As filed with the Securities and Exchange Commission on December 30, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
NELNET STUDENT LOAN CORPORATION-2
(Exact name of registrant as specified in its charter)
NEVADA 84-1518863
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 CALIFORNIA STREET, SUITE 3920, DENVER, COLORADO 80202,
(303) 292-6930 (Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
Ronald W. Page, Vice President
NELNET Student Loan Corporation-2
1801 CALIFORNIA STREET, SUITE 3920, DENVER, COLORADO 80202, (303) 292-6930
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
--------------------
COPIES TO:
Thomas H. Duncan, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1225 Seventeenth Street, Suite 2300
Denver, Colorado 80202
(303) 292-2400
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
1
<PAGE>
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER UNIT (AGGREGATE OFFERING PRICE(2) FEE(3)
notes $2,500,000,000 100% $2,500,000,000 $660,000(4)
======================== ================= ====================== ======================= ================
</TABLE>
(1) The amount of securities being registered represents the maximum aggregate
principal amount of securities currently expected to be offered for sale.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Registration fee is calculated on the basis of 264 per million offered.
(4) The sum of $264 is remitted at the time of filing of this Registration
Statement. A fee of $659,736 was previously paid on December 2, 1999.
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 THIS
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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
2
<PAGE>
The information contained herein is not complete and may be changed. We may not
sell these securities until the Registration Statement filed with the Securities
and Exchange Commission becomes effective. This prospectus supplement and
prospectus is not an offer to sell or the solicitation of an offer to buy these
securities in any state in which such offer is not permitted.
SUBJECT TO COMPLETION, Dated __________ __, ____
PROSPECTUS SUPPLEMENT
(To prospectus dated __________ __, ____)
$------------
STUDENT LOAN ASSET-BACKED NOTES
SERIES ____
NELNET STUDENT LOAN CORPORATION-2
ISSUER
We are offering our notes in the following _____ classes:
<TABLE>
<CAPTION>
Original Proceeds
Principal Interest Final Legal Price to Underwriting to
CLASS AMOUNT RATE MATURITY PUBLIC DISCOUNT ISSUER(1)
----- ------ ---- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
- ------------- $ $
- ------------- $ $
- ------------- $ $
- ------------- $ $
- ------------- $ $
________-____ $ .$
------------------ ---------------------------- ----
Total
</TABLE>
- --------------------
(1) Before deducting expenses estimated to be $__________
The notes:
o will be secured by a revolving pool of student loans
o will be rated _____ by ___________ and _________________.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters named below are offering the notes subject to approval
of certain legal matters by their counsel. The notes will be delivered in
book-entry form only on or about ______ __, ____.
PAINEWEBBER INCORPORATED
[INSERT OTHER NAMES]
----------, ---
3
<PAGE>
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE __ OF
THIS PROSPECTUS SUPPLEMENT AND ON PAGE __ OF THE PROSPECTUS.
THE NOTES ARE OBLIGATIONS OF OUR COMPANY PAYABLE SOLELY FROM THE
COLLATERAL DESCRIBED IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS. [THE
[SERIES ___] [CLASS ___] NOTES ARE INSURED AS TO TIMELY PAYMENTS OF PRINCIPAL
AND INTEREST BY [NOTE INSURER]]. THIS PROSPECTUS SUPPLEMENT MAY BE USED TO OFFER
AND SELL THE NOTES ONLY IF ACCOMPANIED BY THE PROSPECTUS.
4
<PAGE>
[INSIDE FRONT COVER PAGE]
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary...................................................................S-3
Risk Factors..............................................................S-6
The Sellers...............................................................S-7
[Previously Issued Notes.................................................S-8]
Credit Enhancement.......................................................S-10
Use of Proceeds..........................................................S-13
Characteristics of Our Student Loans.....................................S-14
Information Relating to the Guarantee Agencies...........................S-20
Ratio of Earnings to Fixed Charges.......................................S-21
Special Note Regarding Forward Looking Statements........................S-21
Plan of Distribution.....................................................S-22
Legal Matters............................................................S-22
PROSPECTUS
About This Prospectus...................................................... i
Summary of the Offering.................................................. iii
Risk Factors ...............................................................1
Special Note Regarding Forward Looking Statements...........................7
Description of the Notes................................................... 8
Security and Sources of Payment for the Notes............................. 16
Book-Entry Registration................................................... 19
Additional Notes.......................................................... 24
Summary of the Indenture Provisions....................................... 24
Description of Credit Enhancement..........................................36
NELNET Student Loan Corporation-2..........................................39
The Student Loan Program of NELNET Student Loan Corporation-2..............41
Description of the Federal Family Education Loan Program...................44
Description of the Guarantee Agencies......................................57
Federal Income Tax Consequences........................................... 63
ERISA Considerations...................................................... 67
Relationships Among Financing Participants................................ 68
Plan of Distribution...................................................... 69
Legal Matters............................................................. 70
Financial Information..................................................... 70
Ratings .................................................................. 70
Incorporation of Documents by Reference; Where to Find More Information .. 71
Appendix I-Global Clearance, Settlement and Tax Documentation Procedures..I-1
[END OF INSIDE FRONT COVER]
S-1
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents
that progressively provide more detail. This prospectus supplement describes the
specific terms of the notes. The accompanying prospectus provides general
information, some of which may not apply to the notes. You are urged to read
both the prospectus and this prospectus supplement in full to obtain information
concerning the notes.
IF THERE IS A CONFLICT BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
Cross-references are included in this prospectus supplement and the
accompanying prospectus to captions in the materials where you can find further
discussions about related topics. The table of contents on the preceding page
provides the pages on which these captions are located.
Some of the terms used in this prospectus supplement and the
accompanying prospectus are defined under the caption "Glossary of Defined
Terms" beginning on page ___ in the accompanying prospectus.
S-2
<PAGE>
SUMMARY
o The following summary is a very general overview of the terms of
the notes and does not contain all of the information that you
need to consider in making your investment decision.
o Before deciding to purchase the notes, you should consider the
more detailed information appearing elsewhere in this prospectus
supplement and in the prospectus.
o This prospectus supplement contains forward-looking statements
that involve risks and uncertainties. See "Special Note Regarding
Forward Looking Information" in the prospectus.
GENERAL
o The notes will be issued pursuant to an indenture of trust and will be
[senior] [subordinate] [junior-subordinate] notes having the rights
described in the prospectus. We will issue the class __-___ and class
___-___ notes in minimum denominations of $_______ or any integral multiple
of $_______ [and we will issue the class ___-___ notes and the class
___-___ notes in minimum denominations of $________ or any integral
multiple of $________.] We will use the proceeds from the sale of the notes
to purchase a portfolio of student loans, to make a deposit to the Reserve
Fund and to pay costs of issuing the notes.
o [We have previously issued other classes of notes and have similarly used
the proceeds we received to purchase student loans. All of those student
loans previously acquired, along with the student loans we purchase with]
[The] proceeds of the notes being offered by this prospectus supplement,
are pledged to a trustee to secure repayment of all of the notes issued
under the indenture. The exact composition of this common pool of
collateral will change over time as loans are repaid and new loans are
added.
o The sole source of funds for payment of all of the notes issued under the
indenture is the student loans and investments that we pledge to the trustee
and the payments that we receive on those student loans and investments.
INTEREST RATES
[FIXED RATE NOTES]
[The class __-__ notes and the class __-__ notes will bear interest at the
following rates per annum:
class ______ - ___%
class ______ - ___%]
[AUCTION RATE CERTIFICATE NOTES]
INITIAL
INITIAL RATE
INITIAL AUCTION ADJUSTMENT
RATE DATE DATE
class __-__
class __-__
[For each auction period, the interest rate for the class ___-___ notes and
the class ___-___ notes will equal the lower of:
o the rate determined pursuant to the auction procedures described in the
accompanying prospectus under "Description of Notes - Auction Rate
Certificate Notes;" and
S-3
<PAGE>
o a maximum auction rate equal to the greater of the rate of interest on
certain United States treasury securities, plus a margin that will range
from 1.20% to 1.75% depending upon the ratings assigned to the auction
rate certificate notes.
[The period between auctions for the class __-__ notes and class __-__ notes
will be __ days. We may change the length of the auction period for any class of
auction rate certificate notes as described in the prospectus under the heading
"Description of the Notes- Auction Rate Certificate Notes."]
[LIBOR RATE NOTES]
INITIAL INITIAL INITIAL
INTEREST LIBOR INTEREST
PAYMENT RATE PERIOD
DATE BASED
RATE
class __-__
class __-__
For each subsequent interest period, the class ___-___ notes and class ___-___
notes will bear interest at:
o [one month] [three month] [six month] LIBOR rate plus _____%, subject
to an interest rate cap. See "Description of the Notes - LIBOR rate
notes" in the prospectus.
INTEREST PAYMENTS.
[o Following each interest accrual period, we will pay the holders of the
fixed rate class ___-___ notes and class ___-___ notes the interest
rates listed on the cover page. We will calculate interest on the
basis of a [365-day] 360-day year [consisting of twelve 30-day
months]. For the interest payment due ______ __, ____, the interest
accrual period begins on ______ __, ____ and ends on ______, ____. For
all other interest payment dates, the interest accrual period will be
the preceding calendar month.]
[o On the first business day after each auction period, we will pay the
holders of the auction rate certificate class __- __ notes and the
auction rate certificate class __-__ notes the interest accrued on
their notes during the preceding auction period at the applicable
interest rate. We will calculate interest on the basis of a [360-day]
[365-day] year and the actual number of days elapsed during the
related auction period.]
[o On [the first business day of each month, commencing _________ __,
____,] [each _____, ____, ____, ___, ____, ___ and ____, __] we will
pay the holders of the LIBOR rate class __- __ notes and class __-__
notes the interest accrued on their notes during the preceding
interest accrual period at the applicable interest rate. We will
calculate interest on the basis of a 360- day [365-day] year
consisting of twelve 30-day months.]
PRINCIPAL REDEMPTIONS
Although no installments of principal are
due on the notes, they are subject to
redemption as follows:
o Prior to ______ __, ____, we intend to use most of the principal payments
that we receive on our student loans to purchase additional student loans.
This revolving period may be extended if the rating agencies rating our
notes approve.
