes. Unless and until definitive notes are issued under the
limited circumstances described under "-- Definitive Notes," no holder will be
entitled to receive a physical certificate representing a note. All references
herein to actions by holders refer to actions taken by DTC upon instructions
from its participating organizations and all references herein to distributions,
notices, reports and statements to holders refer to distributions, notices,
reports and statements to DTC or its nominee, as the registered holder of the
notes, for distribution to holders in accordance with DTC's procedures with
respect thereto. See "-- Book-entry Registration."
DEFINITIVE NOTES
The notes will be issued as definitive notes in fully registered, certificated
form to note owners or their nominees rather than to DTC or its nominee, if:
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(1) the issuer advises the indenture trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the notes, and the issuer is unable to locate a qualified
successor;
(2) the issuer, at its option, advises the indenture trustee in writing that it
elects to terminate the book-entry system through DTC or a successor
securities depository; or
(3) after the occurrence of an event of default under the indenture, holders
representing not less than 50% of the outstanding principal balance of the
Series 1998A Notes as long as a series of the Series 1998A Notes are
outstanding, and thereafter the Series B-3 Notes, advise the indenture
trustee and DTC through DTC participants in writing that the continuation of
a book-entry system through DTC (or a successor thereto) is no longer in the
best interest of the holders.
Upon the occurrence of any of the events described in the immediately preceding
paragraph, the indenture trustee will cause DTC to notify all DTC participants
of the availability through DTC of definitive notes. Upon surrender by DTC of
the definitive certificate representing the new notes and instructions for
registration, the indenture trustee will issue the notes as definitive notes,
and thereafter the indenture trustee will recognize the holders of such
definitive notes as holders under the indenture.
Distribution of principal of and interest on the new notes will be made by the
indenture trustee directly to holders of definitive notes in accordance with the
procedures set forth in the related indenture. Interest payments and any
principal payments on each distribution date will be made to holders in whose
names the definitive notes were registered at the close of business on the
related record date. The final payment on any note (whether definitive notes or
the notes registered in the name of Cede & Co. representing the notes), will be
made only upon presentation and surrender of such note at the office or agency
specified in the notice of final distribution to holders. The indenture trustee
will provide such notice to registered holders prior to the distribution date on
which it expects such final distributions to occur.
Definitive notes will be transferable and exchangeable at the offices of the
indenture trustee. No service charges will be imposed for any registration of
transfer or exchange.
INTEREST
Interest will accrue during each interest accrual period on the principal
balance of each series of notes at a rate per annum equal to the related series
interest rate calculated as set forth below. Interest will be payable to the
applicable holders as of the record date on the Series A-3 Notes and the Series
B-3 Notes monthly on the monthly distribution date which is the last business
day of each month. Interest will be payable to the applicable holders as of the
record date on the auction rate notes on the business day following the
expiration of each auction period, an auction period distribution date. The
auction period distribution date is subject to change as described under the
heading "-- Determination of the Auction Rate." The record date for the Series
A-3 Notes is the second business day preceding a monthly distribution date. The
record date for the Series B-3 Notes is the business day preceding a monthly
distribution date. The record date for the auction rate notes is the business
day immediately preceding an auction period distribution date. Interest accrued
as of any distribution date for a series of notes but not paid on such
distribution date will be payable on the next distribution date for such series,
together with interest thereon at the applicable series interest rate. Interest
will be paid pro rata to the holders of each series of notes outstanding.
The first interest accrual period will begin on the closing date. Thereafter, 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.
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The interest determination date for the respective notes is as follows:
o Series A-4 Notes - the second London banking day prior to the
first day of the next succeeding interest accrual period
o Series A-4 Notes - January 27, 1999 and each fourth Wednesday thereafter.
o Series A-5 Notes - February 3, 1999 and each fourth Wednesday thereafter
o Series A-6 Notes - February 10, 1999 and each fourth Wednesday thereafter.
The interest determination date on the auction rate notes is subject to change
as described under the heading "Determination of the Auction Rate."
The series interest rate for each series of Series 1998A Notes for each interest
accrual period will equal the formula rate, subject to a cap of the net loan
rate for such interest accrual period.
The series interest rate for each interest accrual period for the Series B-3
Notes will be equal to a fixed rate of 6.25% per annum. Interest on the Series
B-3 Notes will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
The formula rate for each interest accrual period for the Series A-3 Notes will
equal One-Month LIBOR as of the interest determination date for such interest
accrual period plus 0.38%, but never greater than 17% per annum. See "--
Determination of LIBOR." Interest on the Series A-3 Notes will be calculated on
the basis of the actual number of days elapsed in each interest accrual period
divided by 360.
The formula rate for each interest accrual period for the Series A-4 Notes will
equal the auction rate for such interest accrual period, but never greater than
17% per annum. The formula rate for each interest accrual period for the Series
A-5 Notes will equal the auction rate for such interest accrual period, but
never greater than 17% per annum. The formula rate for each interest accrual
period for the Series A-6 Notes will equal the auction rate for such interest
accrual period, but never 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."
The net loan rate will be calculated by the administrator. The series interest
rate for the Series A-3 Notes will be determined by the calculation agent, which
initially is Salomon Smith Barney Inc. The series interest rate for each series
of auction rate notes will be determined by the auction agent, which initially
is Bankers Trust Company, New York, New York, as described under the heading "--
Determination of the Auction Rate."
Information concerning the current series interest rates will be available by
telephoning the indenture trustee at (513) 762-8870 between the hours of 9 a.m.
and 5 p.m. eastern time on any day that the Cincinnati Corporate Trust Office of
the indenture trustee is open for business and will also be available through
Dow Jones Telerate Service of Bloomberg L.P.
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<PAGE> 95
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 (1)
expected interest collections for the applicable collection period less all
items of expense allocable to financing the financed student loans with respect
to such collection period, to (2) the pool balance as of the first day of such
collection period. In calculating the net loan rate, the applicable collection
period for the Series A-3 Notes is the collection period immediately preceding
the collection period in which the monthly distribution date occurs. The
applicable collection period for the auction rate notes is the second preceding
collection period prior to the applicable auction period distribution date.
Expected interest collections means, with respect to any collection period, the
sum of:
(1) the amount of interest accrued, net of amounts required to be paid
to the Department of Education or to be repaid to guarantee agencies
with respect to the financed student loans in the trust for such
collection period (whether or not such interest is actually paid);
(2) 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 (1) above;
(3) the net of any counterparty exchange payments less any issuer
exchange payments to be made on the related distribution date; and
(4) investment earnings on the amounts on deposit allocable to the trust
with respect to such collection period prior to the related
distribution date.
If interest at the formula rate for any series of the Series 1998A Notes for any
interest accrual period exceeds interest at the net loan rate, carryover
interest consisting of the excess interest, together with interest thereon at
the applicable formula rate will be paid on subsequent distribution dates only
to the extent funds are available after other required payments on the notes.
See "-- Collection Fund." Carryover interest will continue to be so payable
notwithstanding that the principal amount of the applicable series of notes has
been reduced to zero until (1) no new notes remain outstanding and (2) the
balances in the funds and accounts have been reduced to zero. The ratings of the
notes do not address the likelihood of payment of carryover interest. Any
reference herein to interest excludes carryover interest.
DETERMINATION OF LIBOR
For each interest accrual period after the initial interest accrual period,
Salomon Smith Barney Inc., the calculation agent, will determine the applicable
LIBOR rate for purposes of calculating the series interest rate on the Series
A-3 Notes for each given interest accrual period on the date which is two London
banking days preceding the commencement of each interest accrual period. London
banking day means a business day on which dealings in deposits in United States
dollars are transacted in the London interbank market.
LIBOR means the rate 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 for the interest accrual period will be
determined at
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approximately 11:00 A.M., London time, on the interest determination. LIBOR will
be based on the rate at which deposits in a principal amount of not less than
U.S. $1,000,000 in United States dollars having 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. Such rates will be
representative for a single transaction in such market at such time. The
calculation agent will request the principal London office of each
representative bank to provide a quotation of its rate. If at least two
quotations are provided, LIBOR will be the arithmetic mean (rounded to the
nearest one-hundredth of a percent (.01%) of such offered rates). If fewer than
two quotations are provided, LIBOR for the 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 the interest
determination date by three major banks in New York, New York selected by the
calculation agent for loans in United States dollars to leading European banks
having a particular maturity and in a principal amount equal to not less than
U.S. $1,000,000. Such amount being representative for a single transaction in
such market at such time. If the banks selected as aforesaid are not quoting as
mentioned in the preceding sentence, LIBOR in effect for the applicable interest
accrual period will be LIBOR in effect for the previous interest accrual period.
DETERMINATION OF THE AUCTION RATE
The auction rate for each series of auction rate notes will be determined by the
auction agent in accordance with the auction procedures described under "Auction
Procedures" and in Appendix C on each interest determination date for each
interest accrual period, initially based on a 28-day auction period generally
beginning:
o for the Series A-4 Notes, on January 27, 1999 and each fourth
Wednesday thereafter,
o for the Series A-5 Notes, on February 3, 1999 and each fourth
Wednesday thereafter, and
o for the Series A-6 Notes, on February 10, 1999 and each fourth
Wednesday thereafter, in each case subject to adjustment as described
below.
If you are the current holder of an auction rate note, the basic outcome of an
auction are:
o you submit an order to hold your note at any rate, so you will
continue to hold the note and will be notified of the interest rate
after the auction, or
o you submit any order to hold your note at a specified interest rate,
so if the rate set by the auction is equal to or higher than the rate
you specified you will continue to hold your note at that rate and if
the rate is lower you will have sold your note in the auction, or
o you submit an order to sell your note and your note is sold at the
auction.
If there are ever insufficient buy orders and the auction is not successful,
holders may not be able to sell their notes in the auction and the interest rate
for the next auction period will be the lower on the net loan rate and the
maximum auction rate.
If you are not a current holder and wish to purchase notes in an auction, or are
a current holder and wish to purchase additional notes, the basic outcomes of an
auction are:
o you submit an order to buy at a specified rate and the interest rate
set in the auction is equal to or higher than the rate you specified,
so you will have purchased the note and the interest rate will be the
rate set by the auction, or
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o you submit an order to buy a specified rate and the interest rate set
in the auction is lower than the rate you specified, so your bid
order will be unsuccessful.
The outcomes described might vary slightly, as described under "Auction
Procedures," in some cases, as when only part of an order can be filled form
available notes or in the event that an auction is not successful.
AUCTION PROCEDURES
The interest rate on each series of auction rate notes will be determined
periodically (generally, for periods ranging from seven days to one year) by
means of a dutch auction. In this dutch auction, 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 or at any rate. Initially, NationsBanc Montgomery Securities LLC
is the sole broker/dealer. The broker/dealers submit their clients' orders to
Bankers Trust Company, the auction agent, who processes all orders submitted by
all eligible broker/dealers and determines the interest rate for the upcoming
interest period. The broker/dealers are notified by the auction agent of the
interest rate for the upcoming interest period and are provided with settlement
instructions relating to purchases and sales of auction rate notes. The
indenture trustee pays the auction agent fee of 0.01% from the program
operating expenses.
In the auction procedures, the following types of orders may be submitted:
(1) bid/hold orders - the minimum interest rate that a current investor
is willing to accept in order to continue to HOLD some or all of its
auction rate notes for the upcoming interest period (which can also
be an order to hold regardless of the upcoming interest rate);
(2) sell orders - an order by a current investor to SELL a specified
principal amount of auction rate notes, regardless of the upcoming
interest rate; and
(3) potential bid orders - the minimum interest rate that a potential
investor (or a current investor wishing to purchase additional
auction rate notes) is willing to accept in order to BUY a specified
principal amount of auction rate notes.
If an existing investor does not submit orders with respect to all its auction
rate notes of the applicable series, the investor will be deemed to have
submitted a hold order at the new interest rate for that portion of the auction
rate notes for which no order was received.
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)
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(b) Summary of All Orders Received For The Auction
<TABLE>
<CAPTION>
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
<S> <C> <C>
10 units at 2.90% 50 units Sell 20 units at 2.95%
30 units at 3.02% 50 units Sell 30 units at 3.00%
60 units at 3.05% 100 units Sell 50 units at 3.05%
100 units at 3.10% 50 units at 3.10%
100 units at 3.12% 50 units at 3.11%
50 units at 3.14%
100 units at 3.15%
</TABLE>
Total units under existing bid/hold orders and sell orders must always equal
issue size (in this case 500 units).
(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative
Number of Units Total (Units) % Number of Units Total (Units) %
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 50(W) 140 3.05% 11 50(L) 3.14%
6 60(W) 200 3.05% 12 100(L) 3.15%
</TABLE>
- ----------------------
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units. All
winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next interest accrual period. Multiple orders at the
winning rate are allocated units on a pro rata basis. In any case, the interest
rate will never exceed the lesser of the net loan rate or the maximum auction
rate.
The above example assumes that a successful auction has occurred (i.e., all sell
orders and all bid/hold orders below the new interest rate were fulfilled). In
certain circumstances, there may be insufficient potential bid orders to
purchase all the auction rate notes of the applicable series offered for sale.
In such circumstances, the interest rate for the upcoming interest accrual
period will equal the lesser of the net loan rate and the maximum auction rate.
Also, if all the auction rate notes of the applicable series are subject to hold
orders (i.e., each holder of such series of auction rate notes wishes to
continue holding its auction rate notes, regardless of the interest rate) the
interest rate for the upcoming interest accrual period will equal the lesser of
the net loan rate and the rate at which all investors are willing to hold such
series of auction rate notes.
For a more detailed description of the auction procedures, see "Appendix C --
Auction Procedures."
SPECIFIC LIMITATIONS ON DETERMINATIONS OF AUCTION RATE
The all hold rate with respect to each series of the auction rate notes will be
85% of the applicable LIBOR rate.
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The maximum auction rate with respect to each series of the auction rate notes
will be:
(1) the applicable LIBOR rate plus 1.50% (if both of the ratings
assigned by the rating agencies to the auction rate notes are "Aa3"
and "AA-," or better),
(2) the applicable LIBOR rate plus 2.50% (if any one of the ratings
assigned by the rating agencies to the auction rate notes is less
than "Aa3" or "AA-," and at least "A") or
(3) the applicable LIBOR rate plus 3.50% (if any one of the ratings
assigned by the rating agencies to the auction rate notes is less
than "A").
The non-payment rate with respect to each series of the auction rate notes will
be one-month LIBOR plus 1.50%.
After the initial auction period, the auction rate for each series of the
auction rate notes for each auction period will be determined in accordance with
auction procedures on the following dates:
o January 27, 1999 and each fourth Wednesday thereafter for the Series
A-4 Notes;
o February 3, 1999 and each fourth Wednesday thereafter for the Series
A-5 Notes; and
o February 10, 1999 and each fourth Wednesday thereafter for the Series
A-6 Notes.
Each such auction period will begin on the first business day following each
interest determination date and will terminate on and include the day preceding
the first day of the next auction period, subject to adjustment as described
below if there are fewer than three business days in any week during which such
auction period would otherwise be scheduled to expire.
The calculation agent, with the consent of the issuer, may change the interest
determination date to conform with prevailing market practice. See Appendix C,
"Auction Procedures -- Changes in the Interest Determination Date."
In any event for each series of auction rate notes:
o if the ownership of the auction rate notes is no longer maintained in
book-entry form, the auction rate for any auction period beginning
after the delivery of certificates representing the auction rate
notes will equal the lesser of the maximum auction rate and the net
loan rate for the auction rate notes on the business day immediately
preceding the first day of the subsequent auction period; or
o if a payment default has occurred, the auction rate for the auction
period beginning on or during such 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
default is cured in accordance with the indenture, will equal the
non-payment rate on the first day of each such auction period;
o if a proposed auction period conversion has failed, as described
below under the heading "-- Auction Period Conversion of and
Mandatory Tender of Auction Rate Notes" the auction rate on the
auction rate notes subject to the failed auction period conversion
will be equal to the maximum auction rate as of the date of the
failed auction period conversion for the auction period commencing on
such date, and the length of the auction period commencing upon the
failed
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auction period conversion date will be the same as was in effect
immediately preceding such failed auction period conversion date; or
o the auction rate for an auction period that commences on an auction
period conversion date will equal the lesser of (1) 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 (2) the maximum auction rate as of the auction
period conversion date, subject to the net loan rate.
The auction agent will promptly give written notice to the indenture trustee and
the issuer of the series interest rate and either the auction rate or the net
loan rate, as the case may be, when such rate is not the series interest rate
applicable to the auction rate notes. If, however, the series interest rate is
the non-payment rate, the indenture trustee will determine the non-payment rate
and give written notice to the issuer. The indenture trustee will notify the
holders of the auction rate notes of the applicable series interest rate on the
second business day of each auction period.
For any auction period scheduled to end during a week that has fewer than three
business days, the calculation agent may adjust the length of that and the
following auction period as it considers appropriate. The indenture trustee will
immediately give notice of any adjustment to the holders of the affected auction
rate notes.
If the auction agent does not determine the series interest rate or the manner
of determining the rate is invalid or unenforceable, then the rate will be the
net loan rate determined by the administrator. If the administrator does not
determine the net loan rate, then a securities dealer appointed by the issuer
will determine the net loan rate.
If there are fewer than three business days in any week during which the auction
period would otherwise be scheduled to expire, the calculation agent, with the
consent of the issuer, may change the expiration date and auction period
distribution date for such auction period then in effect, and the interest
determination date and commencement date for the immediately following auction
period to dates it determines to be appropriate under any such circumstances.
The calculation agent will promptly notify the indenture trustee and the auction
agent in writing of any determination. The indenture trustee, upon receipt of
such notice, will immediately give written notice of that determination to the
holders of the auction rate notes.
If the auction agent no longer determines, or fails to determine, when required,
the series interest rate with respect to the auction rate notes, or, if for any
reason 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. 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.
AUCTION PERIOD ADJUSTMENT
With respect to each series of auction rate notes, the issuer may, subject to
the indenture, change the length of one or more auction periods in order to
conform with then current market practice or to accommodate other economic or
financial factors that may affect or be relevant to the length of the auction
period or the auction rate (as hereinafter described, an auction period
adjustment). An auction period adjustment may be made to change an auction
period to a period of between 7 and 91 days (a short auction period) or to a
period of between 92 days and the legal final maturity of the auction rate notes
(a long auction period). For auction rate notes with a short auction period, no
auction period adjustment
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<PAGE> 101
may result in an auction period of less than 7 nor more than 91 days. For
auction rate notes with a long auction period, no auction period adjustment may
result in an auction period that is more than three months shorter or longer
than the auction period established upon the issuance of such series of auction
rate notes or auction period conversion of such auction rate notes. For any
auction period adjustment, certain prescribed conditions must be satisfied. See
Appendix C, "Auction Procedures."
AUCTION PERIOD CONVERSION OF AND MANDATORY TENDER OF THE AUCTION RATE NOTES
The issuer may, from time to time, change the length of one or more auction
periods for any series of auction rate notes 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 as follows:
o 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,
o 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
o from an auction period between 92 days and the legal final maturity
for such series, inclusive, to an auction period between 92 days and
the legal final maturity for such series, inclusive, if such latter
auction period is at least 3 months shorter or at least 3 months
longer than the auction period established upon the initial issuance
of such series or pursuant to an auction period conversion.
All auction rate notes subject to auction period conversion are subject to
mandatory tender to the indenture trustee on the auction period conversion date
at the purchase price of par plus accrued interest plus accrued and unpaid
carryover interest, if any.
The holders of auction rate notes that are subject to mandatory tender do not
have the right to elect to retain such auction rate notes. If, however, any
auction rate notes of a series so tendered are not remarketed, or the indenture
trustee does not receive the purchase price for that series of auction rate
notes subject to the auction period conversion, none of the auction rate notes
of that series tendered will be converted. The series interest rate for that
series of auction rate notes will equal the lesser of the net loan rate or the
maximum auction rate, but never greater than 17%, as of the date of the failed
auction period conversion, as applicable, for the auction period commencing on
that date. The length of the auction period will remain the same. See Appendix
C, "Auction Procedures."
PRINCIPAL
UNLESS AN EVENT OF DEFAULT HAS OCCURRED, NO PRINCIPAL WILL BE PAID ON THE SERIES
A-4 NOTES UNTIL THE SERIES A-3 NOTES HAVE BEEN PAID IN FULL, NO PRINCIPAL WILL
BE PAID ON THE SERIES A-5 NOTES UNTIL THE SERIES A-3 NOTES AND SERIES A-4 NOTES
HAVE BEEN PAID IN FULL AND NO PRINCIPAL WILL BE PAID ON THE SERIES A-6 NOTES
UNTIL THE SERIES A-3 NOTES, THE SERIES A-4 NOTES AND THE SERIES A-5 NOTES HAVE
BEEN PAID IN FULL. FOLLOWING THE OCCURRENCE OF AN EVENT OF DEFAULT, PRINCIPAL
PAYMENTS ON THE SERIES 1998A NOTES WILL BE MADE PRO RATA, WITHOUT PREFERENCE OR
PRIORITY. IT IS EXPECTED THAT PRINCIPAL WILL BE PAID ON THE SERIES B-3 NOTES
FROM TIME TO TIME AND SUBJECT TO CERTAIN CONDITIONS WHILE THE SERIES 1998A NOTES
ARE OUTSTANDING BUT ONLY FOR MONTHLY DISTRIBUTION DATES OCCURRING AFTER JUNE 30,
2003.
Principal payments on the Series A-3 Notes will be made on each monthly
distribution date in an amount generally equal to the Series 1998A Holders'
Principal Distribution Amount for such monthly distribution date until the
principal balance of such notes has been reduced to zero.
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After the Series A-3 Notes have been paid in full, principal payments on the
Series A-4 Notes will be made on the first auction period distribution date of
any month in an amount generally equal to the Series 1998A Holders' Principal
Distribution Amount for such auction period distribution date until the
principal balance of such notes has been reduced to zero.
After the Series A-3 Notes and the Series A-4 Notes have been paid in full,
principal payments on the Series A-5 Notes will be made on the first auction
period distribution date of any month in an amount generally equal to the Series
1998A Holders' Principal Distribution Amount for such auction period
distribution date until the principal balance of such notes has been reduced to
zero.
After the Series A-3 Notes, the Series A-4 Notes and the Series A-5 Notes have
been paid in full, principal payments on the Series A-6 Notes will be made on
the first auction period distribution date of any month in an amount generally
equal to the Series 1998A Holders' Principal Distribution Amount for such
auction period distribution date until the principal balance of such notes has
been reduced to zero.
Principal payments on the Series A-4 Notes, on the Series A-5 Notes and on the
Series A-6 Notes will only be made in amounts equal to $50,000 and integral
multiples in excess thereof. Principal payments on the Series B-3 Notes will be
made on each monthly distribution date after June 30, 2003, subject to
limitations, in an amount generally equal to the Series 1998B-3 Holders'
Principal Distribution Amount for such monthly distribution date until the
principal balance of such notes has been reduced to zero. In addition, parity
percentage payments will be payable on each applicable distribution date (to the
series of Series 1998A Notes then receiving principal payments and thereafter to
the Series B-3 Notes) until the parity percentage equals 101%.
The final payment of principal and interest will be made no later than December
1, 2006 on the Series A-3 Notes, December 1, 2019 on the Series A-4 Notes,
December 1, 2019 on the Series A-5 Notes, December 1, 2019 on the Series A-6
Notes, and December 1, 2019 on the Series B-3 Notes (each a Legal Final
Maturity). The actual maturity of one or more series of notes is expected to
occur sooner as a result of a variety of factors. See "Maturity and Prepayment
Considerations."
If available funds are insufficient to pay the Series 1998A Principal
Distribution Amount or the Series 1998B-3 Principal Distribution Amount on an
applicable distribution date, such shortfall will be added to the principal
payable to such holders on subsequent distribution dates, as applicable, AND
(EXCEPT WITH RESPECT TO THE LEGAL FINAL MATURITY OF A SERIES OF NOTES) SUCH
SHORTFALL WILL NOT CONSTITUTE AN EVENT OF DEFAULT. Additionally, on the legal
final maturity for a series of notes and on any date the new notes are to be
redeemed in whole, amounts in the reserve fund will be available to reduce the
principal balance of such series of notes to zero. See "Security for the Notes
- -- Reserve Fund."
All principal payments of Series A-3 Notes and Series B-3 Notes will be made pro
rata within that Series. In connection with each principal payment of Series A-3
Notes or Series B-3 Notes, the indenture trustee shall compute the principal
factor for that series. The principal factor shall be a number, carried to a
seven-digit decimal, indicating the principal balance of each Series A-3 Note
and each Series B-3 Note as of a monthly distribution date (after giving effect
to any payments made on that date) as a fraction of the original principal
amount of such new note. The principal factor for the Series A-3 Notes and for
the Series B-3 Notes was initially 1.0000000 (at the time of original issue of
the notes) and will thereafter decline to reflect the reduction in the principal
balance of the new notes of that series after any payment of principal. The
principal balance of any Series A-3 Note or Series B-3 Note can be determined by
multiplying the original principal amount of such note by the principal factor
applicable to that series of notes.
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BOOK-ENTRY REGISTRATION
The notes are issuable solely in fully registered form and will initially be
registered in the name of Cede & Co., as registered owner and nominee for DTC,
as securities depository for the notes. Holders may hold notes offered hereby
through DTC, in the United States, or Cedel or Euroclear, in Europe, if they are
participants of such systems, or indirectly through organizations that are
participants in such systems. Purchases by beneficial owners of the notes are to
be made in book-entry form in authorized denominations. These beneficial, or
book-entry interest owners, will not receive certificates evidencing their
interests in the new notes.
The description which follows of the procedures and record keeping concerning
beneficial ownership interests in the notes, payment of principal of and
interest on the notes to DTC participants, Cedel participants and Euroclear
participants or to purchasers of the notes, confirmation and transfer of
beneficial ownership interests in the notes, and other securities-related
transactions by and between DTC, Cedel, Euroclear, DTC participants, Cedel
participants, Euroclear participants and note owners, is based solely on
information furnished by DTC, Cedel and Euroclear and has not been independently
verified by the issuer, the administrator, the master servicer or the initial
purchasers.
Holders may hold their certificates through DTC (in the United States) or Cedel
or Euroclear (in Europe) directly if the holders 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 which in turn will hold such
positions in customers' securities accounts in the depositories' names on the
books of DTC.
DTC is a limited purpose trust company organized under the New York Banking Law,
a banking organization within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a clearing corporation within the meaning of the
New York Uniform Commercial Code, and a clearing agency registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC holds securities for its
participants 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 indirect participants such as securities brokers
and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a DTC participant, either directly or indirectly.
The rules applicable to DTC and its DTC participants are on file with the SEC.
DTC management is aware that some computer applications, systems, and the like
for processing dates that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter year 2000 problems. DTC has
informed the industry, which consists of its participants and other members of
the financial community, that it has developed and is implementing a program so
that its computer systems, as they relate to DTC services such as the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
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<PAGE> 104
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 its participants and other members of the financial
community that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (1) impress upon them the importance
of such services being year 2000 compliant; and (2) determine the extent of
their efforts for year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing 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 its participants and other members of the
financial community by DTC for informational purposes only and is not intended
to serve as a representation, warranty or contract modification of any kind.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Cedel participants and Euroclear participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel participants or
Euroclear participants, on the other, will be effected in DTC under DTC rules on
behalf of the relevant European international clearing system by its depository.
Such cross-market transactions will, however, require delivery of instructions
to the relevant European international clearing system by the counterparty in
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. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Cedel
participant or Euroclear participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
participant or a Euroclear participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC. For additional information regarding clearance and settlement procedures
for the new notes, see Appendix B.
Day traders that use Cedel or Euroclear and that purchase the globally offered
new notes from DTC participants for delivery to Cedel participants or Euroclear
participants should note that these trades may fail on the sale side unless
affirmative actions are taken. Participants should consult with their clearing
system to confirm that adequate steps have been taken to assure settlement.
A buyer may purchase notes under the DTC system only by or through DTC
participants. DTC participants will receive a credit for the notes on DTC's
records. The ownership interest of each actual owner of a note is in turn to be
recorded on the DTC participants' and indirect participants' records. Note
owners will not receive written confirmation from DTC of their purchase, but
note owners are expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their
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<PAGE> 105
holdings, from the DTC participant or indirect participant through which the
note owner entered into the transaction. Transfers of ownership interests in the
notes are to be accomplished by entries made on the books of DTC participants
acting on behalf of note owners. Note owners will receive certificates
representing their ownership interest in notes, only if use of the book-entry
system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by DTC participants with
DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of notes
with DTC and their registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual note owners of the
notes; DTC's records reflect only the identity of the DTC participants to whose
accounts 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 & Co.'s consenting or voting
rights to those DTC participants to whose accounts the notes are credited on the
record date (identified in a listing attached thereto).
The indenture trustee will make principal and interest payments on the notes to
DTC. DTC's practice is to credit DTC participants' accounts on the applicable
distribution date 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. The indenture trustee is
responsible for payment of principal and interest to DTC. DTC is responsible for
disbursement of such payments to DTC participants. DTC participants and indirect
participants are responsible for disbursement of such payments to note owners.
DTC may discontinue providing its services as securities depository with respect
to the notes at any time by giving reasonable notice to the issuer or the
indenture trustee. Under such circumstances, if a successor securities
depository is not obtained, definitive notes are required to be printed and
delivered. The issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
definitive notes will be delivered to holders. See "-- Definitive Notes."
Cedel is incorporated under the laws of Luxembourg as a professional depository.
Cedel holds securities for its participating organizations and facilitates the
clearance and settlement of securities transactions between Cedel participants
through electronic book-entry changes in accounts of Cedel participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in numerous currencies, including United States dollars. Cedel
provides to its Cedel participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is regulated
by the Luxembourg Monetary Institute. Cedel participants are recognized
financial institutions around the world, including initial purchasers,
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securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the initial purchasers of any
series of new notes. Indirect access to Cedel is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants of
the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may be settled in numerous currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office, under contract with Euroclear
Clearance System, and Societe Cooperative, a Belgian cooperative corporation.
All operations are conducted by the Euroclear operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear operator, not Societe Cooperative. The Societe Cooperative Board
establishes policy for the Euroclear System. Euroclear participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the initial purchasers of
any series of notes. Indirect access to the Euroclear System is also available
to other firms that maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking corporation
which is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System. The Terms and Conditions together
with the Operating Procedures govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fundable basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the Terms and Conditions and Operating
Procedures only on behalf of Euroclear participants and has no record of or
relationship with persons holding through Euroclear participants.
The Euroclear operator has advised as follows: Under Belgian law, investors that
are credited with securities on the records of the Euroclear operator have a
co-property right in the fungible pool of interests in securities on deposit
with the Euroclear operator in an amount equal to the amount of interests in
securities credited to their accounts. If the Euroclear operator becomes
insolvent, Euroclear participants would have a right under Belgian law to the
return of the amount and type of interests in securities credited to their
accounts with the Euroclear operator. If the Euroclear operator did not have a
sufficient amount of interests in securities on deposit of a particular type to
cover the claims of all Euroclear participants credited with 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.
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Distributions with respect to notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel participants or Euroclear participants 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." Cedel or the Euroclear operator, as the case may be,
will take any other action permitted to be taken by a holder under the Agreement
on behalf of a Cedel participant or Euroclear participant only in accordance
with its relevant rules and procedures and subject to its depository's ability
to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures to
facilitate transfers of notes among participants of DTC, Cedel and Euroclear,
they are under no obligation to perform or continue to perform such procedures
and such procedures may be discontinued at any time.
Neither the issuer, the initial purchasers nor the indenture trustee will have
any responsibility or obligation to participants, to indirect participants or to
any note owner with respect to (A) the accuracy of any records maintained by
DTC, Cedel or Euroclear, any participant or any indirect participant; (B) the
payment by DTC or any participant or any indirect participant of any amount with
respect to the principal and purchase price of, or interest or carryover
interest, if any, on the notes; (C) any notice which is permitted or required to
be given to note owners under the indenture; (D) the selection by DTC or any
direct or indirect participant of any person to receive payment in the event of
a partial distribution of principal of the new notes; or (E) any consent given
or other action taken by DTC as note owner.
In reading this Prospectus, you should understand that while the notes are in
book-entry system, references in other sections of this Prospectus to holders
includes the person for whom the participant acquires an interest in the notes,
but (1) owners of the notes must exercise all rights of ownership through DTC
and the book-entry system and (2) the issuer and the indenture trustee will give
notices that are to be given to holders only to DTC.
REDEMPTION
The notes will be subject to redemption prior to maturity only as described
below.
AUCTION OF THE FINANCED STUDENT LOANS
On or after May 31, 2007, if the then outstanding pool balance is 10% or less of
the initial pool balance, the indenture trustee will offer the financed student
loans in the trust for sale. The issuer, the depositor, their affiliates and
unrelated third parties may offer bids to purchase such financed student loans
on or prior to such date. If at least two bids are received, the indenture
trustee will accept the higher bid if it will pay transaction costs and all
amounts due and payable to the holders (including carryover interest) after
application of funds on deposit in the reserve fund. If at least two bids are
not received or the bid proceeds are not sufficient to pay transactions costs
and all amounts due to the holders, the indenture trustee may, but shall be
under no obligation to, solicit bids for the sale of the financed student loans
on future distribution dates. The net proceeds of any such sale will be used to
redeem any outstanding notes at par plus accrued interest on the next applicable
distribution date. No assurance can be given as to whether the indenture trustee
will be successful in soliciting acceptable bids to purchase the financed
student loans on any such auction date.
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OPTIONAL REDEMPTION
The issuer may redeem all outstanding series of notes in whole on any applicable
distribution date if the depositor exercises its option to repurchase all
remaining financed student loans. Such repurchase will cause the early
retirement of the notes. The notes may be so redeemed on any applicable
distribution date for the applicable series on or after the monthly distribution
date on which the pool balance is equal to 10% or less of the initial pool
balance. The notes will be redeemed 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. The purchase price
must be sufficient to pay transaction costs and all amounts due to the holders,
including carryover interest, after application of funds on deposit in the
reserve fund. Such an optional purchase of the financed student loans will
result in the prepayment of all outstanding notes. The initial pool balance was
$680,000,000.
In addition, on and after the Series A-3 Notes have been paid in full, the
issuer, at its option, may redeem the Series A-4 Notes and the Series A-6 Notes
in whole or in part on any auction period distribution date prior to their legal
final maturity. The issuer may designate which series will be redeemed. The
issuer may redeem the notes from funds deposited by or on behalf of the issuer
with the indenture trustee. The indenture trustee must give notice to the
holders thereof not less than 15 days prior to the redemption date in the form
and manner described under the heading "-- Notice of Redemption." The redemption
price will equal 100% of the principal amount to be redeemed plus accrued
interest to the date of redemption. The issuer may not exercise its option to
redeem any Series A-4 Notes, Series A-5 Notes or Series A-6 Notes unless after
any such redemption the parity percentage is no less than 101% and certain other
conditions relating to the minimum amount of financed student loans bearing at a
fixed rate held in the student loan portfolio fund are satisfied. See "The
Indenture -- Student Loan Portfolio Fund." If only a part of a series is
redeemed, the Series A-4 Notes, Series A-5 Notes or Series A-6 Notes to be
redeemed will be selected by lot by the indenture trustee. No Series A-4 Notes,
Series A-5 Notes or Series A-6 Notes will be subject to redemption in part in an
amount less than an authorized denomination thereof, and no portion of the
Series A-4 Notes, the Series A-5 Notes or the Series A-6 Notes is to be retained
by a holder in an amount less than an authorized denomination.
In connection with the optional redemption of any Series 1998A Notes, all unpaid
carryover interest on such series must be paid on or before the date of optional
redemption of such series.
NOTICE OF REDEMPTION
The indenture trustee must give written notice of redemption of the notes to the
holders not less than 15 days prior to the redemption date. Each note must be
surrendered to the indenture trustee in exchange for payment of the redemption
price. If the indenture trustee gives notice of redemption as provided above,
and 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. Interest on such notes with cease to accrue, and
interest on any unpaid carryover interest will also cease to accrue.
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SECURITY FOR THE NOTES
THE TRUST
The notes, together with all interest rate exchange agreements as may be entered
into from time to time related to such notes, and carryover interest, if any, on
such notes are secured by and payable solely from the assets of the trust. The
property in the trust includes:
(1) all available funds derived from amounts in the trust;
(2) the balances of all funds and accounts established under the indenture,
whether derived from proceeds of sale of the old notes, from available
funds, or from any other source;
(3) all rights of the issuer and the related eligible lender trustee in and to
the financed student loans, the guarantee agreements with respect to the
financed student loans;
(4) all rights of the issuer under the transfer and sale agreement;
(5) any spread guaranty agreement;
(6) the eligible investments, any interest rate exchange agreement and any
exchange counterparty guarantee, the purchase agreements, the master
servicing agreement and the servicing agreements with respect to financed
student loans serviced thereunder, including all rights of the depositor
under the warranties of each seller, master servicer or servicer, as the
case may be, under those agreements; and
(7) any proceeds thereof.
NO ASSETS OTHER THAN THE ASSETS OF THE TRUST ARE PLEDGED TO THE PAYMENT OF THE
NOTES.
To secure payment of principal, interest and carryover interest, if any, on the
notes and payment of any issuer exchange payment, the issuer and the eligible
lender trustee in the indenture, subject to the lien of the indenture trustee
and the eligible lender trustee, each grants a first priority perfected security
interest in, and pledges and assigns to the indenture trustee all of the
issuer's and the eligible lender trustee's rights in the trust for the equal and
ratable benefit:
o first, of the holders of the senior notes issued under the indenture and the
exchange counterparties under any related senior interest rate exchange
agreement subject to the provisions of the indenture permitting their
application for the purposes and on the terms and conditions set forth in the
indenture, and
o 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 interest rate
exchange agreements would be on a parity with payment of the senior notes, an
event of default with respect to such senior interest rate exchange agreements
could result in an event of default giving rise to an acceleration of the notes
and other potentially adverse effects on the payment of the notes.
The indenture provides for the above-described pledge of and grant of a lien on
and security interest in the assets of the trust; however, such pledge, lien or
security interest will only be effective to the extent that:
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(1) the trust consists of assets as to which a pledge, lien or security
interest can be created or perfected under law by either:
(a) the due filing of appropriate Uniform Commercial Code financing
statements, or
(b) the indenture trustee's possession or constructive possession of such
assets;
(2) 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
(3) either such act of filing or such act of possession, as applicable, has in
fact been taken by the indenture trustee.
To create, perfect and maintain a security interest in the assets of the trust,
the indenture trustee intends, to the extent possible:
(1) to file or cause to be filed appropriate duly executed financing statements
(including continuation statements) with respect to the assets of the trust
among the appropriate records maintained by the appropriate state and local
filing officers pursuant to the applicable Uniform Commercial Code;
(2) to possess or to constructively possess through bailees those assets of the
trust as to which a pledge, lien or security interest may be created and
perfected by possession; and
(3) to take or cause to be taken any and all other action necessary to create
or perfect such pledge of, lien on or security interest in the assets of
the trust.
SUBORDINATION OF THE SERIES B-3 NOTES
The rights of the holders of the Series B-3 Notes to receive principal (under
certain circumstances) and interest payments will be subordinated to such rights
of the holders of the Series 1998A Notes and to exchange counterparties under
senior interest rate exchange agreements to the extent described herein. This
subordination is intended to enhance the likelihood of regular receipt of
principal and interest by the holders of the Series 1998A Notes and the payment
of any senior issuer exchange payments. See "The Indenture -- Collection Fund."