S-4
<PAGE>
o [During the revolving period we also intend to use some of the principal
payments and interest payments that we receive on our student loans to
redeem classes of notes that we previously issued pursuant to a redemption
schedule specified for those notes. Unless events occur that we consider
unlikely, we will not redeem any notes being offered by this prospectus
supplement prior to ------- --, ----.]
o After the revolving period, we will use the principal payments and some of
the interest payments that we receive on our student loans to redeem notes
in the order we determine.
o We cannot predict when the notes offered by this prospectus supplement will
be redeemed. However, they will be paid in full by ________ __, ____.
o In addition to mandatory redemption from principal receipts, we have the
option to redeem the notes from excess interest payments or if we determine
that we cannot continue our student loan program. We may also redeem our
notes when the aggregate outstanding principal balance of all of our notes
is 20% or less of the aggregate initial principal balance of all of the
notes issued under the indenture.
o See the discussion under "Description of the Notes" in the prospectus for a
more complete discussion of how we will pay your notes.
CHARACTERISTICS OF OUR STUDENT LOAN
PORTFOLIO.
o The portfolio of student loans [that we currently own and] that we expect to
acquire with the proceeds of the notes is described below under
"Characteristics of our Student Loans" in this prospectus supplement.
SERVICING OF OUR STUDENT LOAN PORTFOLIO.
Servicer: o National Education Loan
Network, Inc.
Subservicers: o UNIPAC Service
Corporation
o InTuition, Inc.
[DEFINITIVE NOTES]
[The [designate classes] notes will be evidenced by definitive notes
registered in the name or names of the holders of those notes or their nominee.]
BOOK-ENTRY REGISTRATION
We expect that the notes will be delivered in book-entry form through the
Same Day Settlement System of the Depository Trust Company.
FEDERAL INCOME TAX CONSEQUENCES
Kutak Rock LLP will deliver an opinion that for federal income tax
purposes, the notes [should] [will] be treated as our indebtedness. You will be
required to include in your income interest on the notes as paid or accrued, in
accordance with your accounting methods and the provisions of the Internal
Revenue Code. See "Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
If the notes are treated as indebtedness without substantial equity
features, the notes are eligible for purchase by or on behalf of employee
benefit plans, retirement arrangements, individual retirement accounts and Keogh
Plans, subject to the considerations discussed under "ERISA Considerations" in
the prospectus.
S-5
<PAGE>
RISK FACTORS
The discussion under the heading "Risk Factors" in the prospectus
describes the risks associated with your investment in the notes. In addition,
you should consider the following factors:
OUR ASSETS MAY NOT BE SUFFICIENT TO PAY OUR NOTES
On the date of issuance of the notes, the aggregate principal balance of
the student loans we own and the other assets pledged as collateral for the
notes will be less than the aggregate principal balance of all our notes issued
under the indenture. In addition, the price we pay for additional student loans
that we acquire during the revolving collateral period may exceed the principal
balance of those loans.
As a result, if an event of default should occur under the indenture and
we were required to redeem all of our notes, our liabilities may exceed our
assets. If this were to occur, we would be unable to repay in full all of the
holders of our notes.
THE TRANSITION TO YEAR 2000 MAY IMPAIR OUR ABILITY TO MAKE PAYMENTS ON OUR NOTES
We cannot now determine whether the transition to the year 2000 will
have a material adverse effect on our business operations. The conduct of our
business in relationship to purchasing loans or administering the loans we own
is not significantly dependent on our own computer programs. However, our loan
servicer, subservicers, trustee, the guarantee agencies guaranteeing our student
loans and the Department of Education all rely heavily on computer programs and
systems for processing transactions related to student loans.
The trustee, and the servicer and subservicers of our loans have assured
us that they are, or are working to become, year 2000 compliant. We are aware
that the guarantee agencies and Department of Education are working to address
the year 2000 issue. The Department of Education has indicated that all of its
data systems are year 2000 compliant. However, we cannot determine if these
parties will be adversely affected by the arrival of the year 2000. We cannot
terminate our dependence on the servicer, subservicers, guarantee agencies or
Department of Education. Under the reasonably likely worst case scenario, the
arrival of the year 2000 could delay our receipt of principal and interest
payments on our student loans and the receipt of claims payments from the
guarantee agencies. If that delay continues for a prolonged period, we may be
unable to make timely payments of principal and interest due on our notes.
S-6
<PAGE>
THE SELLERS
We expect to use the proceeds of the notes being offered by this
prospectus supplement to purchase portfolios of student loans having a principal
balance of approximately $__________ from the parties shown below.
SELLER APPROXIMATE BALANCE SALE DATE
$
$
$
- ---------------------- $
Total $
Each of the sellers listed above has made representations and warranties
with respect to the student loans that we will purchase and has agreed to
repurchase any student loans for which any representation or warranty is later
determined to be materially incorrect. See "The Student Loan Program of NELNET
Student Loan Corporation-2" in the prospectus.
S-7
<PAGE>
[PREVIOUSLY ISSUED NOTES]
[Information concerning each outstanding series and class of notes that
we have previously issued under the indenture is provided below. The student
loans and other assets pledged to the trustee will serve as collateral for the
outstanding notes and any additional notes that we may issue under the indenture
in the future, as well as the notes being offered by means of this prospectus
supplement.
<TABLE>
<CAPTION>
Original Outstanding , ) , )
Principal Principal Amount Interest ,Maturity , )
SERIES CLASS DATE ISSUED AMOUNT (AS OF , ) RATE , ) DATE , )
------ ----- ----------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
We have paid in full all scheduled principal and interest due and
payable on each series of notes specified above. As of ___________________, the
student loans that are in repayment and pledged to the trustee as collateral for
the outstanding notes had delinquencies as follows:
o $___________________ was 30 to 60 days delinquent;
o $___________________ was 61 to 90 days delinquent;
o $___________________ was 91 to 120 days delinquent; and
o $___________________ was greater than 120 days delinquent.
As of ___________________, there were $___________________ of our
student loans in claim status with a guarantee agency.
As of ___________________, the cumulative amount of net losses by principal
balance of the student loans was $___________________.]
[The following fees are payable annually with respect to the notes
previously issued:
S-8
<PAGE>
<TABLE>
<CAPTION>
Maintenance and
Trustee Servicing Auction Broker Dealer Calculation Agent Operating
SERIES FEE FEE AGENT FEES FEES FEES EXPENSES
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- ---------------
[We have paid in full all fees and expenses due and payable on each series
specified above.]
S-9
<PAGE>
CREDIT ENHANCEMENT
[NOTE INSURANCE]
[We will obtain note insurance for the [class __ notes] which will
insure timely payments of interest and payments of principal. Principal payments
will be insured by the insurance provider on the following basis:
[Describe terms of insurance]
The amount of the note insurance will be [____]% of the aggregate
initial principal amount of the [class __ notes] [student loans]. The amount
available under the note insurance policy on any subsequent interest payment
date will be [the initial amount minus the sum of all of the prior claims under
the policy] [[____]% of the then existing principal amount of the [class __
notes] [student loans]].
The insurance provider is [name of note insurance provider] [which is a
member of [name of insurance group]. The claims paying ability of the [name of
insurance provider] [name of insurance group] is rated "____" by the [name of
rating agency]]. The address of the insurance provider is [address].]
RESERVE FUND
[The Reserve Fund is currently funded in an amount equal to __% of the
aggregate principal amount of the notes that we now have outstanding.] We will
make a deposit to the Reserve Fund on the date the notes are issued in an amount
equal to ____ % of the principal balance of the notes. If funds available in the
Revenue Fund are not sufficient to make payments when due, moneys in the Reserve
Fund may be used to pay amounts due and payable to noteholders. Money withdrawn
from the Reserve Fund will be restored through transfers from the Revenue Fund
or the Acquisition Fund as directed by us and as available. [We are required to
maintain a minimum balance in the Reserve Fund of $_________.]
[INTEREST RATE SWAP]
[We have entered into an interest rate swap agreement with [insert name
of the swap counterparty]. The interest rate swap will terminate on the _____
payment date. We will owe the swap counterparty a net swap payment when the
weighted average discount rate on 91 day United States Treasury Bills plus a
specified percentage is greater than % of the three month LIBOR. The swap
counterparty will owe us a net swap receipt when the three month LIBOR is
greater than ____% of the weighted average discount rate on the 91 day United
States Treasury Bills plus a specified percentage. The amount of a net swap
payment or a net swap receipt is the product of the difference in the rates
described above and the interest rate swap's scheduled notional amount.]
[The scheduled notional amount for any [quarterly] payment date is set
forth in Exhibit __ to this prospectus supplement. We expect the scheduled
notional amount for any [quarterly] payment date to equal approximately [__]% of
the then outstanding principal balance of the class ___ notes.]
[While the interest rate swap is in effect, it will reduce, but not
eliminate, the risk that the rate of interest on the notes will be determined by
the applicable interest rate cap.]
S-10
<PAGE>
[Insert Description of Interest Rate Swap Party]
[LETTER OF CREDIT]
[We will obtain an irrevocable [standby] [direct pay] letter of credit
from [name of bank]. The letter of credit will protect [class __] noteholders
against losses on student loans to the maximum of the stated amount of the
letter of credit. The initial letter of credit will expire no earlier than
__________.
The initial amount of the letter of credit will be [__]% of the
aggregate initial principal amount of the [class __ notes] [student loans]. The
amount available under the letter of credit on any interest payment date will be
equal to this initial amount minus the sum of all of the prior draws under the
letter of credit to cover any shortfall between in the amounts payable to the
[class __] noteholders [and the class __ noteholders].
We will be required to renew or replace the letter of credit before its
expiration until the [designate class] notes are no longer outstanding. If we do
not renew or replace a letter of credit before the expiration of the then
existing letter of credit, the trustee will draw under the letter of credit an
amount equal to the full amount available under the indenture and will transfer
those funds to a separate trust fund. Thereafter, the [trustee] will be entitled
to withdraw those funds on each interest payment date if and to the extent draws
would have been required under the letter of credit.
[The long-term debt of the bank issuing the letter of credit is rated
"____" by [name of rating agency] [and "____" by [name of rating agency]]. For
the year ended [end of fiscal year], the issuing bank reported total assets of
$__________, total deposits of $__________ and total capital and reserves of
$__________. Upon request to [name of issuing bank], a copy of the annual report
of [name of issuing bank] may be obtained [without charge] from [name of issuing
bank] at [address].]
SUBORDINATED NOTES
The rights of the Class B noteholders [and the Class C noteholders] to
receive payments of interest and principal are subordinated to the rights of the
Class A noteholders to receive payments. [The rights of the Class C noteholder
to receive payments of interest and principal are subordinated to the rights of
the Class A noteholders and the Class B noteholders.] This subordination is
intended to enhance the likelihood of regular receipt by the Class A noteholders
[, and secondarily, the Class B noteholders,] of the full amount of scheduled
monthly payments of principal and interest due them and to protect the Class A
noteholders[, and secondarily, the Class B noteholders,] against losses.
Class A noteholders have a preferential right to receive, before any
distributions to Class B noteholders, distributions from the trust estate
created under the indenture and, if necessary, the right to receive future
distributions on our student loans that would otherwise have been payable to the
holders of Class B notes. The Class B notes are then entitled to the available
amounts, if any, remaining in the trust estate. [The Class B noteholders have a
preferential right to receive, before any distributions to the Class C
noteholders, distributions from the trust estate created under the indenture
and, if necessary, the right to receive future distributions on our student
loans that otherwise would have been payable to the holders of the Class C
notes. The Class C notes are then entitled to the available amounts, if any,
remaining in the trust estate.] See "Description of Credit
Enhancement-Subordinate Notes" in the prospectus.
S-11
<PAGE>
[SURETY BONDS]
[We will obtain a surety bond in the amount of $________ with respect to
the notes in favor of the trustee solely on behalf of the holders of the [class
__] notes. The surety bond will provide for coverage of timely payment of all
interest and ultimate payment of all principal due on the related class ___
notes. We will pay $________ to the issuer of the surety bond.]
[Description of the issuer of surety bond to be provided.]
S-12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the notes will be
applied as follows:
We expect that approximately $___________ of the proceeds deposited to
the Acquisition Fund will be used on the issue date to acquire a portfolio of
student loans. See "The Sellers" in this prospectus supplement. [The remaining
proceeds deposited to the Acquisition Fund are expected to be used to acquire
portfolios of student loans in _________, ____.]
S-13
<PAGE>
CHARACTERISTICS OF OUR
STUDENT LOANS
(AS OF_____________ __, ____ )
[We have previously purchased portfolios of student loans.] The
characteristics of our student loans [pledged to the trustee on the date of this
prospectus supplement and the additional student loans] that we expect to
purchase with the proceeds of the notes offered by this prospectus supplement
are described below. Since the date for purchase of the additional loans to be
acquired with the proceeds of the Series __ notes is other than ______, __, the
characteristics of those loans will vary.]
COMPOSITION OF OUR STUDENT LOAN PORTFOLIO
Aggregate outstanding principal balance.......................... $
Number of borrowers..............................................
Average outstanding principal balance per borrower............... $
Number of loans..................................................
Average outstanding principal balance per loan................... $
Weighted average annual interest rate............................ %
Approximate weighted average remaining term (months) (does not
include school, grace, deferment, forbearance or claims).........
Weighted average remaining term (months).........................
<TABLE>
<CAPTION>
DISTRIBUTION OF OUR THE STUDENT LOANS BY LOAN TYPE
Outstanding Percent of Loans
Number of Principal by Outstanding
LOAN TYPES LOANS BALANCE BALANCE
<S> <C> <C> <C>
Consolidated $ %
PLUS
SLS
Stafford - Subsidized
Stafford - Unsubsidized _______ ___________ ___.__
Total $ 100.00%
=============== ==================== ======
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF OUR STUDENT LOANS BY INTEREST RATE
Outstanding Percent of Loans
Number of Principal by Outstanding
INTEREST RATE LOANS BALANCE BALANCE
<S> <C> <C> <C>
$ %
Total $ 100.00%
=========== ============== ======
DISTRIBUTION OF OUR STUDENT LOANS BY SCHOOL TYPE
Outstanding Percent of Loans
School Number of Principal by Outstanding
TYPE LOANS BALANCE BALANCE
2-Year Institution $ %
4-Year Institution
Proprietry
Unknown
Total $ 100.00%
============= ===================== ======
DISTRIBUTION OF OUR STUDENT LOANS BY BORROWER PAYMENT STATUS
Outstanding Percent of Loans
Borrower Number of Principal by Outstanding
PAYMENT STATUS LOANS BALANCE BALANCE
School $ %
Grace
Deferment
Forbearance
Claim
Repayment
First Year Repayment
Second Year Repayment
Third Year Repayment
More than 3 years
Total $ 100.00%
=========== ===================== ======
</TABLE>
S-15
<PAGE>
GEOGRAPHIC DISTRIBUTION OF OUR STUDENT LOANS
The following chart shows the geographic distribution of our student
loans based on the permanent billing addresses of the borrowers as shown on the
servicer's records:
Outstanding Percent of Loans
Number of Principal by Outstanding
LOCATION LOANS BALANCE BALANCE
Alabama
Alaska
American Samoa
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida Foreign Country
Georgia
Guam
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Military (Atlantic)
Military (Europe)
Military (Pacific)
Minnesota
Mississippi
Missouri
Montana
Northern Mariana Islands
North Carolina
North Dakota
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Virgin Islands
Vermont
Washington
West Virginia
Wisconsin
Wyoming
Other ------ -------------------- ------
Total $ 100.00
======= ==================== =====
- ---------------
S-16
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF OUR STUDENT LOANS BY DATE OF
DISBURSEMENT
Outstanding Percent of Loans
Disbursement Number of Principal by Outstanding
DATE LOANS BALANCE BALANCE
<S> <C> <C> <C> <C>
Pre-October, 1993 $ %
October 1, 1993 and thereafter
Total $ 100.00%
==================== ======
DISTRIBUTION OF THE FINANCED STUDENT LOANS BY
GUARANTEE AGENCY
Percentage of
Outstanding Loans
Guarantee Number of Principal by Outstanding
AGENCY LOANS BALANCE BALANCE
</TABLE>
DISTRIBUTION OF OUR STUDENT LOANS BY RANGE OF PRINCIPAL BALANCE
Percent
Outstanding of Loans by
Number of Principal Outstanding
PRINCIPAL BALANCE RANGE BORROWERS BALANCE BALANCE
Less than $500 $ %
$500 - $999.00
$1,000 - $1,999.00
$2,000 - $2,999.00
$3,000 - $3,999.00
$4,000 - $5,999.00
$6,000 - $7,999.00
$8,000 - $9,999.00
$10,000 - $14,999.99
$15,000 - $19,999.99
$20,000 or Greater
Total $ 100.00%
============== ================== ======
S-17
<PAGE>
INFORMATION RELATING TO THE GUARANTEE AGENCIES
The payment of principal and interest on all of the student loans held
in the trust estate created under the indenture will be guaranteed by designated
guarantee agencies and will be reinsured by the United States Department of
Education. The guarantee provided by each guarantee agency is an obligation
solely of that guarantee agency and is not supported by the full faith and
credit of the federal or any state government. However, the Higher Education Act
provides that if the Secretary of Education determines that a guarantee agency
is unable to meet its insurance obligations, the Secretary shall assume
responsibility for all functions of the guarantee agency under its loan
insurance program. For further information on the Secretary of Education's
authority in the event a guarantee agency is unable to meet its insurance
obligations see "Description of the Guarantee Agencies" in the prospectus.
Of our student loans held in the trust estate approximately
o [__]% are guaranteed by [__], a non-profit corporation ("[__]"),
organized in [__] and guaranteeing student loans since [___], and
as of [_____] had an approximate aggregate principal amount of
loans guaranteed of $[__],
o [__]% are guaranteed by [___], an agency of [___] ("[__]"),
organized in [___] and guaranteeing student loans since [___],
and as of [____] had an approximate aggregate principal amount of
loans guaranteed of $[___],
o [___]% are guaranteed by [___], an agency of [___] ("[__]"),
organized in [___] and guaranteeing student loans since [___],
and as of [____] had an approximate aggregate principal amount of
loans guaranteed of $[___],
o and the remaining [___]% are guaranteed by one of the following
guarantee agencies: [___] and [___].
See "Description of the Guarantee Agencies" in the prospectus for more
detailed information concerning the characteristics of the guarantee agencies.
Presented below is information with respect to each guarantee agency
that we expect to guaranty 10% or more of our student loans as of ________ __,
____. Except as otherwise indicated, we have obtained the information regarding
each guarantee agency from the guarantee agency. We have not independently
verified this information.
[DESCRIPTION OF GUARANTEE AGENCY]
S-18
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges
for NELNET Student Loan Corporation-2, for each of the following periods.
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. Earnings consist of income from operations before
income taxes plus fixed charges. Fixed charges consist of interest on all
indebtedness plus amortization of debt issuance costs.
______-Month
Period from Inception
(______ __, 1999) to
_____________, 1999
Earnings ...................................... $____________
Fixed Charges.................................. _____________
Ratio ......................................... _______
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus supplement and the prospectus, including
those concerning our expectations as to our ability to purchase eligible student
loans, to structure and to issue competitive securities, our ability to pay our
notes, and certain other information presented in this prospectus supplement and
the prospectus, constitute forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results may vary
materially from such expectations. For a discussion of the factors which could
cause our actual results to differ from expectations, please see the caption
entitled "Risk Factors" in this prospectus supplement and in the prospectus.
S-19
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement dated as of __________, ____, among ourselves and the underwriters
named below, we have agreed to sell to each of the underwriters, and each of the
underwriters has agreed to purchase from us, the principal amount of the notes
set forth opposite its name.
UNDERWRITER CLASS - CLASS - CLASS - CLASS - CLASS - CLASS -
- ----------- --------- --------- --------- --------- --------- -------
Total
We have been advised by the underwriters that they propose to offer the
notes to the public initially at the respective offering prices set forth on the
cover page of this prospectus supplement. Until the distribution of notes is
completed, the rules of the SEC may limit the ability of the underwriters and
selling group members to bid for and purchase the notes. As an exception to
these rules, the underwriters are permitted to engage in transactions that
stabilize the price of the notes. These transactions consist of bids of purchase
for the purpose of pegging, fixing or maintaining the price of the notes.
Purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of the security to be higher than it might
be in the absence of those purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the notes. In addition, neither we nor
any of the underwriters make any representation that the underwriters will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
We have been advised by the underwriters that they presently intend to
make a market in the notes; however, they are not obligated to do so. In
addition, any market-making may be discontinued at any time, and an active
public market for the notes may not develop.
From time to time, the underwriters or their affiliates may perform
investment banking and advisory services for, and may provide general financing
and banking services to, our affiliates.
The underwriting agreement provides that we will indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, and we have agreed to reimburse the underwriters for the
fees and expenses of their counsel.
LEGAL MATTERS
Certain legal matters, including certain income tax matters, will be
passed upon for NELNET Student Loan Corporation-2 by Kutak Rock LLP, Denver,
Colorado. Certain legal matters will be passed upon for the underwriters by
Stroock & Stroock & Lavan LLP, New York, New York, and for NELNET Student Loan
Corporation-2 by Ballard Spahr Andrews & Ingersoll, LLP, Denver, Colorado.
S-20
<PAGE>
PROSPECTUS
NELNET STUDENT LOAN CORPORATION-2
ISSUER
$2,500,000,000
STUDENT LOAN ASSET-BACKED NOTES
We will periodically issue our notes in one or more series. The specific
terms of the notes included in each series will be described in a
supplement to this prospectus.
We will use proceeds from the sale of the notes to acquire
portfolios of student loans originated by eligible lenders under the
Federal Family Education Loan Program. Those student loans will be
pledged to a trust estate established to secure repayment of the notes.
The notes will be limited obligations of NELNET Student Loan
Corporation-2 payable solely from that trust estate.
You should read this prospectus and any prospectus supplement
carefully before you invest. This prospectus may be used to offer and
sell the notes only if it is accompanied by a prospectus supplement.
Offers of the notes may be made by different methods, including
offerings through underwriters, as more fully described under "Plan of
Distribution" below and in the related prospectus supplement. Unless
otherwise indicated for a series of the notes, the notes will not be
listed on a national securities exchange.
The date of this prospectus is January __, 2000.
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission. We may sell our notes in one or more
offerings pursuant to the registration statement up to a total dollar amount of
$2,500,000,000.
This prospectus provides you with a general description of the notes we
may offer. Each time we sell notes, we will provide a prospectus supplement
relating to the series of notes being offered that will include
o a description of the aggregate principal amount, authorized
denominations and interest rate or rates, or the manner of
determining the rate or rates, of each class of the notes to be
sold
o information concerning the student loans that will be purchased
with the proceeds of the notes
o information with respect to any notes that we have previously
issued that are secured by a common pool of assets that secure
payment of the notes described in the prospectus supplement
o information concerning the guarantee agencies providing
guarantees for the student loans that will be acquired with note
proceeds
o information with respect to any credit enhancement
o any updates or changes to the information presented in this
prospectus.
You should rely only on the information contained in or incorporated by
reference into this prospectus and any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of the notes in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date appearing on the front
cover of those documents.
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<PAGE>
---------------------------------------------------
TABLE OF CONTENTS TO PROSPECTUS
---------------------------------------------------
About This Prospectus.........................................................i
Summary of the Offering.....................................................iii
Risk Factors..................................................................1
Special Note Regarding Forward Looking Statements.............................7
Description of the Notes......................................................8
Security and Sources of Payment for the Notes................................16
Book-Entry Registration......................................................19
Additional Notes.............................................................24
Summary of the Indenture Provisions..........................................25
Description of Credit Enhancement............................................36
NELNET Student Loan Corporation-2............................................39
The Student Loan Program of NELNET Student Loan Corporation-2................41
Description of the Federal Family Education Loan Program.....................44
Description of the Guarantee Agencies........................................57
Federal Income Tax Consequences..............................................63
ERISA Considerations.........................................................67
Relationships Among Financing Participants...................................69
Plan of Distribution.........................................................69
Legal Matters................................................................70
Financial Information........................................................70
Ratings......................................................................70
Incorporation of Documents by Reference; Where to Find More Information......71
APPENDIX I- Global Clearance, Settlement and Tax Documentation Procedures...I-1
ii
<PAGE>
SUMMARY OF THE OFFERING
The following summary highlights selected information from this
prospectus but does not contain all of the information you should consider
before making an investment decision. Before deciding to purchase the notes, you
should read the more detailed information appearing in this prospectus and in
the related prospectus supplement.
OVERVIEW
We will from time to time sell classes of our notes. We will purchase pools of
student loans with the proceeds we receive from these sales. We will pledge
these student loans as collateral for our notes. Unlike other issuers that
create separate trusts each time they sell securities, all of the notes we sell
pursuant to this prospectus and a prospectus supplement will be secured by all
student loans that we purchase and pledge as collateral under the indenture,
unless we state otherwise for a particular series of the notes in a prospectus
supplement. The priority of payments among the various classes of notes we sell
will be described in the related prospectus supplement. These payments will come
principally from amounts received on the student loans.
PARTIES
NELNET Student Loan Corporation-2, a Nevada corporation, is the issuer of the
notes. You may contact us at 1801 California Street, Suite 3920, Denver,
Colorado 80202, or by phone at (303)292- 6930.
National Education Loan Network, Inc. will act as the servicer, and UNIPAC
Service Corporation, a Nebraska corporation, and InTuition, Inc., a Florida
corporation, will act as subservicers of our student loans. We may appoint other
entities to act as a servicer or subservicer of our student loans if approved by
the rating agencies rating our notes.
Zions First National Bank, will serve as the trustee under the indenture
governing the issuance of the notes. Zions Bank may be replaced by another
qualified trustee.
INTEREST RATES
The prospectus supplement will specify the interest that will be paid on our
notes. The interest rate may be fixed for the full term of the notes, or the
interest rate may be subject to periodic adjustment as described below.
AUCTION RATE CERTIFICATE NOTES. We may issue classes of notes that bear interest
at a rate determined by auction. The initial interest rate for these auction
rate certificate notes, or the method for determining the initial interest rate,
will be described in the prospectus supplement. The interest rates for the
auction rate certificate notes will be reset at the end of each interest period
pursuant to the auction procedures.
The auction procedures are summarized and an example of an auction is included
under "Description of the Notes-Auction Rate Certificate Notes."
INDEX RATE NOTES. The interest rate for some of our notes may be determined by
reference to LIBOR or by reference to United States Treasury Securities. These
notes will bear interest at an initial rate described in the prospectus
supplement. Thereafter, the interest rate for LIBOR rate notes will be
determined periodically by reference to the designated LIBOR rate, and the
interest rate for treasury rate notes will be determined periodically by
reference to the rate of interest paid on designated U.S. Treasury securities.
See "Description of the Notes-LIBOR rate notes" and "-Treasury rate notes."
ACCRUAL NOTES. We may issue one or more classes of accrual notes. Accrual notes
will not be entitled to receive payments of
iii
<PAGE>
interest during the designated accrual period. Instead, interest accrued on the
accrual notes will be capitalized and added to their principal balance. The rate
of interest to be accrued and the accrual period will be specified in the
related prospectus supplement. See "Description of the Notes-Accrual notes."
ORIGINAL ISSUE DISCOUNT NOTES. We may issue classes of notes at a discount from
the principal amount payable at maturity that pay no interest or interest at a
rate that is below market rates at the time of issuance. The interest paid these
original issue discount notes, if any, and the yield to maturity of the original
issue discount notes, will be described in the prospectus supplement. See
"Description of the Notes Original issue discount notes."
PAYMENTS ON THE NOTES
We will make payment of principal and interest due on the notes solely from the
assets held by the trustee in a trust estate created by an indenture of trust.
That trust estate will consist of a revolving pool of student loans, payments
made on the student loans and funds in accounts held by the trustee under the
indenture. Interest on the notes will be paid on the dates specified in the
prospectus supplement. The principal balance of the notes of each series will be
payable in full on the stated maturity date, unless earlier redeemed or repaid
as described in this prospectus or in the related prospectus supplement.
USE OF PRINCIPAL RECEIPTS -
THE REVOLVING PERIOD
We will deposit the net proceeds we receive from the offering of a series of the
notes into the Acquisition Fund to be used to purchase student loans on or
before a specified date. We intend to use principal payments that we receive on
the student loans to purchase additional student loans for a period of time
specified in the prospectus supplement. During this revolving period, we will
pay interest on the notes as it becomes due. However, we will not make principal
payments on the notes or redeem notes during the revolving period, unless the
terms of a series of the notes described in the prospectus supplement provide
for payments of principal or redemptions during the revolving period.
The revolving period during which we may purchase additional student loans may
be extended with the consent of the rating agencies or the provider of any
credit enhancement for the notes.
REDEMPTION PROVISIONS.
Each series of the notes will be subject to redemption as described in the
prospectus supplement. Redemption provisions that may apply to a series of the
notes are described below.
MANDATORY REDEMPTION. Once the revolving period has ended, we will be required
under the indenture to use the principal payments remaining in the Acquisition
Fund along with the principal payments that we receive on the student loans to
redeem notes.
OPTIONAL REDEMPTION. We may redeem notes in our sole discretion from interest
payments received on student loans that are not needed to pay interest on the
notes and our expenses. After a date specified in the prospectus supplement, we
may sell the student loans held in the trust estate for not less than their
principal balance plus accrued interest and use the proceeds to redeem the
outstanding notes.
EXTRAORDINARY OPTIONAL REDEMPTION. We may redeem notes in our sole discretion if
we determine that we cannot acquire additional student loans, that the rate of
return on student loans has materially decreased, or that the costs of
administering the trust estate have placed unreasonable burdens upon our ability
to perform our obligations under the indenture.
iv
<PAGE>
OPTIONAL PURCHASE. We may purchase all of the notes in our sole discretion when
the aggregate current principal balance of the notes that remain outstanding is
less than or equal to 20% of the initial aggregate principal balance of the
notes on their respective date of original issuance.