The rights of the holders of the Series 1998A Notes are on a parity with the
rights of any exchange counterparty under any senior interest rate exchange
agreement. The rights of the holders of all Series 1998A Notes and exchange
counterparties under any senior interest rate exchange agreements are superior
to the rights of the holders of the Series B-3 Notes and the rights of any
exchange counterparty under any subordinate exchange agreement with respect to
the trust.
The rights of the holders of the Series B-3 Notes are on a parity with the
rights of exchange counterparties under any subordinate exchange agreements with
respect to the assets of the trust.
RESERVE FUND
A reserve fund was created with respect to the old notes, and the depositor
deposited a portion of the proceeds from the old notes or eligible investments
in an amount equal to the specified reserve fund balance. To the extent
necessary or appropriate, the issuer and the indenture trustee may establish
accounts in the reserve fund and subaccounts within such accounts. The reserve
fund will be augmented
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on each monthly distribution date by deposit therein of the amount, if any,
necessary to cause the balance of such reserve fund to equal the specified
reserve fund balance from the amount of available funds remaining after making
all prior distributions on such date. Also, if amounts were transferred from the
reserve fund to cover a realized loss on a financed student loan, any subsequent
payments of principal received on or with respect to such financed student loan
will be deposited into the reserve fund or applied as an additional principal
distribution. Amounts on deposit in the reserve fund exceeding the specified
reserve fund balance will be distributed as described under "The Indenture -
Reserve Fund."
The reserve fund is intended to enhance the likelihood of timely receipt by the
holders of the full amount of interest due them on each distribution date and
principal due them on the legal final maturity of the notes or a date when the
notes are to be redeemed in whole and to decrease the likelihood that the
holders will experience losses. In certain circumstances, however, the reserve
fund could be depleted. Further, amounts otherwise required to be deposited into
the reserve fund may be applied as additional principal distributions on such
related series of notes. If the amount required to be withdrawn from a reserve
fund to cover shortfalls in the amount of available funds exceeds the amount of
cash in the reserve fund, a temporary shortfall in the amount of principal and
interest distributed to the holders could result. This shortfall could, in turn,
increase the average life of the notes. Moreover, amounts on deposit in the
reserve fund other than amounts in excess of the related specified reserve fund
balance will not be available to cover any aggregate unpaid carryover interest.
INTEREST RATE EXCHANGE AGREEMENTS
Under the indenture, the issuer has the right to enter into one or more interest
rate exchange agreements with one or more exchange counterparties. Any exchange
counterparty must have a rating of its long-term debt securities of at least Aa1
(or its equivalent) from a rating agency. Payments by the issuer under such
interest rate exchange agreements may be on a parity with the Series 1998A
Notes, or on a parity with the Series B-3 Notes. If the issuer enters into 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 interest rate 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 interest rate exchange
agreement will be deposited to the collection account. Payments under such
interest rate exchange agreements may be on a parity with other senior notes
issued under the indenture or on a parity with subordinate notes issued under
the indenture.
At such times that the exchange rate being paid by the exchange counterparty is
greater than the exchange rate being paid by the issuer, the indenture trustee's
ability to make principal and interest payments on the notes will be affected by
the exchange counterparty's ability to meet its net payment obligation to the
indenture trustee. In addition, under certain circumstances, the failure by the
issuer to make a payment under an interest rate exchange agreement may
constitute an event of default. See "Risk Factors." The indenture requires that
prior to the date that the issuer enters into an interest rate exchange
agreement, the issuer must obtain written evidence from each rating agency then
rating any of the notes that the execution and delivery of the interest rate
exchange agreement will not adversely affect such rating agency's rating on such
notes.
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THE INDENTURE
The old notes were issued by the depositor pursuant to an indenture dated as of
December 1, 1998 between the depositor and Firstar Bank, N.A. and were
subsequently assigned to and assumed by the issuer. Upon the assignment and
assumption of the old notes, the issuer entered into an Amended and Restated
Indenture of Trust, and Amended and Restated Terms Supplement, each dated as of
March 15, 1999, among the issuer and Firstar Bank, N.A. pursuant to which the
new notes will be issued On the closing date, the issuer and the eligible lender
trustee will pledge the financed student loans and other moneys received from
the net proceeds of the old notes to the indenture trustee under the indenture.
The following is a summary of certain provisions of the indenture relating to
the notes and is not to be considered as a full statement of the provisions of
the indenture. This summary is qualified by reference to and is subject to such
document. Copies of the indenture may be obtained upon request from the
indenture trustee.
INDENTURE TRUSTEE
Firstar Bank, N.A., a national banking association organized under the laws of
the United States, is the indenture trustee for the notes. The indenture
trustee's corporate trust office is located at 425 Walnut Street, Cincinnati,
Ohio 45202, and its telephone number is (513) 762-8870. The indenture trustee is
also acting as the initial eligible lender trustee under the indenture and may
serve from time to time as trustee under indentures or eligible lender trust
agreements with the issuer or its affiliates relating to other issues of their
securities. In addition, the issuer or its affiliates may maintain other banking
relationships with Firstar Bank, N.A. and its affiliates from time to time.
ELIGIBLE LENDER TRUSTEE
Firstar Bank, N.A., is also the initial eligible lender trustee for the issuer
under the Eligible Lender Trust Agreement, dated as of June 1, 1998, as amended,
between the issuer and the eligible lender trustee. The office of the eligible
lender trustee is located at 425 Walnut Street, Cincinnati, Ohio 45202. The
eligible lender trustee, on behalf of the issuer, will hold legal title to the
financed FFELP loans in the trust. The eligible lender trustee on behalf of the
issuer has entered or will enter into a guarantee agreement with each of the
guarantee agencies with respect to each financed FFELP loan. The eligible lender
trustee is qualified as an eligible lender for all purposes under the Higher
Education Act and the guarantee agreements with respect to the financed FFELP
loans. Failure of the financed FFELP loans to be owned by an eligible lender
would result in the loss of guarantee payments, interest subsidy payments and
special allowance payments with respect to financed FFELP loans. See
"Description of the FFEL Program," and "Risk Factors -- Offset by Guarantee
Agencies."
The issuer, the depositor or their affiliates may maintain other banking
relationships with Firstar Bank, N.A. and its affiliates from time to time.
REPORTS TO HOLDERS
The indenture trustee will provide by each monthly distribution date to the
rating agencies and applicable holders of record as of the related record date,
a statement setting forth at least the following information regarding the notes
with respect to the preceding collection period or collection periods, to the
extent applicable:
(a) the Principal Factor for the Series A-3 Notes and for the Series
B-3 Notes;
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(b) the amount of the payment allocable to principal of each series of
notes;
(c) the amount of the payment allocable to interest on each series of
notes together with the interest rates applicable with respect
thereto (indicating, whether such interest rates are based on the
formula rate or on the net loan rate with respect to each series of
notes, and specifying what each such interest rate would have been
if it had been calculated using the alternate basis);
(d) the amount of the payment, if any, allocable to any carryover
interest for one or more series of notes, together with the
outstanding amount, if any, thereof after giving effect to any such
distribution;
(e) the pool balance, the parity percentage and the senior parity
percentage, in each case as of the close of business on the last
day of the preceding collection period;
(f) the aggregate outstanding principal amount of each series of notes
as of such monthly distribution date after giving effect to
distributions allocated to principal on such monthly distribution
date;
(g) the estimated amount to be allocated to program operating expenses
on the upcoming monthly distribution date;
(h) the amount of the aggregate realized losses, if any, for the
preceding collection period and the aggregate amount, if any,
received (stated separately for interest and principal) during such
collection period relating to financed student loans for which a
realized loss was previously allocated;
(i) the amount of the distribution attributable to amounts in any
reserve fund, acquisition fund or other account established under
the indenture, the amount of any other withdrawals from such funds
or accounts for such monthly distribution date, the balance of such
funds or accounts on such distribution date, after giving effect to
changes therein on such distribution date, the then applicable
parity percentage, and the amount of the distribution, if any,
attributable to parity percentage payments;
(j) the aggregate amount, if any, paid for financed student loans
purchased from the trust during the preceding collection period;
and
(k) the following information as reported to the indenture trustee by
the issuer or servicer: the number and principal amount of financed
student loans, as of the end of the preceding collection period,
that are (A) 31 to 60 days delinquent, (B) 61 to 90 days
delinquent, (C) 91 to 120 days delinquent, (D) more than 120 days
delinquent and (E) for which claims have been filed with the
appropriate guarantee agency, guarantor or escrow fund and which
are awaiting payment.
Within the prescribed period of time for tax reporting purposes after the end of
each calendar year during the term of the indenture, the indenture trustee will
mail to each person who at any time during such calendar year was a holder and
received any payment thereon, a statement containing certain information for the
purposes of such holder's preparation of federal income tax returns. See
"Federal Income Tax Consequences."
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ACQUISITION FUND
In connection with the issuance and sale of the old notes, the indenture trustee
established an acquisition fund and deposited $708,205,483 in cash from the net
proceeds of the sale of the old notes or eligible investments into the
acquisition fund. See "Use of Proceeds." The indenture trustee used this amount
to acquire, directly or indirectly through the eligible lender trustee, the
financed student loans described under the heading "The Financed Student Loans."
To the extent necessary or appropriate, the issuer and the indenture trustee may
establish accounts within the acquisition fund and subaccounts within such
accounts.
The moneys to be applied from the acquisition fund for the financing of student
loans will equal:
(1) the full remaining unpaid principal amount of such student loans
that have been fully disbursed, plus
(2) the full remaining unpaid principal amount of such student loans
that have not been fully disbursed, plus
(3) the amount of accrued and unpaid interest on such student loans
payable by the borrowers in respect thereof,
(4) less a discount or plus a premium, and,
(5) when directed by the issuer, less any accrued but unpaid interest
on such student loans, plus
(6) reasonable transfer fees payable to or on behalf of the sellers
with respect to such student loans pursuant to the applicable
purchase agreements, plus
(7) any interest paid by the indenture trustee to a seller at the
direction of the issuer on the amount of principal and accrued
interest on such student loans being financed, directly or
indirectly, from the date of transfer of such student loans until
the date funds are actually paid to said seller at a rate of
interest not to exceed the current yield on funds in the expense
account, in any case not exceeding the amount permitted by law.
Upon request by the issuer, moneys in the acquisition fund may also be applied
for the financing, directly or indirectly through the eligible lender trustee,
of student loans from the indenture trustee under another indenture of trust
between the issuer and such indenture trustee or from the issuer for student
loans financed by the issuer with funds not subject to an indenture of trust. In
either case the price of such student loans shall not exceed the full remaining
unpaid principal amount of such student loans, plus the amount of accrued and
unpaid interest on such student loans payable by the borrowers in respect
thereof, plus any unamortized premium and plus reasonable transfer fees not
exceeding the amount permitted by law. In addition to any other requirements set
forth for the use of proceeds from the acquisition fund, the issuer may only
finance student loans serviced by servicers and guaranteed by guarantee agencies
that have been approved by each rating agency at the time of purchase.
STUDENT LOAN PORTFOLIO FUND
In connection with the issuance of the old notes, the indenture trustee
established a student loan portfolio fund. All financed student loans shall be
included in the balances of the student loan portfolio fund. Financed student
loans may also be applied:
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(1) as provided in the applicable purchase agreements with respect to
rejections and repurchases thereof,
(2) as provided in the applicable servicing agreements,
(3) as provided for defeasance of the indenture,
(4) as required to obtain the benefits of a guarantee in case of default on
such financed student loan, and
(5) in connection with the consolidation of such financed student loan by the
borrower.
To the extent necessary or appropriate, the issuer and the indenture trustee may
establish accounts within the student loan portfolio fund and subaccounts within
such accounts.
The indenture trustee shall permit the sale of financed student loans selected
by the issuer only:
(1) to avoid an event of default or, if an event of default has occurred, as
may be required or appropriate pursuant to the indenture,
(2) in an exchange of financed student loans as described below,
(3) in connection with a mandatory auction of the financed student loans in the
trust as described under "Redemption," and
(4) in connection with the purchase of the financed student loans by the issuer
when the pool balance is equal to 10% or less of the initial pool balance
as described under "Redemption."
The issuer may at any time and from time to time instruct the indenture trustee
to exchange financed student loans for other student loans having the same
characteristics including,
o an aggregate principal amount no less than the aggregate principal
amount of the financed student loans being exchanged,
o the same or higher rates of interest,
o eligible, after exchange, for the same special allowance payments,
and
o the same status, whether interim, grace or payout.
The issuer may cause such an exchange only if the average principal amount of
all of the financed student loans included in the trust shall not be decreased,
the average maturity of all 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. The issuer must also certify that such exchange will not
materially adversely affect the sufficiency of available funds to meet the
obligations of the issuer under the indenture. Additionally, to comply with the
requirements described in the next paragraph, the issuer may also exchange
financed student loans for other student loans which bear interest at a fixed
rate, if the issuer certifies that such exchange will not materially adversely
affect the sufficiency of available funds to meet the obligations of the issuer
under the indenture.
Under the indenture, the aggregate principal balances of financed student loans
bearing interest at a fixed rate must always equal or exceed the outstanding
principal amount of the Series B-3 Notes unless each
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rating agency then rating the notes confirms that any failure to meet the
foregoing test will not adversely affect the existing ratings on the notes.
Any sale, exchange or other disposition of financed student loans will be only
to or with one or more eligible lenders under the Higher Education Act so long
as the Higher Education Act requires the owner or holder of FFELP loans to be an
eligible lender.
COLLECTION FUND
When the issuer issued the old notes, the indenture trustee established a
collection fund and the following accounts in the collection fund: a collection
account, a note payment account, an expense account and an excess surplus
account. To the extent necessary or appropriate, the issuer and the indenture
trustee may establish other accounts within the collection fund and subaccounts
with such accounts.
Collection Account. On the closing date, the indenture trustee deposited to the
credit of the collection account a portion of the proceeds of the old notes. See
"Use of Proceeds." The issuer will, and will cause each seller and servicer in
accordance with the applicable purchase agreement or servicing agreement, to
transfer all available funds received by it to the indenture trustee. The
indenture trustee will, upon receipt of any available funds with respect to the
financed student loans held in the student loan portfolio fund, immediately
deposit and credit such available funds to the collection account.
For purposes hereof, available funds means, with respect to any collection
period, the excess of
(A) the sum, without duplication, of the following amounts with respect to
such collection period:
(1) all collections received by the indenture trustee on the financed
student loans (including any guarantee payments received with
respect to the financed student loans) during such collection
period;
(2) 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;
(3) all proceeds from any sales of financed student loans during such
collection period;
(4) 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;
(5) the aggregate purchase amounts received for those financed
students loans purchased by the indenture trustee during such
collection period;
(6) the aggregate amounts, if any, received from the issuer or the
indenture trustee as reimbursement of non-guaranteed or uninsured
interest amounts (which shall not include the portion of 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;
(7) counterparty exchange payments;
(8) advances received; and
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(9) 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.
Available funds will exclude:
(1) all payments and proceeds of any financed student loans the purchase amount
of which has been included in available funds for a prior collection
period, which payments and proceeds shall be paid to the issuer;
(2) amounts used to reimburse the issuer for advances or any other amounts
advanced by the issuer on a voluntary basis with respect to guarantee
payments or interest subsidy payments applied for but not received as of
the end of the collection period immediately preceding the date such
advance is made; and
(3) amounts which are paid to the issuer pursuant to the indenture.
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 interest rate exchange agreement.
Expenses relating to the notes may be paid from time to time from available
funds in the collection account by transfers to the expense account for payment
thereof. See "-- Expense Account."
On each monthly distribution date as described below, the indenture trustee will
transfer from the collection account the following amounts in the following
priority, subject to available funds for the immediately preceding collection
period:
(1) to the expense account, to the extent required to increase the balance
of such account to the program expense requirement calculated as of
such monthly distribution date;
(2) to the note payment account:
(a) an amount up to (A) the Series 1998A-3 Holders' Interest
Distribution Amount for payment on such monthly distribution date
to the holders of Series A-3 Notes, and (B) any related senior
issuer exchange payment with respect to the Series A-3 Notes for
payment to the related exchange counterparty;
(b) an amount up to (A) the Series 1998A-4 Holders' Interest
Distribution Amount for payment on each auction period
distribution date occurring in the next succeeding calendar month
to the holders of Series A-4 Notes, and (B) any related senior
issuer exchange payment with respect to the Series A-4 Notes for
payment to the related exchange counterparty;
(c) an amount up to (A) the Series 1998A-5 Holders' Interest
Distribution Amount for payment on each auction period
distribution date occurring in the next succeeding calendar month
to the holders of Series A-5 Notes, and (B) any related senior
issuer exchange payment with respect to the Series A-5 Notes for
payment to the related exchange counterparty; and
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(d) an amount up to (A) the Series 1998A-6 Holders' Interest
Distribution Amount for payment on each auction period
distribution date occurring in the next succeeding calendar month
to the holders of Series A-6 Notes, and (B) any related senior
issuer exchange payment with respect to the Series A-6 Notes for
payment to the related exchange counterparty;
(3) to the note payment account, an amount up to (A) the Series 1998B-3
Holders' Interest Distribution Amount for payment on such monthly
distribution date to the holders of Series B-3 Notes, and (B) any
related subordinate issuer exchange payment with respect to the Series
B-3 Notes for payment to the related exchange counterparty;
(4) to the note payment account:
(a) an amount up to the Series 1998A Holders' Principal Distribution
Amount for payment on such monthly distribution date to the
holders of Series A-3 Notes until the principal balance thereof
has been reduced to zero and an amount up to the Series 1998B-3
Holders' Principal Distribution Amount for payment on such
monthly distribution date to the holders of Series B-3 Notes,
then
(b) once the Series A-3 Notes are no longer outstanding, an amount up
to the Series 1998A Holders' Principal Distribution Amount for
payment on the next succeeding auction period distribution date
to the holders of Series A-4 Notes until the principal balance
thereof has been reduced to zero and an amount up to the Series
1998B-3 Holders' Principal Distribution Amount for payment on
such monthly distribution date to the holders of Series B-3
Notes, then,
(c) once the Series A-3 Notes and Series A-4 Notes are no longer
outstanding, an amount up to the Series 1998A Holders' Principal
Distribution Amount for payment on the next succeeding auction
period distribution date to the holders of Series A-5 Notes until
the principal balance thereof has been reduced to zero and an
amount up to the Series 1998B-3 Holders' Principal Distribution
Amount for payment on such monthly distribution date to the
holders of Series B-3 Notes, and thereafter,
(d) once the Series A-3 Notes, Series A-4 Notes and Series A-5 Notes
are no longer outstanding, an amount up to the Series 1998A
Holders' Principal Distribution Amount for payment on the next
succeeding auction period distribution date to the holders of
Series A-6 Notes until the principal balance thereof has been
reduced to zero and an amount up to the Series B-3 Holders'
Principal Distribution Amount for payment on such monthly
distribution date to the holders of Series B-3 Notes;
(5) after the Series 1998A Notes are no longer outstanding, to the note
payment account, an amount up to the Series 1998B-3 Holders' Principal
Distribution Amount for payment on such monthly distribution date to
the holders of Series B-3 Notes;
(6) to the reserve fund, the amount, if any, required to increase the
balance thereof to the specified reserve fund balance as described
under the heading "-- Reserve Fund";
(7) to the note payment account, an amount up to parity percentage
payments to the extent then required:
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(a) for payment to the holders of Series A-3 Notes on such monthly
distribution date until the principal balance thereof has been
reduced to zero, then
(b) once the Series A-3 Notes are no longer outstanding, for payment
to the holders of Series A-4 Notes on the next succeeding auction
period distribution date until the principal balance thereof has
been reduced to zero, then
(c) once the Series A-3 Notes and the Series A-4 Notes are no longer
outstanding, for payment to the holders of Series A-5 Notes on
the next succeeding auction period distribution date until the
principal balance thereof has been reduced to zero, then,
(d) once the Series A-3 Notes, the Series A-4 Notes and the Series
A-5 Notes are no longer outstanding, for payment to the holders
of Series A-6 Notes on the next succeeding auction period
distribution date until the principal balance thereof has been
reduced to zero, and thereafter,
(e) once the Series 1998A Notes are no longer outstanding, for
payment to the holders of Series B-3 Notes on such monthly
distribution date until the principal balance thereof has been
reduced to zero;
(8) to the note payment account, an amount up to any carryover interest:
(a) first to the holders of Series A-3 Notes for payment on such
monthly distribution date, and upon payment of all carryover
interest due to the holders of Series A-3 Notes, then
(b) to the holders of Series A-4 Notes for payment on the next
succeeding auction period distribution date, and upon payment of
all carryover interest due to the holders of Series A-4 Notes,
then
(c) to the holders of Series A-5 Notes for payment on the next
succeeding auction period distribution date, and upon payment of
all carryover interest due to the holders of Series A-5 Notes,
and thereafter,
(d) to the holders of Series A-6 Notes for payment on the next
succeeding auction period distribution date;
(9) to the note payment account, an amount up to the amount, if any, owed
an exchange counterparty in respect of an early termination payment or
damages for early termination by, or as a result of a default by, the
issuer under any interest rate exchange agreement for payment to such
exchange counterparty; and
(10) any remainder, to the excess surplus account.
If on any monthly distribution date following all distributions to be made on
such monthly distribution date, either:
(a) the outstanding principal amount of the Series 1998A Notes would
exceed the sum of the pool balance plus the aggregate balance on
deposit in the funds and accounts (exclusive of the balance of
the student loan portfolio fund) under the indenture at the end
of the immediately preceding collection period less all
distributions to be made on such distribution date, or
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(b) a payment event of default has occurred (but prior to the
acceleration of the maturity of the notes),
then, until the applicable conditions described in clauses (a) and (b) no longer
exist, the Series 1998B-3 Holders' Interest Distribution Amount and the Series
1998B-3 Holders' Principal Distribution Amount will not be paid to the holders
of Series B-3 Notes pursuant to clauses (3) and (4) above and no subordinate
issuer exchange payments will be made. For so long as any Series 1998A Notes
remain outstanding, such deferral in the payment of the Series 1998B-3 Holders'
Interest Distribution Amount, the Series 1998B-3 Holders' Principal Distribution
Amount or subordinate issuer exchange payments (except with respect to the Legal
Final Maturity of the Series B-3 Notes) will not constitute an event of default
under the indenture. In addition, as long as the applicable conditions described
in clause (b) continue to exist, the Series 1998A Holders' Principal
Distribution Amount will be allocated and paid pro rata among each series of
Series 1998A Notes, without preference or priority of any kind. See "-- Events
of Default."
Principal payments will be made to the holders of Series A-4 Notes, holders of
Series A-5 Notes and holders of Series A-6 Notes only in amounts equal to
$50,000 and integral multiples in excess thereof. If the amount in the note
payment account otherwise required to be applied as a payment of principal
either (1) is less than $50,000 or (2) exceeds an even multiple of $50,000,
then, in the case of (1), such entire amount or, in the case of (2), such excess
amount, will not be paid as principal on the upcoming auction period
distribution date, but will be retained in the note payment account until the
amount therein available for payment of principal on the applicable series of
auction rate notes equals $50,000.
Concerning the series of auction rate notes entitled to receive payments of
principal, the indenture trustee will select the actual notes of such series
that will receive payments of principal on each applicable auction period
distribution date no later than five business days prior to the related auction
period distribution date. The indenture trustee will make the selection by lot
in a manner it determines and which will provide for the selection for payment
of principal in minimum denominations of $50,000, and integral multiples in
excess thereof.
The indenture trustee will give notice of the specific auction rate notes to
receive payments of principal by first-class mail, postage prepaid, mailed to
the address of the applicable holder appearing on the registration books not
less than five business days but no more than ten business days before the
applicable auction period distribution date. Any defect in or failure to give
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:
(1) the applicable auction period distribution date;
(2) the amount of principal to be paid, and
(3) the series of the auction rate notes to be paid.
Note Payment Account. On each applicable distribution date, following the
transfers to the note payment account described above, the indenture trustee
will distribute to the applicable holders as of the related record date and
exchange counterparties, if any, the amounts transferred to the note payment
account, together with any amounts transferred from the reserve fund and any
advances, as described under the heading "-- Collection Account."
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Expense Account. A portion of the proceeds from the offering of the old notes
was deposited into the expense account. See "Use of Proceeds." Funds also were
deposited into the expense account, as described herein, from the collection
account and from the reserve fund. See "-- Collection Fund" and "-- Reserve
Fund." Funds in the expense account will be applied to pay program operating
expenses and costs of issuance, as described in the indenture. In addition,
expenses relating to the notes may be paid from time to time from available
funds on deposit in the collection account by transfers to the expense account
for payment thereof.
The program expense requirement is, as of any date of calculation, such amount
as may then be necessary to be accumulated in the expense account for payment,
under the indenture, of the program operating expenses due or to become due
during the month beginning on the first day of the next succeeding calendar
month as provided in the indenture.
Program operating expenses are all items of expense allocable to the operation
of the program, including:
(1) fees and expenses of and any other amounts payable to the indenture trustee
and the authenticating agent, if any, and any fees charged by a depository;
(2) the fees and expenses of and any other amounts payable to the calculation
agent, the auction agent, the broker-dealers, market agent or other agent
in connection with the notes or under the indenture;
(3) fees and expenses of and any other amounts payable to the servicers, the
eligible lender trustee and any bank providing lock-box or similar services
in connection with financed student loans and servicing development fees;
(4) the fees and expenses incurred by or on behalf of the issuer, including
fees and expenses payable to the master servicer and the administrator, in
the administration of the program under the Higher Education Act, a
guarantee agreement and any other agreement or legal requirement affecting
the administration of the program, costs of legal, accounting, auditing,
management, consulting, banking and financial advisory services and
expenses, costs of salaries, supplies, utilities, mailing, labor,
materials, office rent, maintenance, furnishings, equipment, machinery,
apparatus and insurance premiums, costs of issuance not paid from proceeds
of old notes; and
(5) and other reasonable and proper expenses, including both operating expenses
and capital expenditures incurred or to be incurred in connection with the
operation of the program and, with respect to item (4) above, any other
similar program of the issuer.
Excess Surplus Account. On each monthly distribution date, any available funds
remaining after all required distributions are made on such distribution date
will be deposited to the credit of the excess surplus account. The indenture
trustee may transfer for deposit under the trust agreement or withdraw amounts
on deposit in the excess surplus account at any time upon written request of the
issuer to be used for any lawful purpose if after such withdrawal the parity
percentage is at least 103%. Any available funds distributed to the issuer from
the excess surplus account will not thereafter be available to make payments on
the notes. Until withdrawal by the issuer, the indenture trustee may transfer to
the reserve fund amounts on deposit in the excess surplus account if, and to the
extent that, a deficiency in the reserve fund remains after the transfers from
the collection account. The issuer may also direct in writing that the indenture
trustee transfer amounts on deposit in the excess surplus account to the
collection account or the reserve fund.
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RESERVE FUND
In connection with the issuance of the old notes, the indenture trustee
established a reserve fund for the new notes. See "Security for the Notes --
Reserve Fund." The indenture trustee deposited $10,917,000 of the proceeds of
the old notes or eligible investments into the reserve fund which is equal to
its specified reserve fund balance.
The specified reserve fund balance on any distribution date for the reserve fund
is equal to the greater of 1.5% of the outstanding principal balance of the
notes on such distribution date after giving effect to payments on such
distribution date, or $1,500,000, but not in excess of the outstanding principal
balance of the notes.
At any time the balance of the reserve fund is below its specified reserve fund
balance, the indenture trustee will restore the reserve fund to its specified
reserve fund balance by transfers on the next monthly distribution date from
among the following accounts in the following order of priority:
first, from the collection account after making all prior distributions
on such monthly distribution date as described under "--
Collection Fund," 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 heading "-- Collection Fund"
and from the excess surplus account until the deficiency in the reserve fund has
been eliminated. Also, if amounts were transferred from the reserve fund to
cover a realized loss on a financed student loan, any subsequent payments of
principal received on or with respect to such financed student loan will be
deposited into the reserve fund.
The indenture trustee will transfer any excess over the related specified
reserve fund balance in the reserve fund to the collection account. After the
transfer of any such excess balance, the reserve fund will be used solely for
the following purposes in the following order of priority:
first, to make up any deficiency in the expense account immediately
following the transfer of moneys into such account pursuant to
the indenture;
second, to increase the amount in the note payment account to the amount
required to pay interest on the notes and any related issuer
exchange payment (other than carryover interest, interest on the
Series B-3 Notes or any subordinate issuer exchange payment when
the payment of such interest or subordinate issuer exchange
payment is deferred as described under the heading "--
Collection Fund") on any distribution date or on any other date
on which interest is due upon redemption in whole or payment of
the notes or on any other date on which any related issuer
exchange payment is due and payable (other than any subordinate
issuer exchange payments when their payment is deferred as
described under the heading "-- Collection Fund"), by transfer
and deposit by the indenture trustee to the credit of the note
payment account on any such date; and
third, to provide for payment of the principal of any series of notes
at the legal final maturity thereof or for the payment of the
principal of such series being redeemed in whole as described
under the heading "Redemption," by transfer and deposit by the
indenture
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trustee to the credit of the note payment account on the legal
final maturity of the series of notes or the date of any
redemption, as the case may be.
ADVANCES
If the issuer or the eligible lender trustee on behalf of the issuer has applied
for a guarantee payment from a guarantee agency or an interest subsidy payment
or a special allowance payment from the Department of Education, and the issuer
or the eligible lender trustee, as applicable, has not received the related
payment prior to the end of the collection period immediately preceding the
distribution date on which such amount would be required to be distributed as a
payment of interest, the issuer may, no later than the third business day before
such distribution date, deposit into the note payment account an amount up to
the amount of such payments applied for but not received (such deposits by the
issuer are referred to herein as advances). Such advances are recoverable by the
issuer, first, from the source for which such advance was made and second, from
payments received generally on or with respect to the financed student loans.
Funds used to reimburse the issuer for prior advances are excluded from
available funds and, accordingly, repayment of advances have priority over all
other payments under the indenture. The issuer will have no obligation, legal or
otherwise, to make any advance, and a determination by the issuer to make an
advance will not create any obligation of the issuer, legal or otherwise, to
make any future advances.
INVESTMENT
Pending application of moneys in the funds and accounts in accordance with the
indenture, such moneys will be invested in eligible investments. Eligible
investments include the following:
(a) Direct obligations of (including obligations issued or held in book
entry form on the books of) the Department of the Treasury of the
United States of America;
(b) Obligations of any of the following federal agencies which
obligations represent the full faith and credit of the United
States of America, including:
- Export-Import Bank
- Farm Credit System Financial Assistance Corporation
- Rural Economic Community Development Administration (formerly the
Farmers Home Administration)
- General Services Administration
- U.S. Maritime Administration
- Small Business Administration
- Government National Mortgage Association (GNMA)
- U.S. Department of Housing & Urban Development (PHA's)
- Federal Housing Administration;
(c) Senior debt obligations rated "AAA" or "Aaa" by each rating agency
issued by the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, and senior debt obligations of
other federal government-sponsored agencies approved by each rating
agency;
(d) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptance with domestic commercial banks which have a
rating of their short term certificates of deposit on the date of
purchase of "A-1+," "F-1+" or "P-1" by each rating agency and
maturing
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no more than 360 days after the date of purchase (ratings on
holding companies are not considered as the rating on the bank);
(e) Commercial paper which is rated at the time of purchase in the
single highest classification, "A-1+," "F-1+" or "P-1" by each
rating agency and which matures not more than 270 days after the
date of purchase;
(f) Investments in a money market fund rated in the highest applicable
rating category by (1) a nationally recognized rating service
acceptable to each rating agency, or (2) each rating agency;
(g) Pre-refunded municipal obligations defined as follows: Any bonds or
other obligations of any state of the United States of America or
of any agency, instrumentality or local governmental unit of any
such state which are not callable at the option of the obligor
prior to maturity or as to which irrevocable instructions have been
given by the obligor to call on the date specified in the notice;
and
(1) which are rated, based on an irrevocable escrow account or
fund (the escrow), in the highest rating category of each
rating agency; or
(2) (A) which are fully secured as to principal and interest and
redemption premium, if any, by an escrow consisting only of
cash or obligations described in paragraph (a) above, which
escrow may be applied only to the payment of such principal of
and interest and redemption premium, if any, on such bonds or
other obligations on the maturity date or dates thereof or the
specified redemption date or dates pursuant to such
irrevocable instructions, as appropriate, and
(B) which escrow is sufficient, as verified by a nationally
recognized independent certified public accountant, to pay
principal of and interest and redemption premium, if any, on
the bonds or other obligations described in this paragraph on
the maturity date or dates specified in the irrevocable
instructions referred to above, as appropriate;
(h) Investment agreements approved in writing by each rating agency and
supported by appropriate opinions of counsel for the investment
agreement provider; and
(i) Other forms of investments (including repurchase agreements)
approved in writing by each rating agency.
Moneys are required to be invested in eligible investments with respect to which
payments of principal and interest are scheduled or otherwise payable not later
than the date on which it is estimated that such moneys will be required by the
indenture trustee for the purposes intended. Any earnings on or income from such
eligible investments will be treated as collections of interest on the financed
student loans and will be deposited in the collection account.
COVENANTS OF THE ISSUER
The issuer covenants under the indenture that: it will administer the issuer's
program of financing student loans pursuant to the indenture (the program) in
accordance with the Higher Education Act; it will maintain or cause to be
maintained proper books of record and account and will permit those to be
inspected by the indenture trustee and by holders of more than 10% of the
aggregate principal amount of
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the notes; it will diligently cause to be collected all principal and interest
payments on each financed student loan and any grants, subsidies, donations,
guarantee payments, interest subsidy payments and special allowance payments
with respect to each financed student loan; it will diligently cause to be taken
all reasonable steps to enforce all financed student loans, the master servicing
agreement, the servicing agreements and the purchase agreements; it will not
create, or permit the creation of, any pledge, lien, charge or encumbrance on
the assets of the trust except as provided in or permitted by the indenture; and
it will not issue any obligations, notes, securities or other evidences of
indebtedness, other than the notes, secured by a pledge of the assets of the
trust creating a lien on the assets of the trust equal or superior to the lien
of the indenture, provided, however, that nothing in the indenture shall prevent
the issuer from issuing evidences of indebtedness secured by a pledge on the
assets of the trust subordinate in priority to that of the notes, or secured by
a pledge of the assets of the trust arising on or after the pledge of the assets
of the trust shall be satisfied and discharged, or from issuing other evidences
of indebtedness secured by assets and revenues of the issuer.
The issuer also covenants that it will file with the indenture trustee a
projection of program operating expenses for each calendar year and that it will
not, in any calendar quarter, exceed those projected for such calendar quarter
except on certain conditions described in the related indenture. If the issuer
fails to file a report for any calendar year, the report filed for the preceding
calendar year will apply.
EVENTS OF DEFAULT
Under the indenture, the following constitute an event of default:
1. Failure in the due and punctual payment of:
(i) principal or interest on any note issued under the indenture
when due, either at legal final maturity or upon redemption or
otherwise, excluding, however:
(a) any shortfall on a distribution date other than the legal
final maturity of any series of notes if available funds
are insufficient to pay the related principal distribution
amount on such date,
(b) for so long as any Series 1998A Notes are outstanding
under the indenture, any shortfall on a distribution date
other than the legal final maturity of any Series B-3
Notes if available funds are insufficient to pay the
Holders' Interest Distribution Amount on the Series B-3
Notes on such date, and
(c) for so long as any Series 1998A Notes are outstanding
under the indenture, any deferral in the payment of
interest or principal on the Series B-3 Notes on a
distribution date other than the legal final maturity of
the Series B-3 Notes, or
(ii) any issuer exchange payment when due, excluding, however:
(a) payment in respect of an early termination of the interest
rate exchange agreement,
(b) for so long as any Series 1998A Notes are outstanding
under the indenture, any shortfall on a distribution date
other than the legal final maturity of any Series B-3
Notes if available funds are insufficient to pay
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any subordinate issuer exchange payments relating to such
Series B-3 Notes on such date, and
(c) for so long as any Series 1998A Notes are outstanding
under the indenture, any deferral in the payment of
subordinate issuer exchange payments;
2. Failure by the issuer in the observance and performance of any
covenants or agreements made in the indenture and the continuation
of such failure for a period of 30 days after written notice thereof
is given to the issuer from the indenture trustee or from the
holders of at least a majority of the aggregate principal amount of
the outstanding notes;
3. Certain events of bankruptcy, insolvency, receivership or
liquidation of the issuer; and
4. The entry of a final judgment against the issuer if such judgment
will not be discharged within 60 days from the entry thereof, or if
an appeal will not be taken therefrom, or from the order or decree
upon which such judgment was granted or entered in such manner as to
conclusively set aside the execution under such judgment or order or
the enforcement thereof, if such judgment constitutes or could
result in:
(a) a lien or charge on the available funds or the assets of the
trust equal or superior to the lien granted under the indenture
for the benefit of the holders of the Series 1998A Notes,
(b) if no Series 1998A Notes are outstanding under the indenture, a
lien or charge on the available funds or the assets of the
trust equal or superior to the lien granted under the indenture
for the benefit of the holders of the Series B-3 Notes, or
(c) which materially and adversely affects the ownership, control
or operation of the Program.
Acceleration of the Notes
If an event of default described in clause (1) above should occur and be
continuing, the indenture trustee may, and upon written direction by the holders
of at least a majority of the aggregate principal amount of the outstanding
directing notes, the indenture trustee must declare all outstanding notes to be
immediately due and payable, by written notice to the issuer.
If an event of default described in clause (2) above should occur and be
continuing, the indenture trustee may, and upon written direction by all of the
holders of directing notes, the indenture trustee must declare all outstanding
notes to be immediately due and payable, by written notice to the issuer.
If an event of default described in clause (3) above should occur and be
continuing, all outstanding notes will become immediately due and payable
without notice or any action by the indenture trustee and a declaration of such
acceleration will be deemed to have been made.
If an event of default described in clause (4) above should occur and be
continuing, the indenture trustee may, and upon written direction by the holders
of at least a majority of the aggregate principal amount of the outstanding
directing notes, the indenture trustee must declare all outstanding notes to be
immediately due and payable, by written notice to the issuer.
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If after such declaration, but before any judgment or decree for the payment of
moneys due will have been obtained or entered unless the same has been
discharged:
1. all defaults under the indenture (other than the payment of
principal and interest due and payable solely by reason of such
declaration) will be cured to the satisfaction of the indenture
trustee or provision deemed by the indenture trustee to be adequate
will be made therefor, and
2. the following amounts will either be paid by or for the account of
the issuer or provision satisfactory to the indenture trustee will
be made for such payment:
(i) all overdue installments of interest upon:
(a) the Series 1998A Notes if any Series 1998A Notes are
outstanding, or
(b) the Series B-3 Notes if no Series 1998A Notes are
outstanding, and
(ii) the reasonable and proper charges, expenses and liabilities of
the indenture trustee, any exchange counterparty and the
holders and their respective agents and attorneys, and all
other sums then payable by the issuer under the indenture
(except the principal of and interest accrued since the next
preceding distribution date on the notes due and payable solely
by virtue of such declaration),
then, the holders of at least a majority of the aggregate principal amount of
the outstanding directing notes, by written notice to the issuer and to the
indenture trustee, may rescind such declaration and annul such event of default,
or, if the indenture trustee has acted with respect to the notes without a
direction from the holders of at least a majority in aggregate principal amount
of the outstanding directing notes and has not received written direction to the
contrary by the holders of at least a majority in aggregate principal amount of
the outstanding directing notes, then the indenture trustee may annul such
declaration and any such default by written notice to the issuer. No such
rescission and annulment will extend to or affect any subsequent event of
default or impair or exhaust any right or power with respect thereto.
Upon any declaration of acceleration of the notes, the indenture trustee will
give notice of such declaration and its consequences to the holders and to any
related exchange counterparty as described in the indenture. Interest and
carryover interest will cease to accrue on such notes from and after the date
set forth in such notice (which will be not more than five days from the date of
such declaration).
Prior to a declaration accelerating the maturity of the notes as provided above,
the holders of at least two-thirds in aggregate principal amount of the
outstanding directing notes and each exchange counterparty that is not in
default or their attorneys-in-fact duly authorized may on behalf of the holders
of all notes issued under the indenture and each exchange counterparty waive any
past failure under such indenture and its consequences with respect to the
notes, except a failure in payment of the principal of or interest on any of the
notes.
Application of Moneys
If (1) an event of default has occurred and is continuing, and (2) at any time
the moneys held by the indenture trustee are insufficient for the payment of
principal and interest then due on the notes or for the payment of any issuer
exchange payment, then such moneys and all available funds received or collected
by the indenture trustee from the assets of the trust or otherwise for the
benefit or for the account of holders or an exchange counterparty (other than
moneys held for the payment or redemption of particular notes, which shall be
applied solely to the payment of principal and interest to holders other than
the
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issuer) will be applied first to the payment of the reasonable and proper fees
and expenses of the indenture trustee and other expenses as are necessary in the
judgment of the indenture trustee to prevent loss of available funds and to
protect the interests of the holders and/or each exchange counterparty, and
thereafter as follows:
1. If the principal of all of the notes issued under the indenture has
not become or been declared due and payable:
FIRST, to the payment of all installments of interest then due on
the Series 1998A Notes, with interest on overdue principal at the
rates borne by such Series 1998A Notes, and to all senior issuer
exchange payments then due, in the order that such installments
and/or senior issuer exchange payments will have become due, and, if
the amounts available are not sufficient to pay in full all such
installments and senior issuer exchange payments coming due on the
same date, then to the payment thereof ratably to the parties
entitled thereto without discrimination or preference;
SECOND, to the payment of the unpaid Holders' Principal Distribution
Amount and/or principal due and unpaid on the Series 1998A Notes at
the time of such payment, such payments to be made ratably to the
parties entitled thereto without discrimination or preference;
THIRD, to the payment of all installments of interest then due on
the Series B-3 Notes, with interest on overdue principal at the
rates borne by such Series B-3 Notes, and to all subordinate issuer
exchange payments then due, in the order that such installments
and/or subordinate issuer exchange payments will have become due,
and, if the amounts available are not sufficient to pay in full all
such installments of interest and subordinate issuer exchange
payments coming due on the same date, then to the payment thereof
ratably to the parties entitled thereto without discrimination or
preference; and
FOURTH, to the payment of the unpaid Holders' Principal Distribution
Amount and/or principal due and unpaid on the Series B-3 Notes at
the time of such payment, such payments to be made ratably to the
parties entitled thereto without discrimination or preference.
2. If the principal of all of the notes issued under the indenture has
become or has been declared due and payable:
FIRST, to the payment of all principal and interest then due and
unpaid on the Series 1998A Notes and all senior issuer exchange
payments then due, such payments to be made ratably to the parties
entitled thereto without discrimination or preference;
SECOND, to the payment of all principal and interest then due and
unpaid on the Series B-3 Notes and all subordinate issuer exchange
payments then due, such payments to be made ratably to the parties
entitled thereto without discrimination or preference; and
THIRD, to the payment of all carryover interest due and unpaid on
the Series 1998A Notes, such payments to be made ratably to the
parties entitled thereto without discrimination or preference.
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Remedies on Default
Whenever moneys are to be applied as above, irrespective of and whether other
authorized remedies have been pursued, the indenture trustee may sell, with or
without entry, all or part of the assets of the trust and all right, title,
interest, claim and demand thereto and the right of redemption thereof, at any
such place or places, and at such time or times and upon such notice and terms
as may be required by law. Upon such sale, the indenture trustee may make and
deliver to the purchaser or purchasers a good and sufficient assignment or
conveyance for the same, which sale shall be a perpetual bar both at law and in
equity against the issuer and all parties claiming such properties. No purchaser
at any sale shall be bound to see to the application of the purchase money or to
inquire as to the authorization, necessity, expediency or regularity of any such
sale. The issuer and the eligible lender trustee, if so requested by the
indenture trustee, shall ratify and confirm any sale or sales by executing and
delivering to the indenture trustee or to such purchaser or purchasers all such
instruments as may be necessary, or in the judgment of the indenture trustee
and/or the eligible lender trustee, proper for the purpose which may be
designated in such request. The indenture trustee shall not sell or permit the
sale or assignment of any financed student loan or any interest therein as a
part of the assets of the trust to any party who is not an eligible lender under
the Higher Education Act.
If an event of default has happened and is continuing, then the indenture
trustee, either in its own name, as trustee of an express trust, as
attorney-in-fact for the holders and/or each exchange counterparty or in any one
or more of 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 holders and/or each such
exchange counterparty under the indenture, whether for any specific performance
of any covenant contained in the indenture, in aid of the execution of any power
therein granted, for an accounting as trustee of any express trust, or in the
enforcement or any legal or equitable right as the indenture trustee, being
advised by counsel, deems most effectual to enforce any of its rights or to
perform any of its duties. The indenture trustee is entitled and empowered
either in its own name, as a trustee of an express trust, or as attorney-in-fact
for the holders and each exchange counterparty, or in any one or more of such
capacities, to file such proof of debt, claim, petition or other document as may
be necessary or advisable in order to have the claims of the indenture trustee,
the holders and any related exchange counterparty allowed in any equity,
receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization
or other similar proceedings.
The indenture trustee, at the written request of holders of at least a majority
in aggregate principal amount of the outstanding directing notes and upon being
furnished with reasonable security and indemnity, will take such steps and
institute such suits, actions or proceedings for the protection and enforcement
of the rights of any exchange counterparty or the holders, as the case may be,
to collect any amount due and owing from the issuer or by injunction or other
appropriate proceeding in law or in equity to obtain other appropriate relief.
No holder or exchange counterparty, if any, will have the right to institute any
proceeding with respect to the indenture unless:
(1) such holder or exchange counterparty previously shall have given to the
indenture trustee written notice of a continuing event of default,
(2) with respect to any exchange counterparty, such exchange counterparty is
not in default of its obligations under its interest rate exchange
agreement, all obligations of all of the parties to such agreement have not
been satisfied, and such agreement has not been terminated,
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(3) the holders of not less than a majority in aggregate principal amount of
the outstanding Directing Notes have requested in writing that the
indenture trustee institute such proceeding in its own name as indenture
trustee,
(4) such holder or holders have offered the indenture trustee reasonable
indemnity,
(5) the indenture trustee has for a period of 30 days after notice failed to
institute such proceeding, and
(6) no direction inconsistent with such written request has been given to the
indenture trustee during such 30-day period by the holders of a majority in
aggregate principal amount of the outstanding directing notes.
Remedies Not Exclusive
The remedies conferred upon or reserved to the indenture trustee, the holders or
any exchange counterparty in the indenture are not intended to be exclusive of
any other remedy, but each and every such remedy will be cumulative and will be
in addition to every other remedy given under the indenture or existing at law
or in equity or by statute on or after the date of adoption of the indenture.
AMENDMENT AND SUPPLEMENTAL INDENTURES
Without Consent of Holders. The issuer, the eligible lender trustee and the
indenture trustee, and, except with respect to item (15) below, with written
confirmation from each rating agency then rating the notes that execution of the
proposed supplemental indenture will not adversely affect the rating of such
rating agency on the notes, from time to time and at any time without the
consent or concurrence of any holder, may execute a supplemental indenture for
any one or more of the following purposes:
(1) To make any changes or corrections in the indenture as are required
for the purpose of curing or correcting any ambiguity or defective or
inconsistent provision or omission or mistake or manifest error
contained in the indenture or to insert in the indenture such
provisions clarifying matters or questions arising under the indenture
as are necessary or desirable;
(2) To add additional covenants and agreements of the issuer for the
purpose of further securing the payment of the notes;
(3) To surrender any right, power or privilege reserved to or conferred
upon the issuer by the terms of the indenture;
(4) To confirm as further assurance any lien, pledge, security interest,
assignment or charge, or the subjection to any lien, pledge, security
interest, assignment or charge, created or to be created by the
provisions of the indenture;
(5) To grant to or confer upon the holders any additional rights,
remedies, powers, authority or security that lawfully may be granted
to or conferred upon them, or to grant to or to confer upon the
indenture trustee for the benefit of the holders or any exchange
counterparty any additional rights, duties, remedies, powers or
authority;
(6) To make such amendments to the indenture as are required to permit the
issuer fully to comply with the Higher Education Act or as required in
order for the indenture, as amended by such supplemental indenture,
not to be contrary to the terms of the Higher Education Act;
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(7) To make such amendments to the indenture as may be necessary or
convenient to provide for issuance of the notes in coupon form or
issuance and registration of the notes in book-entry form and to
provide for other related provisions of the notes;
(8) To modify, amend or supplement the indenture or any indenture
supplemental thereto in such manner as to permit the qualification
thereof under the Trust Indenture Act of 1939 or any similar federal
statute hereafter in effect, and, if the issuer and the indenture
trustee so determine, to add to the indenture or any indenture
supplemental thereto such other terms, conditions and provisions as
may be permitted by said Trust Indenture Act of 1939 or similar
federal statute, and which will not materially adversely affect the
interests of the holders of the notes;
(9) To authorize the establishment of agreements providing for the pledge
of certain funds to other indentures, and for the pledge of certain
funds under other indentures to the indenture;
(10) To permit any changes or modifications of the indenture required by
(a) a rating agency to maintain the outstanding rating on the notes or
(b) by the issuer of (A) a policy of bond insurance or (B) any similar
financial guaranty insuring the payment of the principal of and
interest on any notes to obtain an internal rating of at least
investment grade or as a condition of the issuance of 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 interest rate
exchange agreement;
(12) To make such amendments to the indenture as may be necessary to permit
the issuer to make loans under the Higher Education Act;
(13) To provide for the issuance of credit enhancement, including, but not
limited to, a policy or policies of bond insurance with respect to the
notes;
(14) To add any additional eligible lender trustee or replace any existing
eligible lender trustee;
(15) To modify, amend or supplement the indenture or any supplemental
indenture thereto in such manner as to permit the registration of the
notes with the SEC under the 1933 securities act; and
(16) To make any other amendment which, in the judgment of the indenture
trustee, is not to the material prejudice of the indenture trustee,
the holders or any exchange counterparty.
The issuer, each eligible lender trustee and the indenture trustee, from time to
time and at any time without the consent or concurrence of any holder may
execute a supplemental indenture, if the issuer determines that the provisions
of such supplemental indenture are necessary or desirable to maximize available
funds.
With Consent of Holders and Exchange Counterparties. The issuer, each eligible
lender trustee and the indenture trustee from time to time and at any time may
execute a supplemental indenture, with the prior consent of the holders of not
less than a majority in aggregate principal amount of the outstanding Directing
Notes under the indenture (or, with respect to any change affecting only certain
series of notes, the holders of a majority in aggregate principal amount of the
outstanding notes of such series) for the purpose of adding any provisions to,
or changing in any manner or eliminating any of the provisions of, the
indenture, or modifying or amending the rights and obligations of the issuer, or
modifying or amending in any manner the rights of an exchange counterparty or
the holders of outstanding notes;
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provided, however, that, without the specific consent of the holder of each such
note which would be affected thereby, no supplemental indenture amending or
supplementing the provisions of such indenture may:
(1) change the legal final maturity for the payment of the principal
of any note or any date for the payment of interest thereon, or reduce the
principal amount of any note or, except on an interest determination date,
the interest rate thereon;
(2) reduce the aforesaid proportion of notes the holders of which are
required to consent to any supplemental indenture amending or supplementing
the provisions of the indenture;
(3) except as shall otherwise be provided in the indenture, give to
any note any preference over any other note secured thereby; or
(4) except as shall otherwise be provided in the indenture, authorize
the creation of any pledge of the assets of the trust prior, superior or
equal to, or deprive the holders or any exchange counterparty of, the
pledge, lien, security interest and assignment created in such indenture
for the payment of the notes or any issuer exchange payment.
DEFEASANCE
The obligations of the issuer under the indenture and the liens, pledges,
security interests, charges, trusts, assignments, covenants and agreements of
the issuer and each eligible lender trustee therein made or provided for, will
be fully discharged and satisfied as to (a) any note issued under the indenture,
when either of items (1) or (2) below shall have occurred; (b) any program
operating expenses, when item (3) shall have occurred; (c) any related interest
rate exchange agreement, when item (4) shall have occurred; (d) carryover
interest, when item (5) below shall have occurred, and such note, program
operating expense, interest rate exchange agreement, or carryover interest will
no longer be deemed to be outstanding thereunder (provided, however, that the
indenture shall not be deemed to be defeased unless and until all of the
following shall have occurred):
(1) when such note has been canceled;
(2) as to any such note not canceled, when payment of the principal of
such note, plus interest on such principal to the due date thereof
(whether such due date is by reason of maturity or upon redemption, or
otherwise), either:
(a) has been made or caused to be made in accordance with the terms
thereof, or
(b) has been provided for by an irrevocable deposit with the
indenture trustee or the authenticating agent, which is
irrevocably appropriated and set aside exclusively for such
payment, and which is derived from a source which is not a
transfer of property voidable under Sections 544 or 547 of the
United States Bankruptcy Code, should the issuer be a debtor
under such code, (accompanied by an opinion of counsel
experienced in bankruptcy matters to that effect) of:
(1) moneys sufficient to make such payment, and/or
(2) eligible investments (which for this purpose shall include
only those obligations which are described in item (a) of
the definition thereof and which are not subject to call for
redemption prior to maturity), maturing
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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;
(3) all program operating expenses then owed by the issuer, including
related necessary and proper fees, compensation and expenses of the
indenture trustee, each eligible lender trustee and the authenticating
agent when they have been paid or the payment thereof provided for to
the satisfaction of the indenture trustee;
(4) in the case of payment of any issuer exchange payment and the
applicable interest rate exchange agreement, when payment of all
issuer exchange payments due and payable to each exchange counterparty
under its respective interest rate exchange agreement has been made or
duly provided for to the satisfaction of each exchange counterparty
and each interest rate exchange agreement has been terminated; and
(5) in the case of payment of any amount of carryover interest, when the
first of the following occurs:
(a) payment of all such carryover interest that has accrued and
remains unpaid has been made or duly provided for to the
satisfaction of the indenture trustee, or
(b) all amounts held in the related funds and accounts under the
indenture which are available pursuant to the provisions of the
indenture to pay carryover interest have been paid out, and no
further amounts, or assets the proceeds of which could be used to
pay carryover interest, are so available under the indenture to
make payment of carryover interest.
NONPRESENTMENT
The issuer will have no liability for payment if a holder does not present any
note for payment when the principal thereof becomes due, whether at maturity or
at the date fixed for the redemption thereof, or otherwise, if the indenture
trustee holds on the due date moneys and/or eligible investments, in trust
sufficient and available to pay the principal of the note, together with all
interest due on such principal to the due date thereof (including any carryover
interest), or to the date fixed for redemption thereof, as the case may be.
Thereafter, the indenture trustee is obligated to hold moneys and/or eligible
investments in trust for the benefit of the holder of the note but is not liable
to the holder of such note for interest thereon. The holder of the note
thereafter will be restricted exclusively to the moneys and/or eligible
investments, for any claim of whatever nature on its part on or with respect to
such note, including any claim for the payment thereof. If any moneys and/or
eligible investments held by the indenture trustee are unclaimed by the holders
of such notes 4 years after the principal of the respective notes with respect
to which moneys and/or eligible investments have been so set aside, has become
due and payable (whether at maturity or upon redemption or otherwise), moneys
and/or eligible investments will be paid to the issuer free from the trusts
created by the indenture, and all liabilities of the indenture trustee with
respect to moneys and/or eligible investments will cease. In this event, the
holders will thereafter be deemed to be general unsecured creditors of the
issuer for the amounts so paid to the issuer (without interest thereon), subject
to any applicable statute of limitation.
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REMOVAL OF THE INDENTURE TRUSTEE; RESIGNATION; SUCCESSORS
The indenture trustee may be removed at any time with or without cause by the
written direction or upon affirmative vote of the holders of a majority in
aggregate principal amount of the outstanding directing notes under the
indenture or their attorneys-in-fact duly authorized.
In case at any time any of the following occurs:
(1) the indenture trustee has or shall fail to comply with certain
obligations imposed on it under the Trust Indenture Act of 1939 with
respect to notes of any series after written request therefor by the
issuer or any holder of such series who has been a bona fide holder of
a note of such series for at least 6 months,
(2) the indenture trustee ceases to be eligible in accordance with the
provisions of the indenture and thereafter fails to resign after
written request therefor has been given to such indenture trustee by
the issuer or by any holder, or
(3) the indenture trustee becomes incapable of acting, or is adjudged a
bankrupt or insolvent or a receiver of the indenture trustee or of its
property is appointed, or any public officer takes charge or control
of the indenture trustee or of its property or affairs for the purpose
of reorganization, conservation or liquidation,
then, the issuer may remove the indenture trustee by an instrument in writing,
or, subject to certain provisions of the Trust Indenture Act of 1939, any holder
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the indenture trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe
and as may be required by law, remove the indenture trustee.
The indenture trustee may resign by giving not less than 60 days' written notice
to the issuer and all holders.
A successor trustee may be appointed by the holders of not less than a majority
in aggregate principal amount of the outstanding directing notes under the
indenture by an instrument or concurrent instruments in writing signed by such
holders or their attorneys-in-fact duly authorized. If at any time there is a
vacancy in the office of the indenture trustee, the issuer, by an instrument in
writing, will appoint a successor to fill such vacancy until a new indenture
trustee is appointed by the holders as described above. Any successor trustee
must meet the qualifications set forth in the indenture.
LIST OF HOLDERS
By written request to the indenture trustee, a holder may obtain access to the
list of all holders that is maintained by the indenture trustee for the purpose
of communicating with other holders with respect to their rights under the
indenture or the notes. The indenture trustee may elect not to afford the
requesting holders access to the list of holders if it agrees to mail the
desired communication or proxy, on behalf and at the expense of the requesting
holders, to all holders.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary that constitutes the opinion of Thompson Hine &
Flory LLP as to all material federal income tax consequences of the exchange of
the old notes for the new notes and the
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purchase, ownership and disposition of the new notes. Thompson Hine & Flory LLP
is of the opinion that the descriptions of the law and legal conclusions
contained herein are correct in all material respects and the discussions
hereunder fairly summarize the federal income tax considerations that are
material to holders. The discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, and the judicial and administrative rulings and decisions now in
effect, all of which are subject to change or possible differing
interpretations. Consequently, the Internal Revenue Service may disagree with
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 Internal Revenue Service.
THE DISCUSSION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY AFFECT PARTICULAR INVESTORS IN LIGHT OF THEIR INDIVIDUAL
CIRCUMSTANCES, NOR WITH CERTAIN CATEGORIES OF INVESTORS SUBJECT TO SPECIAL
TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. FOR EXAMPLE, IT DOES NOT DISCUSS
THE TAX TREATMENT OF HOLDERS THAT ARE INSURANCE COMPANIES, REGULATED INVESTMENT
COMPANIES OR DEALERS IN SECURITIES. THIS DISCUSSION FOCUSES PRIMARILY ON
INVESTORS WHO WILL HOLD NEW NOTES AS "CAPITAL ASSETS" (GENERALLY HELD FOR
INVESTMENT) WITHIN THE MEANING OF SECTION 1221 OF THE INTERNAL REVENUE CODE, BUT
MUCH OF THE DISCUSSION IS APPLICABLE TO OTHER INVESTORS AS WELL. THE DISCUSSION
DOES NOT PURPORT TO ADDRESS THE ANTICIPATED STATE INCOME TAX CONSEQUENCES TO
INVESTORS OF OWNING AND DISPOSING OF THE NEW NOTES. CONSEQUENTLY, IT IS
SUGGESTED THAT POTENTIAL PURCHASERS OF NEW NOTES CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES TO THEM OF THE PURCHASE,
HOLDING, AND DISPOSITION OF THE NEW NOTES.
PAYMENTS RECEIVED ON NEW NOTES
Payments received by holders on new notes will be accorded the same tax
treatment under the code as payments received on other taxable debt instruments.
Except as described below for new notes issued with original issue discount,
acquired with market discount, or issued or acquired at a premium, interest paid
or accrued on a new note will be treated as ordinary income to the holder and a
principal payment on a new note will be treated as a return of capital. Interest
paid to holders who report their income on the cash receipts and disbursements
method should be taxable to them when received. Interest earned by holders who
report their income on the accrual method will be taxable when accrued,
regardless of when it is actually received. The indenture trustee will report
annually to the Internal Revenue Service and to holders of record with respect
to interest paid or accrued, and original issue discount and market discount, if
any, accrued, on the new notes.
SUBORDINATION OF SERIES B-3 NOTES
The Series B-3 Notes are subordinated to the Series 1998A Notes. Such
subordination will not affect the federal income tax treatment of either the
Series B-3 Notes or the Series 1998A Notes.
IT IS SUGGESTED THAT EMPLOYEE BENEFIT PLANS SUBJECT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), CONSULT THEIR TAX ADVISORS
BEFORE PURCHASING ANY SUBORDINATED NEW NOTE. SEE "ERISA CONSIDERATIONS" AND
"SUMMARY OF TERMS -- ERISA CONSIDERATIONS."
EXCHANGE OFFER
In the opinion of Thompson Hine & Flory LLP, the exchange of an old note for a
new note pursuant to the exchange offer will not constitute a "significant
modification" of the old note for federal income tax purposes. Accordingly, the
exchange will be disregarded and the new note received will be treated as a
continuation of the old note in the hands of each holder of a new note. As a
result, there will be no
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federal income tax consequences to a holder who exchanges an old note for a new
note pursuant to the exchange offer. Each such holder will have the same
adjusted tax basis and holding period in the new note as such holder had in the
old note immediately before the exchange.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based upon the assumptions and representations of the issuer and the depositor
set forth in the following sentence, in the opinion of Thompson Hine & Flory
LLP, the new notes will be characterized as debt of the depositor for federal
income tax purposes. The assumptions and representations upon which the above
opinion is based are:
(1) the pertinent provisions of the Internal Revenue Code, the Treasury
Regulations promulgated thereunder, and the judicial and administrative
rulings and decisions now in effect remain in effect and are not otherwise
amended, revised, reversed, or overruled;
(2) the eligible lender trust agreement, the indenture, the new notes, and the
servicing agreements are executed and delivered in substantially the form
attached as Exhibits hereto;
(3) there are no changes to the terms of the new notes; and
(4) the issuer, the depositor and the holders treat the new notes as
indebtedness of the depositor for federal income tax purposes.
Such opinion will not be binding on the courts or the Internal Revenue Service.
The trust, the depositor and the holders, by accepting the new notes have agreed
to treat the new notes as indebtedness of the depositor for federal income tax
purposes. Both the trust and the depositor intend to treat this transaction as a
financing reflecting the new notes as its indebtedness for tax and financial
accounting purposes.
Tax Consequences If New Notes Are Characterized As Equity. Contrary to the
opinion of Thompson Hine & Flory LLP, the Internal Revenue Service might assert
that the new notes do not represent debt for federal income tax purposes, but
rather the new notes should be treated as equity interests in the trust. Even if
the Internal Revenue Service were to assert successfully that the new notes
should not be characterized as debt for federal income tax purposes, in the
opinion of Thompson Hine & Flory LLP based upon the representation of both the
trust and the depositor, described in the following sentence, although the trust
might be treated as a publicly traded partnership, it would not be taxable as a
corporation. Both the trust and the depositor have represented that for 1999 and
for any subsequent taxable year 90% or more of the gross income of the
depositor, and the trust, if it were treated as a separate entity, will be
interest income attributable to loans acquired by either the depositor or the
trust and not attributable to loans originated by either the depositor or the
trust.
If the new notes were treated as equity interest in a publicly traded
partnership, certain holders could suffer adverse tax consequences. For example,
income to certain tax-exempt entities (including pension funds) would be
"unrelated business taxable income," income to foreign holders would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of trust expenses. Furthermore, such a characterization could
subject holders to state and local taxation in jurisdictions in which they are
not currently subject to tax.
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CHARACTERIZATION OF THE TRUST
In the opinion of Thompson Hine & Flory LLP, for federal income tax purposes,
the trust will not be treated as an entity separate from the depositor and thus
will not be classified as a separate entity that is an association (or publicly
traded partnership) taxable as a corporation. However, the Internal Revenue
Service might assert that the trust is a separate entity from the depositor for
federal income tax purposes. If for federal income tax purposes the trust were
instead treated as an entity separate from the depositor, the trust would be
treated as a partnership among the holders, and, possibly, the depositor as
well. In the opinion of Thompson Hine & Flory LLP based upon the representation
of both the trust and the depositor described above in "Tax Consequences If New
Notes Are Characterized As Equity," the resulting partnership would not be
subject to federal income tax as a publicly traded partnership taxable as a
corporation. Rather, each holder would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deduction of the holders
may differ if the new notes were held to constitute partnership interests,
rather than indebtedness.
The Internal Revenue Service, however, might assert that one or more of the
activities of the trust constitutes a financial business such that the
qualifying income tests are not met. If such qualifying income tests are not
met, the trust would constitute a publicly traded partnership taxable as a
corporation. If it were determined that the transaction results in the trust
being classified as a corporation or a publicly traded partnership treated as an
association taxable as a corporation, the trust would be subject to federal
income tax at corporate income tax rates on the income it derives from the
financed student loans and other assets, which would reduce the amounts
available for payment to the holders. Cash payments to such holders would be
treated as dividends for tax purposes to the extent of such publicly traded
partnership's or corporation's earnings and profits.
ORIGINAL ISSUE DISCOUNT
New notes issued at a price less than their stated principal amount, i.e.,
discount notes, and certain other series of notes will be issued with "original
issue discount" within the meaning of Section 1273(a) of the Internal Revenue
Code. Such original issue discount will equal the difference between the "stated
redemption price at maturity" of the new note (generally, its principal amount)
and its issue price. Original issue discount is treated as ordinary interest
income, and holders of notes with original issue discount must include the
amount of original issue discount in income on an accrual basis in advance of
the receipt of the cash to which it relates.
The amount of original issue discount required to be included in a holder's
income in any taxable year will be computed in accordance with Section
1272(a)(6) of the Internal Revenue 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 U.S. Treasury Department issues guidance to
the contrary, the issuer or other person responsible for computing the amount of
original issue discount to be reported to a holder each taxable year, i.e. the
tax administrator, except as otherwise provided in this prospectus, expects to
base its computations on Internal Revenue Code Section 1272(a)(6) and, final
Treasury Regulations governing the accrual of original issue discount on debt
instruments, i.e., the OID Regulations. The amount and rate of accrual of
original issue discount on a note will be calculated by the tax administrator
based on
o a single constant yield to maturity and
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o the prepayment rate of the financed student loans and the reinvestment rate
on amounts held pending distribution that were assumed in pricing the note,
i.e., the pricing prepayment assumptions.
Investors should be aware, however, that the OID Regulations do not address
directly the treatment of instruments that are subject to Internal Revenue Code
Section 1272(a)(6), and, accordingly, there can be no assurance that such
methodology, which is described below, represents the correct manner of
calculating original issue discount on the notes.
Computation of Original Issue Discount. The amount of original issue discount on
a note equals the excess, if any, of the note's "stated redemption price at
maturity" over its "issue price." Under the OID Regulations, a debt instrument's
stated redemption price at maturity is the sum of all payments provided by the
instrument other than "qualified stated interest", i.e., deemed principal
payments. Qualified stated interest, in general, is stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at (1) a single fixed rate or (2) a variable rate that
meets certain requirements set out in the OID Regulations. Thus, in the case of
any note providing for such stated interest, the stated redemption price at
maturity generally will equal the total amount of all deemed principal payments
due on that note. The issue price of a series of notes generally will equal the
initial price at which such series is sold to the public.
Example. Series 1998B-3 Notes were issued in the December 1998 private
placement with a de minimis amount of original issue discount. A Series 1998B-3
Note with a stated redemption price at maturity of $100,000 was issued for
$99,261.62 in the private placement. Unless the holder of the note makes the
election described below in "All Original Issue Discount Election," the holder
will include the de minimis original issue discount amount of $738.38
($100,000.00 - $99,621.62) into income on a pro rata basis as stated principal
payments on the note are received or, if earlier, upon disposition of the note.
If, for example, the holder were to receive a stated principal payment of
$10,000 during a taxable year, the holder would include $73.84 in income as
shown by the following computation:
Stated Principal Amount Received $ 10,000
--------------------------------------------- = -------- = 10%
Total Stated Principal Amount of Note $100,000
De Minimis Original Issue Discount Amount $738.38
X 10%
-----
Portion of De Minimis Original
Issue Discount Amount Included in Income $ 73.84
=======
DeMinimus Rule. Under a de minimis rule, a note will be considered to have no
original issue discount if the amount of original issue discount is less than
0.25% of the note's stated redemption price at maturity multiplied by the
weighted average maturity weighted average maturity of the note. No Treasury
Regulations have been issued with respect to computing the weighted average
maturity of instruments like an old or new note. The tax administrator will
compute the weighted average maturity of a note as equaling the sum of the
amounts obtained by multiplying the number of complete years from the note's
issue date until the payment is made by a fraction, the numerator of which is
the amount of each deemed principal payment, and the denominator of which is the
note's stated redemption price at maturity. A holder will include de minimis
original issue discount in income on a pro rata basis as stated principal
payments on the note are received or, if earlier, upon disposition of the note,
unless the holder makes the election described below in "All Original Issue
Discount Election."
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Computation of Daily Portions of Original Issue Discount. The holder of a note
must include in gross income the sum, for all days during his taxable year on
which he holds the note, of the "daily portions" of the original issue discount
on 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
(1) 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
(2) 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 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
(1) the pricing prepayment assumptions and
(2) any contingencies not already taken into account under the pricing
prepayment assumptions that, considering all the facts and circumstances as
of the issue date, are significantly more likely than not to occur.
Contingencies, such as the exercise of "mandatory redemptions," that are taken
into account by the parties in pricing the note typically will be subsumed in
the pricing prepayment assumptions and thus will be reflected in the note's
yield to maturity.
Optional Redemption. The notes of an series may be subject to optional
redemption by the issuer before their legal final maturities. Under the OID
Regulations, the issuer will be presumed to exercise its option to redeem for
purposes of computing the accrual of original issue discount if, and only if, by
using the optional redemption date as the maturity date and the optional
redemption price as the stated redemption price at maturity, the yield to
maturity of the notes is lower than it would be if the notes were not redeemed
early. If the issuer is presumed to exercise its option to redeem the notes,
original issue discount on 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
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premium, the tax administrator will take into account all series of notes that
are subject to the optional redemption to the extent that they are expected to
remain outstanding as of the optional redemption date, based on the pricing
prepayment assumptions. If, determined on a combined weighted average basis, the
notes of such series were issued at a premium, the tax administrator will
presume that the issuer will exercise its option. However, the OID Regulations
are unclear as to how the redemption presumption rules should apply to
instruments such as the notes, and there can be no assurance that the Internal
Revenue Service will agree with the tax administrator's position.
All Original Issue Discount Election. The OID Regulations provide that a holder
may make an election to include in gross income all stated interest, acquisition
discount, original issue discount, de minimis original issue discount, market
discount (see "-- Market Discount" below), de minimis market discount that
accrues on the note, and unstated interest (as reduced by any amortizable
premium, see "Amortizable Premium" below or acquisition premium, as described
below) under the constant yield method used to account for original issue
discount. To make such an election, the holder of the note must attach a
statement to its timely filed federal income tax return for the taxable year in
which the holder acquired the note. The statement must identify the instruments
to which the election applies. An election is irrevocable unless the holder
obtains the consent of the Internal Revenue Service.
If an election is made for a debt instrument with market discount, the holder is
deemed to have made an election to include in income currently the market
discount on all of the holder's other debt instruments with market discount. See
"-- Market Discount" below. In addition, if an election is made for a debt
instrument with amortizable premium, the holder is deemed to have made an
election to amortize the premium on all of the holder's other debt instruments
with amortizable premium under the constant yield method. See "-- Amortizable
Premium" below.
Subsequent Holder. A note having original issue discount may be acquired in a
transaction subsequent to its issuance for more than its adjusted issue price.
If the subsequent holder's adjusted basis in such a note, immediately after its
acquisition, exceeds the sum of all deemed principal payments to be received on
the note after the acquisition date, the note will no longer have original issue
discount, and the holder may be entitled to reduce the amount of interest income
recognized on the note by the amount of amortizable premium.
See "-- Amortizable Premium" below.
If the subsequent holder's adjusted basis in the note immediately after the
acquisition exceeds the adjusted issue price of the note, but is less than or
equal to the sum of the deemed principal payments to be received under the note
after the acquisition date, the amount of original issue discount on the note
will be reduced by a fraction, the numerator of which is the excess of the
note's adjusted basis immediately after its acquisition over the adjusted issue
price of the note and the denominator of which is the excess of the sum of all
deemed principal payments to be received on the note after the acquisition date
over the adjusted issue price of the note. Alternately, the subsequent purchaser
of a note having original issue discount may make the election described above
in "All Original Issue Discount Election" with respect to the note.
IN VIEW OF THE COMPLEXITIES AND CURRENT UNCERTAINTIES AS TO THE MANNER OF
INCLUSION IN INCOME OF ORIGINAL ISSUE DISCOUNT ON THE NOTES, IT IS SUGGESTED
THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
APPROPRIATE AMOUNT AND METHOD OF INCLUSION IN INCOME OF ORIGINAL ISSUE DISCOUNT
ON THE NOTES FOR FEDERAL INCOME TAX PURPOSES.
ANTI-ABUSE RULE
The U.S. Treasury Department issued Treasury Regulations containing an
anti-abuse rule because it was concerned that taxpayers might be able to
structure debt instruments or transactions, or to apply the
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bright-line or mechanical rules of the OID Regulations in a way that produces
unreasonable tax results. Those regulations provide that if a principal purpose
in structuring a debt instrument or engaging in a transaction is to achieve a
result that is unreasonable in light of the purposes of the applicable statutes,
the Internal Revenue Service can apply or depart from the OID Regulations as
necessary or appropriate to achieve a reasonable result. A result is not
considered unreasonable under Treasury Regulations, however, in the absence of a
substantial effect on the present value of a taxpayer's tax liability.
MARKET DISCOUNT
A subsequent purchaser of a note at a discount from its outstanding principal
amount (or, in the case of a note having original issue discount, its "adjusted
issue price") will acquire 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 (1) 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 (2) the weighted
average maturity of the note (determined as for original issue discount)
remaining after the date of purchase. Regardless of whether the subsequent
purchaser of a note with more than a de minimis amount of market discount is a
cash-basis or accrual-basis taxpayer, market discount generally will be taken
into income as principal payments (including, in the case of a note having
original issue discount, any deemed principal payments) are received, in an
amount equal to the lesser of
o the amount of the principal payment received or
o the amount of market discount that has "accrued", but that has not yet been
included in income.
Elections. The purchaser of a note with market discount may make a special
election, which applies to all market discount instruments held or acquired by
the purchaser in the taxable year of election or thereafter, to recognize market
discount currently on an uncapped accrual basis. In addition, the purchaser may
make the election described above in "All Original Issue Discount Election,"
with respect to a note purchased with market discount. Until the U.S. Treasury
Department promulgates applicable Treasury Regulations, the purchaser of a note
with market discount may elect to accrue the market discount either:
(1) on the basis of a constant interest rate;
(2) in the case of a note not issued with original issue discount, in the ratio
of stated interest payable in the relevant period to the total stated
interest remaining to be paid from the beginning of such period; or
(3) in the case of a note issued with original issue discount, in the ratio of
original issue discount accrued for the relevant period to the total
remaining original issue discount at the beginning of such period.
Regardless of which computation method is elected, the pricing prepayment
assumptions must be used to calculate the accrual of market discount.
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Sale or Exchange of a Note with Market Discount. A holder who has acquired any
note with market discount generally will be required to treat a portion of any
gain on a sale or exchange of the note as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary income
as partial principal payments were received. Moreover, such holder generally
must defer interest deductions attributable to any indebtedness incurred or
continued to purchase or carry the note to the extent they exceed income on the
note. Any such deferred interest expense, in general, is allowed as a deduction
not later than the year in which the related market discount income is
recognized. If a holder makes the election to recognize market discount
currently on an uncapped accrual basis or the election described above in "All
Original Issue Discount Election," the interest deferral rule will not apply.
Treasury Regulations implementing the market discount rules have not yet been
issued, and uncertainty exists with respect to many aspects of those rules. For
example, the treatment of a note subject to redemption at the option of the
issuer that is acquired at a market discount is unclear. It appears likely,
however, that the market discount rules applicable in 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.
Clinton Administration Revenue Proposals. In February 1999, the Clinton
Administration issued revenue proposals including one that would require
taxpayers that use an accrual method of accounting to include market discount in
income as it accrues. The taxpayer's yield for purposes of determining and
accruing market discount would be limited to the greater of
o the original yield-to-maturity of the debt instrument plus 5 percentage
points, or
o the applicable federal rate at the time the taxpayer acquired the debt
instrument plus 5 percentage points.
This proposal would be effective for debt instruments acquired on or after the
date of enactment.
AMORTIZABLE PREMIUM
A subsequent purchaser of a note who purchases the note at a premium over the
total of its deemed principal payments may elect to amortize such premium under
a constant yield method that reflects compounding based on the interval between
payments on the notes. Treasury Regulations were issued on December 30, 1997
concerning the treatment of bond premium. Under these Treasury Regulations, bond
premium may be amortized to offset interest income only as a holder takes the
qualified stated interest into account under the holder's regular accounting
method. Moreover, such Treasury Regulations generally provide that in the case
of notes subject to optional redemption, the holder is deemed to exercise or not
exercise such option in the manner that maximizes the holder's yield on the note
and the issuer is deemed to exercise or not exercise a call option or a
combination of call options in the manner that maximizes the holder's yield on
the note. Such Treasury Regulations are effective for notes acquired on or after
March 2, 1998. However, if a holder elects to amortize bond premium for the
taxable year containing March 2, 1998, or any subsequent taxable year, such
Treasury Regulations would apply to all of the holder's notes held on or after
the first day of that taxable year.
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GAIN OR LOSS ON DISPOSITION
If a note is sold, the holder will recognize gain or loss equal to the
difference between the amount realized on the sale and his adjusted basis in the
note. The adjusted basis of a note will equal the cost of the note to the
holder, increased by any original issue discount or market discount previously
includable in the holder's gross income with respect to the note and reduced by
the portion of the basis of the note allocable to payments on the note (other
than qualified stated interest) previously received by the holder and by any
amortized premium. Similarly, a holder who receives a scheduled or prepaid
principal payment with respect to a note will recognize gain or loss equal to
the difference between the amount of the payment and the allocable portion of
his adjusted basis in the note. Except to the extent that the market discount
rules apply and except as provided below, any gain or loss on the sale or other
disposition of a note generally will be capital gain or loss. Such gain or loss
will be long-term gain or loss if the note is held as a capital asset for the
applicable long term holding period.