PARTIAL REDEMPTION. If less than all of the notes of any series are to be
redeemed or purchased, we will determine the classes of notes that we will
redeem. Generally, Class A notes will be redeemed before Class B notes and Class
B notes will be redeemed before Class C notes. However, we have the option of
redeeming some or all of the Class B notes before all of the Class A notes are
redeemed, and we may redeem some or all of the Class C notes before the Class A
notes and Class B notes are redeemed, if the ratio of our assets to our
liabilities exceeds levels specified in the prospectus supplement. See
"Description of the Notes-Notice and Partial Redemption of Notes" in this
prospectus.
THE STUDENT
LOANS WE PURCHASE
The student loans that we purchase will have been originated under the Federal
Family Education Loan Program to students enrolled in qualified, accredited
institutions
of higher education.
The characteristics of the portfolio of student loans we expect to acquire with
the proceeds of the notes of any series, and the characteristics of the existing
portfolio held by the trustee for us, will be described in the prospectus
supplement.
STUDENT LOAN GUARANTEES
The payment of principal and interest on all of our student loans will be
guaranteed by designated guarantee agencies and will be reinsured by the United
States Department of Education pursuant to the Higher Education Act. This
guarantee, however, is contingent upon our complying with a variety of
regulations concerning origination and servicing of the loans. Failure to follow
these regulations may result in the guarantee claim for a loan being denied.
Student loans originated prior to October 1, 1993 are fully guaranteed as to
principal and accrued interest. Student loans originated after October 1, 1993
are guaranteed as to 98% of principal and accrued interest.
The Higher Education Act provides that if the Secretary of Education determines
that a guarantee agency is unable to meet its obligations to holders of loans,
such as the trustee, then the holders may submit guarantee claims directly to
the Department of Education. The Department of Education is required to pay the
guarantee agency's full insurance obligation to the holders until the
obligations are transferred to a new guarantee agency capable of meeting the
obligations, or until a qualified successor guarantee agency assumes the
obligations. Delays in receiving reimbursement could occur if a guarantee agency
fails to meet its obligations.
SUBORDINATED NOTES
The rights of the owners of Class B notes to receive payments of principal and
interest will be subordinated to the rights of the owners of the Class A notes
to receive payments of principal and interest. The rights of the owners of Class
C notes to receive payments of principal and interest will be subordinated to
the rights of the owners of the Class B notes and the Class A notes to receive
payments of principal and interest. This subordination is intended to enhance
the likelihood that the owners of the more senior notes will regularly receive
the full amount of scheduled payments of principal and interest due them and to
protect the owners against losses.
FUNDS
REVENUE FUND. We will deposit all funds that we receive with respect to the
student
v
<PAGE>
loans in the Revenue Fund. Generally, the funds on deposit in the Revenue Fund
will be used by us to pay the fees and expenses of the trust estate and interest
and principal on the notes. We will transfer to the Acquisition Fund principal
payments we receive on the student loans. Extra amounts in the Revenue Fund will
be transferred to the Reserve Fund, to the extent of any deficiency in the
Reserve Fund.
ACQUISITION FUND. When we issue a series of notes, we will deposit into the
Acquisition Fund most of the proceeds we receive. These funds will be used to
acquire the student loans identified in the related prospectus supplement and
pay certain costs related to the issuance of the notes. We will also acquire
additional student loans during the revolving period with amounts transferred
from the Revenue Fund. After the revolving period, we will redeem notes with all
moneys remaining in the Acquisition Fund.
If moneys in the Revenue Fund are insufficient to pay interest, redeem notes, or
pay expenses, we may fund the remaining insufficiency from transfers from the
Acquisition Fund.
RESERVE FUND. When we issue a series of notes, we expect to deposit into the
Reserve Fund an amount specified in the related prospectus supplement. At any
later time, the amount required to be deposited in the Reserve Fund with respect
to the notes shall be an amount specified in a prospectus supplement.
We will use moneys in the Reserve Fund to pay interest and principal on the
notes if there are no funds left in the other funds and accounts created under
the indenture.
OPERATING FUND. When we issue a series of notes, we will deposit into the
Operating Fund an amount specified in the related prospectus supplement. Money
will also be transferred to the Operating Fund from the Revenue Fund from time
to time. These amounts will be applied to pay our administrative costs and will
not secure repayment of the notes.
CREDIT ENHANCEMENT
We may establish credit enhancement for a series of notes in the form of
insurance policies or surety bonds, subordination of certain classes or
subclasses, one or more reserve funds, letters of credit, guarantees or other
arrangements acceptable to each rating agency rating the notes to provide for
coverage of risks of defaults or losses, as described in the related prospectus
supplement. See "Description of Credit Enhancement" in this prospectus.
REPORTS TO NOTEHOLDERS
Periodic monthly reports concerning the notes and the security for the notes
will be provided to the noteholders. Those reports will not be reviewed by a
certified public accounting firm. If notes are issued in book-entry form and
registered in the name of Cede & Co., the nominee of The Depository Trust
Company, then all reports will be provided to those entities which in turn will
provide the reports to their eligible participants. Those participants will then
forward the reports to the beneficial owners of notes. See "Book-Entry
Registration" in this prospectus.
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<PAGE>
RISK FACTORS
You should consider the following factors regarding your purchase of the
notes.
THE NOTES ARE PAYABLE SOLELY FROM
THE TRUST ESTATE AND YOU WILL HAVE
NO OTHER RECOURSE AGAINST US
We will pay interest and principal on the notes solely from the funds
and assets held in the trust estate created under the indenture. No insurance or
guarantee of the notes will be provided by any government agency or
instrumentality, by any of our affiliates, by any insurance company or by any
other person or entity, except to the extent that credit enhancement is provided
for a series or class of notes as described in a prospectus supplement.
Therefore, your receipt of payments on the notes will depend solely
o on the amount and timing of payments and collections on the
student loans held in the trust estate and interest paid or
earnings on the funds held in the accounts established pursuant
to the indenture;
o amounts on deposit in the Reserve Fund and other funds held in
the trust estate; and
o any form of credit enhancement described in the prospectus
supplement.
You will have no additional recourse against us or any of our other assets if
those sources of funds for repayment of the notes are insufficient.
FAILURE TO COMPLY WITH LOAN ORIGINATION
AND SERVICING PROCEDURES FOR STUDENT
LOANS MAY RESULT IN LOSS OF GUARANTEE
AND OTHER BENEFITS
The Higher Education Act and its implementing regulations require
holders of student loans and guarantee agencies guaranteeing student loans to
follow specified procedures in making and collecting student loans.
If we fail to follow these procedures, or if any seller or any other
originator of our student loans fail to follow these procedures, the Department
of Education and the guarantee agencies may refuse to pay claims submitted by
the trustee. If the Department of Education or a guarantee agency refused to pay
a claim, it would reduce the revenues of the trust estate and impair our ability
to pay principal and interest on the notes. See "Description of the Federal
Family Education Loan Program" in this prospectus.
OTHER PERSONS MAY GAIN A
SUPERIOR SECURITY INTEREST IN THE
STUDENT LOANS
We expect to perfect the trustee's security interest in the student
loans we purchase with proceeds of the notes by having the trustee's custodian
take possession of the promissory notes relating to those student loans and by
filing financing statements. The custodian will be either a servicer or
subservicer of the student loans. If the custodian acts contrary to our
instructions and
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<PAGE>
releases the promissory notes to someone other than the trustee or the trustee's
agent, then the first priority security interest of the trustee may be released.
BANKRUPTCY OR INSOLVENCY OF
OUR PARENT OR AN AFFILIATED COMPANY
COULD RESULT IN PAYMENT DELAYS
TO YOU
NELNET Student Loan Corporation-2, is a separate subsidiary of our
parent company, National Education Loan Network, Inc. If our parent company or
another affiliated company seeks relief under the bankruptcy or related laws, a
bankruptcy court could attempt to consolidate our assets into the bankruptcy
estate of our parent or another affiliated company. If that occurs, you can
expect delays in receiving payments on your notes and even a reduction in
payments on your notes.
We have taken steps to structure our loan purchases from any seller as a
"true sale" under law. A true sale helps to establish that the loans would not
continue to be the property of the seller if the seller becomes bankrupt or
insolvent. If a court disagrees with this position, we could experience delays
in receiving payments on our student loans and you could then expect a delay in
receiving payments on your notes or even a reduction in payments on your notes.
A court could also subject the student loans to a superior tax or government
lien arising before the sale of the student loans to us.
If we purchase student loans from a bank and the bank becomes insolvent,
it would become subject to receivership by the Federal Deposit Insurance
Corporation. In that case, the FDIC could treat the transfer of the student
loans to us as a secured loan rather than as a sale. If that were to happen, we
would have only a security interest in the student loans. Nevertheless, we may
experience delays in receiving payments with respect to those loans. In
addition, the FDIC may seek a release of the loans to itself, as receiver, which
would accelerate and prepay the "loan."
THE CHARACTERISTICS OF THE PORTFOLIO OF
STUDENT LOANS HELD IN THE TRUST ESTATE
WILL CHANGE
We intend to use the principal payments that we receive on our student
loans to purchase additional student loans for the period described in a
prospectus supplement. The prospectus supplement for a series of the notes will
describe the characteristics of our student loan portfolio at that time.
However, the actual characteristics of the loans in our portfolio will change
from time to time due to factors such as repayment of the loans in the normal
course of business, sale or purchase of loans or the occurrence of delinquencies
or defaults.
Our cash flow, and our ability to make payments due on our notes will be
reduced to the extent interest is not currently payable on our student loans.
The borrowers on most student loans are not required to make payments during the
period in which they are in school and for certain authorized periods thereafter
as described in the Higher Education Act. The Department of Education will make
all interest payments while payments are deferred under the Higher Education Act
on certain of the student loans. For all other student loans, interest generally
will be capitalized and added to the principal balance of the loans. The trust
estate will consist of student loans for which payments are deferred as well as
student loans for which the borrower is currently required to make payments of
principal and interest. The proportions of the loans in
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our portfolio for which payments are deferred and currently in repayment will
vary during the period that the notes are outstanding.