Special Rules for Banks, Thrifts, and Similar Institutions. If the holder of a
note is a bank, thrift, or similar institution described in Section 582 of the
Internal Revenue Code, any gain or loss on the sale or exchange of the note will
be treated as ordinary income or loss. In addition, a portion of any gain from
the sale of a note that might otherwise be capital gain may be treated as
ordinary income to the extent that such note is held as part of a "conversion
transaction" within the meaning of Section 1258 of the Internal Revenue Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in notes or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in 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 Internal Revenue Service)
at the time the taxpayer entered into the conversion transaction, subject to
appropriate reduction for prior inclusion of interest and other ordinary income
from the transaction.
Federal Income Tax Rates. The highest marginal individual income tax bracket is
39.6%. The alternative minimum tax rate for individuals is 26% with respect to
alternative minimum tax income up to $175,000 and 28% with respect to
alternative minimum tax income over $175,000. The recently enacted Internal
Revenue Service Restructuring and Reform Act of 1998 established the highest
marginal federal tax rate on net capital gains for individuals with respect to
assets held for more than one year at 20%. The highest marginal corporate tax
rate is 35% for corporate taxable income over $10 million, and the marginal tax
rate on corporate net capital gains is 35%, although the distinction between
capital gains and ordinary income remains relevant for other purposes. Investors
should note that the deductibility of capital losses is subject to certain
limitations.
BACKUP WITHHOLDING, FOREIGN HOLDERS, AND OTHER TAX MATTERS
Backup Withholding. A note may, under certain circumstances, be subject to
"backup withholding" at the rate of 31% with respect to "reportable payments,"
which include interest payments and principal payments to the extent of accrued
original issue discount as well as distributions of proceeds from a sale of
notes. This withholding generally applies if the holder of a note:
o fails to furnish the indenture trustee with its taxpayer identification
number;
o furnishes the indenture trustee or the issuer an incorrect taxpayer
identification number;
o fails to report properly interest, dividends or other "reportable payments"
as defined in the Internal Revenue Code; or
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o under certain circumstances, fails to provide the indenture trustee or the
issuer or such holder's securities broker with a certified statement, signed
under penalty of perjury, that the taxpayer identification number is its
correct number and that the holder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to certain payments
made to holders, including payments to certain exempt recipients (such as exempt
organizations) and to certain nonresident alien individuals, foreign
corporations, foreign partnerships, or certain foreign estates and trusts
complying with requisite certification procedures. Holders should consult their
tax advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
The indenture trustee will report to the holders and to the Internal Revenue
Service each calendar year the amount of any "reportable payments" during such
year and the amount of tax withheld, if any, with respect to payments on the
notes within a reasonable time after the end of each calendar year.
Foreign Holders. Under the Internal Revenue Code, interest and original issue
discount income (including accrued interest or original issue discount
recognized on sale or exchange) paid or accrued with respect to notes held by
holders who are nonresident alien individuals, foreign corporations, foreign
partnerships or certain foreign estates and trusts or holders holding on behalf
of foreign persons generally will be treated as "portfolio interest" and
therefore will not be subject to any United States tax provided that:
o such interest is not effectively connected with a trade or business in the
United States of the holder and
o 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 foreign person.
Interest (including original issue discount) paid on notes to holders who are
foreign persons will not be subject to withholding if such interest is
effectively connected with a United States business conducted by the holder.
Such interest (including original issue discount) will, however, be subject to
the regular United States income tax.
New Withholding Tax Regulations. In 1997, Treasury Regulations were issued which
alter the rules described above in certain respects. These Treasury Regulations
will be effective with respect to payments made after December 31, 1999,
regardless of the issue date of the instrument with respect to which such
payments are made. It is suggested that prospective investors consult their tax
advisors concerning the requirements imposed by these Treasury Regulations and
their effect on the holding of the notes.
Due to the complexity of the federal income tax rules applicable to holders and
the considerable uncertainty that exists with respect to many aspects of those
rules, it is suggested that potential investors consult their own tax advisors
regarding the tax treatment of the acquisition, ownership, and disposition of
the notes.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal Income
Tax Consequences," potential investors should consider the state income tax
consequences of the acquisition, ownership, and disposition of the notes. State
income tax law may differ substantially from the corresponding federal
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law, and this discussion does not purport to describe any aspect of the income
tax laws of any state. Therefore, potential investors should consult their own
tax advisors with respect to the various state tax consequences of an investment
in the notes.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement plans and
arrangements that are subject to the Employee Retirement Income Security Act of
1974 or corresponding provisions of the Internal Revenue Code, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds in which such plans, accounts, annuities or arrangements are
invested persons acting on behalf of a plan, or persons using the assets of a
plan, should review carefully with their legal advisors whether the purchase or
holding of any series of notes could either give rise to a transaction that is
prohibited under ERISA or the Internal Revenue Code or cause the assets of the
trust to be treated as plan assets for purposes of regulations of the Department
of Labor set forth in 29 C.F.R. 2510.3-101. Prospective investors should be
aware that, although certain exceptions from the application of the prohibited
transaction rules and the those regulations exist, there can be no assurance
that any such exception will apply with respect to the acquisition of a note.
The acquisition or holding of the notes by or on behalf of a plan could be
considered to give rise to a prohibited transaction if the parties to the
issuance transaction, or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to such plan. However,
one or more exemptions may be available with respect to certain prohibited
transaction rules of ERISA and might apply in connection with the initial
purchase, holding and resale of the notes, depending in part upon the type of
plan fiduciary making the decision to acquire notes and the circumstances under
which such decision is made. Those exemptions include, but are not limited to:
(i) Prohibited Transaction Class Exemption (PTCE) 95-60, regarding investments
by insurance company general accounts; (ii) PTCE 91-38, regarding investments by
bank collective investment funds; (iii) PTCE 90-1, regarding investments by
insurance company pooled separate accounts; or (iv) PTCE 84-14, regarding
transactions negotiated by qualified professional asset managers. Before
purchasing notes, a plan subject to the fiduciary responsibility provisions of
ERISA or described in Section 4975(e)(1) (and not exempt under Section 4975(g))
of the Internal Revenue Code should consult with its counsel to determine
whether the conditions of any exemption would be met. A purchaser of a note
should be aware, however, that even if the conditions specified in one or more
exemptions are met, the scope of the relief provided by an exemption might not
cover all acts that might be construed as prohibited transactions.
LEGAL MATTERS
Certain legal matters relating to the issuer, the depositor, the notes and
federal income tax matters will be passed upon by Thompson Hine & Flory LLP.
Certain legal matters relating to the notes will be passed upon for the issuer
by Calfee, Halter & Griswold LLP. Certain legal matters will be passed upon for
the dealer manager by Squire, Sanders & Dempsey L.L.P. Each of these firms has
performed legal services for the depositor and its affiliates in the past, and
it is expected that they will continue to perform such services in the future.
RATING
Each series of the Series 1998A Notes has been rated "Aaa" by Moody's and "AAA"
by Fitch. The Series B-3 Notes have been rated "A2" by Moody's and "A" by Fitch.
A securities rating is not a
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recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. The ratings of the notes
address the likelihood of the ultimate payment of principal of and interest on
the notes pursuant to their terms. The rating agencies do not evaluate, and the
ratings on the notes do not address, the likelihood of prepayments on the notes
or the likelihood of payment of the carryover interest.
The issuer has furnished and will furnish to such rating agencies certain
information and materials, some of which have not been included in this
prospectus. Generally, a rating agency bases its rating on such information and
materials and investigations, studies and assumptions furnished to and obtained
and made by the rating agency. There is no assurance that any such rating will
apply for any given period of time or that it will not be lowered or withdrawn
entirely if, in the judgment of the rating agency, circumstances so warrant.
A rating is not a recommendation to buy, sell or hold the notes and any such
rating should be evaluated independently. Each rating is subject to change or
withdrawal at any time and any such change or withdrawal may affect the market
price or marketability of the notes. The initial purchasers have undertaken no
responsibility either to bring to the attention of the holders any proposed
change in or withdrawal of any rating of the notes or to oppose any such change
or withdrawal.
PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties in similar transactions, we believe that the new
notes issued in the exchange offer in exchange for the old notes may be offered
for resale, resold and otherwise transferred by holders (other than any such
holder which is our "affiliate" within the meaning of Rule 405 under the 1933
securities act) without compliance with the registration and prospectus delivery
provisions of the 1933 securities act. However, this applies only if the new
notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such new notes. We refer you to the "Morgan Stanley & Co. Inc." SEC No-Action
Letter (available June 5, 1991), "Exxon Capital Holdings Corporation" SEC
No-Action Letter (available May 13, 1988) and "Shearman & Sterling" SEC
No-Action Letter (available July 2, 1993).
Each broker-dealer that receives new notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus with any resale of such
new notes. This prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of new notes
received in exchange for old notes where such old notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that starting on the expiration date of the exchange offer and ending on the
close of business one year after the expiration date of the exchange offer, we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by broker-dealers or
any other persons. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of
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such new notes may be deemed to be an underwriter within the meaning of the 1933
securities act, and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be underwriting
compensation under the 1933 securities act. The letter of transmittal states
that by acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the 1933 securities act, a broker-dealer will not be
admitting that it is an underwriter within the meaning of the 1933 securities
act.
For a period of one year after the expiration date of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the old
notes), other than commissions or concessions of any brokers or dealers. We have
agreed to indemnify holders of the notes (including any broker-dealers) against
certain liabilities, including certain liabilities under the 1933 securities
act.
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APPENDIX A
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
prospectus.
"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.
"eligible investments" means any of the following:
(a) direct obligations of (including obligations issued or held
in book entry form on the books of) the Department of the Treasury of the United
States of America;
(b) obligations of any of the following federal agencies, which
obligations represent the full faith and credit of the United States of America:
(1) Export-Import Bank,
(2) Farm Credit System Financial Assistance issuer,
(3) Rural Economic Community Development Administration
(formerly the Farmers Home Administration),
(4) General Services Administration,
(5) U.S. Maritime Administration,
(6) Small Business Administration,
(7) Government National Mortgage Association (GNMA),
(8) U.S. Department of Housing & Urban Development
(PHAs), and
(9) Federal Housing Administration;
(c) senior debt obligations rated "AAA" or "Aaa" by each rating
agency issued by the Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation, and senior debt obligations of other federal
government-sponsored agencies approved by each rating agency;
(d) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptances with domestic commercial banks which have a rating on their
short-term certificates of deposit on the date of purchase of "A1+," "F-1+" or
"P-1" by each rating agency and maturing no more than 360 days after the date of
purchase (ratings on holding companies are not considered as the rating on the
bank);
(e) commercial paper which is rated at the time of purchase in
the single highest classification, "A-1+," "F-1+" or "P-1" by each rating agency
and which matures not more than 270 days after the date of purchase;
(f) investments in a money market fund rated in the highest
applicable rating category by a nationally recognized rating service acceptable
to each rating agency;
(g) Pre-refunded municipal notes defined as follows: Any bonds or
other obligations of any state of the United States of America or of any agency,
instrumentality or local governmental unit of any such state which are not
callable at the option of the obligor prior to maturity or as to which
irrevocable instructions have been given by the obligor to call on the date
specified in the notice; and
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(1) which are rated, based on an irrevocable escrow
account or fund (the "escrow"), in the highest rating
category of each rating agency; or
(2) (A) which are fully secured as to principal and
interest and redemption premium, if any, by an escrow
consisting only of cash or obligations described in
item (a) above, which escrow may be applied only to
the payment of such principal of and interest and
redemption premium, if any, on such bonds or other
obligations on the maturity date or dates thereof or
the specified redemption date or dates pursuant to
such irrevocable instructions, as appropriate, and
(B) which escrow is sufficient, as verified by a
nationally recognized independent certified public
accountant, to pay principal of and interest and
redemption premium, if any, on the bonds or other
obligations described in this paragraph on the
maturity date or dates specified in the irrevocable
instructions referred to above, as appropriate;
(h) investment agreements approved in writing by each rating
agency and supported by appropriate opinions of counsel for the investment
agreement provider; and
(i) other forms of investments (including repurchase agreements)
approved in writing by each rating agency.
"program operating expenses" means all items of expense allocable to the
operation of the Program, including (i) fees and expenses of and any other
amounts payable to the indenture trustee and the authenticating agent, if any,
and any fees charged by a depository, (ii) the fees and expenses of and any
other amounts payable to the calculation agent, the auction agent,
broker-dealers, any market agent or other agent in connection with the notes,
(iii) fees and expenses of and any other amounts payable to the servicers, the
eligible lender trustee and any bank providing lock-box or similar services in
connection with financed student loans and Servicing Development Fees, (iv) the
fees and expenses incurred by or on behalf of the issuer, including fees and
expenses payable to the master servicer and the administrator, in the
administration of the Program under the Higher Education Act, a guarantee
agreement and any other agreement or legal requirement affecting the
administration of the Program, costs of legal, accounting, auditing, management,
consulting, banking and financial advisory services and expenses, costs of
salaries, supplies, utilities, mailing, labor, materials, office rent,
maintenance, furnishings, equipment, machinery, apparatus and insurance
premiums, costs of issuance not paid from proceeds of notes, and (v) and other
reasonable and proper expenses, including both operating expenses and capital
expenditures incurred or to be incurred in connection with the operation of the
program and with respect to item (iv) above, any other similar program of the
issuer.
"Series 1998A Holders' Principal Distribution Amount" means, with
respect to any distribution date for a Series of Series 1998A Notes, the Series
1998A Principal Distribution Amount for such distribution date plus the Series
1998A Principal Shortfall as of the close of the preceding distribution date;
provided that the Series 1998A Holders' Principal Distribution Amount will not
exceed the outstanding principal balance of the Series 1998A Notes. In addition,
(i) on the legal final maturity of the Series A-3 Notes, the principal required
to be distributed to the holders of Series A-3 Notes will include the amount
required to reduce the outstanding principal balance of the Series A-3 Notes to
zero, (ii) on the legal final maturity of the Series A-4 Notes, the principal
required to be distributed to the holders of Series A-4 Notes will include the
amount required to reduce the outstanding principal balance on the Series A-4
Notes to zero, (iii) on the legal final maturity of the Series A-5 Notes, the
principal required to be distributed to the holders of Series A-5 Notes will
include the amount required to reduce the outstanding principal balance on the
Series A-5 Notes to zero, and (iv) on the legal final maturity of the Series A-6
Notes, the principal required to be distributed to the holders of Series A-6
Notes will include the amount required to reduce the outstanding principal
balance on the Series A-6 Notes to zero.
"Series 1998A Principal Distribution Amount" means (i) with respect to
the Series A-3 Notes, an amount equal to the decline in the pool balance between
the end of the second collection period preceding a monthly distribution date
and the end of the immediately preceding collection period, less, for each
monthly distribution date occurring after June 30, 2003, the amount of any
principal to be paid on such monthly distribution date on the Series B-3 Notes,
(ii) with respect to the Series A-4 Notes on and after the principal balance of
the Series A-3 Notes has
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been paid in full, an amount equal to the decline in the pool balance between
the end of the third collection period preceding an auction period distribution
date and the end of the second preceding collection period, less, for each
monthly distribution date occurring after June 30, 2003, the amount of any
principal paid on the immediately preceding monthly distribution date on the
Series B-3 Notes, (iii) with respect to the Series A-5 Notes on and after the
principal balance of the Series A-3 Notes and the Series A-4 Notes has been paid
in full, an amount equal to the decline in the pool balance between the end of
the third collection period preceding an auction period distribution date and
the end of the second preceding collection period, less, for each monthly
distribution date occurring after June 30, 2003, the amount of any principal
paid on the immediately preceding monthly distribution date on the Series B-3
Notes, and (iv) with respect to the Series A-6 Notes on and after the principal
balance of the Series A-3 Notes, the Series A-4 Notes and the Series A-5 Notes
has been paid in full, an amount equal to the decline in the pool balance
between the end of the third collection period preceding an auction period
distribution date and the end of the second preceding collection period, less,
for each monthly distribution date occurring after June 30, 2003, the amount of
any principal paid on the immediately preceding monthly distribution date on the
Series B-3 Notes.
"Series 1998A Principal Shortfall" means, as of the close of any
distribution date for a series of Series 1998A Notes, the excess of (i) the
Series 1998A Principal Distribution Amount on such distribution date over (ii)
the amount of principal actually distributed to the holders of Series 1998A
Notes on such distribution date.
"Series 1998A Notes" means the Series A-3 Notes, the Series A-4 Notes,
the Series A-5 Notes and the Series A-6 Notes.
"Series 1998A-3 Interest Shortfall" means, with respect to any monthly
distribution date, the excess of (i) the Series 1998A-3 Holders' Interest
Distribution Amount on the preceding monthly distribution date over (ii) the
amount of interest actually distributed to the holders of Series A-3 Notes on
such preceding monthly distribution date, plus interest on the amount of such
excess interest due to the holders of Series A-3 Notes, to the extent permitted
by law, at the series interest rate borne by the Series A-3 Notes from such
preceding monthly distribution date to the current monthly distribution date.
"Series 1998A-3 Holders' Interest Distribution Amount" means, with
respect to any monthly distribution date, the sum of (i) the amount of interest
accrued at the series interest rates for the related interest accrual period on
the aggregate outstanding principal balance of the Series A-3 Notes on the
immediately preceding monthly distribution date after giving effect to all
principal distributions to holders of Series A-3 Notes on such preceding monthly
distribution date (or, in the case of the first monthly distribution date, on
the closing date) and (ii) the Series 1998A Interest Shortfall for such monthly
distribution date; provided that the Series 1998A-3 Holders' Interest
Distribution Amount will not include any carryover interest on the Series A-3
Notes.
"Series 1998A-3 Notes" means the Student Loan Senior Asset-Backed Notes,
Series 1998A-3 issued by the depositor and assumed by the issuer.
"Series 1998A1-3 Notes" means the Student Loan Senior Asset-Backed
Notes, Series 1998A1-3 of the issuer issued under the indenture.
"Series A-3 Notes" means the Series 1998A-3 Notes together with the
Series 1998A1-3 Notes.
"Series 1998A-4 Interest Shortfall" means, with respect to any auction
period distribution date, the excess of (i) the Series 1998A-4 Holders' Interest
Distribution Amount on the preceding auction period distribution date over (ii)
the amount of interest actually distributed to the holders of Series 1998A-4
Notes on such preceding auction period distribution date, plus interest on the
amount of such excess interest due to the holders of Series A-4 Notes, to the
extent permitted by law, at the related series interest rate from such preceding
auction period distribution date to the current auction period distribution
date.
"Series 1998A-4 Holders' Interest Distribution Amount" means, with
respect to any auction period distribution date, the sum of (i) the amount of
interest accrued at the related series interest rate for the related interest
accrual period on the aggregate outstanding principal balance of the Series A-4
Notes on the immediately preceding auction period distribution date after giving
effect to all principal redemptions to Series 1998A-4 holders on such preceding
auction period distribution date (or, in the case of the first auction period
distribution date, on the Closing
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Date) and (ii) the Series 1998A-4 Interest Shortfall for such auction period
distribution date; provided that the Series 1998A-4 Holders' Interest
Distribution Amount will not include any carryover interest on the Series A-4
Notes.
"Series 1998A-4 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A-4 issued by the depositor and assumed by the
issuer.
"Series 1998A1-4 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-4 of the issuer, issued under the indenture.
"Series A-4 Notes" means the Series 1998A-4 Notes together with the
Series 1998A1-4 Notes.
"Series 1998A-5 Interest Shortfall" means, with respect to any auction
period distribution date, the excess of (i) the Series 1998A-5 Holders' Interest
Distribution Amount on the preceding auction period distribution date over (ii)
the amount of interest actually distributed to the holders of the Series A-5
Notes on such preceding auction period distribution date, plus interest on the
amount of such excess interest due to the holders of Series A-5 Notes, to the
extent permitted by law, at the related series interest rate from such preceding
auction period distribution date to the current auction period distribution
date.
"Series 1998A-5 Holders' Interest Distribution Amount" means, with
respect to any auction period distribution date, the sum of (i) the amount of
interest accrued at the related series interest rate for the related interest
accrual period on the aggregate outstanding principal balance of the Series A-5
Notes on the immediately preceding auction period distribution date after giving
effect to all principal redemptions to holders of Series A-5 Notes on such
preceding auction period distribution date (or, in the case of the first auction
period distribution date, on the Closing Date) and (ii) the Series 1998A-5
Interest Shortfall for such auction period distribution date; provided that the
Series 1998A-5 Holders' Interest Distribution Amount will not include any
carryover interest on the Series A-5 Notes.
"Series 1998A-5 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A-5 issued by the depositor and assumed by the
issuer.
"Series 1998A1-5 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-5 of the issuer, issued under the indenture.
"Series A-5 Notes" means the Series 1998A-5 Notes together with the
Series 1998A1-5 Notes.
"Series 1998A-6 Interest Shortfall" means, with respect to any auction
period distribution date, the excess of (i) the Series 1998A-6 Holders' Interest
Distribution Amount on the preceding auction period distribution date over (ii)
the amount of interest actually distributed to the holders of Series A-6 Notes
on such preceding auction period distribution date, plus interest on the amount
of such excess interest due to the holders of Series A-6 Notes, to the extent
permitted by law, at the related Series interest rate from such preceding
auction period distribution date to the current auction period distribution
date.
"Series 1998A-6 Holders' Interest Distribution Amount" means, with
respect to any auction period distribution date, the sum of (i) the amount of
interest accrued at the related series interest rate for the related interest
accrual period on the aggregate outstanding principal balance of the Series A-6
Notes on the immediately preceding auction period distribution date after giving
effect to all principal redemptions to holders of Series A-6 Notes on such
preceding auction period distribution date (or, in the case of the first auction
period distribution date, on the Closing Date) and (ii) the Series 1998A-6
Interest Shortfall for such auction period distribution date; provided that the
Series 1998A-6 Holders' Interest Distribution Amount will not include any
carryover interest on the Series A-6 Notes.
"Series 1998A-6 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A-6 issued by the depositor and assumed by the
issuer.
"Series 1998A1-6 Notes" means the Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-6 of the issuer issued under the indenture.
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"Series A-6 Notes" means the Series 1998A-6 Notes together with the
Series 1998A1-6 Notes.
"Series 1998B-3 Interest Shortfall" means, with respect to any monthly
distribution date, the excess of (i) the Series 1998B-3 Holders' Interest
Distribution Amount on the preceding monthly distribution date over (ii) the
amount of interest actually distributed to the holders of Series B-3 Notes on
such preceding monthly distribution date, plus interest on the amount of such
excess interest due to the holders of Series B-3 Notes, to the extent permitted
by law, at the related series interest rate from such preceding monthly
distribution date to the current monthly distribution date.
"Series 1998B-3 Holders' Interest Distribution Amount" means, with
respect to any monthly distribution date, the sum of (i) the amount of interest
accrued at the related series interest rate for the related interest accrual
period on the aggregate outstanding principal balance of the Series B-3 Notes on
the immediately preceding monthly distribution date after giving effect to all
principal distributions to Series B-3 Notes on such preceding monthly
distribution date (or, in the case of the first monthly distribution date, on
the Closing Date) and (ii) the Series 1998B-3 Interest Shortfall for such
monthly distribution date.
"Series 1998B-3 Holders' Principal Distribution Amount" means, with
respect to any monthly distribution date, the Series 1998B-3 Principal
Distribution Amount for such monthly distribution date plus the Series 1998B-3
Principal Shortfall as of the close of the preceding monthly distribution date;
provided that the Series 1998B-3 Holders' Principal Distribution Amount will not
exceed the outstanding principal balance of the Series B-3 Notes. In addition,
on the legal final maturity of the Series B-3 Notes, the principal required to
be distributed to the holders of Series B-3 Notes will include the amount
required to reduce the outstanding principal balance on the Series B-3 Notes to
zero.
"Series 1998B-3 Principal Distribution Amount" means, (i) on each
monthly distribution date occurring after June 30, 2003, an amount equal to the
lesser of (a) an amount equal to the decline in the pool balance between the end
of the second collection period preceding a monthly distribution date and the
end of the immediately preceding collection period and (b) the greatest amount
which would result in a senior parity percentage of no less than 109% and a
parity percentage of no less than 101% following such payment of principal on
the Series B-3 Notes and (ii) on each monthly distribution date on and after
which the principal balance of the Series 1998A Notes has been paid in full, an
amount equal to the decline in the pool balance between the end of the second
collection period preceding a monthly distribution date and the end of the
immediately preceding collection period (reduced with respect to the first
monthly distribution date on which principal is to be paid on the Series B-3
Notes by the Series 1998A Holders' Principal Distribution Amount on such monthly
distribution date).
"Series 1998B-3 Principal Shortfall" means, as of the close of any
monthly distribution date, the excess of (i) the Series 1998B-3 Principal
Distribution Amount on such monthly distribution date over (ii) the amount of
principal actually distributed to the holders of Series B-3 Notes on such
monthly distribution date.
"Series 1998B-3 Notes" means the Student Loan Subordinate Asset-Backed
Notes Series 1998B-3 issued by the depositor and assumed by the issuer.
"Series 1998B1-3 Notes" means the Student Loan Subordinate Asset-Backed
Notes Series 1998B1-3 of the issuer issued under the indenture.
"Series B-3 Notes" means the Series 1998B-3 Notes together with the
Series 1998B1-3 Notes.
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APPENDIX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Notes will be available only in
book-entry form (the "Global Securities"). Investors in the Global Securities
may hold such Global Securities through The Depository Trust Company ("DTC") or,
if applicable, Cedel or Euroclear. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their nominal rules and operating procedures and in accordance with conventional
eurobond practice.
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding Securities will be effected on a delivery-against-payment
basis through the respective depositories of Cedel and Euroclear and as
participants in DTC. Subject to compliance with the transfer restrictions
applicable to the Notes, cross-market transfers between participants in DTC, on
the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depository.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective depositories,
which in turn will hold such positions in accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchase determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt issues in same-day funds.
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Trading between Cedel and/or Euroclear participants. Secondary market
trading between Cedel participants and/or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a Cedel participant or a Euroclear participant, the purchaser will
send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. Cedel or Euroclear will instruct the
respective depositary to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including, the
last coupon payment date to and excluding the settlement date. Payment will then
be made by the respective depository to the DTC participant's account against
delivery of the Global.
Securities. After settlement has been completed, the Global Securities will
be credited to the respective clearing system and by the clearing system in
accordance with its usual procedures, to the Cedel participant's or Euroclear
participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to and the interest on
the Global Securities will accrue from the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails). the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel participants and Euroclear participants will need to make available to
the respective clearing system the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement. either from cash on hand or exiting lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit line
to be drawn upon to finance settlement. Under this procedure, Cedel participants
or Euroclear participants purchasing Global Securities would incur overdraft
charges for one day assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges although
this result will depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours., DTC
participants can employ their usual procedures for sending Global Securities to
the respective depositary for the benefit of Cedel participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel and Euroclear participants may employ
their customary procedures for transactions in which Global Securities are to be
transferred by the respective clearing system, through the respective
depositary, to a DTC participant. The seller will send instructions to Cedel or
Euroclear through a participant at least one business day prior to settlement.
In this case, Cedel or Euroclear will instruct the respective depositary to
deliver the Securities to the DTC participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. The payment will
then be reflected in the account of the Cedel participant or Euroclear
participant the following day, and receipt of the cash proceeds in the Cedel or
Euroclear participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel or Euroclear participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel or Euroclear participant's account would instead be valued as of the
actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC participants for delivery to Cedel participants or Euroclear
participants should note that these trades would automatically fail on the
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sale side unless affirmative action were taken. At least three techniques should
be readily available to eliminate this potential problem:
1. borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts)
in accordance with the clearing system's customary procedures,
2. borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
3. staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the Cedel
participant or Euroclear participant.
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APPENDIX C
AUCTION PROCEDURES
General
The following description of the Auction Procedures applies separately to each
series of auction rate notes. The term "Note," as used in this Appendix C,
refers to each series of auction rate notes, and the term "Holder" refers to
holders holding auction rate notes.
Auction Participants
EXISTING HOLDERS AND POTENTIAL HOLDERS. Participants in each Auction
will include: (i) "Existing Holders," which will mean, for purposes of dealing
with the auction agent in connection with an Auction, a Person who is a
broker-dealer listed in the Existing Holder Registry at the close of business on
the business day preceding such Auction, and, for purposes of dealing with the
broker-dealer in connection with an Auction, a Person who is a beneficial owner
of auction rate notes (the term auction rate notes shall apply separately to
each series of Series A-4 Notes, Series A-5 Notes and Series A-6 Notes) and (ii)
"Potential Holders," which will mean any Person (including an Existing Holder)
that is a broker-dealer for purposes of dealing with the auction agent, and a
potential beneficial owner for purposes of dealing with a broker-dealer, who may
be interested in acquiring auction rate notes.
By purchasing the auction rate notes, whether in an Auction or
otherwise, each prospective purchaser of the auction rate notes or its
broker-dealer must agree and will be deemed to have agreed: (i) to participate
in Auctions on the terms described in the indenture; (ii) so long as the
beneficial ownership of the auction rate notes is maintained in book-entry form
to sell, transfer or otherwise dispose of auction rate notes, only pursuant to a
Bid (as defined below) or a Sell Order (as defined below) in an Auction, or to
or through a broker-dealer, provided that in the case of all transfers other
than those pursuant to an Auction, the Existing Holder of auction rate notes so
transferred, its Participant or broker-dealer advises the auction agent of such
transfer; (iii) to have its beneficial ownership of auction rate notes
maintained at all times in book-entry form for the account of its Participant,
which in turn will maintain records of such beneficial ownership, and to
authorize such Participant to disclose to the auction agent such information
with respect to such beneficial ownership as the auction agent may request; (iv)
that a Sell Order placed by an Existing Holder will constitute an irrevocable
offer to sell the principal amount of auction rate notes specified in such Sell
Order; (v) that a Bid placed by an Existing Holder will constitute an
irrevocable offer to sell the principal amount of auction rate notes specified
in such Bid if the rate specified in such Bid is greater than, or in some cases
equal to, the Interest Rate, determined as described in this Appendix C; (vi)
that a Bid placed by a Potential Holder will constitute an irrevocable offer to
purchase the principal amount, or a lesser principal amount, of the auction rate
notes specified in such Bid if the rate specified in such Bid is, respectively,
less than or equal to the auction rate, determined as described in this Appendix
C; and (vii) to tender its auction rate notes for purchase at 100% of the
principal amount thereof, plus accrued but unpaid interest and unpaid carryover
interest, if any, and interest accrued thereon, on an auction period conversion
date.
The principal amount of the auction rate notes purchased or sold may be
subject to proration procedures on the interest determination date. Each
purchase or sale of the auction rate notes on the interest determination date
will be made for settlement on the first day of the interest accrual period
immediately following such interest determination date at a price equal to 100%
of the principal amount thereof plus accrued interest, if any. The auction agent
is entitled to rely upon the terms of any Order submitted to it by a
broker-dealer.
AUCTION AGENT. Bankers Trust Company is appointed in the indenture as
initial auction agent to serve as agent for the issuer in connection with
Auctions. The indenture trustee is directed by the issuer to enter into the
initial Auction Agent Agreement with Bankers Trust Company, as the initial
auction agent. Any substitute Auction Agent will be (i) a bank, national banking
association or trust company duly organized under the laws of the United States
of America or any state or territory thereof having its principal place of
business in the Borough of Manhattan, New York, or such other location as
approved by the indenture trustee and the calculation agent in writing and
having a combined capital stock or surplus of at least $50,000,000, or (ii) a
member of the National Association of Securities Dealers, Inc. having a
capitalization of at least $50,000,000, and, in either case, authorized by law
to perform all the duties imposed upon it under the indenture and under the
Auction Agent Agreement. The
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auction agent may at any time resign and be discharged of the duties and
obligations created by the indenture by giving at least 90 days' notice to the
indenture trustee, the issuer and the calculation agent. The auction agent may
be removed at any time by the indenture trustee upon the written direction of
the issuer, or the holders of at least 66-2/3 % of the aggregate principal
amount of the auction rate notes then outstanding, by an instrument signed by
such holders or their attorneys and filed with the auction agent, the issuer,
the indenture trustee and the calculation agent upon at least 90 days' notice.
Neither resignation nor removal of the auction agent pursuant to the preceding
two sentences will be effective until and unless a substitute auction agent has
been appointed and has accepted such appointment. If required by the issuer or
the calculation agent, a substitute Auction Agent Agreement will be entered into
with a substitute auction agent. Notwithstanding the foregoing, the auction
agent may terminate the Auction Agent Agreement if, within 15 days after
notifying the indenture trustee, the issuer and the calculation agent in writing
that it has not received payment of any Auction Agent Fee due it in accordance
with the terms of the Auction Agent Agreement, the auction agent does not
receive such payment.
If the auction agent should resign or be removed or be dissolved, or if
the property or affairs of the auction agent will be taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the indenture trustee, at the direction of
the issuer (after receipt of a certificate from the calculation agent confirming
that any proposed substitute auction agent meets the requirements described in
the preceding paragraph above), shall use its best efforts to appoint a
substitute auction agent.
The auction agent is acting as agent for the issuer in connection with
Auctions. In the absence of bad faith, negligent failure to act or negligence on
its part, the auction agent will not be liable for any action taken, suffered or
omitted or any error of judgment made by it in the performance of its duties
under the Auction Agent Agreement and will not be liable for any error of
judgment made in good faith unless the auction agent will have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
The indenture trustee will pay the auction agent the Auction Agent Fee
on each auction period distribution date for the auction rate notes and will
reimburse the auction agent upon its request for all reasonable expenses,
disbursements and advances incurred or made by the auction agent in accordance
with any provision of the Auction Agent Agreement or the Broker-Dealer
Agreements (including the reasonable compensation and the expenses and
disbursements of its agents and counsel). Such amounts are payable as provided
in the indenture. The issuer will indemnify and hold harmless the auction agent
for and against any loss, liability or expense incurred without negligence or
bad faith on the auction agent's part, arising out of or in connection with the
acceptance or administration of its agency under the Auction Agent Agreement and
the Broker-Dealer Agreements including the reasonable costs and expenses
(including the reasonable fees and expenses of its counsel) of defending itself
against any such claim or liability in connection with its exercise or
performance of any of its duties under the indenture, the Auction Agent
Agreement and the Broker-Dealer Agreement and of enforcing this indemnification
provision; provided that the issuer will not indemnify the auction agent as
described in this paragraph for any fees and expenses incurred by the auction
agent in the normal course of performing its duties under the Auction Agent
Agreement and under the Broker-Dealer Agreements, such fees and expenses being
payable as described above.
BROKER-DEALER. Existing Holders and Potential Holders may participate in
Auctions only by submitting orders (in the manner described below) through a
"broker-dealer," including NationsBanc Montgomery Securities LLC as the sole
initial broker-dealer or any other broker or dealer (each as defined in the
Securities Exchange Act of 1934, as amended), commercial bank or other entity
permitted by law to perform the functions required of a broker-dealer set forth
below which (i) is a Participant or an affiliate of a Participant, (ii) has been
selected by the issuer and (iii) has entered into a Broker-Dealer Agreement with
the auction agent that remains effective, in which the broker-dealer agrees to
participate in Auctions as described in the Auction Procedures, as from time to
time amended or supplemented.
The broker-dealers are entitled to a Broker-Dealer Fee, which is payable
by the auction agent from moneys received from the indenture trustee, on each
auction period distribution date. Such Broker-Dealer Fee is payable as provided
in the indenture and the Broker-Dealer Agreement. broker-dealers may submit
Orders in Auctions for their own accounts. Any broker-dealer submitting an Order
for its own account in any Auction might 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
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securities laws and rules. Any entity that is an affiliate of the issuer and
becomes a broker-dealer must submit a Sell Order covering any auction rate notes
held for its own account.
CALCULATION AGENT. Under the Calculation Agent Agreement, and in
connection with the auction rate notes, the "calculation agent," initially
Salomon Smith Barney Inc., will act solely as agent of the issuer and will not
assume any obligation or relationship of agency or trust for or with any of the
holders or book-entry interest owners of the auction rate notes. The calculation
agent will receive nominal compensation for the performance of its duties under
the Calculation Agent Agreement.
Auction Procedures
GENERAL. Pursuant to the indenture, Auctions to establish the auction
rate for the auction rate notes will be held on each interest determination
date, except as described under the heading "Description of the New Notes --
Determination of the Auction Rate" in this Prospectus, by application of the
Auction Procedures described herein and in the indenture.
The auction agent will calculate the maximum auction rate, the all hold
rate and the Applicable LIBOR Rate on each interest determination date. The
administrator will calculate and, no later than the business day preceding each
interest determination date, will report to the auction agent in writing, the
net loan rate. Upon receipt of notice from the indenture trustee of a failed
auction period conversion as described in the indenture, the auction agent will
calculate the maximum auction rate, and the administrator will report to the
auction agent in writing the net loan rate, for the auction rate notes as of
such failed auction period conversion date and give notice thereof as provided
and to the parties specified in the Auction Agent Agreement. If the ownership of
the auction rate notes is no longer maintained in book-entry form, the indenture
trustee will calculate the maximum auction rate, and the administrator will
report to the indenture trustee in writing the net loan rate, for the auction
rate notes on the business day immediately preceding the first day of each
interest accrual period commencing after delivery of the Note certificates. If a
payment default has occurred, the indenture trustee will calculate the
non-payment rate on the interest determination date for (i) each interest
accrual period commencing on or after the occurrence and during the continuance
of such payment default and (ii) any interest accrual period commencing less
than two business days after the cure of any payment default. The auction agent
will determine the Applicable LIBOR Rate for each interest accrual period other
than the Initial Period; provided, that if the ownership of the auction rate
notes is no longer maintained in book-entry form, or if a payment default has
occurred, then the indenture trustee will determine the Applicable LIBOR Rate
for each such interest accrual period. The determination by the indenture
trustee or the auction agent, as the case may be, of the Applicable LIBOR Rate
will (in the absence of manifest error) be final and binding upon the holders
and all other parties. If calculated or determined by the auction agent, the
auction agent will promptly advise the indenture trustee of the Applicable LIBOR
Rate.
SUBMISSION OF ORDERS. So long as the ownership of the auction rate notes
is maintained in book-entry form, an Existing Holder may sell, transfer or
otherwise dispose of auction rate notes only pursuant to a Bid or Sell Order (as
hereinafter defined) placed in an Auction or through a broker-dealer, provided
that, in the case of all transfers other than pursuant to Auctions, such
Existing Holder, its broker-dealer or its Participant advises the auction agent
of such transfer. Except with respect to the interest determination date
immediately preceding an auction period conversion date, Auctions will be
conducted on each interest determination date, if there is an auction agent on
such interest determination date, in the following manner (such procedures will
apply to separately to each series of auction rate notes).
Prior to the Submission Deadline (defined as 12:30 P.M., eastern time,
on any interest determination date or such other time on any interest
determination date by which broker-dealers are required to submit Orders to the
auction agent as specified by the auction agent from time to time) on each
interest determination date:
(a) each Existing Holder of auction rate notes may submit to a
broker-dealer by telephone or otherwise information as to: (i) the principal
amount of outstanding auction rate notes, if any, held by such Existing Holder
which such Existing Holder desires to continue to hold without regard to the
series interest rate for the next succeeding auction period (a "Hold Order");
(ii) the principal amount of outstanding auction rate notes, if any, which such
Existing Holder offers to sell if the series interest rate for the next
succeeding auction period will be less than the rate per annum specified by such
Existing Holder (a "Bid"); and/or (iii) the principal amount of outstanding
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auction rate notes, if any, held by such Existing Holder which such Existing
Holder offers to sell without regard to the series interest rate for the next
succeeding auction period (a "Sell Order"); and
(b) one or more broker-dealers may contact Potential Holders to
determine the principal amount of auction rate notes which each such Potential
Holder offers to purchase, if the series interest rate for the next succeeding
auction period will not be less than the rate per annum specified by such
Potential Holder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Holder and each Potential Holder placing an Order is referred to as a "Bidder."
Subject to the provisions described below under "Validity of Orders," a
Bid by an Existing Holder will constitute an irrevocable offer to sell: (i) the
principal amount of outstanding auction rate notes specified in such Bid if the
series interest rate will be less than the rate specified in such Bid, (ii) such
principal amount or a lesser principal amount of outstanding auction rate notes
to be determined as described below in "Acceptance and Rejection of Orders," if
the series interest rate will be equal to the rate specified in such Bid or
(iii) such principal amount or a lesser principal amount of outstanding auction
rate notes to be determined as described below under "Acceptance and Rejection
of Orders," if the rate specified therein will be higher than the series
interest rate and Sufficient Clearing Bids (as defined below) have not been
made.
Subject to the provisions described below under "Validity of Orders," a
Sell Order by an Existing Holder will constitute an irrevocable offer to sell:
(i) the principal amount of outstanding auction rate notes specified in such
Sell Order or (ii) such principal amount or a lesser principal amount of
outstanding auction rate notes as described below under "Acceptance and
Rejection of Orders," if Sufficient Clearing Bids have not been made.
Subject to the provisions described below under "Validity of Orders," a
Bid by a Potential Holder will constitute an irrevocable offer to purchase: (i)
the principal amount of outstanding auction rate notes specified in such Bid if
the series interest rate will be higher than the rate specified in such Bid or
(ii) such principal amount or a lesser principal amount of outstanding auction
rate notes as described below in "Acceptance and Rejection of Orders," if the
series interest rate is equal to the rate specified in such Bid.
Each broker-dealer will submit in writing to the auction agent prior to
the Submission Deadline on each interest determination date all Orders obtained
by such broker-dealer and will specify with respect to each such Order: (i) the
name of the Bidder placing such Order; (ii) the aggregate principal amount of
auction rate notes that are the subject of such Order; (iii) to the extent that
such Bidder is an Existing Holder: (a) the principal amount of auction rate
notes, if any, subject to any Hold Order placed by such Existing Holder; (b) the
principal amount of auction rate notes, if any, subject to any Bid placed by
such Existing Holder and the rate specified in such Bid; and (c) the principal
amount of auction rate notes, if any, subject to any Sell Order placed by such
Existing Holder; and (iv) to the extent such Bidder is a Potential Holder, the
rate specified in such Potential Holder's Bid.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the auction agent will round such rate up to the
next highest one-thousandth (.001) of one percent.
If an Order or Orders covering all outstanding auction rate notes held
by any Existing Holder are not submitted to the auction agent prior to the
Submission Deadline, the auction agent will deem a Hold Order to have been
submitted on behalf of such Existing Holder covering the principal amount of
outstanding auction rate notes held by such Existing Holder and not subject to
an Order submitted to the auction agent.
Neither the issuer, the indenture trustee nor the auction agent will be
responsible for any failure of a broker-dealer to submit an Order to the auction
agent on behalf of any Existing Holder or Potential Holder.
An Existing Holder may submit multiple Orders, of different types and
specifying different rates, in an Auction with respect to auction rate notes
then held by such Existing Holder. An Existing Holder that offers to purchase
additional auction rate notes is, for purposes of such offer, treated as a
Potential Holder.
Any Bid specifying a rate higher than the maximum auction rate will (i)
be treated as a Sell Order if submitted by a Existing Holder and (ii) not be
accepted if submitted by a Potential Holder.
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VALIDITY OF ORDERS. If any Existing Holder submits through a
broker-dealer to the auction agent one or more Orders covering in the aggregate
more than the principal amount of outstanding auction rate notes held by such
Existing Holder, such Orders will be considered valid as follows and in the
order of priority described below.
Hold Orders. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of outstanding auction rate notes held by such
Existing Holder, and if the aggregate principal amount of auction rate notes
subject to such Hold Orders exceeds the aggregate principal amount of auction
rate notes held by such Existing Holder, the aggregate principal amount of
auction rate notes subject to each such Hold Order will be reduced pro rata so
that the aggregate principal amount of auction rate notes subject to all such
Hold Orders equals the aggregate principal amount of outstanding auction rate
notes held by such Existing Holder.
Bids. Any Bid will be considered valid up to the amount of the excess of
the principal amount of outstanding auction rate notes held by such Existing
Holder over the aggregate principal amount of auction rate notes subject to any
Hold Orders referred to above. Subject to the preceding sentence, if multiple
Bids with the same rate are submitted on behalf of such Existing Holder and the
aggregate principal amount of outstanding auction rate notes subject to such
Bids is greater than such excess, such Bids will be considered valid up to the
amount of such excess. Subject to the two preceding sentences, if more than one
Bid with different rates are submitted on behalf of such Existing Holder, such
Bids will be considered valid first in the ascending order of their respective
rates until the highest rate is reached at which such excess exists and then at
such rate up to the amount of such excess. In any event, the aggregate principal
amount of outstanding auction rate notes, if any, subject to Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Holder at the rate therein specified.
Sell Orders. All Sell Orders will be considered valid up to the amount
of the excess of the principal amount of outstanding auction rate notes held by
such Existing Holder over the aggregate principal amount of auction rate notes
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for auction rate notes is submitted on behalf of
any Potential Holder, each Bid submitted will be a separate Bid with the rate
and principal amount therein specified. Any Bid or Sell Order submitted by an
Existing Holder covering an aggregate principal amount of auction rate notes not
equal to an Authorized Denomination will be rejected and will be deemed a Hold
Order. Any Bid submitted by a Potential Holder covering an aggregate principal
amount of auction rate notes not equal to an Authorized Denomination will be
rejected. Any Order submitted in an Auction by a broker-dealer to the auction
agent prior to the Submission Deadline on any interest determination date will
be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid
pursuant to the procedures described above is referred to as a "Submitted Hold
Order." a "Submitted Bid" and a "Submitted Sell Order," respectively
(collectively, "Submitted Orders").
DETERMINATION OF SUFFICIENT CLEARING BIDS AND BID AUCTION RATE. Not
earlier than the Submission Deadline on each interest determination date, the
auction agent will assemble all valid Submitted Orders and will determine:
(a) the excess of the total principal amount of outstanding auction rate
notes over the sum of the aggregate principal amount of outstanding auction rate
notes subject to Submitted Hold Orders (such excess being hereinafter referred
to as the "Available auction rate notes"); and
(b) from such Submitted Orders whether the aggregate principal amount of
outstanding auction rate notes subject to Submitted Bids by Potential Holders
specifying one or more rates equal to or lower than the maximum auction rate
exceeds or is equal to the sum of (i) the aggregate principal amount of
outstanding auction rate notes subject to Submitted Bids by Existing Holders
specifying one or more rates higher than the maximum auction rate and (ii) the
aggregate principal amount of outstanding auction rate notes subject to
Submitted Sell Orders (in the event such excess or such equality exists other
than because all of the outstanding auction rate notes are subject to Submitted
Hold Orders, such Submitted Bids by Potential Holders above will be hereinafter
referred to collectively as "Sufficient Clearing Bids"); and
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(c) if Sufficient Clearing Bids exist, the "Bid Auction Rate" which will
be the lowest rate specified in such Submitted Clearing Bids such that if:
(i) each such Submitted Bid from Existing Holders specifying such
lowest rate and all other Submitted Bids from Existing Holders
specifying lower rates were rejected (thus entitling such Existing
Holders to continue to hold the principal amount of auction rate notes
subject to such Submitted Bids); and
(ii) each such Submitted Bid from Potential Holders specifying
such lowest rate and all other Submitted Bids from Potential Holders
specifying lower rates, were accepted,
the result would be that such Existing Holders described in subparagraph (i)
above would continue to hold an aggregate principal amount of outstanding
auction rate notes which, when added to the aggregate principal amount of
outstanding auction rate notes to be purchased by such Potential Holders
described in subparagraph (ii) above, would equal not less than the Available
auction rate notes.
NOTICE OF AUCTION RATE AND SERIES INTEREST RATE. Promptly after the
auction agent has made the determinations described above, the auction agent
will advise the indenture trustee of the net loan rate for the auction rate
notes, the maximum auction rate, the all hold rate and the components thereof on
the interest determination date, and based on such determinations, the auction
rate for the next succeeding interest accrual period as follows:
(a) if Sufficient Clearing Bids exist, that the auction rate for the
next succeeding interest accrual period will be equal to the Bid Auction Rate so
determined;
(b) if Sufficient Clearing Bids do not exist (other than because all of
the outstanding auction rate notes are subject to Submitted Hold Orders), that
the auction rate for the next succeeding interest accrual period will be equal
to the maximum auction rate; or
(c) if all outstanding auction rate notes are subject to Submitted Hold
Orders, that the auction rate for the next succeeding interest accrual period
will be equal to the all hold rate.
Promptly after the auction agent has determined the auction rate, the
auction agent will determine and advise the indenture trustee of the series
interest rate, which rate will be the lesser of (a) the formula rate and (b) the
net loan rate for the auction rate notes.
In no event shall the series interest rate exceed 17%.
ACCEPTANCE AND REJECTION OF ORDERS. Existing Holders will continue to
hold the principal amount of auction rate notes that are subject to Submitted
Hold Orders. If the net loan rate for the auction rate notes is equal to or
greater than the Bid Auction Rate and if Sufficient Clearing Bids, as described
above under "Determination of Sufficient Clearing Bids and Bid Auction Rate,"
have been received by the auction agent, the Bid Auction Rate will be the
auction rate, and Submitted Bids and Submitted Sell Orders will be accepted or
rejected and the auction agent will take such other action as set forth below.
If the net loan rate for the auction rate notes is greater than the
auction rate, the series interest rate shall be the auction rate. If the net
loan rate for the auction rate notes is less than the auction rate, the series
interest rate will be the net loan rate for the auction rate notes. If the
auction rate and the net loan rate for the auction rate notes are both greater
than 17%, the series interest rate shall be equal to 17%. If the auction agent
has not received Sufficient Clearing Bids as described above under
"Determination of Sufficient Clearing Bids and Bid Auction Rate" (other than
because all of the outstanding auction rate notes are subject to Submitted 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
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below, Submitted Bids will be accepted or rejected as follows in the following
order of priority and all other Submitted Bids will be rejected:
(a) Existing Holders' Submitted Bids specifying any rate that is higher
than the series interest rate will be accepted, thus requiring each such
Existing Holder to sell the aggregate principal amount of auction rate notes
subject to such Submitted Bids;
(b) Existing Holders' Submitted Bids specifying any rate that is lower
than the series interest rate will be rejected, thus entitling each such
Existing Holder to continue to hold the aggregate principal amount of auction
rate notes subject to such Submitted Bids;
(c) Potential Holders' Submitted Bids specifying any rate that is lower
than the series interest rate will be accepted;
(d) Each Existing Holder's Submitted Bid specifying a rate that is equal
to the series interest rate will be rejected, thus entitling such Existing
Holder to continue to hold the aggregate principal amount of auction rate notes
subject to such Submitted Bid, unless the aggregate principal amount of auction
rate notes subject to such Submitted Bids will be greater than the principal
amount of auction rate notes (the "remaining principal amount") equal to the
excess of the Available auction rate notes over the aggregate principal amount
of auction rate notes subject to Submitted Bids described in subparagraphs (b)
and (c) above, in which event such Submitted Bid of such Existing Holder will be
rejected in part and such Existing Holder will be entitled to continue to hold
the principal amount of auction rate notes subject to such Submitted Bid, but
only in an amount equal to the aggregate principal amount of auction rate notes
obtained by multiplying the remaining principal amount by a fraction, the
numerator of which will be the principal amount of outstanding auction rate
notes held by such Existing Holder subject to such Submitted Bid and the
denominator of which will be the sum of the principal amount of outstanding
auction rate notes subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the series interest rate;
(e) Each Potential Holder's Submitted Bid specifying a rate that is
equal to the series interest rate will be accepted, but only in an amount equal
to the principal amount of auction rate notes obtained by multiplying the excess
of the aggregate principal amount of Available auction rate notes over the
aggregate principal amount of auction rate notes subject to Submitted Bids
described in subparagraphs (b), (c) and (d) above by a fraction, the numerator
of which will be the aggregate principal amount of outstanding auction rate
notes subject to such Submitted Bid and the denominator of which will be the sum
of the principal amount of outstanding auction rate notes subject to Submitted
Bids made by all such Potential Holders that specified a rate equal to the
series interest rate; and
(f) Each Potential Holder's Bid specifying a rate that is higher than
the series interest rate will be rejected.
Insufficient Bids. If Sufficient Clearing Bids have not been made (other
than because all of the outstanding auction rate notes are subject to Submitted
Hold Orders) or if the net loan rate for the auction rate notes is less than the
Bid Auction Rate (in which case the series interest rate shall be the net loan
rate for the auction rate notes) or if the series interest rate would be greater
than 17%, subject to the denomination requirements described below, Submitted
Orders will be accepted or rejected as follows in the following order of
priority:
(a) Existing Holders' Submitted Bids specifying any rate that is equal
to or lower than the series interest rate will be rejected, thus entitling such
Existing Holders to continue to hold the aggregate principal amount of auction
rate notes subject to such Submitted Bids;
(b) Potential Holders' Submitted Bids specifying (i) a rate that is
equal to or lower than the series interest rate will be accepted, and (ii) a
rate that is higher than the series interest rate will be rejected; and
(c) Each Existing Holder's Submitted Bid specifying any rate that is
higher than the series interest rate and the Submitted Sell Order of each
Existing Holder will be accepted, thus entitling each Existing Holder that
submitted any such Submitted Bid or Submitted Sell Order to sell the auction
rate notes subject to such Submitted
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Bid or Submitted Sell Order, but in both cases only in an amount equal to the
aggregate principal amount of auction rate notes obtained by multiplying the
aggregate principal amount of auction rate notes subject to Submitted Bids
described in subparagraph (b) above by a fraction, the numerator of which will
be the aggregate principal amount of outstanding auction rate notes held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and the
denominator of which will be the aggregate principal amount of outstanding
auction rate notes subject to all such Submitted Bids and Submitted Sell Orders.
All Hold Orders. If all outstanding auction rate notes are subject to
Submitted Hold Orders, all Submitted Bids will be rejected.
Authorized Denominations Requirement. If, as a result of the procedures
described above regarding Sufficient Clearing Bids and Insufficient Bids, any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a principal amount of auction rate
notes that is not equal to an Authorized Denomination, the auction agent will,
in such manner as in its sole discretion it will determine, round up or down the
principal amount of auction rate notes to be purchased or sold by any Existing
Holder or Potential Holder so that the principal amount of auction rate notes
purchased or sold by each Existing Holder or Potential Holder will be equal to
an Authorized Denomination. If, as a result of the procedures described above
regarding Insufficient Bids, any Potential Holder would be entitled or required
to purchase less than a principal amount of auction rate notes equal to an
Authorized Denomination or any integral multiple thereof, the auction agent
will, in such manner as in its sole discretion it will determine, allocate
auction rate notes for purchase among Potential Holders so that only auction
rate notes in an Authorized Denomination are purchased by any Potential Holder,
even if such allocation results in one or more of such Potential Holders not
purchasing any auction rate notes.
Based on the results of each Auction, the auction agent will determine
the aggregate principal amount of auction rate notes to be purchased and the
aggregate principal amount of auction rate notes to be sold by Potential Holders
and Existing Holders on whose behalf each broker-dealer submitted Bids or Sell
Orders and, with respect to each broker-dealer, to the extent that such
aggregate principal amount of auction rate notes to be sold differs from such
aggregate principal amount of auction rate notes to be purchased, determine to
which other broker-dealer or broker-dealers acting for one or more purchasers
such broker-dealer will deliver, or from which broker-dealers acting for one or
more sellers such broker-dealer will receive, as the case may be, auction rate
notes.
Neither the issuer nor any affiliate of the issuer may submit an Order
in any Auction.
Any calculation by the auction agent (or the administrator or the
indenture trustee, if applicable) of the series interest rate, the Applicable
LIBOR Rate, the maximum auction rate, the all hold rate, the net loan rate for
the auction rate notes and the non-payment rate will, in the absence of manifest
error, be binding on all other parties.
SETTLEMENT PROCEDURES. The auction agent is required to advise each
broker-dealer that submitted an Order in an Auction of the series interest rate
for the next interest accrual period and, if such Order was a Bid or Sell Order,
whether such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., eastern time, on the interest determination
date, if the series interest rate is the auction rate, or 4:00 p.m., eastern
time, on the interest determination date, if the series interest rate is the net
loan rate for the auction rate notes. Each broker-dealer that submitted an Order
on behalf of a Bidder is required to then advise such Bidder of the series
interest rate for the next interest accrual period and, if such Order was a Bid
or a Sell Order, whether such Bid or Sell Order was accepted or rejected, in
whole or in part, confirm purchases and sales with each Bidder purchasing or
selling auction rate notes as a result of the Auction and advise each Bidder
purchasing or selling auction rate notes as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
such auction rate notes or to deliver such auction rate notes against payment
therefor, as appropriate. Pursuant to the Auction Agent Agreement, the auction
agent will record each transfer of auction rate notes on the Existing Holders
Registry to be maintained by the auction agent.
In accordance with DTC's normal procedures, on the business day after
the interest determination date, the transactions described above will be
executed through DTC, so long as DTC is the Depository, and the accounts of the
respective Participants at DTC will be debited and credited and auction rate
notes delivered as necessary to effect the purchases and sales of auction rate
notes as determined in the Auction. Purchasers are required to make
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payment through their Participants in same-day funds to DTC against delivery
through their Participants. DTC will make payment in accordance with its normal
procedures, which now provide for payment against delivery by its Participants
in immediately available funds.
If any Existing Holder selling auction rate notes in an Auction fails to
deliver such auction rate notes, the broker-dealer of any person that was to
have purchased auction rate notes in such Auction may deliver to such person a
principal amount of auction rate notes that is less than the principal amount of
auction rate notes that otherwise was to be purchased by such person but in any
event equal to an Authorized Denomination. In such event, the principal amount
of auction rate notes to be delivered will be determined by such broker-dealer.
Delivery of such lesser principal amount of auction rate notes will constitute
good delivery. Neither the indenture trustee nor the auction agent will have any
responsibility or liability with respect to the failure of a Potential Holder,
Existing Holder or their respective broker-dealer or Participant to deliver the
principal amount of auction rate notes or to pay for the auction rate notes
purchased or sold pursuant to an Auction or otherwise. For a further description
of the settlement procedures, see Appendix D, "Settlement Procedures."
Indenture Trustee Not Responsible for Auction Agent, Calculation Agent and
Broker-Dealers
The indenture trustee will not be liable or responsible for the actions
of or failure to act by the auction agent, calculation agent or any
broker-dealer under the indenture or under the Auction Agent Agreement, the
Calculation Agent Agreement or any Broker-Dealer Agreement. The indenture
trustee may conclusively rely upon any information required to be furnished by
the auction agent, the calculation agent or any broker-dealer without
undertaking any independent review or investigation of the truth or accuracy of
such information.
Changes in Auction Terms
CHANGES IN AUCTION PERIOD OR PERIODS. The issuer may change, from time
to time, the length of the one or more auction periods in order to conform with
then current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be relevant to the
length of the auction period and the interest rate borne by the auction rate
notes (an "auction period adjustment"). The issuer will not initiate such change
in the length of the auction period unless it has received the written consent
of the calculation agent, which consent shall not be unreasonably withheld, not
less than fifteen days nor more than 20 days prior to the effective date of an
auction period adjustment. The issuer will initiate an auction period adjustment
by giving written notice to the indenture trustee, the auction agent, the
calculation agent, the Depository and each rating agency then rating the auction
rate notes subject to such auction period adjustment, in substantially the form
of, or containing substantially the information contained in, the indenture at
least 10 days prior to the interest determination date for such auction period.
No auction period adjustment may result in an auction period of less
than 7 nor more than 91 days, with respect to auction rate notes with a short
auction period, or in an auction period that is more than three months shorter
or longer than the auction period established upon the issuance or auction
period conversion of such auction rate notes, with respect to auction rate notes
with a long auction period. An auction period adjustment will not be allowed
unless Sufficient Clearing Bids existed at both the Auction preceding the date
on which the notice of the proposed change was given as described above and the
Auction preceding the proposed change.
An auction period adjustment will take effect only if (A) the indenture
trustee and the auction agent receive, by 11:00 A.M., eastern time, on the
business day before the interest determination date for the first such auction
period, a certificate from the issuer authorizing an auction period adjustment
specified in such certificate and the written consent of the calculation agent
described above and (B) Sufficient Clearing Bids exist at the Auction on the
interest determination date for such first auction period. If the condition
referred to in (A) is not met, the auction rate applicable for the next auction
period will be determined pursuant to the Auction Procedures and the length of
the auction period will remain the same. If the condition referred to in (A) is
met, but the condition referred to in (B) above is not met, the series interest
rate applicable for the next auction period will be the lesser of the maximum
auction rate and the net loan rate for the auction rate notes, but in no event
greater than 17%, and the length of the auction period will remain the same.
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The issuer, with the written consent of the Rating Agencies then rating
the outstanding Notes, may, from time to time, change the length of one or more
auction periods pursuant to an auction period conversion. In the event of a
failed auction period conversion, the series interest rate for the auction
period for which the proposed auction period conversion was to have been
effective will be the lesser of the maximum auction rate and the net loan rate
for the auction rate notes, but in no event greater than 17%, and the length of
the auction period will remain the same.
CHANGES IN THE INTEREST DETERMINATION DATE. The calculation agent may
specify an earlier interest determination date than the interest determination
date that would otherwise be determined in accordance with the definition of
"interest determination date" with respect to one or more specified auction
periods in order to conform with then current market practice with respect to
similar securities or to accommodate economic and financial factors that may
affect or be relevant to the day of the week constituting an interest
determination date and the interest rate borne on the auction rate notes. The
Authorized Officer of the issuer will not consent to such change in the interest
determination date unless the issuer shall have received from the calculation
agent not less than 15 days nor more than 20 days prior to the effective date of
such change a written request for consent. The calculation agent will provide
notice of its determination to specify an earlier interest determination date
for one or more auction periods by means of a written notice delivered at least
10 days prior to the proposed changed interest determination date to the
indenture trustee, the auction agent, the issuer and the Depository. Such notice
will be substantially in the form of, or contain substantially the information
contained in, the indenture.
The changes in Auction terms described above may be made with respect to
any of the series of auction rate notes (but in such latter case separate
notices will be prepared and delivered as provided above and, with respect to
changes in the length of auction periods, the conditions specified above will be
applied to each series separately). In connection with any change in Auction
terms described above, the auction agent will provide such further notice to
such parties as is specified in the Auction Agent Agreement.
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APPENDIX D
SETTLEMENT PROCEDURES
If not otherwise defined below, capitalized terms used below will have
the meanings given such terms in the indenture. These Settlement procedures
apply separately to each series of auction rate notes.
(a) Not later than (1) 3:00 P.M., eastern time, if the series interest
rate is the auction rate or (2) 4:00 P.M., eastern time, if the series interest
rate is the net loan rate for the auction rate notes, on each interest
determination date, the auction agent will notify by telephone each
broker-dealer that participated in the Auction held on such interest
determination date and submitted an Order on behalf of an Existing Holder or
Potential Holder of:
(i) the series interest rate fixed for the next interest accrual
period;
(ii) whether there were Sufficient Clearing Bids in such Auction;
(iii) if such broker-dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Holder, whether
such Bid or Sell Order was accepted or rejected, in whole or in part,
and the principal amount of auction rate notes, if any, to be purchased
or sold by such Existing Holder;
(iv) if such broker-dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Holder, whether such Bid was accepted or
rejected, in whole or in part, and the principal amount of auction rate
notes, if any, to be purchased by such Potential Holder;
(v) if the aggregate amount of auction rate notes to be sold by
all Existing Holders on whose behalf such Seller's Broker-Dealer
submitted Bids or Sell Orders exceeds the aggregate principal amount of
auction rate notes to be purchased by all Potential Holders on whose
behalf such Buyer's Broker-Dealer submitted a Bid, the name or names of
one or more Buyer's Broker-Dealers (and the name of the Participant, if
any, of each such Buyer's Broker-Dealer) acting for one or more
purchasers of such excess principal amount of auction rate notes and the
principal amount of auction rate notes to be purchased from one or more
Existing Holders on whose behalf such Seller's Broker-Dealer acted by
one or more Potential Holders on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the principal amount of auction rate notes to be
purchased by all Potential Holders on whose behalf such Buyer's
Broker-Dealer submitted a Bid exceeds the amount of auction rate notes
to be sold by all Existing Holders on whose behalf such Seller's
Broker-Dealer submitted a Bid or a Sell Order, the name or names of one
or more Seller's Broker-Dealers (and the name of the Participant, if
any, of each such Seller's Broker-Dealer) acting for one or more sellers
of such excess principal amount of auction rate notes and the principal
amount of auction rate notes to be sold to one or more Potential Holders
on whose behalf such Buyer's Broker-Dealer acted by one or more Existing
Holders on whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the interest determination date for the next succeeding
Auction.
(b) On each interest determination date, each broker-dealer that
submitted an Order on behalf of any Existing Holder or Potential Holder will:
(i) advise each Existing Holder and Potential Holder on whose
behalf such broker-dealer submitted a Bid or Sell Order in the Auction
on such interest determination date whether such Bid or Sell Order was
accepted or rejected, in whole or in part;
(ii) in the case of a broker-dealer that is a Buyer's
Broker-Dealer, advise each Potential Holder on whose behalf such Buyer's
Broker-Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Potential Holder's Participant to pay to such Buyer's
Broker-Dealer (or its Participant)
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through the Depository the amount necessary to purchase the principal
amount of the auction rate notes to be purchased pursuant to such Bid
against receipt of such auction rate notes;
(iii) in the case of a broker-dealer that is a Seller's
Broker-Dealer, instruct each Existing Holder on whose behalf such
Seller's Broker-Dealer submitted a Sell Order that was accepted, in
whole or in part, or a Bid that was accepted, in whole or in part, to
instruct such Existing Holder's Participant to deliver to such Seller's
Broker-Dealer (or its Participant) through the Depository the principal
amount of auction rate notes to be sold pursuant to such Order against
payment therefor;
(iv) advise each Existing Holder on whose behalf such
broker-dealer submitted an Order and each Potential Holder on whose
behalf such broker-dealer submitted a Bid of the series interest rate
for the next interest accrual period;
(v) advise each Existing Holder on whose behalf such
broker-dealer submitted an Order of the next interest determination
date; and
(vi) advise each Potential Holder on whose behalf such
broker-dealer submitted a Bid that was accepted, in whole or in part, of
the next interest determination date.
(c) On the basis of the information provided to it pursuant to paragraph
(a) above, each broker-dealer that submitted a Bid or Sell Order in an Auction
is required to allocate any funds received by it in connection with such Auction
pursuant to paragraph (b)(ii) above, and any auction rate notes received by it
in connection with such Auction pursuant to paragraph (b)(iii) above, among the
Potential Holders, if any, on whose behalf such broker-dealer submitted Bids,
the Existing Holders, if any on whose behalf such broker-dealer submitted Bids
or Sell Orders in such Auction, and any broker-dealers identified to it by the
auction agent following such Auction pursuant to paragraph (a)(v) or (a)(vi)
above.
(d) On each interest determination date:
(i) each Potential Holder and Existing Holder with an Order in
the Auction on such interest determination date will instruct its
Participant as provided in (b)(ii) or (b)(iii) above, as the case may
be:
(ii) each Seller's broker-dealer that is not a Participant of the
Depository will instruct its Participant to (A) pay through the
Depository to the Participant of the Existing Holder delivering auction
rate notes to such broker-dealer following such Auction pursuant to
paragraph (b)(ii) above the amount necessary to purchase such auction
rate notes against receipt of such auction rate notes and (B) deliver
such auction rate notes through the Depository to a Buyer's
Broker-Dealer (or its Participant) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in the
Depository will instruct its Participant to pay through the Depository
to Seller's Broker-Dealer (or its Participant) identified following such
Auction pursuant to (a)(vi) above the amount necessary to purchase the
auction rate notes to be purchased pursuant to (b)(ii) above against
receipt of such auction rate notes.
(e) On the business day following each interest determination date:
(i) each Participant for a Bidder in the Auction on such interest
determination date referred to in (d)(i) above will instruct the
Depository to execute the transactions described under (b)(ii) or
(b)(iii) above for such Auction, and the Depository will execute such
transactions;
(ii) each Seller's Broker-Dealer or its Participant will instruct
the Depository to execute the transactions described in (d)(ii) above
for such Auction, and the Depository will execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will instruct
the Depository to execute the transactions described in (d)(iii) above
for such Auction, and the Depository will execute such transactions.
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(f) If an Existing Holder selling auction rate notes in an Auction
fails to deliver such auction rate notes (by authorized
book-entry), a broker-dealer may deliver to the Potential Holder
on behalf of which it submitted a Bid that was accepted a
principal amount of auction rate notes that is less than the
principal amount of auction rate notes that otherwise was to be
purchased by such Potential Holder. In such event, the principal
amount of auction rate notes to be so delivered will be
determined solely by such broker-dealer. Delivery of such lesser
principal amount of auction rate notes will constitute good
delivery. Notwithstanding the foregoing terms of this paragraph
(f), any delivery or nondelivery of auction rate notes which will
represent any departure from the results of an Auction, as
determined by the auction agent, will be of no effect unless and
until the auction agent will have been notified of such delivery
or nondelivery in accordance with the provisions of the Auction
Agent Agreement and the Broker-Dealer Agreements. Neither the
indenture trustee nor the auction agent shall have any
responsibility or liability with respect to the failure of a
Potential Holder, Existing Holder or their respective
broker-dealer or Participant to take delivery of or deliver, as
the case may be, the principal amount of the auction rate notes
or to pay for the auction rate notes purchased or sold pursuant
to an Auction or otherwise.
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APPENDIX E
FORM OF MASTER PURCHASER'S LETTER
TO BE SUBMITTED TO YOUR BROKER-DEALER
RELATING TO SECURITIES INVOLVING RATE SETTINGS
THROUGH AUCTIONS OR REMARKETINGS
To: The Corporation
Remarketing Agent
The Trust Company
A Broker-Dealer
An Agent Member
Other Persons
Ladies and Gentlemen:
1. This letter is designed to apply to auctions for publicly or
privately offered debt or equity securities ("Securities") of any issuer
("Corporation") which are described in any final prospectus or other offering
materials relating to such Securities as the same may be amended or supplemented
(collectively, with respect to the particular Securities concerned, the
"Prospectus"), and which involve periodic rate settings through auctions
("Auctions"). This letter shall be for the benefit of any Corporation and of any
trust company or auction agent (collectively, "trust company"), broker-dealer,
agent member, securities depository or other interest person in connection with
any Securities and related Auctions (it being understood that such persons may
be required to execute specified agreements and nothing herein shall alter such
requirements). The terminology used herein is intended to be general in its
application and not to exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, offer to sell and/or sell
Securities of any Corporation as described in the Prospectus relating thereto.
We agree that this letter shall apply to all such purchases, sales and offers
and to Securities owned by us. We understand that the dividend/interest rate on
Securities may be based from time to time on the result of Auctions as set forth
in the Prospectus.
3. We agree that any bid or sell order placed by us shall constitute an
irrevocable offer by us to purchase or sell the Securities subject to such bid
or sell order, or such lesser amount of Securities as we shall be required to
sell or purchase as a result of such Auction, at the applicable price, all as
set forth in the Prospectus, and that if we fail to place a bid or sell order
with respect to Securities owned by us with a broker-dealer on any auction date,
or a broker-dealer to which we communicate a bid or sell order fails to submit
such bid or sell order to the trust company concerned, we shall be deemed to
have placed a hold order with respect to such Securities as described in the
Prospectus. We authorize any broker-dealer that submits a bid or sell order as
our agent in Auctions to execute contracts for the sale of Securities covered by
such bid or sell order. We recognize that the payment by such broker-dealer for
Securities purchased on our behalf shall not relieve us of any liability to such
broker-dealer for payment for such Securities.
4. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the denominations set
forth in the Prospectus and we will sell, transfer or otherwise dispose of any
Securities held by us from time to time only pursuant to a bid or sell order
placed in an Auction, to or through a broker-dealer or, when permitted in the
Prospectus, to a person that has signed and delivered, or caused to be delivered
on its behalf, to the applicable trust company a letter substantially in the
form of this letter (or other applicable purchasers' letter), provided that in
case of all transfers other than pursuant to Auctions we or our broker-dealer or
our agent member shall advise such trust company of such transfer. We understand
that a restrictive legend will be placed on certificates representing the
Securities and stop-transfer instructions will be issued to the transfer agent
and/or registrar, all as set forth in the Prospectus. We agree to comply with
any other transfer restrictions or other related procedures as described in the
Prospectus.
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5. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by a global certificate
registered in the name of the applicable securities depository or its nominee,
that we will not be entitled to receive any certificate representing the
Securities and that our ownership of any Securities will be maintained in
book-entry form by the securities depository for the account of our agent
member, which in turn will maintain records of our beneficial ownership. We
authorize and instruct our agent member to disclose to the applicable trust
company such information concerning our beneficial ownership of securities as
such trust company shall request.
6. We acknowledge that partial deliveries of Securities purchased in
Auctions may be made to us and such deliveries shall constitute good delivery as
set forth in the Prospectus.
7. This letter is not a commitment by us to purchase any Securities.
8. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior or post-dated purchaser's letter
specific to particular Securities; any recipient of this letter may rely upon it
until such recipient has received a signed writing amending or revoking this
letter.
9. The descriptions of Auction procedures set forth in each applicable
Prospectus are incorporated by reference herein and, in case of any conflict
between this letter and any such description, such description shall control.
10. Any photocopy or other reproduction of this letter, if signed, shall
be deemed of equal effect as a signed original.
11. Our agent member of the Securities Depository currently is
___________________________.
12. Our personnel authorized to place orders with broker-dealers for the
purposes set forth in the Prospectus in Auctions is/are _______________________,
telephone number (___) ________.
13. Our taxpayer identification number is _____________________.
14. In the case of each offer to purchase, offer to sell or sale by us
of Securities not registered under the Securities Act of 1933, as amended (the
"Act"), we represent and agree as follows:
We understand and expressly acknowledge that the Securities have
not been and will not be registered under the Act and, accordingly, that
the Securities may not be reoffered, resold or otherwise pledged,
hypothecated or transferred unless an applicable exemption for the
registration requirements of the Act is available.
14.1 We hereby confirm that any purchase of Securities by us will be for
our own account, or for the account of one or more parties for which we are
acting as trustee or agent with complete investment discretion and with
authority to bind such parties, and not with a view to any public resale or
distribution thereof. We and each other party for which we are acting which will
acquire Securities will be "qualified institutional buyers" within the meaning
of Rule 144A under the Act or "accredited investors" within the meaning of
Regulation D under the Act with respect to the Securities to be purchased by us
or such party, as the case may be, will have previously invested in similar
types of instruments and will be able and prepared to bear the economic risk of
investing in and holding such Securities.
14.2 We acknowledge that prior to purchasing any Securities we shall
have received a prospectus (private placement memorandum) with respect thereto
and acknowledge that we will have had access to such financial and other
information, and have been afforded the opportunity to ask such questions of
representatives of
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the Corporation and receive answers thereto, as we deem necessary in connection
with our decision to purchase Securities.
14.3 We recognize that the Corporation and broker-dealers will rely upon
the truth and accuracy of the foregoing investment representations and
agreements, and we agree that each of our purchases of Securities now or in the
future shall be deemed to constitute our concurrence in all of the foregoing
which shall be binding on us and each party for which we are acting as set forth
in Subparagraph 14.1 above.
Dated:
_________________________________________
(Name of Purchaser)
By: _____________________________________
Printed Name: ___________________________
Title: __________________________________
Mailing Address of Purchaser:
_________________________________________
_________________________________________
_________________________________________
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THE TRUST HAS NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION IN
CONNECTION WITH THIS OFFERING OTHER THAN THE INFORMATION CONTAINED IN THIS
PROSPECTUS. YOU SHOULD RELY ONLY UPON THE INFORMATION CONTAINED IN THIS
PROSPECTUS IN DECIDING WHETHER TO MAKE AN INVESTMENT IN THE NEW NOTES. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE NEW NOTES. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN A JURISDICTION WHERE THE
OFFER OR SOLICITATION IS NOT PERMITTED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF AND ANY SALE MADE UNDER THIS
PROSPECTUS DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
TRUST SINCE THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Where You Can Find More Information
The Issuer
The Depositor
Use of Proceeds
The Exchange Offer
The Financed Student Loans
Transfer and Sale Agreement
Maturity and Prepayment Considerations
Description of the FFEL Program
Servicing
The Guarantee Agencies
Description of the New Notes
Redemption
Security for the Notes
The Indenture
Federal Income Tax Consequences
State Tax Considerations
ERISA Considerations
Legal Matters
Rating
Plan of Distribution
UNTIL , 1999 (90) DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THIS
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
EXCHANGE OFFER FOR
SENIOR ASSET-BACKED NOTES,
SERIES 1998A1-3 (LIBOR FLOATING RATE),
SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1998A1-4 (AUCTION RATE),
SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1998A1-5 (AUCTION RATE),
SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1998A1-6 (AUCTION RATE),
AND
SUBORDINATE ASSET-BACKED NOTES,
SERIES 1998B1-3 (FIXED RATE)
STUDENT LOAN FUNDING 1998-A/B TRUST
PROSPECTUS
April , 1999
1
<PAGE> 173
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
[TO BE PROVIDED]
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<S> <C>
1.1 Form of Dealer Manager Agreement*
3.1 Certificate of Formation for Student Loan Funding LLC+
3.2 Limited Liability Company Agreement for Student Loan Funding LLC+
3.3 Form of Trust Agreement between Student Loan Funding LLC and the eligible
lender trustee
4.1 Amended and Restated Indenture of Trust, dated as of __________, 1999, by
and Firstar Bank , N.A., as co-owner trustee, Firstar Bank, N.A., as
initial eligible lender trustee and Firstar Bank, N.A., as indenture
trustee*
4.2 Amended and Restated Terms Supplement to the Amended and Restated
Indenture of Trust, dated as of __________, 1999, by and Firstar Bank,
N.A., as co-owner trustee, Firstar Bank, N.A., as initial eligible lender
trustee and Firstar Bank, N.A., as indenture trustee*
4.3 Registration Rights Agreement, dated as of December 1, 1998, by and
between Student Loan Funding LLC and Salomon Smith Barney, Inc.
4.4 Form of old Senior Asset-Backed Note, Series 1998A-3 (LIBOR Rate)*
4.5 Form of old Senior Asset-Backed Callable Note, Series 1998A-4 (Auction
Rate)*
4.6 Form of old Senior Asset-Backed Callable Note, Series 1998A-5 (Auction
Rate)*
4.7 Form of old Senior Asset-Backed Callable Note, Series 1998A-6 (Auction
Rate)*
4.8 Form of old Subordinate Asset-Backed Note, Series 1998B-3 (Fixed Rate)*
4.9 Form of new Senior Asset-Backed Note, Series 1998A1-3 (LIBOR Rate)*
4.10 Form of new Senior Asset-Backed Callable Note, Series 1998A1-4 (Auction
Rate)*
4.11 Form of new Senior Asset-Backed Callable Note, Series 1998A1-5 (Auction
Rate)*
4.12 Form of new Senior Asset-Backed Callable Note, Series 1998A1-6 (Auction
Rate)*
4.13 Form of new Subordinate Asset-Backed Note, Series 1998B1-3 (Fixed Rate)*
5.1 Opinion of Thompson Hine & Flory LLP with respect to legality*
8.1 Opinion of Thompson Hine & Flory LLP with respect to federal tax matters
10.1 Master Servicing Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as Co-owner Trustee, and Student Loan Funding
Resources, Inc.