IF THE PAYMENTS WE RECEIVE ON OUR
STUDENT LOANS ARE DIFFERENT FROM
THE PAYMENTS THAT ARE ACTUALLY DUE
WE MAY NOT BE ABLE TO PAY OUR NOTES
For a variety of economic, social and other reasons, we may not receive
all the payments that are actually due on our student loans. Failures by
borrowers to make timely payments of the principal and interest due on the loans
will affect the revenues of the trust estate, which may reduce the amounts
available to pay principal and interest due on the notes.
THE RATE OF PAYMENTS ON OUR STUDENT
LOANS MAY AFFECT THE MATURITY AND
YIELD OF THE NOTES
Our student loans may be prepaid at any time without penalty. If we
receive prepayments on our student loans and are not able to purchase additional
student loans, we will use those amounts to redeem notes, which could shorten
the average life of each class of the notes. Factors affecting prepayment of
loans include general economic conditions, prevailing interest rates and changes
in the borrower's job, including transfers and unemployment. Refinancing
opportunities which may provide more favorable repayment terms, including those
offered under consolidation loan programs like the federal direct consolidation
loan program, also affect prepayment rates. We do not have sufficient
information to be able to estimate the rate of prepayment with respect to the
student loans in the trust estate.
Scheduled payments with respect to, and the maturities of, our student
loans may be extended as authorized by the Higher Education Act. Also, periods
of forbearance or refinancings through consolidation loans having longer
maturities may lengthen the remaining term of the loans and the average life of
each class of notes. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of loans will be borne entirely by you.
The rate of principal payments to you on the notes and the yield to
maturity of the notes will be directly related to the rate of payments of
principal on our student loans. Changes in the rate of prepayments may
significantly affect your actual yield to maturity, even if the average rate of
principal prepayments is consistent with your expectations. In general, the
earlier a prepayment of principal of a loan, the greater the effect on your
yield to maturity. The effect on your yield as a result of principal payments
occurring at a rate higher or lower than the rate anticipated by you during the
period immediately following the issuance of the notes will not be offset by a
subsequent like reduction, or increase, in the rate of principal payments.
OUR STUDENT LOANS ARE UNSECURED
AND THE ABILITY OF THE GUARANTEE AGENCIES TO
HONOR THEIR GUARANTEES MAY BECOME IMPAIRED
The Higher Education Act requires that all student loans be unsecured.
As a result, the only security for payment of our student loans are the
guarantees provided by the guarantee agencies.
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A deterioration in the financial status of a guarantee agency and its
ability to honor guarantee claims on defaulted student loans could delay or
impair the guarantee agency's ability to make claims payments to the trustee.
The financial condition of a guarantee agency can be adversely affected if it
submits a large number of reimbursement claims to the Department of Education,
which results in a reduction of the amount of reimbursement that the Department
of Education is obligated to pay the guarantee agency. The Department of
Education may also require a guarantee agency to return its reserve funds to the
Department of Education upon a finding that the reserves are unnecessary for the
guarantee agency to pay its program expenses or to serve the best interests of
the federal student loan program. The inability of any guarantee agency to meet
its guarantee obligations could reduce the amount of principal and interest paid
to you as the owner of the notes or delay those payments past their due date.
If the Department of Education has determined that a guarantee agency is
unable to meet its guarantee obligations, the loan holder may submit claims
directly to the Department of Education and the Department of Education is
required to pay the full guaranty claim amount due with respect thereto. See
"Description of the Guarantee Agencies" in this prospectus. However, the
Department of Education's obligation to pay guarantee claims directly in this
fashion is contingent upon the Department of Education making the determination
that a guarantee agency is unable to meet its guarantee obligations. The
Department of Education may not ever make this determination with respect to a
guarantee agency and, even if the Department of Education does make this
determination, payment of the guarantee claims may not be made in a timely
manner.
IF WE CANNOT PURCHASE STUDENT LOANS,
WE WILL REDEEM OUR NOTES
We expect to use the proceeds of the notes to acquire portfolios of
student loans and to use principal receipts from our student loans to acquire
additional student loans from sellers from time to time. We also expect that
each seller will be able to make certain representations and warranties with
respect to each student loan and that we will be able to maintain certain
overall portfolio characteristics in connection with these acquisitions. If the
sellers do not deliver the student loans, or if we are not able to use note
proceeds or principal payments that we receive on our student loans to purchase
additional loans that meet our requirements, we will use those amounts to redeem
your notes.
Each student loan purchase agreement requires the seller to repurchase
its loans if the representations and warranties made by the seller prove not to
be true or if a claim for a loan is denied because of events occurring before
the sale. We cannot be certain, however, that a seller will be financially able
to repurchase loans if called upon to do so.
CONGRESSIONAL ACTIONS MAY AFFECT
OUR STUDENT LOAN PORTFOLIO
The Department of Education's authority to provide interest subsidies
and federal insurance for loans originated under the Higher Education Act
terminates on a date specified in the Higher Education Act. The Higher Education
Act Amendments of 1998 extended the principal provisions of the Federal Family
Education Loan Program to loans made on or before September 30, 2004. While
Congress has consistently extended the effective date of the Higher Education
Act and the Federal Family Education Loan Program, it may elect not to
reauthorize the Department's ability to provide interest subsidies and federal
insurance for loans. While this
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failure to reauthorize would not affect the student loans we then owned, it
would reduce the number of loans available for us to purchase in the future.
Funds for payment of interest subsidies and other payments under the
Federal Family Education Loan Program are subject to annual budgetary
appropriation by Congress. In recent years, federal budget legislation has
contained provisions that restricted payments made under the Federal Family
Education Loan Program to achieve reductions in federal spending. Future federal
budget legislation may adversely affect expenditures by the Department of
Education, and the financial condition of the guarantee agencies.
Congressional amendments to the Higher Education Act or other relevant
federal laws, and rules and regulations promulgated by the Secretary of
Education, may adversely impact holders of student loans. For example, changes
might be made to the rate of interest paid on student loans, to the level of
insurance provided by guarantee agencies or to the servicing requirements for
student loans. See "Description of the Federal Family Education Loan Program"
and "Description of the Guarantee Agencies" in this prospectus.
COMPETITION CREATED BY THE FEDERAL
DIRECT STUDENT LOAN PROGRAM MAY
IMPACT OUR STUDENT LOAN PROGRAM
In 1992, Congress created the Federal Direct Student Loan Program. Under
this program, the Department of Education makes loans directly to student
borrowers through the educational institutions that they attend. The volume of
student loans made under the Federal Family Education Loan Program and available
to us for purchase may be reduced to the extent loans are made to students under
the Federal Direct Student Loan Program. If the Federal Direct Student Loan
Program expands, our servicer may experience increased costs due to reduced
economies of scale to the extent the volume of loans serviced by the servicer is
reduced. Those cost increases could affect the ability of the servicer to
satisfy its obligations to service our student loans. Loan volume reductions
could further reduce revenues received by the guarantee agencies available to
pay claims on defaulted student loans. The level of competition currently in
existence in the secondary market for loans made under the Federal Family
Education Loan Program could be reduced, resulting in fewer potential buyers of
student loans and lower prices available in the secondary market for those
loans. The Department of Education is implementing a direct consolidation loan
program, which may further reduce the volume of Federal Family Education Loan
Program loans available to purchase and may increase the rate of repayment of
our student loans. See "Description of the Federal Family Education Loan
Program" in this prospectus.
THE CLASS B AND CLASS C
NOTES ARE SUBORDINATED TO
THE CLASS A NOTES
Payments of interest and principal on the Class B and Class C notes are
subordinated in priority of payment to payments of interest and principal due on
the Class A notes and payments of interest and principal on the Class C notes
are subordinated in priority of payment to payments of interest and principal
due on the Class B notes. Under certain redemption situations, principal on
Class B notes may be redeemed while Class A notes remain outstanding and the
principal on the Class C notes may be redeemed while the Class A notes and
certain of the Class B notes remain outstanding. See "Description of the
Notes-Notice and Partial Redemption of Notes." Class B notes are also
subordinated to the Class A notes and the Class C notes are also subordinate to
the Class B notes as to the direction of remedies upon an event of default. The
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trust estate will not have any significant assets or sources of funds other than
from payments with respect to the student loans, the Reserve Fund and other
funds created under the indenture.
WE MAY ISSUE ADDITIONAL NOTES
SECURED BY THE TRUST ESTATE
We may issue additional notes that are secured by the same trust estate
that is securing your notes pursuant to a supplemental indenture, without the
consent or approval of the owners of any notes then outstanding. Those
additional notes may be issued on a parity with or subordinate to any of the
Class A notes and senior to, on a parity with or subordinate to the Class B or
Class C notes. However, before issuing additional notes, we must receive written
evidence from each rating agency then rating any outstanding notes that the
rating or ratings will not be reduced or withdrawn as a result of the issuance
of the proposed additional notes. See "Additional Notes" in this prospectus.
DIFFERENT RATES OF CHANGE IN INTEREST RATE INDEXES MAY AFFECT OUR CASH FLOW
The interest rates on our notes may fluctuate from one interest period
to another in response to changes in LIBOR or Treasury security rates or as a
result of the auction procedures described in this prospectus. Our student loans
bear interest at the rates which are generally based upon the bond equivalent
yield of the 91 day Treasury Bill rate. See "Description of the Federal Family
Education Loan Program" in this prospectus. If there is a decline in the rates
payable on our student loans, the amount of funds representing interest
deposited into the Revenue Fund may be reduced. If the interest rates payable on
our notes do not decline in a similar manner and time, we may not have
sufficient funds to pay interest on the notes when it becomes due. Even if there
is a similar reduction in the rates applicable to of the notes, there may not
necessarily be a reduction in the other amounts required to be paid out of the
trust estate, such as administrative expenses, causing interest payments to be
deferred to future periods. Sufficient funds may not be available in future
periods to make up for any shortfalls in the current payments of interest on the
notes or expenses of the trust estate.
THE NOTES MAY BE ISSUED ONLY IN BOOK-ENTRY FORM
We expect that each class of notes of any series will be initially
represented by one or more certificates registered in the name of Cede & Co.,
the nominee for The Depository Trust Company, and will not be registered in your
name or the name of your nominee. If we elect to issue definitive notes
registered in the name of the holder in connection with the sale of a class or
series of the notes, we will so state in the related prospectus supplement
unless and until definitive securities are issued, holders of the notes will not
be recognized by the trustee as registered owners as that term is used in the
indenture. Until definitive securities are issued, holders of the notes will
only be able to exercise the rights of registered owners indirectly through
Depository Trust Company and its participating organizations. See "Book-Entry
Registration" in this prospectus.
THE RATINGS OF THE NOTES ARE NOT A RECOMMENDATION
TO PURCHASE AND MAY CHANGE
It is a condition to our issuance of the notes that they be rated as
indicated in the related prospectus supplement. Ratings are based primarily on
the creditworthiness of the underlying the student loans, the level of
subordination, the amount of credit enhancement and the legal structure of the
transaction. The ratings are not a recommendation to you to purchase, hold or
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<PAGE>
sell any class of notes inasmuch as the ratings do not comment as to the market
price or suitability for you as an investor. An additional rating agency may
rate the notes, and that rating may not be equivalent to the initial rating
described in the related prospectus supplement. Ratings may be lowered or
withdrawn by any rating agency if in the rating agency's judgment circumstances
so warrant.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus and the prospectus supplement, including
those concerning our expectations as to our ability to purchase eligible student
loans, to structure and to issue competitive securities, and certain of the
information presented in this prospectus and the prospectus supplement,
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results may vary materially
from our expectations. For a discussion of the factors which could cause actual
results to differ from expectations, please see the caption entitled "Risk
Factors" in this prospectus and in the prospectus supplement.
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DESCRIPTION OF THE NOTES
The notes of each series will be issued pursuant to the indenture and
related supplemental indenture of trust that we will enter into with the
trustee.
The following description of the notes is only a summary of their
principal terms. It is not complete. You should refer to the provisions of the
indenture and related supplemental indenture for a complete description of the
terms of the notes. Definitions of some of the terms used in this description
can be found in the Glossary of Terms appearing at page ___ of this prospectus.
FIXED RATE NOTES
The fixed rate notes will have a stated maturity set forth in the
applicable prospectus supplement. The notes will bear interest from the date and
at the rate per annum specified in the applicable prospectus supplement. The
dates on which the holders of fixed rate notes will receive payments of
principal and interest will be specified in the applicable prospectus
supplement.
AUCTION RATE CERTIFICATE NOTES
The auction rate certificate notes will have a stated maturity set forth
in the applicable prospectus supplement and will bear interest at the rate per
annum specified in the prospectus supplement through the first auction date. The
interest period for auction rate certificate notes will initially consist of a
number of days set forth in the applicable prospectus supplement. The interest
rate for the auction rate certificate notes will be reset at the interest rate
determined pursuant to the auction procedures described below, but the rate will
not exceed the maximum auction rate per annum set forth in the applicable
prospectus supplement. Interest on the auction rate certificate notes will
accrue daily and will be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days or 365 days as specified in the
prospectus supplement. Interest on the auction rate certificate notes will be
payable on the first business day following the expiration of each interest
period for the notes.
DETERMINATION OF NOTE INTEREST RATE. The procedures that will be used in
determining the interest rates on the auction rate certificate notes are
summarized in the following paragraphs.
The interest rate on each class of auction rate certificate notes will
be determined periodically 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 certificate notes they
wish to buy, hold or sell at various interest rates. The broker-dealers submit
their clients' orders to the auction agent. The auction agent 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
certificate notes. Auction rate certificate notes will be purchased and sold
between investors and potential investors at a price equal to their
then-outstanding principal balance plus any accrued interest. Bankers Trust
Company has been appointed to serve as initial auction agent for the auction
rate certificate notes and PaineWebber Incorporated has agreed to serve as a
broker-dealer.
In the auction, the following types of orders may be submitted:
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o "bid/hold orders" - specify the minimum interest rate that a
current investor is willing to accept in order to continue to
hold auction rate certificate notes for the upcoming interest
period;
o "sell orders" - an order by a current investor to sell a
specified principal amount of auction rate certificate notes,
regardless of the upcoming interest rate; and
o "potential bid orders" - specify the minimum interest rate that a
potential investor, or a current investor wishing to purchase
additional auction rate certificate notes, is willing to accept
in order to buy a specified principal amount of auction rate
certificate notes.
If an existing investor does not submit orders with respect to all its
auction rate certificate notes, the investor will be deemed to have submitted a
hold order at the new interest rate for that portion of the auction rate
certificate notes for which no order was received.
The following example helps illustrate how the auction procedures are
used in determining the interest rate on the auction rate certificate notes.
(a) Assumptions:
1. Denominations (Units) = $50,000
2. Interest period = 28 days
3. Principal amount outstanding = $50 Million (1000 Units)
(b) Summary of all orders received for the auction
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
20 Units at 2.90% 100 Units Sell 40 Units at 2.95%
60 Units at 3.02% 100 Units Sell 60 Units at 3.00%
120 Units at 3.05% 200 Units Sell 100 Units at 3.05%
==============
200 Units at 3.10% 400 Units 100 Units at 3.10%
200 Units at 3.12% 100 Units at 3.11%
==================
600 Units 100 Units at 3.14%
200 Units at 3.15%
700 Units
The total units under bid/hold orders and sell orders always equal the
issue size (in this case 1000 units).
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(c) Auction agent organizes orders in ascending order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative
NUMBER OF UNITS TOTAL (UNITS) PERCENT NUMBER of UNITS TOTAL PERCENT
(UNITS)
<S> <C> <C> <C> <C> <C> <C> <C>
1. 20(W) 20 2.90% 7. 200(W) 600 3.10%
2. 40(W) 60 2.95% 8. 100(W) 700 3.10%
3. 60(W) 120 3.00% 9. 100(W) 800 3.11%
4. 60(W) 180 3.02% 10. 200(W) 1000 3.12%
5. 100(W) 280 3.05% 11. 100(L) 3.14%
6. 120(W) 400 3.05% 12. 200(L) 3.15%
(W) Winning Order (L) Losing Order
</TABLE>
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 period, at the end of which another auction
will be held. Multiple orders at the winning rate are allocated units on a pro
rata basis. Regardless of the results of the auction, the interest rate will not
exceed the maximum auction rate specified in the applicable prospectus
supplement.
The example assumes that a successful auction has occurred, that is,
that all sell orders and all bid/hold orders below the new interest rate were
fulfilled. However, there may be insufficient potential bid orders to purchase
all the auction rate certificate notes offered for sale. In these circumstances,
the interest rate for the upcoming interest period will equal the maximum
auction rate. Also, if all the auction rate certificate notes are subject to
hold orders (i.e., each holder of auction rate certificate notes wishes to
continue holding its auction rate certificate notes, regardless of the interest
rate), the interest rate for the upcoming interest period will equal the all
hold rate, which is the LIBOR rate for a period comparable to the auction period
less 0.20%.
If a payment default has occurred, the rate will be the non-payment
rate, which is the one-month LIBOR rate plus 1.50%.
MAXIMUM AUCTION RATE AND INTEREST CARRY-OVERS. If the auction rate for a
class of auction rate certificate notes is greater than the applicable maximum
auction rate, then the interest rate applicable to those auction rate
certificate notes will be the applicable maximum auction rate. If that occurs,
the difference between the auction rate and the maximum auction rate will be
carried over for that class of auction rate certificate notes. The carry-over
amount will bear interest calculated at the one-month LIBOR rate, until paid.
The carry-over amount, and interest accrued thereon, for a class of
auction rate certificate notes will be paid by the trustee on the date of
defeasance of the auction rate certificate notes or an interest payment date if
there are sufficient moneys in the Revenue Fund to pay all interest due on the
notes on that interest payment date and in the case of subordinate notes,
payment of the interest carryover on more senior notes. Any carry-over amount,
and any interest accrued on that carry-over amount, due on any auction rate
certificate note which is to be redeemed will be paid to the registered owner on
the redemption date to the extent that moneys are available. Any carry-over
amount, and any interest accrued on that carry-over amount, which is not yet due
and
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payable on a date on which an auction rate certificate note is to be redeemed
will be canceled and will not be paid.
CHANGES IN AUCTION PERIOD. We may, from time to time, change the length
of the auction period for a class of auction rate certificate notes 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
certificate notes. We will initiate the auction period adjustment by giving
written notice to the trustee, the auction agent, the market agent, each rating
agency and the registered owners of the notes at least 10 days prior to auction
date for the notes. Any adjusted auction period will be at least 7 days but not
more than 366 days. The auction period adjustment will take effect only if
approved by the market agent and if the auction agent receives orders sufficient
to complete the auction for the new auction period at a rate of interest below
the maximum auction rate.
CHANGES IN THE AUCTION DATE. The market agent, with the written consent
of NELNET Student Loan Corporation-2, may specify a different auction date for a
class of auction rate certificate notes 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 auction date for the auction rate certificate notes. If NELNET
Student Loan Corporation-2 consents to the change, the market agent will provide
notice of its determination to specify an earlier auction date in writing at
least 10 days prior to the proposed changed auction date to the trustee, the
auction agent, NELNET Student Loan Corporation-2, each rating agency and the
registered owner.
LIBOR RATE NOTES
The LIBOR rate notes will be dated their date of issuance and will have
a stated maturity set forth in the applicable prospectus supplement. Interest on
the LIBOR rate notes be paid in arrears on each interest payment date. The
interest payment date for the LIBOR rate notes will be the first business day
following the end of the interest period for the notes specified in the
applicable prospectus supplement, unless another date is specified in the
prospectus supplement. The amount of interest payable to registered owners of
LIBOR rate notes for any interest period will be calculated by the trustee on
the basis of a 360-day year for the number of days actually elapsed.
The rate of interest on the LIBOR rate notes for each interest period
will be determined by a calculation agent. NELNET Student Loan Corporation-2,
has initially appointed PaineWebber Incorporated to serve as the calculation
agent. The interest rate will be the LIBOR rate for the interest period for the
notes plus the margin specified in the related prospectus supplement.
The interest rate payable on the LIBOR rate notes cannot exceed the
adjusted student loan rate. The adjusted student loan rate is the percentage
equivalent of a fraction
o The numerator of which is equal to the sum of the
expected interest collections on our student loans and
reciprocal payments we receive on a derivative product,
if any, less the sum of the servicing fee, the
administration fee, and reciprocal payments we make on
derivative products, if any, with respect to an interest
period; and
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o The denominator of which is the aggregate principal
amount of the notes as of the last day of the interest
period.