10.2 Administration Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as Co-owner Trustee, and Student Loan Funding
Resources, Inc.
10.3 Transfer and Sale Agreement, dated as of March 15, 1999, by and between
Student Loan Funding LLC, Firstar Bank, N.A., as eligible lender trustee
and Firstar Bank, N.A. as co-owner trustee for the trust*
10.4 Eligible Lender Trustee Agreement, dated as of March 15, 1999, by and
between Firstar Bank, N.A. as eligible lender trustee and Firstar Bank,
N.A. as co-owner trustee
10.5 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Florida Department of Education, Office of Student Financial
Assistance+
</TABLE>
2
<PAGE> 174
<TABLE>
<S> <C>
10.6 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Georgia Higher Education Assistance Corporation+
10.7 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and United Student Aid Funds, Inc.+
10.8 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Kentucky Higher Education Assistance Authority+
10.9 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Great Lakes Higher Education Guaranty Corporation+
23.1 Consent of Thompson Hine & Flory LLP (contained in their opinions filed
as Exhibits 5.1 and 8.1)*
24.1 Power of Attorney (contained on the signature page hereof)
25.1 Statement of eligibility and qualification of Firstar Bank, N.A., as the
trustee under the indenture filed as Exhibit 4.1 (Form T-1)
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
*To be filed by amendment
+Previously filed
(b) Financial Statement Schedules:
All financial statements, schedules and historical financial information have
been omitted as they are not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities
3
<PAGE> 175
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
4
<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati,
State of Ohio, on April 27, 1999.
FIRSTAR BANK, N.A., not in its
individual capacity but solely in
its capacity as Co-owner Trustee for
STUDENT LOAN FUNDING 1998- A/B TRUST
By: /s/ Brian J. Gardner
----------------------------------------
Brian J. Gardner,
Vice President & Trust Officer
STUDENT LOAN FUNDING LLC
By: /s/ Perry D. Moore
----------------------------------------
Perry D. Moore,
Vice President and Manager
5
<PAGE> 177
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Thomas L. Conlan, Jr. and Perry D. Moore as that person's true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for such person and in such person's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this pre-effective amendment to the registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
pre-effective amendment to the registration statement has been signed by the
following persons in the capacities for Student Loan Funding LLC and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Thomas L. Conlan, Jr. Management Committee member and April 26, 1999
- ----------------------------- Chief Executive Officer
Thomas L. Conlan, Jr. And President
(Principal Executive Officer)
/s/ Perry D. Moore Management Committee member and April 26, 1999
- ----------------------------- Vice President
Perry D. Moore
/s/ Christopher P. Chapman Management Committee member April 26, 1999
- -----------------------------
Christopher P. Chapman
/s/ Mark A Ferrucci Management Committee member April 26, 1999
- -----------------------------
Mark A. Ferrucci
/s/ Kim E. Lutthans Management Committee member April 26, 1999
- -----------------------------
Kim E. Lutthans
</TABLE>
6
<PAGE> 178
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Dealer Manager Agreement*
3.1 Certificate of Formation for Student Loan Funding LLC+
3.2 Limited Liability Company Agreement for Student Loan Funding LLC+
3.3 Form of Trust Agreement between Student Loan Funding LLC and the eligible
lender trustee
4.1 Amended and Restated Indenture of Trust, dated as of ____________, 1999,
by and Firstar Bank, N.A., as co-owner trustee, Firstar Bank, N.A., as
initial eligible lender trustee and Firstar Bank, N.A., as indenture
trustee*
4.2 Amended and Restated Terms Supplement to the Amended and Restated
Indenture of Trust, dated as of ____________, 1999, by and Firstar Bank,
N.A., as co-owner trustee, Firstar Bank, N.A., as initial eligible lender
trustee and Firstar Bank, N.A., as indenture trustee*
4.3 Registration Rights Agreement, dated as of December 1, 1998, by and
between Student Loan Funding LLC and Salomon Smith Barney, Inc.
4.4 Form of old Senior Asset-Backed Note, Series 1998A-3 (LIBOR Rate)*
4.5 Form of old Senior Asset-Backed Callable Note, Series 1998A-4 (Auction
Rate)*
4.6 Form of old Senior Asset-Backed Callable Note, Series 1998A-5 (Auction
Rate)*
4.7 Form of old Senior Asset-Backed Callable Note, Series 1998A-6 (Auction
Rate)*
4.8 Form of old Subordinate Asset-Backed Note, Series 1998B-3 (Fixed Rate)*
4.9 Form of new Senior Asset-Backed Note, Series 1998A1-3 (LIBOR Rate)*
4.10 Form of new Senior Asset-Backed Callable Note, Series 1998A1-4 (Auction
Rate)*
4.11 Form of new Senior Asset-Backed Callable Note, Series 1998A1-5 (Auction
Rate)*
4.12 Form of new Senior Asset-Backed Callable Note, Series 1998A1-6 (Auction
Rate)*
4.13 Form of new Subordinate Asset-Backed Note, Series 1998B1-3 (Fixed Rate)*
5.1 Opinion of Thompson Hine & Flory LLP with respect to legality*
8.1 Opinion of Thompson Hine & Flory LLP with respect to federal tax matters
10.1 Master Servicing Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as Co-owner Trustee, and Student Loan Funding
Resources, Inc.
10.2 Administration Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as Co-owner Trustee, and Student Loan Funding
Resources, Inc.
10.3 Transfer and Sale Agreement, dated as of March 15, 1999, by and between
Student Loan Funding LLC, Firstar Bank, N.A., as eligible lender trustee
and Firstar Bank, N.A. as Co-owner Trustee for the trust
10.4 Eligible Lender Trustee Agreement, dated as of March 15, 1999, by and
between Firstar Bank, N.A. as eligible lender trustee and Firstar Bank,
N.A. as Co-owner Trustee
10.5 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Florida Department of Education, Office of Student Financial
Assistance+
10.6 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Georgia Higher Education Assistance Corporation+
10.7 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and United Student Aid Funds, Inc.+
10.8 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Kentucky Higher Education Assistance Authority+
10.9 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Great Lakes Higher Education Guaranty Corporation+
23.1 Consent of Thompson Hine & Flory LLP (contained in their opinions filed as
Exhibits 5.1 and 8.1)*
24.1 Power of Attorney (contained on the signature page hereof)
25.1 Statement of eligibility and qualification of Firstar Bank, N.A., as the
trustee under the indenture filed as Exhibit 4.1 (Form T-1)
</TABLE>
7
<PAGE> 179
<TABLE>
<S> <C>
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
* To be filed by Amendment
+ Previously filed
s 8
<PAGE> 1
Exhibit 3.3
TRUST AGREEMENT
Relating to
STUDENT LOAN FUNDING 1998-A/B TRUST
Dated as of March 1, 1999
among
STUDENT LOAN FUNDING LLC,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as Delaware Trustee,
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as Co-Owner Trustee
and acknowledged and agreed to by
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 and Co-Owner Trustee...............................................7
Section 2.5 Initial Capital Contribution of Trust Property.....................................................7
Section 2.6 Declaration of Trust...............................................................................7
Section 2.7 Liability of a 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 Certificateholder...................................................................10
ARTICLE III......................................................................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
THE CERTIFICATE..................................................................................................11
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. [Reserved]......................................................................................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,.....................................................................................15
CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE............................................................15
Section 4.1. Restriction on Power of 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
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 5.5. Accounting; Reports; Tax Returns................................................................19
ARTICLE VI.......................................................................................................20
AUTHORITY AND DUTIES OF DELAWARE TRUSTEE,........................................................................20
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..................................................................................24
Section 7.1. Acceptance of Delaware Trustee and Co-Owner 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,................................................................................30
THE CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE........................................................30
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 8.1. Fees and Expenses of Delaware Trustee, Co-Owner Trustee and Co-Owner Eligible Lender Trustee....30
Section 8.2. Indemnification.................................................................................30
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,.....................................................................................34
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 or
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
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 11.7. Counterparts..................................................................................41
Section 11.8. Notices.......................................................................................41
SIGNATURES......................................................................................................43
</TABLE>
EXHIBIT A - FORM OF TRUST CERTIFICATE
EXHIBIT B - FORM OF PURCHASER'S LETTER
v
<PAGE> 7
THIS TRUST AGREEMENT, dated as of March 1, 1999, is made among STUDENT
LOAN FUNDING, LLC, a Delaware limited liability company (together with its
permitted successors and assigns, the "Depositor"), FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association, not in its individual
capacity, but solely as Delaware Trustee of the Trust created hereunder (in such
capacity, the "Delaware Trustee") and 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 is acknowledged and agreed to by, for purposes of any provision
relating to, FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association,
not in its individual capacity, but solely as co-owner eligible lender trustee
for the benefit of the Co-Owner Trustee (in such capacity, the "Co-Owner
Eligible Lender Trustee").
WHEREAS, the Depositor has heretofore issued and sold certain Notes
secured under the hereinafter-defined Indenture and now desires to form a common
law (as opposed to statutory) trust under the laws of the State of Delaware (the
"Trust") and, in connection therewith, to assign all the assets pledged under
the Indenture to secure the payment of the Notes to the Co-Owner Trustee and,
but solely with respect to legal title to the Financed Student Loans, to the
Co-Owner Eligible Lender Trustee, in consideration of the assumption by the
Co-Owner Trustee of all the Depositor's obligations with respect to the Notes;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
Capitalized words and phrases used as defined words and phrases and not
otherwise defined herein shall have the meanings given such words and phrases in
the Indenture. The following words and phrases, unless otherwise specified,
shall have the following meanings:
"Administration Agreement" shall mean the Administration
Agreement, to be dated as of March 15, 1999, between the Administrator
and the Co-Owner Trustee, as the same may be amended and supplemented
from time to time.
"Administrator" shall mean Student Loan Funding Resources,
Inc., an Ohio corporation, or any successor Administrator under the
Administration Agreement.
"Agreement" or "this Agreement" shall mean this Trust
Agreement, all amendments and supplements thereto and all exhibits and
schedules to any of the foregoing.
"Authentication Agent" shall mean Firstar Bank, National
Association, or its successor in interest, and any successor
authentication agent appointed as provided in this Agreement.
1
<PAGE> 8
"Benefit Plan" shall mean the meaning assigned in Section 3.4
hereof.
"Business Day" shall mean any day on which the Delaware
Trustee, Co-Owner Trustee and the Paying Agent, if any, at their
respective addresses set forth in or for purposes of this Agreement,
are open for commercial banking business and on which the New York
Stock Exchange is open.
"Certificate" shall mean a certificate executed by the
Delaware Trustee and authenticated by the Authentication Agent
evidencing an undivided interest, whether fractional or whole, in the
Trust.
"Certificate Contribution Account" shall mean the account
designated as the Certificate Contribution Account in, and which is
established and maintained pursuant to, Section 5.1 hereof.
"Certificate Distribution Account" shall mean the account
designated as the Certificate Distribution Account in, and which is
established and maintained pursuant to, Section 5.1 hereof.
"Certificate Register" shall mean the register maintained by
the Certificate Registrar pursuant to Section 3.4 hereof.
"Certificate Registrar" shall mean the registrar appointed
pursuant to Section 3.4 hereof.
"Certificateholder" or "Holder" shall mean the Person in whose
name the Certificate is registered in the Certificate Register;
provided, however, that if no Certificate has been issued by the
Delaware Trustee, the Depositor shall be deemed to be the
Certificateholder for purposes of this Agreement.
Certificateholder's Distribution Date" shall mean the date on
which amounts in the Certificate Distribution Account are disbursed by
the Co-Owner Trustee to the Certificateholder which Date shall be the
last Business Day of each calendar month in which a deposit has been
made to the Certificate Distribution Account at least one day prior to
such last Business Day.
"Closing Date" shall mean March 5, 1999.
"Co-Owner Eligible Lender Trust Agreement" shall mean the
Co-Owner Eligible Lender Trust Agreement, dated as of March 15, 1999,
by and between the Co-Owner Trustee and the Co-Owner Eligible Lender
Trustee, as originally executed and as from time to time amended or
supplemented.
"Co-Owner Eligible Lender Trustee" shall mean Firstar Bank,
National Association, not in its individual capacity, but solely as
eligible lender trustee for the benefit of the Co-Owner Trustee, and
its permitted successors and assigns. The Co-Owner Eligible Lender
Trustee is not a trustee of the Trust.
2
<PAGE> 9
"Co-Owner Trustee" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely as co-owner
trustee of the Trust created hereunder, and its permitted successors
and assigns.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
"Corporate Trust Office" shall mean (i) with respect to the
Delaware Trustee, the principal office of the Delaware Trustee at
which, at any particular time, its corporate trust business shall be
administered, which office at the Closing Date is located at One Rodney
Square, Suite 100, 920 King Street, Wilmington, Delaware 19801,
Attention: Corporate Trust Administration; the telecopy number for the
Corporate Trust Office on the date of the execution of this Agreement
is (302) 888-7544; (ii) with respect to the Co-Owner Trustee, the
principal office of the Co-Owner Trustee at which, at any particular
time, its corporate trust business shall be administered, which office
at the Closing Date is located at 425 Walnut Street, Cincinnati, Ohio
45202, Attention: Corporate Trust Administration; the telecopy number
for the Corporate Trust Office on the date of the execution of this
Agreement is (513) 632-5511 and (iii) with respect to the Co-Owner
Eligible Lender Trustee, at the principal office of the Co-Owner
Eligible Lender Trustee at which, at any particular time, its corporate
trust business shall be administered, which office at the Closing Date
is located at 425 Walnut Street, Cincinnati, Ohio 45202, Attention:
Corporate Trust Administration -- Eligible Lender Trustee; the telecopy
number for the Corporate Trust Office of the Co-Owner Eligible Lender
Trustee on the date of the execution of this Agreement is (513)
632-5511.
"Delaware Trustee" shall mean First Union Trust Company,
National Association, not in its individual capacity, but solely as
Delaware trustee of the Trust created hereunder, and any successor
trustee appointed as provided in this Agreement.
"Depositor" shall mean Student Loan Funding LLC, a Delaware
limited liability company, and its permitted successors and assigns.
"Depositor Eligible Lender Trustee" shall mean Firstar Bank,
National Association (successor by merger to Star Bank, National
Association), as the eligible lender trustee under the Eligible Lender
Trust Agreement, and its lawful successors and assigns.
"Eligible Lender Trust Agreement" shall mean the Eligible
Lender Trust Agreement, dated as of June 1, 1998, by and between the
Depositor and the Depositor Eligible Lender Trustee, as originally
executed and as from time to time amended or supplemented.
"ERISA" shall mean the meaning assigned to such term in
Section 3.4(e) hereof.
"Expenses" shall have the meaning assigned to such term in
Section 8.2 hereof.
"Indemnified Parties" shall mean the meaning assigned to such
term in Section 8.2 hereof.
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"Indenture" shall mean, collectively, the Indenture of Trust
and the Terms Supplement to the Indenture of Trust, each dated as of
December 1, 1998, among the Depositor, the Depositor Eligible Lender
Trustee and the Indenture Trustee, as amended, supplemented or restated
from time to time.
"Indenture Trustee" shall mean Firstar Bank, National
Association (successor by merger to Star Bank, National Association),
or its successor in interest, acting not individually but solely as
trustee, and any successor trustee appointed as provided in the
Indenture.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3(a) hereof
"Master Servicing Agreement" shall mean the Master Servicing
Agreement, to be dated as of March 15, 1999, between the Co-Owner
Trustee and the Administrator, as the same may be amended and
supplemented from time to time.
"Notes" shall mean the Student Loan Asset-Backed Notes, Senior
Series 1998A-3, Senior Series 1998A-4, Senior Series 1998A-5, Senior
Series 1998A-6 and Subordinate Series 1998B-3, dated December 22, 1998,
issued by the Depositor under the Indenture and to be assigned by the
Depositor to, and assumed by, the Co-Owner Trustee pursuant to the
Transfer and Sale Agreement, and any notes issued in exchange therefor.
"Paying Agent" shall mean any paying agent or co-paying agent
appointed pursuant to Section 3.9 hereof, which initially shall be
Firstar Bank, National Association.
"Percentage Interest" shall mean that percentage of the total
beneficial interest in the Trust that is held by the Certificateholder,
which Percentage Interest with respect to the initially issued
Certificate shall be 100%.
"Record Date" shall mean, with respect to the
Certificateholder's Distribution Date, the close of business on the
last Business Day immediately preceding such Certificateholder's
Distribution Date.
"Related Documents" shall mean the Co-Owner Eligible Lender
Trust Agreement, the Transfer and Sale Agreement, the Master Servicing
Agreement, the Indenture, the Certificate, the Notes and the
Administration Agreement. The Related Documents executed by any party
are referred to herein as "such party's Related Documents," "its
Related Documents" or by a similar expression.
"Responsible Officer" shall mean a duly appointed officer of
the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee, having responsibility for performance of the respective
obligations of the Delaware Trustee, the Co-Owner Trustee or Co-Owner
Eligible Lender Trustee hereunder.
"Student Loan" shall have the meaning assigned to such term in
Section 1.1 of the Indenture.
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"Transfer and Sale Agreement" shall mean the Transfer and Sale
Agreement, to be dated as of March 15, 1999, among the Transferor, the
Co-Owner Trustee and the Co-Owner Eligible Lender Trustee, as the same
may be amended and supplemented from time to time.
"Transferor" shall mean, collectively, the Depositor or its
successor in interest, and the Depositor Eligible Lender Trustee or its
successor in interest, if and to the extent that the Depositor Eligible
Lender Trustee holds legal title to the Financed Student Loans on
behalf of the Depositor to be transferred in trust to the Co-Owner
Eligible Lender Trustee.
"Trust" shall mean the common law (as opposed to statutory)
trust created by this Agreement under the laws of the State of Delaware
and designated "Student Loan Funding 1998-A/B Trust", the estate of
which consists of the Trust Property.
"Trust Property" shall mean the property and proceeds of every
description conveyed to the Co-Owner Trustee and, but solely with
respect to legal title to the Financed Student Loans, the Co-Owner
Eligible Lender Trustee (i) initially pursuant to Section 2.5 hereof
and (ii) hereafter pursuant to the Transfer and Sale Agreement,
together with all amounts deposited in the Certificate Contribution
Account and the Certificate Distribution Account (including all
Eligible Investments therein and all proceeds therefrom).
"Trustee" shall mean any one of the Trustees.
"Trustees" shall mean, collectively, the Delaware Trustee, the
Co-Owner Trustee and the Co-Owner Eligible Lender Trustee (although the
Co-Owner Eligible Lender Trustee is not a trustee of the Trust.
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.
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ARTICLE II
CREATION OF TRUST
Section 2.1. Creation of Trust.
There is hereby formed a common law (as opposed to statutory) trust to
be known as "Student Loan Funding 1998-A/B Trust," under which and in which
name, but solely to the extent provided in this Agreement, the Delaware Trustee
and the Co-Owner Trustee may conduct business, make and execute contracts and
other instruments and sue and be sued. References to the name "Student Loan
Funding 1998-A/B Trust" in this Agreement, any Related Document or any
registration statement and related prospectus shall mean Firstar Bank, National
Association, not in its individual capacity, but solely as Co-Owner Trustee of
the Trust.
Section 2.2. Office.
Except as otherwise provided in this Agreement with respect to the
Delaware Trustee for purposes of performance of the duties of the Delaware
Trustee set forth herein, the office of the Trust shall be in care of the
Co-Owner Trustee at its Corporate Trust Office or at such other address in the
State of Ohio as the Co-Owner Trustee may designate by written notice to the
Delaware Trustee, the Certificateholder and the Depositor.
Section 2.3. Purposes and Powers.
(a) The purpose of the Trust is, and the Delaware Trustee and the
Co-Owner Trustee on behalf of the Trust, but each only to the extent provided in
this Agreement, shall have the power and authority, to engage in the following
activities:
(i) to issue and sell the initial Certificate pursuant to this
Agreement and to pay the organizational, start-up and transactional
expenses of the Trust from amounts on deposit in the Certificate
Contribution Account;
(ii) to execute and deliver the Transfer and Sale Agreement,
whereby the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee,
in consideration of the assignment and transfer by the Depositor and
the Depositor Eligible Lender Trustee of all of the assets pledged
under the Indenture, will assume all obligations of the Depositor and
the Depositor Eligible Lender Trustee under the Notes and the
Indenture;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Trust Property to which it holds title and all of its right, title
and interest in the Transfer and Sale Agreement, to the Indenture
Trustee for the benefit of the Noteholders (and to execute (by any one
or more of the Trustees) and file Uniform Commercial Code financing
statements as deemed necessary or appropriate to evidence the same) and
to hold, manage and distribute to the Certificateholder pursuant to the
terms hereof any portion of the Trust Property released from the lien
of, and remitted to the Co-Owner Trustee for deposit in the Trust
pursuant to, the Indenture;
(iv) to issue and exchange Exchange Notes for the outstanding
Notes pursuant to the Exchange Offer;
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(v) to enter into and perform its obligations under the
Related Documents to which it is a party;
(vi) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vii) subject to compliance with the 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 and Co-Owner Trustee.
The Depositor hereby appoints (i) the Delaware Trustee as trustee of
the Trust and (ii) the Co-Owner Trustee as co-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 and the Co-Owner 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 and the Co-Owner 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. The Co-Owner Eligible Lender Trustee hereby acknowledges and
agrees that it is holding legal title to that part of the Trust Property
constituting Financed Student Loans in trust upon and subject to the conditions
set forth in the Co-Owner Eligible Lender Trust Agreement and also subject to
the conditions set forth herein. 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
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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" 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 legal title to any part of such
Trust Property to be vested in another trustee or trustees, in which case, after
the appropriate actions under Section 10.5 hereof shall have been taken, legal
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 pursuant to the Co-Owner Eligible Lender Trust Agreement for the
benefit of the Trust; 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
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any agent of the Trustees from having employees within or without the State of
Delaware or the State of Ohio. Payment will be received by the Co-Owner Trustee
only in the State of Ohio, and payments will be made by the Co-Owner Trustee
only from the State of Ohio.
Section 2.10. Representations and Warranties of the Depositor.
By execution of this Agreement, the Depositor makes the following
representations and warranties on which the Delaware Trustee, the Co-Owner
Trustee and the Co-Owner Eligible Lender Trustee each relies in accepting the
Trust Property in trust and issuing the Certificate:
(a) Organization and Good Standing. It has been duly organized and is
validly existing as a limited liability company in good standing under the laws
of the State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and as such business
is currently conducted and is proposed to be conducted pursuant to this
Agreement and the Related Documents.
(b) Due Qualification. It is duly qualified to do business as a limited
liability company in good standing, and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of its property,
the conduct of its business and the performance of its obligations under this
Agreement and the Related Documents requires such qualification.
(c) Power and Authority. It has the power and authority to execute and
deliver this Agreement and its Related Documents and to perform its obligations
pursuant thereto, and the execution, delivery and performance of this Agreement
and its Related Documents have been duly authorized by all necessary company
action.
(d) No Consent Required. No consent, license, approval or authorization
or registration or declaration with, any Person or with any governmental
authority, bureau or agency is required in connection with its execution,
delivery or performance of this Agreement and the Related Documents, except for
such as have been obtained, effected or made.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and its Related Documents and the fulfillment of its obligations
under this Agreement and its Related Documents shall not conflict with, result
in any breach of any of the terms and provisions of or constitute (with or
without notice, lapse of time or both) a default under, its certificate of
formation or limited liability company agreement, or any indenture, agreement,
mortgage, deed of trust or other instrument to which it is a party or by which
it is bound, or result in the creation or imposition of any lien upon any of its
properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust or other instrument, or violate any law, order, rule or regulation
applicable to it of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over it or any of its properties.
(f) No Proceedings. There are no proceedings or investigations pending
or, to its knowledge, threatened against it before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over it or its properties (i) asserting the invalidity of this
Agreement or any of the Related Documents, (ii) seeking to prevent the issuance
of the Certificate or the Exchange Offer with respect to the Notes or the
consummation of any of the transactions contemplated by this Agreement or any of
the Related
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Documents, (iii) seeking any determination or ruling that might materially and
adversely affect its performance of its obligations under, or the validity or
enforceability of, this Agreement or any of the Related Documents, or (iv)
seeking to adversely affect the federal income tax or other federal, state or
local tax attributes of the Certificate.
Section 2.11. Federal Income Tax Allocations.
Net income of the Trust for any month as determined for Federal income
tax purposes (and each item of income, gain, loss and deduction entering into
the computation thereof) shall be allocated to the Certificateholder, as of the
Record Date for such month, in an amount equal to the amount distributable for
such month to such Certificateholder.
Section 2.12. Covenants of Certificateholder.
The Certificateholder agrees:
(a) to be bound by the terms and conditions of the Certificate and of
this Agreement, including any supplements or amendments hereto and to perform
the obligations of the Certificateholder as set forth therein or herein, in all
respects as if it were a signatory hereto. This undertaking is made for the
benefit of the Delaware Trustee, the Co-Owner Trustee, the Co-Owner Eligible
Lender Trustee and any other future Certificateholder;
(b) to hereby appoint the Administrator as such Certificateholder's
agent and attorney-in-fact to sign any federal income tax information return
filed on behalf of the Certificateholder with respect to this Agreement and
that, if requested by the Co-Owner Trustee, it will sign such federal income tax
information return in its capacity as holder of an interest in the Trust. The
Certificateholder also hereby agrees that in its tax returns it will not take
any position inconsistent with those taken in any tax returns filed by the
Administrator on behalf of the Certificateholder;
(c) to notify the Delaware Trustee and the Co-Owner Trustee of any
transfer by it of the Certificate in a taxable sale or exchange, within 30 days
of the date of the transfer, provided, however, that, notwithstanding anything
to the contrary in this Agreement, the Certificateholder shall not transfer the
Certificate so long as there are any Notes outstanding unless the transfer is
related to (i) the adjudication of the Certificateholder as bankrupt or
insolvent, (ii) the reorganization or relief of the Certificateholder under any
applicable federal or state law relating to bankruptcy, (iii) the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Certificateholder or a substantial part of its property or (iv)
an assignment by the Certificateholder for the benefit of its creditors; and
(d) not to, for any reason, institute proceedings for the Trust to be
adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against the Trust, or file a petition seeking or
consenting to reorganization or relief under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trust or a
substantial part of its property, or cause or permit the Co-Owner Trustee or the
Co-Owner Eligible Lender Trustee to make any assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
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ARTICLE III
THE CERTIFICATE
Section 3.1. Initial Ownership.
Upon the creation of the Trust by the contribution by the Depositor
pursuant to Section 2.5 and in the absence of the issuance of the initial
Certificate, the Depositor shall be the sole beneficiary of the Trust.
Section 3.2. The Certificate.
A single Certificate registered in the name of the Depositor and
representing the whole beneficial interest in the Trust shall be initially
issued in accordance with the provisions of Section 3.3 hereof. The Certificate
shall be substantially in the form of Exhibit A to this Agreement with such
changes as are necessary or appropriate and not inconsistent with this
Agreement. The Certificate shall be executed by the Delaware Trustee by manual
or facsimile signature of any authorized signatory of the Delaware Trustee. A
Certificate bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Delaware Trustee shall be validly issued and entitled to the benefits of
this Agreement, notwithstanding that such individuals or any of them have ceased
to be so authorized prior to the authentication and delivery of such
Certificate.
Section 3.3. Authentication of Certificate.
Simultaneously with the assignment and transfer to the Trust of the
Trust Property pursuant to the Transfer and Sale Agreement and the delivery to
the Co-Owner Eligible Lender Trustee and the Co-Owner Trustee of the Financed
Student Loans and the other Trust Property, respectively, the Delaware Trustee
shall execute the Certificate and shall cause the Certificate to be
authenticated by the Authentication Agent and delivered to or upon the order of
the Depositor. No Certificate shall entitle its Holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication, executed by the Authentication
Agent, by manual signature; such authentication shall constitute conclusive
evidence that such Certificate shall have been duly authenticated and delivered
hereunder. The Co-Owner Trustee is hereby initially appointed Authentication
Agent. The Certificate shall be dated the date of its authentication.
Section 3.4. Registration of Transfer and Exchange of Certificate.
(a) The Certificate Registrar shall maintain, or cause to be
maintained, at the office or agency maintained pursuant to Section 3.8 hereof, a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Co-Owner Trustee shall provide for the registration of the
Certificate and of transfers and exchanges of the Certificate as provided in
this Agreement. The Co-Owner Trustee is hereby initially appointed Certificate
Registrar for the purpose of registering the Certificate and transfers and
exchanges of the Certificate as provided in this Agreement.
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(b) Subject to the provisions of paragraph (c) of Section 2.12 of this
Agreement and 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
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constitute conclusive evidence of beneficial ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 3.6. Person Deemed Certificateholder.
Prior to due presentation of a Certificate for registration of
transfer, the Co-Owner Trustee, the Certificate Registrar (if different from the
Co-Owner Trustee) and any agent of the Co-Owner Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate is registered as
the holder of such Certificate for the purpose of receiving distributions
pursuant to Section 5.2 hereof and for all other purposes whatsoever, and
neither the Delaware Trustee, the Co-Owner Trustee, or the Certificate Registrar
nor any agent of the Delaware Trustee, the Co-Owner Trustee or the Certificate
Registrar shall be affected by any notice to the contrary.
Section 3.7. [Reserved]
Section 3.8. Maintenance of Office or Agency.
(a) The Co-Owner Trustee shall maintain in Cincinnati, Ohio an office
or offices or agency or agencies where a Certificate may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Co-Owner Trustee in respect of such Certificate and the Related Documents
may be served. The Co-Owner Trustee initially designates its Corporate Trust
Office for such purposes. The Co-Owner Trustee shall give prompt written notice
to the Delaware Trustee, the Depositor, the Co-Owner Eligible Lender Trustee and
the Certificateholder of any change in the location of the Certificate Register
or any such office or agency.
(b) The Delaware Trustee shall maintain in Wilmington, Delaware an
office or offices from which it shall perform its obligations under this
Agreement and at which all service of process with respect to this Agreement
shall be made. The Delaware Trustee initially designates its Corporate Trust
Office for such purposes. The Delaware Trustee shall give prompt written notice
to the Co-Owner Trustee, the Depositor, the Co-Owner Eligible Lender Trustee and
the Certificateholder of any change in the location of such office or agency.
(c) The Co-Owner Eligible Lender Trustee shall maintain in Cincinnati,
Ohio an office or offices from which it shall perform its obligations under this
Agreement and at which all service of process with respect to this Agreement
shall be made. The Co-Owner Eligible Lender Trustee initially designates its
Corporate Trust Office for such purposes. The Co-Owner Eligible Lender Trustee
shall give prompt written notice to the Delaware Trustee, the Co-Owner Trustee,
the Depositor and the Certificateholder of any change in the location of such
office or agency.
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Section 3.9. Appointment of Paying Agent.
The Paying Agent shall make distributions to the Certificateholder from
the Certificate Distribution Account pursuant to Section 5.2 hereof and shall
report the amounts of such distributions to the Delaware Trustee and Co-Owner
Trustee (if different from the Paying Agent). Any Paying Agent (if different
from the Co-Owner Trustee) shall have the revocable power to withdraw funds from
the Certificate Distribution Account for the purpose of making the distributions
referred to above. The Co-Owner Trustee (if different from the Paying Agent) may
revoke such power and remove the Paying Agent if the Co-Owner Trustee determines
in its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect. The Paying Agent shall
initially be Firstar Bank, National Association, and any co-paying agent chosen
by Firstar Bank, National Association. Firstar Bank, National Association shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Delaware Trustee. In the event that Firstar Bank, National Association shall no
longer be the Paying Agent, the Co-Owner Trustee with the written consent of the
Delaware Trustee, shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company). The Co-Owner Trustee shall cause such successor
Paying Agent or any additional Paying Agent appointed by the Co-Owner Trustee to
execute and deliver to the Co-Owner Trustee an instrument in which such
successor Paying Agent or additional Paying Agent shall agree with the Co-Owner
Trustee that as Paying Agent, such successor Paying Agent or additional Paying
Agent will hold all sums, if any, held by it for payment to the
Certificateholder in trust for the benefit of the Certificateholder entitled
thereto until such sums shall be paid to such Certificateholder. The Paying
Agent (if different from the Co-Owner Trustee) shall return all unclaimed funds
to the Co-Owner Trustee and upon removal of a Paying Agent such Paying Agent
shall also return all funds in its possession to the Co-Owner Trustee (if
different from the Paying Agent). The provisions of Sections 7.1, 7.3, 7.4 and
8.2 hereof shall apply to the Co-Owner Trustee also in its role as Paying Agent,
for so long as the Co-Owner Trustee shall act as Paying Agent and, to the extent
applicable, to any other paying agent appointed hereunder. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
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ARTICLE IV
ACTIONS BY DELAWARE TRUSTEE,
CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 4.1. Restriction on Power of Certificateholder.
The Certificateholder shall not have any right to vote or in any manner
otherwise control the operation and management of the Trust except as expressly
provided in this Agreement.
Section 4.2. Prior Notice to Certificateholder with Respect to Certain
Matters.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall take any of the following actions, unless at least
30 days before the taking of such action, the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee, as the case may be, shall have
notified the other Trustees and the Certificateholder in writing of the proposed
action and the Certificateholder shall not have notified the Delaware Trustee or
the Co-Owner Trustee, as the case may be, in writing prior to the 30th day after
such notice is given that such Certificateholder has withheld consent or
provided alternative direction:
(a) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required unless such
amendment would not materially adversely affect the interests of the
Certificateholder, the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee; or
(b) the amendment, change or modification of the Administration
Agreement, unless such amendment would not materially adversely affect the
interests of the Certificateholder, the Delaware Trustee, the Co-Owner Trustee
or the Co-Owner Eligible Lender Trustee.
Section 4.3. Action by Certificateholder with Respect to Bankruptcy.
Neither the Delaware Trustee, the Co-Owner Trustee nor the Co-Owner
Eligible Lender Trustee shall have the power to commence a voluntary proceeding
in bankruptcy relating to the Trust, if otherwise permitted by applicable law,
without the prior approval of the Certificateholder and the delivery to the
Delaware Trustee and the Co-Owner Trustee by such Certificateholder of a
certificate certifying that such Certificateholder reasonably believes that the
Trust is insolvent.
Section 4.4. Restrictions on Certificateholder's Power.
The Certificateholder shall not have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement
or any Related Document, unless the Certificateholder previously shall have
given to the Delaware Trustee and the Co-Owner Trustee a written notice of
default and of the continuance thereof, as provided in this Agreement and unless
also the 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
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Trustee and Co-Owner Trustee under this Agreement and shall have offered to the
Delaware Trustee and Co-Owner Trustee such reasonable indemnity as each may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Delaware Trustee and Co-Owner Trustee, for 30 days after their
receipt of such notice, request, and offer of indemnity, shall have neglected or
refused to institute any such action, suit, or proceeding and during such 30-day
period, no request or waiver inconsistent with such written request has been
given to the Delaware Trustee and Co-Owner Trustee pursuant to and in compliance
with this Section or Section 6.3 hereof.
Section 4.5. Rights of Certificateholder.
Notwithstanding anything to the contrary in the Related Documents,
without the prior written consent of the Certificateholder, neither the Delaware
Trustee, the Co-Owner Trustee nor the Co-Owner Eligible Lender Trustee shall (i)
remove the Administrator, (ii) initiate any claim, suit or proceeding under this
Agreement or compromise any claim, suit or proceeding brought pursuant to this
Agreement or (iii) authorize the merger, conversion or consolidation of the
Trust with or into any business trust or other entity (other than in accordance
with the Indenture).
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ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1. Certificate Contribution Account; Certificate Distribution
Account.
(a) The Co-Owner Trustee, for the benefit of the Certificateholder,
shall establish and maintain the Certificate Contribution Account, in the name
of the Co-Owner Trustee for the benefit of the Certificateholder. The
Certificate Contribution Account shall be a segregated trust account hereunder
established by the Co-Owner Trustee and maintained at the Corporate Trust Office
of the Co-Owner Trustee. The Co-Owner Trustee shall deposit in the Certificate
Contribution Account all amounts received from the Depositor pursuant to Section
2.5 hereof.
(b) The Co-Owner Trustee, for the benefit of the Certificateholder,
shall establish and maintain the Certificate Distribution Account in the name of
the Trust for the benefit of the Certificateholder. The Certificate Distribution
Account shall be a segregated trust account hereunder established and maintained
by and with the Co-Owner Trustee at its Corporate Trust Office. The Co-Owner
Trustee shall deposit in the Certificate Distribution Account all amounts
received from the Indenture Trustee as and when received.
(c) The Co-Owner Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Certificate Contribution Account
and the Certificate Distribution Account and in all proceeds of each.
(d) All amounts held in the Certificate Distribution Account shall, to
the extent permitted by applicable laws, rules and regulations, be invested, by
the Co-Owner Trustee, in Eligible Investments that mature not later than one
Business Day prior to the Certificateholder's Distribution Date to which such
amounts relate. Investments in Eligible Investments shall be made in the name of
the Co-Owner Trustee, and such investments shall not be sold or disposed of
prior to their maturity. Any investment of funds in the Certificate Distribution
Account shall be made in Eligible Investments held by a financial institution
with respect to which (a) such institution has noted the Co-Owner Trustee's
interest therein by book entry or otherwise and (b) a confirmation of the
Co-Owner Trustee's interest has been sent to the Co-Owner Trustee by such
institution, provided that such Eligible Investments are (i) specific
certificated securities, and (ii) either (A) in the possession of such
institution or (B) in the possession of a clearing corporation in New York,
registered in the name of such clearing corporation, not endorsed for collection
or surrender or any other purpose not involving transfer, not containing any
evidence of a right or interest inconsistent with the Co-Owner Trustee's
interest therein, and held by such clearing corporation in an account of such
institution. Subject to the other provisions hereof, the Co-Owner Trustee shall
have sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall be
delivered directly to the Co-Owner Trustee or its agent, together with each
document of transfer, if any, necessary to transfer title to such investment to
the Co-Owner Trustee in a manner which complies with this Section 5.1. All
interest, gains upon sale and other income from, or earnings 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.
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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
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at least five Business Days prior to such Distribution Date and the amount of
such distribution is not less than $50,000 or, if not, by check mailed to such
Certificateholder at the address of such Holder appearing in the Certificate
Register.
Section 5.4. No Segregation of Moneys; No Interest.
Subject to Sections 5.1 and 5.2, moneys received by the Co-Owner
Trustee hereunder need not be segregated in any manner except to the extent
required by law and may be deposited under such general conditions as may be
prescribed by law, and the Co-Owner Trustee shall not be liable for any interest
thereon.
Section 5.5. Accounting; Reports; Tax Returns.
(a) The Administrator has agreed pursuant to the Administration
Agreement that the Administrator shall (i) maintain (or cause to be maintained)
the books of the Trust on a fiscal year basis on the accrual method of
accounting (such fiscal year initially being the fiscal year of the Depositor),
(ii) deliver to the Certificateholder, as may be required by the Code and
applicable Treasury Regulations, such information as may be required to enable
such Certificateholder to prepare its Federal and state income tax returns,
(iii) file or cause to be filed such tax returns, if any, relating to the Trust,
and direct the Co-Owner Trustee to make such elections as may from time to time
be required or appropriate under any applicable state or Federal statute or rule
or regulation thereunder so as to maintain the Trust's characterization as a
"disregarded entity" (or, if applicable, a partnership for Federal income tax
purposes), (iv) collect or cause to be collected any withholding tax as
described in and in accordance with Section 5.2(c) with respect to income or
distributions to the Certificateholder and (v) file or cause to be filed all
documents required to be filed by the Co-Owner Trustee with the Commission and
otherwise take or cause to be taken all such actions as are required for the
Trust's compliance with all applicable provisions of state and federal
securities laws.
(b) The Co-Owner Trustee shall make all elections pursuant to this
Section 5.5 as directed in writing by the Certificateholder.
(c) The Co-Owner Trustee shall sign any tax returns relating to the
Trust, unless applicable law requires the Certificateholder to sign such
documents, in which case such documents shall be signed by the Certificateholder
qualified to sign such return, or such Certificateholder's law agent or
attorney-in-fact. In signing any such tax return, the Co-Owner Trustee shall
rely entirely upon, and shall have no liability for, information or calculations
provided by the Administrator.
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ARTICLE VI
AUTHORITY AND DUTIES OF DELAWARE TRUSTEE,
CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 6.1. General Authority.
The Co-Owner Trustee is authorized and directed to execute, not in its
individual capacity but solely as trustee of the Trust, and deliver, and the
Co-Owner Trustee authorizes and directs the Co-Owner Eligible Lender Trustee to
execute, not in its individual capacity but solely as eligible lender trustee
for the benefit of the Co-Owner Trustee, and deliver, the Related Documents to
which it is to be a party and each certificate or other document attached as an
exhibit to, or contemplated by, the Related Documents to which the Trust is to
be a party and any amendment thereto. In addition to the foregoing, the Co-Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Related Documents. The Co-Owner Trustee is further
authorized hereunder to enter into the Administration Agreement, to appoint,
with the prior written consent of the Depositor, a successor Administrator and
to take from time to time such action as the Administrator recommends with
respect to the Related Documents so long as such actions are consistent with the
terms of the Related Documents.
Section 6.2. General Duties.
It shall be the duty of the Co-Owner Trustee (and not the Delaware
Trustee) to discharge (or cause to be discharged through the Administrator or
such agents as shall be appointed by the Administrator) all of its
responsibilities pursuant to the terms of this Agreement and the Related
Documents and to administer the Trust in the interest of the Certificateholder,
subject to the Related Documents and in accordance with the provisions of this
Agreement. Notwithstanding the foregoing, the Co-Owner Trustee shall be deemed
to have discharged its duties and responsibilities hereunder and under the
Related Documents to the extent the Administrator has agreed in the
Administration Agreement, or the Co-Owner Eligible Lender Trustee has agreed in
the Co-Owner Eligible Lender Trust Agreement, to perform any act or to discharge
any duty of the Co-Owner Trustee hereunder or under any Related Document, and
the Co-Owner Trustee shall not be liable for the default or failure of the
Administrator or the Co-Owner Eligible Lender Trustee, as the case may be, to
carry out its obligations under the Administration Agreement or Co-Owner
Eligible Lender Trust Agreement, respectively.
Section 6.3. Action upon Instruction.
(a) Subject to Article IV of this Agreement, the Administrator (the
"Instructing Party") shall have the exclusive right to direct the actions of the
Co-Owner Trustee in the management of the Trust, so long as such instructions
are not inconsistent with the express terms set forth herein or in any Related
Document. The Instructing Party shall not instruct the Co-Owner Trustee in a
manner inconsistent with this Agreement or the Related Documents.
(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
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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 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
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(including as provided in Section 6.2 hereof), in any Related Document 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, or, in the case of the Co-Owner
Eligible Lender Trustee, the Co-Owner Eligible Lender Trust 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
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Administrator a power of attorney appointing the Administrator its agent and
attorney-in-fact to execute all such documents, reports, filings, instruments,
certificates and opinions.
(b) If the Administrator shall resign or be removed pursuant to the
terms of the Administration Agreement, the Co-Owner Trustee may, and is hereby
authorized and empowered to, subject to obtaining the prior written consent of
the Depositor, appoint or consent to the appointment of a successor
Administrator pursuant to the Administration Agreement.
(c) If the Administration Agreement is terminated, the Co-Owner Trustee
may, and is hereby authorized and empowered to, subject to obtaining the prior
written consent of the Depositor, appoint or consent to the appointment of a
Person to perform substantially the same duties as are assigned to the
Administrator in the Administration Agreement pursuant to an agreement
containing substantially the same provisions as are contained in the
Administration Agreement.
(d) The Co-Owner Trustee shall promptly notify the Certificateholder of
any default by or misconduct of the Administrator under the Administration
Agreement of which the Co-Owner Trustee has received written notice or of which
a Responsible Officer has actual knowledge.
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ARTICLE VII
CONCERNING THE DELAWARE TRUSTEE
THE CO-OWNER TRUSTEE AND THE CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 7.1. Acceptance of Delaware Trustee and Co-Owner Trustee;
Duties.
Each of the Delaware Trustee and the Co-Owner 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 nor the Co-Owner Trustee shall be
answerable or accountable hereunder or under any Related Document under any
circumstances, except that the Delaware Trustee or the Co-Owner 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 nor the Co-Owner Trustee shall be
liable for any error of judgment made in good faith by an authorized officer of
the Delaware Trustee or the Co-Owner Trustee, respectively;
(b) neither the Delaware Trustee nor the Co-Owner 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 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
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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.
(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
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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, the Co-Owner Trustee 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
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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 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
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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, 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 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
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computer or other record thereof; the validity of the sale or assignment of any
Financed Student Loan to the Co-Owner Eligible Lender Trustee or of any
intervening sale or assignment; the validity or sufficiency of any Guarantee;
the completeness of any Financed Student Loan; the performance or enforcement of
any Financed Student Loan; the compliance by the Administrator or the Master
Servicer with any warranty or representation made under any Related Document or
in any other related document or the accuracy of any such warranty or
representation or any action of the Indenture Trustee, the Administrator or the
Master Servicer taken in the name of the Delaware Trustee, the Co-Owner Trustee
or the Co-Owner Eligible Lender Trustee.
Section 7.7. Delaware Trustee, Co-Owner Trustee and Co-Owner Eligible
Lender Trustee May Own Certificate and Notes.
The Delaware Trustee in its individual or any other capacity, the
Co-Owner Trustee in its individual or any other capacity, and the Co-Owner
Eligible Lender Trustee in its individual or any other capacity, or any one of
them, may become the owner or pledgee of a Certificate or Notes and may deal
with the Depositor, the Indenture Trustee, any Guarantee Agency and the Master
Servicer in banking or other transactions with the same rights as it would have
if it were not Delaware Trustee, Co-Owner Trustee or Co-Owner Eligible Lender
Trustee, respectively.
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ARTICLE VIII
COMPENSATION OF DELAWARE TRUSTEE,
THE CO-OWNER TRUSTEE AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Section 8.1. Fees and Expenses of Delaware Trustee, Co-Owner Trustee
and Co-Owner Eligible Lender Trustee.
(a) The Delaware Trustee shall receive as compensation for its services
hereunder such fees as have been separately agreed upon before the date hereof
between the Depositor and the Delaware Trustee, and the Delaware Trustee shall
be entitled to be reimbursed by the Depositor for its other reasonable expenses
hereunder, including the reasonable compensation, expenses and disbursements of
such agents, representatives, experts and counsel as the Delaware Trustee may
reasonably determine are necessary to employ in connection with the exercise and
performance of its rights and its duties hereunder.
(b) The Co-Owner Trustee shall receive as compensation for its services
hereunder such fees as have been separately agreed upon before the date hereof
between the Depositor and the Co-Owner Trustee, and the Co-Owner Trustee shall
be entitled to be reimbursed by the Depositor for its other reasonable expenses
hereunder, including the reasonable compensation, expenses and disbursements of
such agents, representatives, experts and counsel as the Co-Owner Trustee may
reasonably determine are necessary to employ in connection with the exercise and
performance of its rights and its duties hereunder.
(c) The Co-Owner Eligible Lender Trustee shall receive as compensation
for its services hereunder such fees as have been separately agreed upon before
the date hereof between the Depositor and the Co-Owner Eligible Lender Trustee,
and the Co-Owner Eligible Lender Trustee shall be entitled to be reimbursed by
the Depositor for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Co-Owner Eligible Lender Trustee may
reasonably determine are necessary to employ in connection with the exercise and
performance of its rights and its duties hereunder.
Section 8.2. Indemnification.
The Depositor shall be liable as primary obligor for, and shall
indemnify each of the Delaware Trustee in its individual capacity and its
successors, assigns, agents and servants, the Co-Owner Trustee in its individual
capacity and its successors, assigns, agents and servants and any other
co-trustee and the Co-Owner Eligible Lender Trustee in its individual capacity
and its successors, assigns, agents and servants and any other co-trustee
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may, at any time, be imposed on, incurred by, or asserted
against the 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
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Documents, the Trust Property, the administration of the Trust Property or the
action or inaction of the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee hereunder; provided, however, that the Depositor shall
not be liable for or required to indemnify the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee from and against Expenses
arising or resulting from any of the matters described in the third sentence of
Section 7.1 hereof; and, provided further that, notwithstanding anything in this
Agreement to the contrary, the indemnification provided herein shall be payable
solely from the Trust Property. The indemnification contained in this Section
shall survive the resignation or termination of the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, or any of them, or the
termination of this Agreement.
Section 8.3. Non-recourse Obligations.
Notwithstanding anything in this Agreement or any Related Document to
the contrary, each of the Delaware Trustee, the Co-Owner Trustee and the
Co-Owner Eligible Lender Trustee agrees in its individual capacity and in its
respective capacity as Delaware Trustee, Co-Owner Trustee or Co-Owner Eligible
Lender Trustee of the Trust that all obligations under this Agreement to the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee,
individually or as Trustees, respectively, of the Trust shall be recourse to the
Trust Property only and specifically shall not be recourse to the assets of the
Certificateholder.
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ARTICLE IX
TERMINATION
Section 9.1. Termination of the Trust.
(a) Subject to distribution to the Certificateholder by the Co-Owner
Trustee of any amounts deposited or to be deposited in the Certificate
Distribution Account, the respective obligations and responsibilities of the
Depositor, the Delaware Trustee, the Co-Owner Trustee and the Co-Owner Eligible
Lender Trustee created by this Agreement and the Trust created by this Agreement
shall terminate upon the earlier to occur of (i) the maturity or other
liquidation of the last Financed Student Loan (including the auction sale by the
Indenture Trustee of the remaining Financed Student Loans in the Trust as
described in Section 3.02 of the Terms Supplement and the subsequent
distribution of amounts in respect of such auction sale as provided in the
Indenture and the other Related Documents) and (ii) the payment to the
Noteholders of all amounts payable pursuant to the Indenture. In any case, there
shall be delivered to the Delaware Trustee, the Co-Owner Trustee, the Co-Owner
Eligible Lender Trustee and the Indenture Trustee an Opinion of Counsel that all
applicable preference periods under federal, state and local bankruptcy,
insolvency and similar laws have expired with respect to the payments pursuant
to the immediately preceding clause (ii); provided, however, that in no event
shall the trust created by this Agreement continue beyond the defeasance of the
Indenture in accordance with the provisions of Article X thereof; and provided,
further, that the rights to indemnification under Section 8.2 shall survive the
termination of the Trust. The bankruptcy, liquidation, dissolution, termination,
resignation, expulsion, withdrawal, death or incapacity of any
Certificateholder, shall not (x) operate to terminate this Agreement or the
Trust, nor (y) entitle such Certificateholder's legal representatives or heirs
to claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Trust Property nor
(z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Neither the Depositor nor the Certificateholder shall be entitled
to revoke or terminate the Trust.
(c) Within five Business Days of receipt by the Co-Owner Trustee of
notice from the Indenture Trustee given pursuant to Section 5.9 of the Indenture
of final distribution to the Co-Owner Trustee of amounts held under the
Indenture, the Co-Owner Trustee shall mail written notice to the
Certificateholder, specifying (i) the Certificateholder's Distribution Date upon
which final distribution of amounts received hereunder shall be made upon
presentation and surrender of such Certificateholder's Certificate at the office
of the Paying Agent therein specified, (ii) the amount of any such final
payment, and (iii) that the Record Date otherwise applicable to such
Certificateholder's Distribution Date is not applicable, payments being made
only upon presentation and surrender of such Certificate at the office of the
Paying Agent therein specified. The Co-Owner Trustee shall give such notice to
the Certificate Registrar (if different from the Co-Owner Trustee) at the time
such notice is given to such Certificateholder. In the 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
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of the Certificate, the Paying Agent shall cause to be distributed to such
Certificateholder the amount distributable on such Certificateholder's
Distribution Date pursuant to Section 5.2 hereof.
(d) In the event that the Certificateholder shall not surrender its
Certificate for cancellation within six months after the date specified in the
above-mentioned written notice, the Co-Owner Trustee shall give a second written
notice to such Certificateholder to surrender its Certificate for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice the Certificate shall not have been surrendered for
cancellation, the Co-Owner Trustee may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact such Certificateholder concerning
surrender of its Certificate, and the cost thereof shall be paid out of the
funds and other assets that remain subject to this Agreement. Any funds which
are payable to the Certificateholder remaining in the Trust after exhaustion of
such remedies shall, to the fullest extent permitted by law, be distributed by
the Co-Owner Trustee to the Certificateholder (but only upon termination of this
Agreement), and such Certificateholder, by acceptance of its Certificate, hereby
waives any rights with respect to such funds.
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ARTICLE X
SUCCESSOR DELAWARE TRUSTEES,
CO-OWNER TRUSTEES AND CO-OWNER ELIGIBLE LENDER TRUSTEES
Section 10.1. Eligibility Requirements for Delaware Trustee, Co-Owner
Trustee and Co-Owner Eligible Lender Trustee.
(a) The Delaware Trustee shall at all times be a banking or trust
corporation (i) having its Corporate Trust Office in the State of Delaware, (ii)
authorized to exercise corporate trust powers in the State of Delaware; (iii)
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or State authorities; and (iv) having (or
having a parent which has) a rating of at least Baa3 by Moody's or A-1 by
Standard & Poor's. If such corporation shall publish reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Delaware Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Delaware Trustee
shall resign immediately in the manner and with the effect specified in Section
10.2 hereof.
(b) Each of the Co-Owner Trustee and the Co-Owner Eligible Lender
Trustee shall at all times be a trust company or bank having the powers of a
trust company within the state in which the principal office of the
Administrator is located, organized and doing business under the laws of the
United States of America, any state thereof or the District of Columbia and have
a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or State authorities. In addition, the
Co-Owner Eligible Lender Trustee shall at all times be an "eligible lender"
under the Higher Education Act.
Section 10.2. Resignation or Removal of Delaware Trustee, Co-Owner
Trustee or Co-Owner Eligible Lender Trustee.
(a) The Delaware Trustee or the Co-Owner 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. If the Co-Owner
Eligible Lender Trustee resigns or is discharged from the trusts created by the
Co-Owner Eligible Lender Trust Agreement, the Co-Owner Eligible Lender Trustee
(i) shall give 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 effective date of such
resignation and (ii) shall be deemed to have resigned from its obligations
hereunder and shall be replaced by a Successor Trustee appointed pursuant to
this Section 10.2; provided, however, that the Successor Trustee to be appointed
shall have executed and delivered an eligible lender trust agreement with the
Co-Owner Trustee. Upon receiving such notice of resignation, the
Certificateholder, with the consent of the non-resigning Trustee of the Trust,
shall promptly appoint a successor Delaware Trustee, Co-Owner Trustee or
Co-Owner
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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 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
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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 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
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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 of any co-trustee or separate trustee shall be
required pursuant to Section 10.1 hereof; provided, however, that such
co-trustee with or separate trustee from the Co-Owner Eligible Lender Trustee
shall be an "eligible lender" under the Higher Education Act.
(b) Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties, and obligations conferred or
imposed upon the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, as applicable, shall be conferred upon and
exercised or performed by the Delaware Trustee, the Co-Owner Trustee or
the Co-Owner Eligible Lender Trustee, as applicable, and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender
Trustee, as applicable, joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed, the Delaware Trustee, the Co-Owner Trustee or the
Co-Owner Eligible Lender Trustee, as applicable, shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust Property or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Delaware Trustee, the
Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as
applicable;
(ii) no Trustee under this Agreement shall be personally
liable by reason of any act or omission of any other Trustee under this
Agreement; and
(iii) the Administrator and the Delaware Trustee, the Co-Owner
Trustee or the Co-Owner Eligible Lender Trustee, as applicable, acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Delaware Trustee,
the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as applicable,
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall, refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Delaware
Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee, as
applicable, or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Delaware Trustee, the Co-Owner Trustee
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or the Co-Owner Eligible Lender Trustee, as applicable. Each such instrument
shall be filed with the Delaware Trustee, the Co-Owner Trustee or the Co-Owner
Eligible Lender Trustee, as applicable, and a copy thereof given to the
Administrator and the Certificateholder.
(d) Any separate trustee or co-trustee may at any time appoint the
Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible Lender Trustee,
as applicable, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Delaware Trustee, the Co-Owner Trustee or the Co-Owner Eligible
Lender Trustee, as applicable, to the extent permitted by law, without the
appointment of a new or successor trustee.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Amendment.
(a) This Agreement may be amended by the Certificateholder, the
Delaware Trustee, the Co-Owner Trustee and the Co-Owner Eligible Lender Trustee,
without the consent of the Depositor (if other than the Certificateholder) or
Noteholders, (i) to cure any ambiguity or (ii) to correct, supplement or modify
any provisions in this Agreement; provided, however, that such action shall not,
as evidenced by an Opinion of Counsel, adversely affect in any material respect
the interests of the Certificateholder or any Noteholder.
(b) This Agreement may also be amended from time to time by the
Certificateholder without the consent of the Depositor (if other than the
Certificateholder), the Delaware Trustee, the Co-Owner Trustee and the Co-Owner
Eligible Lender Trustee and, if such amendment materially and adversely affects
the interests of Noteholders, the consent of a majority of the Directing Notes
(which consent of any Noteholder given pursuant to this Section or pursuant to
any other provision of this Agreement shall be conclusive and binding on such
holders and on any holder of any Certificate or Note issued upon the transfer
thereof or in exchange therefor or in lieu thereof whether or not notation of
such consent is made upon the Certificate or Note) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the
Certificateholder or holder of a Note; provided, however, that no such amendment
shall (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the Financed Student Loans or
distributions that shall be required to be made on any Note or (ii) reduce the
aforesaid percentage required to consent to any such amendment or any waiver
hereunder, without the consent of the holders of all the Notes then outstanding.
(c) Prior to the execution of any such amendment or consent, the
Certificateholder shall furnish written notification of the substance of such
amendment or consent to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent, the
Co-Owner Trustee shall furnish written notification of the substance of such
amendment or consent to the Indenture Trustee unless such party has previously
received such notification.
(e) It shall not be necessary for the consent of the Noteholders
pursuant to Section 11.1(b) hereof to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and any
other consents of the Noteholders provided for in this Agreement) and of
evidencing the authorization of the execution thereof by the Certificateholder
shall be subject to such reasonable requirements as the Co-Owner Trustee may
prescribe, including the establishment of record dates.
(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
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<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
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<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
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<PAGE> 48
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register.
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<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 LLC,
("Depositor" and sole initial "Certificateholder")
By: /s/ Perry D. Moore
--------------------------------------
Name: Perry D. Moore
-------------------------------
Title: Senior Vice President & Manager
-------------------------------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
trustee under this Trust Agreement ("Delaware Trustee")
By: /s/ Edward L. Truitt, Jr.
---------------------------------------
Name: Edward L. Truitt, Jr.
--------------------------------
Title: Vice President
--------------------------------
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as trustee
under this Trust Agreement ("Co-Owner Trustee")
By: /s/ Brian J. Gardner
--------------------------------------
Name: Brian J. Gardner
-------------------------------
Title: Vice President & Trust Officer
-------------------------------
ACKNOWLEDGED AND AGREED TO:
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as eligible lender trustee under the
Co-Owner Eligible Lender Trust Agreement
for the benefit of the Trust
("Co-Owner Eligible Lender Trustee")
By: /s/ Brian J. Gardner
------------------------------------
Title: Brian J. Gardner
---------------------------------
Vice President & Trust Officer
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EXHIBIT A
FORM OF CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF,
BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3) UNDER
THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT, OR (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT.
THIS CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (I)
AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE 1 OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (III) ANY ENTITY
WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY. FURTHER, THIS CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES
PERSON WITHIN THE MEANING OF SECTION 7701(A)(30) OF THE CODE.
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY.
Percentage Interest: 100%
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN ASSET-BACKED TRUST CERTIFICATE
evidencing the undivided beneficial Percentage
Interest set forth above in the Trust, as defined
below, the property of which includes a pool of
student loans transferred to and deposited in the Trust by
Student Loan Funding LLC and Firstar Bank, National
Association, as eligible lender trustee on behalf of
Student Loan Funding LLC
THIS CERTIFIES THAT STUDENT LOAN FUNDING LLC is the registered owner of
the Percentage Interest set forth above in the Student Loan Funding 1998-A/B
Trust (the "Trust"), a common law (as opposed to statutory) trust formed under
the laws of the State of Delaware by Student Loan Funding LLC, (the
"Depositor"). The Trust was created pursuant to a Trust Agreement, dated as of
March 1, 1999 (as amended from time to time, the "Trust Agreement"), among the
Depositor, First Union Trust Company, National Association, Wilmington,
Delaware, not in its individual capacity, but solely in its capacity as owner
trustee under the Trust Agreement (the "Delaware Trustee"), and Firstar Bank,
National Association, Cincinnati, Ohio, not in its individual capacity, but
solely in its capacity as co-owner trustee under the Trust Agreement (the
"Co-Owner Trustee" and collectively with the Delaware Trustee, the "Trustees").
A summary of certain of the pertinent provisions of the Trust Agreement is set
forth below. To the extent not otherwise defined herein, the capitalized terms
used herein shall have the meanings assigned to them in the Trust Agreement. The
rules as to usage set forth in the Trust Agreement shall also be applicable to
this Certificate.
This Certificate is the sole, initial duly authorized Certificate,
designated "Student Loan Funding 1998-A/B Trust - Student Loan Asset-Backed
Trust Certificate" (herein called "this Certificate" or, collectively, with
other Certificates that may be issued upon transfer or exchange of this
Certificate for such other Certificates, whose aggregate Percentage Interest
shall be 100%, the "Certificates") issued under the Trust Agreement, to which
Trust Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is
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bound. The Trust Property includes an initial deposit by the Depositor to the
Certificate Contribution Account, and all property and proceeds thereof of every
description conveyed pursuant to the Transfer and Sale Agreement and
simultaneously with the issuance of this Certificate, including, without
limitation, a pool of student loans (the "Financed Student Loans") and any all
amounts deposited from time to time in the Certificate Distribution Account. The
rights of the Holder of this Certificate to the assets of the Trust are subject
to the rights of the Holders of certain notes (the "Notes") issued under the
Indenture of Trust, as supplemented by the Terms Supplement to the Indenture of
Trust, each dated as of December 1, 1998, as amended and restated by the First
Amended and Restated Indenture of Trust, dated as of ________ 1, 1999, among the
Co-Owner Trustee, Firstar Bank, National Association, not in its individual
capacity but solely in its capacity as eligible lender trustee on behalf of the
Co-Owner Trustee (the "Co-Owner Eligible Lender Trustee") and Firstar Bank,
National Association, not in its individual capacity but solely in its capacity
as Indenture Trustee (the "Indenture Trustee"), as supplemented by the First
Amended and Restated Terms Supplement to the First Amended and Restated
Indenture of Trust, dated as of ________ 1, 1999 (collectively, as amended from
time to time, the "Indenture").
Under the Trust Agreement, distributions will be made on the
Certificate on each Certificateholder's Distribution Date in the manner set
forth in the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate from amounts deposited
in the Excess Surplus Account under the Indenture pending their transfer to the
Certificate Distribution Account are subject to the rights of the Noteholders as
described in the Indenture.
The Certificateholder, by its acceptance of this Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor or the Trustees, or join in any institution against the Depositor
or the Trustees, any bankruptcy, reorganization, arrangement, insolvency,
receivership or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to this Certificate, the Notes, the Trust Agreement or any
of the other Related Documents.
The Holder of this Certificate, by its acceptance of this Certificate,
(i) agrees, for federal, state and local income and franchise tax purposes, to
treat the Trust as a "disregarded entity" (i.e. the Trust will be disregarded as
an entity separate from the Certificateholder), with the assets of the Trust
being the Financed Student Loans and other assets held by the Co-Owner Trustee,
the Notes for such purposes being debt of the Certificateholder which has
elected to disregard the Trust as an entity separate from itself for tax
purposes, and (ii) acknowledges that the Trust will file or cause to be filed
annual or other necessary returns, reports and other forms consistent with the
characterization of the Trust as a "disregarded entity" for federal, state and
local and franchise tax purposes and that the Depositor will not make, or cause
to be made, an election under the provisions of Treasury Regulation Section
301.7701.3 to classify the Trust as an association.
Distributions on this Certificate will be made from the Certificate
Distribution Account as provided in the Trust Agreement by the Co-Owner Trustee
by wire transfer or by check mailed to the Certificateholder of record in the
Certificate Register without the presentation or surrender of this Certificate
or the making of any notation hereon.
This Certificate does not represent an obligation of, or an interest
in, the Depositor, the Master Servicer, the Administrator, the Trustees or the
Indenture Trustee or any affiliates of any of them, and no recourse may be had
against such parties or their assets, except as may be expressly set forth
herein, in the Trust Agreement or in the other Related Documents. In addition,
this Certificate is not guaranteed by any governmental agency or instrumentality
and is limited in right of payment to certain excess collections respecting the
Financed Student Loans, all as more specifically set forth in the Indenture. A
copy of each of the Indenture and the Trust Agreement may be examined during
normal business hours at the principal office of the Depositor, and at such
other places, if any, designated by the Depositor upon request.
The Trust Agreement permits the amendment thereof without the consent
of the Certificateholder or any Noteholders, (i) to cure any ambiguity or (ii)
to correct, supplement or modify any provisions in the Trust Agreement;
provided, however, that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of the
Certificateholder or any Noteholder. The Trust Agreement permits, with certain
exceptions therein provided, but only with the consent of the Certificateholder
and, if such amendment
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materially and adversely affects the interests of Noteholders, with the consent
of a majority of the Directing Notes (as defined in the Indenture) (which
consent of the Certificateholder and Noteholders, if any, given pursuant to the
Trust Agreement shall be conclusive and binding on such holders and on all
future holders of the Certificate or Notes and of any Certificate or Notes
issued upon the transfer thereof or in exchange therefor or in lieu thereof
whether or not notation of such consent is made upon the Certificate or Notes)
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Trust Agreement, or of modifying in any
manner the rights of the Certificateholder or any Noteholder.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer, to the extent permitted herein, of this
Certificate is registrable in the Certificate Register upon surrender of this
Certificate for registration of transfer at the office or agency maintained by
Firstar Bank, National Association, in its capacity as Certificate Registrar, or
by any successor Certificate Registrar, accompanied by a written instrument of
transfer in form satisfactory to the Co-Owner Trustee and the Certificate
Registrar duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee.
This Certificate is issuable only as a Certificate registered in the
name of the Depositor as the initial Certificateholder and in the Percentage
Interest of 100%. As provided in the Trust Agreement and subject to the
provisions of the next succeeding paragraph [and provided that there are no
Notes Outstanding (as defined in the Indenture)](1), the Depositor, as the
initial registered Holder, may transfer, or exchange for other Certificates
aggregating in Percentage Interests 100%, this Certificate upon the surrender of
this Certificate. No service charge will be made for any such registration of
transfer or exchange, but the Co-Owner Trustee or the Certificate Registrar (if
different from the Co-Owner Trustee) may require payment of a sum sufficient to
cover any tax or governmental charge payable in connection therewith.
This Certificate may not be transferred directly or indirectly to (i)
an employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that is subject to the
provisions of Title 1 of ERISA, (ii) a plan described in Section 4975(e)(1) of
the Internal Revenue Code of 1986, as amended (the "Code"), or (iii) any entity
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each, a "Benefit Plan"). By accepting and holding this Certificate,
the Certificateholder thereof shall he deemed to have represented and warranted
that it is not a Benefit Plan.
The Certificate Registrar and any agent of the Certificate Registrar
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and none of the Delaware Trustee, the Co-Owner Trustee
or the Certificate Registrar or any such agent shall be affected by any notice
to the contrary.
This Certificate may not be transferred to any person who is not a U.S.
Person, as such term is defined in Section 7701(a)(30) of the Code.
Each transferee of this Certificate, or any portion thereof, shall be
required, prior to purchasing a Certificate, to execute the Purchaser's
Representation and Warranty Letter in the form attached to the Trust Agreement
as Exhibit B.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the earlier to occur of (i) the
maturity or other liquidation of the last Financed Student Loan (including the
auction sale by the Indenture Trustee of the remaining Financed Student Loans in
the Trust as described in Section 3.02 of the Terms Supplement and the
subsequent distribution of amounts in respect of such auction sale as provided
in the Indenture and the other Related Documents) and (ii) the payment to the
Noteholders of all amounts payable pursuant to the Indenture.
- -------------------
(1) To be included only upon direction of the Depositor at the time of issuance
of this Certificate.
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<PAGE> 53
This Certificate shall be construed in accordance with the laws of the
State of Delaware, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Unless the certificate of authentication hereon shall have been
executed by an authorized representative of the Authentication Agent, by manual
signature, this Certificate shall not entitle the Holder hereof to any benefit
under the Trust Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Delaware Trustee, not in its individual
capacity but solely as trustee of the Student Loan Funding 1998-A/B Trust, has
caused this Certificate to be duly executed as of the date set forth below.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
"Delaware Trustee", not in its individual
capacity but solely as trustee of the Student
Loan Funding 1998-A/B Trust
By: _________________________________
Authorized Signatory
Date: _______________, 1999
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
FIRSTAR BANK, NATIONAL ASSOCIATION,
Co-Owner Trustee,
not in its individual capacity but solely as Authentication Agent
of the Student Loan Funding 1998-A/B Trust
By:_________________________________
Authorized Representative
Date: ________________, 1999
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<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.
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EXHIBIT B
Form of Purchaser's Representation and Warranty Letter
Student Loan Funding LLC
One West Fourth Street, Suite 210
Cincinnati, OH 45202
Firstar Bank, National Association,
as Certificate Registrar
425 Walnut Street
Cincinnati, OH 45202
RE: STUDENT LOAN FUNDING 1998-A/B TRUST - STUDENT LOAN ASSET BACKED
TRUST CERTIFICATE
Ladies and Gentlemen:
In connection with the proposed purchase by the undersigned of the
Student Loan Asset-Backed Trust Certificate (the "Certificate") issued under the
Trust Agreement related to the Student Loan Funding 1998-A/B Trust, dated as of
March 1, 1999 (the "Agreement"), among Student Loan Funding LLC, as Depositor
(the "Depositor"), First Union Trust Company, National Association, as Delaware
trustee, and Firstar Bank, National Association, in its separate capacities as
co-owner trustee and co-owner eligible lender trustee, the undersigned (the
"Purchaser") represents, warrants and agrees that:
1. It is an institutional "accredited investor" as defined in Rule
501(a)(1)-(3) under the Securities Act of 1933 (the "Securities Act")
or a "qualified institutional buyer" as defined in Rule 144A(a)(1) of
the Securities Act and is acquiring the Certificate for its own
institutional account or for the account of an institutional accredited
investor or qualified institutional buyer.
2. It is not (i) an employee benefit plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title 1 of ERISA, (ii)
a plan described in Section 4975(e)(1) of the Internal Revenue Code of
1986, as amended (the "Code"), or (iii) any entity whose underlying
assets include plan assets by reason of a plan's investment in the
entity.
3. It is a U.S. Person as defined in Section 7701(a)(30) of the Code.
4. It has such knowledge and experience in evaluating business and
financial matters so that it is capable of evaluating the merits and
risks of an investment in the Certificate. It understands the full
nature and risks of an investment in the Certificate and based upon its
present and projected net income and net worth, it believes that it can
bear the economic risk of an immediate or future loss of its entire
investment in the Certificate.
5. It understands that the Certificate will be offered in a transaction
not involving any public offering within the meaning of the Securities
Act, and that, if in the future it decides to resell, pledge or
otherwise transfer the Certificate, such Certificate may be resold,
pledged or transferred only (a) to a person who the seller reasonably
believes is an institutional "accredited investor" as defined in Rule
501(a)(1)-(3) under the Securities Act that purchases for its own
account or for the account of another institutional accredited investor
or (b) pursuant to an effective registration statement under the
Securities Act.
6. It understands that the Certificate will bear a legend substantially to
the following effect:
"THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR STATE SECURITIES LAWS.
THE HOLDER
B-1
<PAGE> 56
HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS
CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS
AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE
501(A)(1)-(3) UNDER THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR, OR
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT.
THIS CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY
TO (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE
1 OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR
(III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS
BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. FURTHER, THIS
CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON
WITHIN THE MEANING OF SECTION 7701(A)(30) OF THE CODE.
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY."
7. It is acquiring the Certificate for its own account and not with a view
to the public offering thereof in violation of the Securities Act
(subject, nevertheless, to the understanding that disposition of its
property shall at all times be and remain within its control).
8. It has been furnished with all information regarding the Trust and the
Certificate which it has requested from the Trust and the Depositor.
9. Neither it nor anyone acting on its behalf has offered, transferred,
pledged, sold or otherwise disposed of the Certificate, any interest in
the Certificate or any other similar security to, or solicited any
offer to buy or accept a transfer, pledge or other disposition of the
Certificate, any interest in the Certificate or any other similar
security from, or otherwise approached or negotiated with respect to
the Certificate, any interest in the Certificate or any other similar
security with, any person in any manner or made any general
solicitation by means of general advertising or in any other manner,
which would constitute a distribution of the Certificate under the
Securities Act or which would require registration pursuant to the
Securities Act nor will it act, nor has it authorized or will authorize
any person to act, in such manner with respect to the Certificate.
B-2
<PAGE> 57
10. It is not an "affiliate" (within the meaning of Rule 144 under the
Securities Act) of the Depositor.
Dated:_____________
Very truly yours,
__________________________________
[Name of Purchaser]
By:_______________________________
Name:_____________________________
Title:____________________________
NOTE: To be executed by an executive officer
B-3
<PAGE> 1
Exhibit 4.3
- --------------------------------------------------------------------------------
STUDENT LOAN FUNDING LLC
------------------------
<TABLE>
<CAPTION>
<S> <C>
$400,000,000 Student Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate)
$ 93,300,000 Student Loan Senior Asset-Backed Callable Notes, Series 1998A-4 (Auction Rate)
$ 90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate)
$ 90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate)
$ 54,500,000 Student Loan Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)
</TABLE>
----------------------------------------
-------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 1, 1998
-------------------
SALOMON SMITH BARNEY INC.
- --------------------------------------------------------------------------------
-1-
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of December 1, 1998, by and among Student Loan Funding LLC, a
Delaware limited liability company (the "COMPANY"), and Salomon Smith Barney
Inc.
This Agreement is made pursuant to the Note Purchase Agreement, dated
December 18, 1998 (the "PURCHASE AGREEMENT"), by and among the Company and
Salomon Smith Barney Inc. as Representative of itself, NationsBanc Montgomery
Securities LLC and Fifth Third/The Ohio Company (each, an "INITIAL PURCHASER"
and together, the "INITIAL PURCHASERS"), who have agreed to purchase the
Company's Student Loan Senior Asset-Backed Notes, Series 1998A-3 (the "Series
1998A-3 Notes"), Student Loan Senior Asset-Backed Callable Notes, Series 1998A-4
(the "Series 1998A-4 Notes"), Student Loan Senior Asset-Backed Callable Notes,
Series 1998A-5 (the "Series 1998A-5 Notes"), Student Loan Senior Asset-Backed
Callable Notes, Series 1998A-6 (the "Series 1998A-6 Notes" and, together with
the Series 1998A-3 Notes, the Series 1998A-4 Notes and the Series 1998A-5 Notes,
the "Series 1998A Notes") and Student Loan Subordinate Asset-Backed Notes,
Series 1998B-3 (the "Series 1998B-3 Notes and, together with the Series 1998A
Notes, the "Original Notes") pursuant to the Purchase Agreement. In order to
induce the Initial Purchasers to purchase the Original Notes, the Company has
agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the obligations of
the Initial Purchasers set forth in the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BROKER-DEALER TRANSFER RESTRICTED SECURITIES: The Exchange Notes that
are acquired by a Broker-Dealer in the Exchange Offer in exchange for Original
Notes that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Original Notes
acquired directly from the Company or any of its affiliates).
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange
-2-
<PAGE> 3
Offer Registration Statement relating to the Exchange Notes to be issued in the
Exchange Offer, (b) the maintenance of such Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the minimum period required pursuant to Section 3(b) hereof and (c) the delivery
by the Company to the Registrar under the Indenture of Exchange Notes in the
same aggregate principal amount as the aggregate principal amount of Original
Notes tendered by Holders thereof pursuant to the Exchange Offer.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE NOTES: The Company's Student Loan Senior Asset-Backed Notes,
Series 1998A1-3 (the "Series 1998A1-3 Notes"), Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-4 (the "Series 1998A1-4 Notes"), Student Loan
Senior Asset-Backed Callable Notes, Series 1998A1-5 (the "Series 1998A1-5
Notes"), Student Loan Senior Asset-Backed Callable Notes, Series 1998A1-6 (the
"Series 1998A1-6 Notes" and, together with the Series 1998A1-3 Notes, the Series
1998A1-4 Notes and the Series 1998A1-5 Notes, the "Series 1998A1 Notes") and
Student Loan Subordinate Asset-Backed Notes, Series 1998B1-3 (the "Series
1998B1-3 Notes") to be issued pursuant to the Indenture in the Exchange Offer,
in exchange for a corresponding principal amount of Series 1998A-3 Notes, Series
1998A-4 Notes, Series 1998A-5 Notes, Series 1998A-6 Notes and Series 1998B-3
Notes.
EXCHANGE OFFER: The registration by the Company under the Act of the
Exchange Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The registration statement
relating to the Exchange Offer, which is filed pursuant to the provisions of
this Agreement including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference therein.
HOLDERS: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 7(a) hereof.
INDENTURE: The Indenture of Trust, dated December 1, 1998, (the "Base
Indenture") together with the Terms Supplement (the "Terms Supplement") both
between the Company and Star Bank, National Association, as trustee (the
"Trustee"), pursuant to which the Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.
LIMITED OFFERING MEMORANDUM: As defined in the Purchase Agreement.
NASD: National Association of Securities Dealers, Inc.
-3-
<PAGE> 4
NOTES The Original Notes and the Exchange Notes
ORIGINAL NOTES: The Series 1998A Notes and the Series 1998B Notes
PERSON: Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
PROSPECTUS: The prospectus included in the Exchange Offer Registration
Statement at the time such Exchange Offer Registration Statement is declared
effective, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
REGISTRATION FAILURE: As defined in Section 4 hereof.
RESTRICTED BROKER-DEALER: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Original Note, until the earliest
to occur of (a) the date on which such Original Note is exchanged in the
Exchange Offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act (b) the
date on which such Original Note is disposed of by a Broker-Dealer pursuant to
the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including delivery of the Prospectus contained therein) or (c) the
date on which such Original Note is distributed to the public pursuant to Rule
144 under the Act.
2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law, the Company shall (i) cause to be filed with the Commission, the
Exchange Offer Registration Statement, (ii) use its reasonable best efforts to
cause such Exchange Offer Registration Statement to become effective no later
than May 31, 1999, (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the
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<PAGE> 5
registration and qualification of the Exchange Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The Exchange
Offer shall be on the appropriate form permitting registration of the Exchange
Notes to be offered in exchange for the Original Notes that are Transfer
Restricted Securities and to permit sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open, for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Exchange Notes shall be included in the Exchange Offer Registration Statement.
The Company shall use its reasonable best efforts to cause the Exchange Offer to
be Consummated no later than June 30, 1999.
(c) The Company agrees that it shall retain Salomon Smith Barney Inc.
as the Dealer Manager of the Exchange Offer (the "Dealer Manager") to solicit
exchanges of the Original Notes for the Exchange Notes. The Company and the
Dealer Manager prior to the filing of the Exchange Offer Registration Statement
with the Commission shall enter into a dealer manager agreement (the "Dealer
Manager Agreement") which shall contain customary provisions for such agreements
including the agreement of the Company to indemnify the Dealer Manager against
certain liabilities, including civil liabilities under the Securities Act.
(d) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Original Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Original Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Note received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended as
required by the provisions of
-5-
<PAGE> 6
Section 5(c) below to the extent necessary to ensure that it is available for
sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers, and to ensure that such Registration Statement conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 120 days from
the date on which the Exchange Offer is Consummated.
The Company shall provide sufficient copies of the latest version of
such Prospectus to the Dealer Manager and such Restricted Broker-Dealers
promptly upon request, and in no event later than two days after such request,
at any time during such 120-day period in order to facilitate such sales.
4. INTEREST RATE ADJUSTMENT
If (i) the Exchange Offer Registration Statement has not been filed
with, and declared effective by, the Commission on or prior to May 31, 1999,
(ii) the Exchange Offer has not been Consummated on or prior to June 30, 1999 or
(iii) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective during any period
within which it is required to remain effective under this Agreement or fail to
be usable for its intended purpose without being succeeded within three Business
Days by a post-effective amendment to such Exchange Offer Registration Statement
that cures such failure and that is itself declared effective within three
Business Days of filing (each such event referred to in clauses (i) through
(iii), a "REGISTRATION FAILURE"), then (i) the monthly calculation of the Series
Interest Rate (as defined in the Indenture) for each Interest Accrual Period (as
defined in the Indenture) for the Series 1998A-3 Notes will be adjusted to equal
the lesser of one-month LIBOR (as defined in the Indenture) plus 0.43% per annum
and 17% per annum, but not in excess of the Net Loan Rate (as defined in the
Indenture) for such Interest Accrual Period, and (ii) the Series Interest Rate
for each Interest Accrual Period for the Series 1998B-3 Notes will be adjusted
to equal a fixed rate of 6.30%. Such interest rate adjustments shall be the
exclusive remedy available to any Noteholder (as defined in the Indenture) in
the event of a Registration Failure and neither any Noteholder or any other
party shall have any additional rights against the Company as a result of any
Registration Failure regardless of whether such Registration Failure results
from the action or inaction of the Company or for any other reason.
5. REGISTRATION PROCEDURES
In connection with the Exchange Offer, the Company shall comply with
all applicable provisions of Section 5, shall use its reasonable best efforts to
effect such exchange and to permit the sale of Broker-Dealer Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (which shall be in a manner consistent with the terms of
this Agreement), and shall comply with all of the following provisions:
(a) As a condition to its participation in the Exchange Offer pursuant
to the terms of this Agreement, each Holder of Transfer Restricted Securities
shall furnish, upon the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company (which may be contained
in the letter of transmittal contemplated by the Exchange Offer
-6-
<PAGE> 7
Registration Statement) to the effect that (i) it is not an affiliate of the
Company, (ii) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer and (iii) it is
acquiring the Exchange Notes in its ordinary course of business. The Company
hereby acknowledges and agrees that the Prospectus shall state that any
Broker-Dealer or any Holder which acquires Exchange Notes for the purpose of
participating in a distribution of the Exchange Notes (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in MORGAN STANLEY AND CO., INC. (available
June 5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
as interpreted in the Commission's letter to Shearman & Sterling dated July 2,
1993, and similar no-action letters and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of Exchange Notes obtained by such Holder in exchange for Original
Notes acquired by such Holder directly from the Company or an affiliate thereof.
(b) To the extent required by the Commission, prior to
effectiveness of the Exchange Offer Registration Statement, the Company shall
provide a supplemental letter to the Commission stating that (i) the Company is
registering the Exchange Offer in reliance on the position of the Commission
enunciated in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
MORGAN STANLEY AND CO., INC. (available June 5, 1991), (ii) the Company has not
entered into any arrangement or understanding with any Person to distribute the
Exchange Notes to be received in the Exchange Offer and (iii) to the best of the
Company's information and belief, each Holder participating in the Exchange
Offer is acquiring the Exchange Notes in its ordinary course of business and has
no arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes received in the Exchange Offer.
(c) In connection with the Exchange Offer Registration Statement and
any related Prospectus required by this Agreement to permit the sale or resale
of Transfer Restricted Securities Notes (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to keep such Exchange
Offer Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3(c)
of this Agreement. Upon the occurrence of any event that would cause
the Exchange Offer Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Broker-Dealer Transfer
Restricted Securities during the period required by this Agreement, the
Company shall file promptly an appropriate amendment to such Exchange
Offer Registration Statement, (1) in the case of clause (A), correcting
any such misstatement or omission, and (2) in the case of either clause
(A) or (B), use its reasonable best efforts to cause such amendment to
be declared effective and such Registration
-7-
<PAGE> 8
Statement and the related Prospectus to become usable for their
intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Exchange Offer Registration Statement
as may be necessary to keep the Registration Statement effective for
the applicable period set forth in Section 3(c) hereof, or such shorter
period as will terminate when all Broker-Dealer Transfer Restricted
Securities covered by such Registration Statement have been sold; cause
the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rule 424 under the Act in a
timely manner; and comply with the provisions of the Act with respect
to the disposition of all Broker-Dealer Transfer Restricted Securities
covered by the Exchange Offer Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the Restricted Broker-Dealers set forth in the Exchange
Offer Registration Statement or supplement to the Prospectus;
(iii) advise the Dealer Manager and the Restricted
Broker-Dealers promptly and, if requested by such Persons, confirm such
advice in writing, (A) when any Prospectus supplement or post-effective
amendment to the Exchange Offer Registration Statement has been filed,
and when any such post-effective amendment has become effective, (B) of
any request by the Commission for amendments to the Exchange Offer
Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Exchange Offer Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Broker-Dealer Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening
of any event that makes any statement of a material fact made in the
Exchange Offer Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Exchange Offer Registration Statement in order to make the
statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Exchange Offer
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company shall use its
reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(iv) furnish to the Dealer Manager, before filing with the
Commission, copies of the Exchange Offer Registration Statement or any
Prospectus included therein or any amendments or supplements to the
Exchange Offer Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of the
Exchange
-8-
<PAGE> 9
Offer Registration Statement), which documents will be subject to the
review and comment of the Dealer Manager for a period of at least five
Business Days, and the Company will not file the Exchange Offer
Registration Statement or Prospectus or any amendment or supplement to
the Exchange Offer Registration Statement or Prospectus (including all
such documents incorporated by reference) if the Dealer Manager shall
provide notice to the Company within five Business Days after the
receipt thereof to the effect that the Exchange Offer Registration
Statement, amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission or
fails to comply with the applicable requirements of the Act;
(v) at reasonable times requested by the Dealer Manager upon
reasonable notice, prior to the filing of any document that is to be
incorporated by reference into the Exchange Offer Registration
Statement during any period within which it is required to remain
effective under this Agreement, provide copies of such document to the
Dealer Manager and make the Company's representatives available for
discussion of such document and other customary due diligence matters,
and include such information in such document prior to the filing
thereof as the Dealer Manager reasonably may request;
(vi) make available at reasonable times for inspection by the
Dealer Manager, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by the Dealer Manager in connection with the Exchange Offer
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(vii) prior to effectiveness of the Exchange Offer
Registration Statement, cooperate with the Dealer Manager in connection
with the registration and qualification of the Exchange Notes under the
securities or Blue Sky laws of such jurisdictions as the Dealer Manager
may reasonably request and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes; provided, however, that the
Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Exchange
Offer Registration Statement, in any jurisdiction where it is not now
so subject;
(viii) subject to Section 5(c)(i), if any fact or event
contemplated by Section 5(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Exchange Offer Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of
Broker-Dealer Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
-9-
<PAGE> 10
(ix) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Exchange Offer
Registration Statement covering such Transfer Restricted Securities and
provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
(x) cause the Indenture to be qualified under the TIA not
later than the effective date of the Exchange Offer Registration
Statement and, in connection therewith, cooperate with the Trustee and
the Holders of the Notes to effect such changes to the Indenture as may
be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute and use its reasonable best efforts
to cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified
in a timely manner; and
(xi) through December 31, 2001 provide promptly to the Dealer
Manager and each Restricted Broker-Dealer upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Restricted Broker-Dealer agrees by
acquisition of a Transfer Restricted Security that, upon receipt of any notice
from the Company of the existence of any fact of the kind described in Section
5(c)(iii)(D) hereof, such Restricted Broker-Dealer will immediately discontinue
disposition of Transfer Restricted Securities pursuant to the Exchange Offer
Registration Statement until such Restricted Broker-Dealer's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section
5(c)(viii) hereof, or until it is advised in writing by the Company that the use
of the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (the
"Advice"). If so directed by the Company, each Restricted Broker-Dealer will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Restricted Broker-Dealer's possession, of the
Prospectus covering such Transfer Restricted Securities that was current at the
time of receipt of either such notice. In the event the Company shall give any
such notice, the time period regarding the effectiveness of the Exchange Offer
Registration Statement set forth in Section 3 shall be extended by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 5(c)(i) or Section 5(c)(iii)(D) hereof to and including the
date when each Restricted Broker-Dealer covered by such Registration Statement
shall have received the copies of the supplemented or amended Prospectus
contemplated by Section 5(c)(viii) hereof or shall have received the Advice.
6. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether the
Exchange Offer Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses, (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Exchange Notes
-10-
<PAGE> 11
to be issued in the Exchange Offer and printing of Prospectuses); (iv) all fees
and disbursements of counsel for the Company and, in accordance with Section
6(b) below, the Dealer Manager; (v) all messenger and delivery services and
telephone expenses of the Company; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Exchange Offer Registration Statement, the
Company will reimburse the Dealer Manager for the reasonable fees and
disbursements of its counsel.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) the
Dealer Manager and each Restricted Broker-Dealer and (ii) each person, if any,
who controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Dealer Manager or any Restricted Broker-Dealer (any of the
persons referred to in this clause (ii) being hereinafter referred to as a
"controlling person") and (iii) the respective officers, directors, partners,
employees, representatives and agents of the Dealer Manager or any Restricted
Broker-Dealer or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED HOLDER"), from
and against any and all losses, claims, damages, liabilities, judgments
(including without limitation, any reasonable legal or other expenses incurred
in connection with investigating or defending any matter raised by a third
party, including any action that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Exchange Offer Registration
Statement, Prospectus (or any amendment or supplement thereto) provided by the
Company to the Dealer Manager or any Restricted Broker-Dealer, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(b) In case any action shall be commenced involving any
Indemnified Holder, the Indemnified Holder shall promptly notify the Company in
writing and the Company shall assume the defense of such action, including the
employment of counsel reasonably satisfactory to the Indemnified Holder and the
payment of all fees and expenses of such counsel, as incurred. Any Indemnified
Holder shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Holder unless (i) the employment of
such counsel shall have been specifically authorized in writing by the Company,
(ii) the Company shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the Indemnified Holder or (iii) the
named parties to any such action (including any impleaded parties) include both
the Indemnified Holder and the Company, and the Indemnified Holder shall have
been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those
-11-
<PAGE> 12
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of the Indemnified Holder). In any
such case, the Company shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Indemnified Holders and all such fees and expenses shall be
reimbursed as they are incurred. Such separate firm shall be designated in
writing by a majority of the Indemnified Holders, in the case of the parties
indemnified pursuant to Section 7(a). The Company shall indemnify and hold
harmless the Indemnified Holder from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
Company shall have received a request from the Indemnified Holder for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the Company) and, prior to the date of such
settlement, the Company shall have failed to comply with such reimbursement
request. The Company shall not, without the prior written consent of the
Indemnified Holder, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the Indemnified Holder is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the Indemnified
Holder, unless such settlement, compromise or judgment (i) includes an
unconditional release of the Indemnified Holder from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the Indemnified Holder.
(c) To the extent that the indemnification provided for in
this Section 7 is unavailable to an Indemnified Holder or limited in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
the Company, in lieu of indemnifying such Indemnified Holder, shall contribute
to the amount paid or payable by such Indemnified Holder as a result of such
losses, claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Indemnified Holder, on the other hand, from their sale of Transfer
Restricted Securities or (ii) if the allocation provided by clause 7(c)(i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 7(c)(i) above but also the
relative fault of the Company, on the one hand, and of the Indemnified Holder,
on the other hand, in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by the
Indemnified Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Dealer Manager and each Restricted
Broker-Dealer agree that it would not be just and equitable if contribution
pursuant to this Section 7(c) were determined by pro rata allocation (even if
the Restricted Broker-Dealers were treated as one entity for such purpose)
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<PAGE> 13
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by a Indemnified Holder as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Holder in connection with investigating or defending any matter raised by a
third party, including any action that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 7, neither the Dealer Manager nor any Restricted Broker-Dealer or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount received by the Dealer Manager or
any such Restricted Broker-Dealer as fees or commissions in connection with the
original issuance and sale of the Original Notes and fees received in connection
with the Exchange Offer less the amount of any damages which the Dealer Manager
or such Restricted Broker-Dealer has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Dealer Manager's and Restricted
Broker-Dealers' obligations to contribute pursuant to this Section 7(c) are
several in proportion to the respective principal amount of Transfer Restricted
Securities held by the Dealer Manager and each of the Restricted Broker-Dealers
hereunder and not joint.
8. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company are not subject to Section 13 or 15(d) of the Securities Exchange Act,
to make available, upon request of any Holder of Transfer Restricted Securities,
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities designated by such Holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A.
9. MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS; LIMITATION ON LIABILITIES. The Company
will not, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof. The
Company has not previously entered into any agreement granting any registration
rights with respect to its securities to any Person. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
Notwithstanding anything to the contrary herein or in the Indenture,
any obligation of the Company created by or arising out of this Agreement shall
be a limited obligation of the Company, payable solely from Trust Estate (as
defined in the Indenture) available therefor under and in
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<PAGE> 14
accordance with the Indenture, and shall not constitute a charge against the
general credit of the Company.
(b) ADJUSTMENTS AFFECTING THE NOTES. The Company will not, directly or
indirectly, take any action, with respect to the Notes, as a class, that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of this Section
9(c)(i), the Company has obtained the written consent of the Holders of all
outstanding Transfer Restricted Securities and (ii) in the case of all other
provisions hereof, the Company has obtained the written consent of Holders of a
majority of the outstanding principal amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted
Securities subject to such Exchange Offer.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the Registrar
under the Indenture;
With a copy to:
Squire, Sanders & Dempsey L.L.P.
41 South High Street
Columbus, Ohio 43215
Telecopier No. (614) 365-2499
Attention: Paul F. Sefcovic
(ii) if to the Company:
Student Loan Funding LLC
One West Fourth Street
Suite 210
Cincinnati, Ohio 45202
Telecopier No. (513) 352-0570
Attn: Senior Vice President and Manager
With a copy to:
-14-
<PAGE> 15
Thompson, Hine & Flory LLP
312 Walnut Street, Suite 1400
Cincinnati, Ohio 45202
Telecopier No.: (513)
Attention: Robert A. Selak
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder at a time when such
Holder could not transfer such Transfer Restricted Securities pursuant to a
Shelf Registration Statement. Each Holder of Transfer Restricted Securities
agrees to be bound by and comply with the terms and provisions of this
Agreement.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State Of Ohio as applied to contracts
made and performed entirely within the State of Ohio.
(i) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
-15-
<PAGE> 16
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
[SIGNATURE PAGE FOLLOWS]
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
STUDENT LOAN FUNDING LLC
By: /s/ Thomas L. Conlan
-----------------------------
Name: Thomas L. Conlan, Jr.
Title: President
SALOMON SMITH BARNEY INC.
By: /s/ Mark J. Weadick
-----------------------------
Name: Mark J. Weadick
Title: Director
-17-
<PAGE> 1
Exhibit 8.1
[Thompson Hine & Flory LLP Letterhead]
April 27 , 1999
Student Loan Funding 1998 - A/B Trust
Student Loan Funding LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1998 - A/B Trust Registration Statement on Form S-4
(No. 333-73455)
Ladies and Gentlemen:
We have acted as special tax counsel for Student Loan Funding 1998 - A/B Trust,
a Delaware common law trust (the "Issuer"), and Student Loan Funding LLC, a
Delaware limited liability company (the "Depositor"), in connection with the
above-referenced Registration Statement (together with the exhibits and any
amendments thereto, the "Registration Statement"), filed by the Issuer with the
Securities and Exchange Commission in connection with the registration by the
Issuer of (1) $385,000,000 in principal amount of Senior Asset-Backed Notes,
Series 1998A1-3 (LIBOR Floating Rate) (the "A1-3 Notes"); (2) $93,300,000 in
principal amount of Senior Asset-Backed Callable Notes, Series 1998A1-4 (Auction
Rate) (the "A1-4 Notes"); (3) $90,000,000 in principal amount of Senior
Asset-Backed Callable Notes, Series 1998A1-5 (Auction Rate) (the "A1-5 Notes");
(4) $90,000,000 in principal amount of Senior Asset-Backed Callable Notes,
Series 1998A1- 6 (Auction Rate) (the "A1-6 Notes"); and (5) $54,500,000 in
principal amount of Subordinate Asset-Backed Notes, Series 1998B1-3 (Fixed Rate)
(the "B Notes") (the A1-3 Notes, A1-4 Notes, A1-5 Notes, A1-6 Notes, and B
Notes, collectively, the "New Notes"), which are being offered pursuant to an
exchange offer (the "Exchange Offer") in exchange for the Issuer's outstanding
(a) Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate) (the " Old
A-3 Notes"); (b) Senior Asset-Backed Callable Notes, Series 1998A-4 (Auction
Rate) (the "Old A-4 Notes"); (c) Senior Asset-Backed Callable Notes, Series
1998A-5 (Auction Rate) (the "Old A-5 Notes"); (d) Senior Asset-Backed Callable
Notes, Series 1998A-6 (Auction Rate) (the "Old A-6 Notes"); and (e) Subordinate
Asset-Backed Notes, Series 1998B-3 (Fixed Rate) (the "Old B Notes") (the Old A-3
Notes, Old A-4 Notes, Old A-5 Notes, Old A-6 Notes, and Old B Notes,
collectively, the "Old Notes"), originally issued and sold in reliance upon an
exemption from registration under the Securities Act of 1933.
We are familiar with the proceedings to date in connection with the proposed
Exchange Offer and issuance of the New Notes and in order to express our opinion
hereinafter stated, (a) we have examined copies of the forms of (i) the eligible
lender trust agreement, (ii) the trust agreement; (iii) the indenture, (iv) the
new notes filed as exhibits to the Registration Statement (collectively the
"Operative Documents") and (v) the servicing agreements and (b) we have examined
such other records and documents and such matters of law, and we have satisfied
<PAGE> 2
Student Loan Funding 1998 - A/B Trust
Student Loan Funding LLC
April 27 , 1999
ourselves as to such matters of fact, as we have considered relevant for
purposes of this opinion.
The opinions set forth in this letter concerning federal income tax matters are
based upon the applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated and proposed thereunder,
current positions of the Internal Revenue Service (the "IRS") including those
contained in published Revenue Rulings and Revenue Procedures, and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set forth under the caption "Federal Income Tax Consequences" in
the Prospectus which constitutes a part of the Registration Statement.
Based on the foregoing and assuming that the Operative Documents are executed
and delivered in substantially the form attached as exhibits to the Registration
Statement, we hereby confirm our opinions with respect to the federal income tax
consequences of the exchange of the Old Notes for the New Notes, the federal
income tax characterization of the New Notes, and the federal income tax
treatment of the issuance of such New Notes set forth under the caption "Federal
Income Tax Consequences" in the Prospectus. In our opinion, the exchange of an
Old Note for a New Note pursuant to the Exchange Offer will not constitute a
"significant modification" of the Old Note for federal income tax purposes.
Accordingly, the exchange will be disregarded and the New Note received will be
treated as a continuation of the Old Note in the hands of the holder of a New
Note. As a result, there will be no federal income tax consequences to a holder
who exchanges an Old Note for a New Note pursuant to the Exchange Offer and any
such holder will have the same adjusted tax basis and holding period in the New
Note as it had in the Old Note immediately before the exchange. In addition, in
our opinion, for federal income tax purposes, the New Notes will be
characterized as debt. However, if the IRS were to assert successfully that the
New Notes were not characterized as debt for federal income tax purposes, in our
opinion the Issuer would not be taxable as a corporation even though the Issuer
might be treated as a publicly traded partnership. Moreover, in our opinion, for
federal income tax purposes, the Issuer will not be treated as an entity
separate from the Depositor and thus will not be classified as a separate entity
that is an association (or a publicly traded partnership) taxable as a
corporation. However, if the IRS were to assert successfully that the Issuer
should be treated as an entity separate from the Depositor for federal income
tax purposes, it is our opinion that the Issuer would not be subject to federal
income tax as a publicly traded partnership taxable as a corporation. Our
opinion that neither the Depositor nor the Issuer would be taxable as a
corporation is based upon the representation by both the Depositor and the
Issuer that for 1999 and for any subsequent taxable year 90% or more of the
gross
<PAGE> 3
Student Loan Funding 1998 - A/B Trust
Student Loan Funding LLC
April 27 , 1999
income of the Depositor, and the Issuer if it were 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 Depositor or the Issuer. 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 under the
captions "Summary of the Exchange Offer -- Federal Tax Considerations" and
"Federal Income Tax Consequences" are a fair and accurate summary of all
material tax consequences of the exchange of the Old Notes for the New Notes and
the issuance and holding of the New Notes. There can be no assurance, however,
that the legal conclusions presented therein will not be successfully challenged
by the relevant administrative authorities, or significantly altered by new
legislation, changes in administrative positions, or judicial decisions, any of
which challenges or alterations may be applied retroactively with respect to
completed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus under
the captions "Federal Income Tax Consequences" and "Legal Matters."
Very truly yours,
/s/ Thompson Hine & Flory LLP
<PAGE> 1
Exhibit 10.1
- --------------------------------------------------------------------------------
MASTER SERVICING AGREEMENT
between
STUDENT LOAN FUNDING 1998-A/B TRUST,
Issuer
and
STUDENT LOAN FUNDING RESOURCES, INC.,
Master Servicer
Dated as of March 15, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
Definitions
<TABLE>
<CAPTION>
<S> <C>
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
Term; Termination
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
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
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
</TABLE>
iii
<PAGE> 4
MASTER SERVICING AGREEMENT
MASTER SERVICING AGREEMENT dated as of March 15, 1999 between STUDENT
LOAN FUNDING 1998-A/B 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 or Student Loan Funding
1998-A/B Trust 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 March 1, 1999 (the "Co-Owner Trustee").
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 of and interest on
Student Loans pursuant to a guarantee agreement.
"Guarantee Agreement" means a contract between a Guarantee Agency and a
lender providing for, or a certificate or other evidence of, the guarantee of
Student Loans.
"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.
<PAGE> 5
"Indenture" means the First Amended and Restated Indenture of Trust,
together with the First Amended and Restated Terms Supplement, each dated as of
March 15, 1999, by and among the Issuer, Firstar Bank, National Association, as
eligible lender trustee (the "Eligible Lender Trustee"), and Firstar Bank,
National Association, as indenture trustee (the "Indenture Trustee").
"Master Servicer Default" means an event specified in Section 4.1 of
this Agreement.
"Master Servicing Fee" has the meaning specified in Section 2.2 of this
Agreement.
"Noteholder" means a holder of a note of the Issuer issued pursuant to
the Indenture.
"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, including all addenda
thereto, 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
2
<PAGE> 6
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.
(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 aggregate principal amount of the Student Loans
subject to this Agreement (the "Master Servicing Fee"). The Master Servicing Fee
will be determined on the basis of the aggregate outstanding 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
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<PAGE> 7
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 except where failure to obtain the
same would not have a material adverse effect on its business or property.
(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 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).
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<PAGE> 8
(e) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof will 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 is bound; nor result in the creation or imposition of any lien upon any
of its properties pursuant to the terms of any such indenture, agreement or
other instrument; 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 all 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.
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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 3.1 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 holders 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
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<PAGE> 10
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 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 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
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(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 prior to the expiration of any
applicable cure period, 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.
SECTION 4.2. APPOINTMENT OF SUCCESSOR.
(a) Upon the Master Servicer's receipt of notice of termination,
pursuant to Section 4.1 above 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.
(c) 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 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
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Section shall be paid by the predecessor Master Servicer upon presentation of
reasonable documentation of such costs and expenses.
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:
The Issuer:
Firstar Bank, National Association, as Co-Owner Trustee
of Student Loan Funding 1998-A/B Trust
425 Walnut Street
ML5125 P.O.Box 1118
Cincinnati, Ohio 45202-1118
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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 and 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
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no authority to act for or represent the Issuer in any way and shall not
otherwise be deemed an agent of the Issuer.
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 or their 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 all prior agreements and understandings between the parties.
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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 1998-A/B TRUST,
By: Firstar Bank, National Association, not in its
individual capacity, but solely as Co-Owner
Trustee, on behalf of the Issuer
By: /s/ Brian J. Gardner
-----------------------------------
Name: Brian J. Gardner
Its: Vice President & Trust Officer
STUDENT LOAN FUNDING RESOURCES, INC.,
as Master Servicer
By: /s/ Perry D. Moore
-----------------------------------
Name: Perry D. Moore
Its: Vice President
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Exhibit 10.2
- --------------------------------------------------------------------------------
ADMINISTRATION AGREEMENT
BETWEEN
STUDENT LOAN FUNDING 1998-A/B TRUST
AS ISSUER
AND
STUDENT LOAN FUNDING RESOURCES, INC.
AS ADMINISTRATOR
DATED AS OF MARCH 15, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C> <C>
Section 1. Definitions...................................................................2
Section 2. Indenture and Related Documents...............................................2
Section 3. Servicing Documents...........................................................4
Section 4. Transfer Agreement............................................................5
Section 5. Higher Education Act..........................................................6
Section 6. Other Duties with Respect to the Indenture and Servicing 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
</TABLE>
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<TABLE>
<S> <C>
Section 19. Administrator Default........................................................12
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>
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ADMINISTRATION AGREEMENT
------------------------
THIS ADMINISTRATION AGREEMENT (the "Administration Agreement") is made
as of March 15, 1999 between Student Loan Funding 1998-A/B Trust (the "Issuer")
and Student Loan Funding Resources, Inc., an Ohio corporation, as administrator
(the "Administrator") under the circumstances set forth below. 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 March 1, 1999:
RECITALS
A. The Issuer is engaged in the acquisition from Student Loan Funding
LLC 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").
B. In connection with the acquisition of such Student Loans, the Issuer
has executed and delivered that certain First Amended and Restated Indenture of
Trust and First Amended and Restated Terms Supplement to Indenture, each dated
as of March 15, 1999 (together, the "Indenture") among the Issuer, Firstar Bank,
National Association, 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 and/or the Master Servicer (as defined below) have
entered into certain agreements in connection with the acquisition of Student
Loans, including without limitation one or more Servicing Agreements and any
Subservicing Addenda thereto with a Servicer (the "Servicing Agreements"), the
Transfer and Sale Agreement, dated as of March 15, 1999 by and among Student
Loan Funding LLC (the "Depositor"), Firstar Bank, National Association, as
eligible lender trustee on behalf of the Depositor, the Issuer, the Eligible
Lender Trustee and the Indenture Trustee (the "Transfer Agreement"), and the
Master Servicing Agreement, dated as of March 15, 1999 by and between the Issuer
and Student Loan Funding Resources, Inc., as Master Servicer (the "Master
Servicing Agreement", together with the Servicing Agreements collectively
referred to herein as the "Servicing 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.
<PAGE> 5
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:
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
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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;
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;
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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 the 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
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. SERVICING DOCUMENTS. The Administrator shall cause the
duties and responsibilities of the Issuer under each of the Student Loans and
the Servicing 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 Servicing 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 Servicing 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 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 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
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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;
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 Servicing 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 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 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 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 SERVICING
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
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the Servicing Documents, and shall take all appropriate action that it is the
duty of the Issuer to take pursuant to the Indenture or the Servicing 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 Servicing 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 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 Delaware common law trust
holding the assets described hereunder, including but not limited to the
following:
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 Servicing
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 Servicing
Documents and any other documents or instruments
deliverable by the Issuer thereunder or in connection
therewith;
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(v) holding, maintaining and preserving executed copies
of the Servicing 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 Servicing 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.
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
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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 Servicing
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 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 aggregate outstanding 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 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. CREATION. The Issuer is duly created 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.
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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:
a. ORGANIZATION AND GOOD STANDING. The Administrator is duly organized
and validly existing and in good standing in its State of incorporation 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.
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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' prior 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 Servicing
Documents to prepare and supply, the Administrator with such information
regarding the performance of the Indenture or the Servicing 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.
The Administrator shall indemnify, defend and hold harmless the Issuer,
and all 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.
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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 hereof) pursuant to Section 14 hereof 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 hereof.
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 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 that the Administrator may
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement, the Indenture, the Transfer Agreement and the
Servicing Documents and the rights and duties of the parties to this Agreement,
the Indenture, the Transfer Agreement and the Servicing Documents and the
interests of the holders of the Notes 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 hereunder without the
execution or filing of any documents or any further act by any of the parties to
this Agreement; PROVIDED 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
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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 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 or Carryover Interest on the Notes when such
principal or interest Carryover Interest becomes due and payable in accordance
with the Notes and the Indenture;
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 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.
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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 Servicing Documents and other sources
and the Administrator shall not be responsible for any inaccuracy in the
information so obtained or for any inaccuracy in the records maintained by the
Administrator hereunder which may result therefrom.
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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 1998-A/B 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.
14
<PAGE> 18
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 1998-A/B TRUST
By Firstar Bank, National Association , not in its
individual capacity, but solely as Co-Owner
Trustee, on behalf of the Issuer
By: /s/ Brian J. Gardner
-------------------------------------------
Name: Brian J. Gardner
Title: Vice President & Trust Officer
15
<PAGE> 19
STUDENT LOAN FUNDING RESOURCES, INC.
as Administrator
By: /s/ Perry D. Moore
------------------------------
Name: Perry D. Moore
Title: Vice President
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: /s/ Brian J. Gardner
------------------------------
Name: Brian J. Gardner
Title: Vice President & Trust Officer
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: /s/ Brian J. Gardner
------------------------------
Name: Brian J. Gardner
Title: Vice President & Trust Officer
<PAGE> 1
Exhibit 10.4
ELIGIBLE LENDER TRUST AGREEMENT
-------------------------------
This Eligible Lender Trust Agreement (the "Agreement") is entered into
as of March 15, 1999 (the "Effective Date"), between STUDENT LOAN FUNDING
1998-A/B TRUST (the "Issuer") and FIRSTAR BANK, NATIONAL ASSOCIATION, as
eligible lender trustee (the "Eligible Lender Trustee") for the benefit of the
Issuer. All references to the Issuer or Student Loan Funding 1998-A/B Trust
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 March 1, 1999 (the "Trust Agreement").
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 of
the Issuer's right, title and interest in and to certain Financed Student Loans
in trust for the benefit of the Issuer upon the transfer and sale of such
Financed Student Loans to the Issuer;
WHEREAS, such Financed Student Loans are, and upon transfer to the
Eligible Lender Trustee will continue to be, pledged to secure payment of
certain Student Loan Senior Asset Backed Notes, Series 1998A and Student Loan
Subordinate Asset-Backed Notes, Series 1998B-3 under the Indenture (as defined
in Section 2.3 hereof); 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 the 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 the 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 Indenture, 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 the Financed Student Loans under this Agreement
including, without limitation, the Trust Agreement, the Transfer Agreement and
the Indenture.
(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, the
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.ss.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 the 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 the Financed Student Loans or the servicing,
administration, sale, exchange, assignment or transfer of the Financed Student
Loans;
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<PAGE> 3
(e) it shall sell, exchange or otherwise deal with such Financed
Student Loans in accordance with the Trust Agreement and the Indenture;
(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
Indenture;
(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, the Indenture 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 or the Trust Agreement; and
(i) following the discharge or other termination of the transactions
contemplated by the Indenture and 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;
(b) it shall promptly take all necessary actions to perform its
obligations hereunder and to support the Eligible Lender Trustee, in the prompt
and full performance of its obligations hereunder.
SECTION 1.6. ACCEPTANCE OF DUTIES. The Eligible Lender Trustee accepts
the trusts hereby created and agrees to perform the duties and only the duties
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into the trust created hereby against the Eligible
Lender Trustee. The Eligible Lender Trustee shall not be answerable or
accountable under any circumstances except for its gross negligence or willful
misconduct.
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<PAGE> 4
SECTION 1.7. RELIANCE ON CERTAIN DOCUMENTS, OTHER PERSONS. The Eligible
Lender Trustee shall not incur any liability in acting upon any signature,
instrument, notice, resolution, request, consent, order, certificate, report,
opinion, bond or other document or paper believed by it to be genuine and
believed by it to be signed by the proper party or parties. In the
administration of its duties hereunder, the Eligible Lender Trustee may execute
any of the trusts or powers hereof and perform its powers and duties hereunder
directly or through other agents or attorneys and may, at the expense of the
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 the 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 the Financed Student Loans held on behalf of the Issuer
under this Agreement. Such payment shall be made solely out of the Collection
Fund as defined in and held under the Indenture.
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
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<PAGE> 5
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, 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 predecessor 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 THE 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 the 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
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<PAGE> 6
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, that the Issuer's indemnification with respect to
each Financed Student Loan shall be limited to the period of time that the
Eligible Lender Trustee holds such Financed Student Loans in trust on behalf of
the Issuer. Such indemnification shall be payable solely out of the Trust Estate
as defined in and held under the Indenture.
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 by the Issuer 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 and if not given below shall have the same meaning
given in the Trust Agreement:
"Consolidation Loans" shall mean the 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
the 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
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<PAGE> 7
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.
"Guarantor" shall mean any guarantee agency as is agreed to in
writing by the Issuer and the Eligible Lender Trustee with respect to
the 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 as
of March 15, 1999, entered into between the Issuer and the Master
Servicer.
"Master Servicer" shall mean Student Loan Funding Resources,
Inc.
"PLUS Loans" shall mean the 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 the 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 the Financed Student Loans.
"Stafford Loans" shall mean the 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.
"Transfer Agreement" means Transfer and Sale Agreement, dated
as of March 15, 1999, by and among Student Loan Funding LLC
("Funding"), Firstar Bank, National Association as eligible lender
trustee for the benefit of Funding, the Issuer, the Eligible
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<PAGE> 8
Lender Trustee and Firstar Bank, National Association as indenture
trustee (the "Indenture Trustee") under the Indenture.
"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
Issuer, 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 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 the Student
Loans financed under the First Amended and Restated Indenture of Trust, together
with the First Amended and Restated Terms Supplement, each dated as of March 15,
1999, and each by and among the Issuer, the Eligible Lender Trustee and the
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 permitted 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.
-8-
<PAGE> 9
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.
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
1998-A/B TRUST ASSOCIATION
By Firstar Bank, National Association, as Eligible Lender Trustee
not in its individual capacity, but
solely as Co-Owner Trustee, of
the Issuer
By: /s/ Brain J. Gardner By: /s/ Brain J. Gardner
------------------------------ ------------------------------
Title: Brain J. Gardner Title: Brain J. Gardner
------------------------------ ------------------------------
Vice President & Trust Officer Vice President & Trust Officer
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<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 1998 A/B 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 31-0841368
------------------------ ----------
(State of Incorporation) (IRS Employer Identification No.)
ONE WEST FOURTH STREET, SUITE 210, CINCINNATI, OH 45202
------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
STUDENT LOAN FUNDING LLC STUDENT LOAN ASSET-BACKED NOTES
--------------------------------------------------------------
1
<PAGE> 2
(Title of the Indenture securities)
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,
2
<PAGE> 3
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.
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
Whether the Beneficially or
Securities Are Held as Collateral Percent of
3
<PAGE> 4
Voting or Security for Class Represented
Nonvoting obligations in .by Amount Given
Title of Class Securities Default in Col. C
-------------- ---------- ------- ------------
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
4
<PAGE> 5
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)
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
Amount
Nature of 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 within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
5
<PAGE> 6
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
----- ----------- ------------ ------------
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 23RD DAY OF APRIL, 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,
8
<PAGE> 9
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
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
9
<PAGE> 10
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.
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
10
<PAGE> 11
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
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-
12
<PAGE> 13
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
13
<PAGE> 14
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.
14
<PAGE> 15
(SEAL)
15
<PAGE> 16
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
16
<PAGE> 17
of his shares equal, or to distribute them on the same principle among as many
candidates as he shall think fit.
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.
17
<PAGE> 18
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
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,
18
<PAGE> 19
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.
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.
19
<PAGE> 20
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.
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
20
<PAGE> 21
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
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
21
<PAGE> 22
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
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
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<PAGE> 23
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.
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
23
<PAGE> 24
EXHIBIT 7
---------
CONSOLIDATED REPORT OF CONDITION
STAR BANK, NATIONAL ASSOCIATION
FOR MARCH 31, 1999
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
ASSETS
<S> <C>
1. Cash and balances due from depository institutions
a. Noninterest-bearing balances and currency and coin $818,380
b. Interest-bearing balances 21,607
2. Securities:
a. Held-to-maturity securities 131,272
b. Available-for-sale securities 2,059,697
3. Federal funds sold and securities purchased under agreements to resell in 29,425
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:
24
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
<S> <C>
a. Loans and leases, net of unearned income 12,141,715
b. LESS: Allowance for loan and lease losses 169,731
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and reserve 11,971,984
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 211,109
7. Other real estate owned 306,539
8. Investments in unconsolidated subsidiaries and associated companies 9,962
9. Customers' liability to this bank on acceptances outstanding 15,686
10. Intangible assets 0
11. Other assets 1,481,347
12. Total assets $17,057,008
</TABLE>
CONSOLIDATED REPORT OF CONDITION STAR BANK, NATIONAL ASSOCIATION
FOR MARCH 31, 1999 CONTINUED Dollar Amounts
in Thousands
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
13. Deposits:
a. In domestic offices $12,879,866
(1) Noninterest-bearing $2,439,612
(2) Interest-bearing 10,440,254
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs 16,488
(1) Noninterest-bearing 0
(2) Interest-bearing 16,488
14. Federal funds purchased and securities sold under agreements 1,196,022
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 0
b. Trading liabilities 0.00
16. Other borrowed money:
a. With original maturity of one year or less 545,244
b. With original maturity of more than one year 0
17. Mortgage indebtedness and obligations under capitalized leases
18. Bank's liability on acceptances executed and outstanding 15,686
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C>
19. Subordinated notes and debentures 363,075
20. Other liabilities 335,377
21. Total liabilities 15,351,758
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 773,615
b. Net unrealized holding gains (losses) on 12,784
available-for-sale securities
27. Cumulative foreign currency translation adjustments 0.00
28. Total equity capital 1,705,250
29. Total liabilities, limited-life preferred stock, and equity capital $17,057,008
</TABLE>
26