With respect to any interest period, expected interest collections include
o the amount of interest accrued with respect to the student loans
for the interest period preceding the applicable interest payment
date, whether or not that interest is actually paid,
o all interest subsidy payments and special allowance payments
estimated to have accrued for the interest period preceding the
applicable interest payment date, whether or not actually
received; and
o investment earnings on assets in the trust estate for the
interest period preceding the applicable interest payment date.
If the interest rate for LIBOR rate notes determined by the calculation
agent is greater than the adjusted student loan rate, the difference will be
carried forward and paid when moneys are available in the Revenue Fund. However,
no interest carry-over will be payable unless the aggregate value of our student
loans and other assets in the trust estate exceeds the principal balance of the
outstanding notes issued under the indenture. Any interest carry-over will be
payable on an interest payment date, but only out of funds remaining in the
Revenue Fund after payment of all interest due on the notes, and in the case of
subordinate notes, payment of the interest carryover on more senior notes.
TREASURY RATE NOTES
The treasury rate notes will be dated their date of issuance and will
have a stated maturity set forth in the applicable prospectus supplement.
Interest on the treasury rate notes will be paid in arrears on each interest
payment date. An interest payment date for the treasury rate notes means the
first business day following the end of the interest period specified in the
applicable prospectus supplement, unless another date is specified in the
prospectus supplement.
The amount of interest payable on the treasury rate notes will generally
be adjusted weekly on the calendar day following each auction of 91-day Treasury
Bills which are direct obligations of the United States with a maturity of 13
weeks. The rate will be calculated by a calculation agent to be the sum of the
bond equivalent yield for auctions of 91-day Treasury Bills on a rate
determination date for an interest period, plus a spread described in the
related prospectus supplement. Interest on the treasury rate notes will be
computed for the actual number of days elapsed on the basis of a year consisting
of 365 or 366 days, as applicable.
The interest rate payable on the treasury rate notes for any interest
period cannot at any time exceed the adjusted student loan rate. The adjusted
student loan rate is the percentage equivalent of a fraction
o The numerator of which is equal to the sum of the expected
interest collections and reciprocal payments that we
receive on a derivative product, if any, less the sum of
the servicing fee, the administration fee, and reciprocal
payments we make on any derivative product, if any, with
respect to an interest period; and
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o The denominator of which is the aggregate principal
amount of the notes as of the last day of the interest
period.
With respect to any interest period, expected interest collections include
o the amount of interest accrued with respect to the student loans
for the interest period preceding the applicable interest payment
date, whether or not such interest is actually paid,
o all interest subsidy payments and special allowance payments
estimated to have accrued for the interest period preceding the
applicable interest payment date, whether or not actually
received; and
o investment earnings on assets in the trust estate for the
interest period preceding the applicable interest payment date.
If the rate determined by the calculation agent for the treasury rate
notes is greater than the maximum interest rate specified in the prospectus
supplement, the difference will be carried forward and paid when moneys are
available in the Revenue Fund. However, no interest carry-over will be payable
unless the aggregate value of our student loans and other assets included in the
trust estate exceeds the principal balance of our outstanding notes issued under
the indenture. Any interest carry-over will be payable on an interest payment
date, but only out of funds remaining in the Revenue Fund after payment of all
interest due on the notes, and in the case of subordinate notes, payment of the
interest carryover on more senior notes.
ACCRUAL NOTES
Accrual notes will be entitled to payments of accrued interest
commencing only on the interest payment date, or under the circumstances
specified in the related prospectus supplement. Prior to the time interest is
payable on any class of accrual notes, the amount of accrued interest will be
added to the note principal balance thereof on each interest payment date. The
principal balance of the accrual notes will begin to be paid from available
funds received with respect to the student loans after the date that accrued
interest is no longer being added to the principal balance of the notes. Accrued
interest for each interest payment date will be equal to interest at the
applicable interest rate accrued for a specified period (generally the period
between interest payment dates) on the outstanding note principal balance
thereof immediately prior to such interest payment date.
ORIGINAL ISSUE DISCOUNT NOTES
Original issue discount notes will have a stated maturity set forth in
the applicable prospectus supplement. The notes will be issued at a discount
from the principal amount payable at maturity. The notes may have a "zero
coupon" and currently pay no interest, or may pay interest at a rate that is
below market rates at the time of issuance. For original issue discount notes,
all or some portion of the interest due will accrue during the life of the note
and be paid only at maturity or upon earlier redemption. Upon redemption or
optional purchase, the amount payable on an original issue discount note will be
determined as described under the heading "Description of the Notes - Redemption
Price." Each holder of an original issue discount note will be required to
include in current income a ratable portion of the original issue discount, even
though the holder may not receive any payment of interest during the period. See
"Federal
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Income Tax Consequences - Taxation of Interest Income of Registered Owners" in
this prospectus.
PAYMENTS OF THE NOTES
The principal of the notes due at maturity or redemption in whole will
be payable at the principal office of the trustee upon presentation and
surrender of the notes. Payment of principal on any notes in connection with a
partial redemption and all interest payments will be made to the registered
owner by check or draft mailed on the interest payment date by the trustee to
the registered owner at his address as it last appears on the registration books
kept by the trustee at the close of business on the record date for such
interest payment date. If interest is not timely paid, it will be paid to the
registered owner of the notes as of the close of business on a special record
date for payment of any of the defaulted interest. A special record date will be
fixed by the trustee whenever moneys become available for payment of the
defaulted interest, and notice of the special record date will be given to the
registered owners of the notes. Payment of principal and interest to a
securities depository or its nominee, and to any other registered owner owning
at least $1,000,000 principal amount of the notes upon written request delivered
to the trustee, will be paid by wire transfer within the United States to the
bank account number filed no later than the record date or special record date
with the trustee. All payments on the notes will be made in United States
dollars.
REVOLVING PERIOD
We intend to use principal payments that we receive on the student loans
to purchase additional student loans for a period of time specified in the
prospectus supplement. During the revolving period, we will pay interest on the
notes as it becomes due. However, we will not make principal payments on the
notes or redeem notes during the revolving period, unless the terms of a series
of the notes described in the prospectus supplement provide for principal
payments or redemptions. The revolving period during which we may purchase
additional student loans may be extended with the consent of the rating agencies
providing ratings for our notes or the provider of any credit enhancement for
the notes. The revolving period may also be extended if we file with the trustee
a certificate that the balances on hand may be invested at a rate of return
which, together with other available revenues and cash balances, will produce
sufficient cash flows to permit the timely retirement of the notes, and the
trustee shall have received an approving opinion of counsel.
MANDATORY REDEMPTION
The notes of a series are subject to mandatory redemption, in whole or
in part, on the first interest payment date after the end of the revolving
period if so provided in the applicable prospectus supplement. Redemptions will
be made from principal payments received on the student loans and other excess
revenues on deposit in the Acquisition Fund. The notes of a series are also
subject to mandatory redemption on the interest payment date specified with
respect to the series in the related prospectus supplement, in an amount equal
to the proceeds from sale of the notes, if any, not previously used to purchase
student loans that are held in the Acquisition Fund. We will not be obligated to
mandatorily redeem notes with funds on deposit in the Acquisition Fund if we
file with the trustee a certificate that the balances may be invested at a rate
of return until a subsequent interest payment date which, together with other
available revenues and cash balances, will produce sufficient cash flows to
permit the timely retirement of the notes, and the trustee shall have received
an approving opinion of counsel. Mandatory redemptions will be made solely from
moneys available for redemption in the Acquisition Fund
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and only as provided above in this paragraph. We are not required to provide any
direction to the trustee with respect to a mandatory redemption.
See "Notice and Partial Redemption of Notes" below for a discussion of
the order in which notes of any series will be redeemed.
OPTIONAL REDEMPTION
The notes of a series are subject to redemption AT OUR SOLE DISCRETION,
if so provided in the applicable prospectus supplement, from funds received by
the trustee constituting interest on student loans remaining in the Revenue Fund
after all other prior required payments have been made. The notes may be
optionally redeemed in whole or in part, on or after the date set forth in the
prospectus supplement. Any limitations on optional redemptions of the notes of
any series will be described in the prospectus supplement related to that
series. See "Notice and Partial Redemption of Notes" below for a discussion of
the order in which notes will be redeemed.
If so provided in the related prospectus supplement, all remaining
student loans held in the trust estate may be offered for sale by the trustee on
any interest payment date occurring on or after a date specified in the
prospectus supplement. The initial seller of the student loans and unrelated
third parties may offer bids for the student loans. The trustee will accept the
highest bid equal to or in excess of the aggregate principal plus accrued
interest of the student loans as of the end of the collection period immediately
preceding the related interest payment date. The proceeds of the sale will be
used to redeem all outstanding notes.
EXTRAORDINARY OPTIONAL REDEMPTION
The notes of a series are also subject to extraordinary optional
redemption, AT OUR SOLE DISCRETION, if so provided in the prospectus supplement,
from any unallocated and available moneys remaining in the trust estate, on any
interest payment date, if we reasonably determine that we are unable to acquire
additional student loans, that the rate of return on the student loans has
materially decreased, or that the costs of administering the trust estate have
placed unreasonable burdens upon our ability to perform our obligations under
the indenture. An extraordinary optional redemption of the notes may be made in
whole or in part. See "Notice and Partial Redemption of Notes" below for a
discussion of the order in which the notes will be redeemed. We expect to
exercise the extraordinary option to redeem notes only if changes are made to
the Higher Education Act or changes occur in the financial markets or student
loan markets that we deem to be materially adverse to the trust estate. In
determining whether to exercise the extraordinary optional redemption provision,
we will consider all of the facts and circumstances that exist at the time,
including any changes to the Higher Education Act which would be materially
adverse to the trust estate such that the noteholders of any or all series, in
our reasonable determination, would suffer a loss or material delay in the
receipt of principal or interest payments when due if the trustee were to
continue acquiring student loans from moneys on deposit in the Acquisition Fund.
OPTIONAL PURCHASE
If so provided in the related prospectus supplement, we may purchase or
cause to be purchased, AT OUR SOLE DISCRETION, all of the notes of a series on
any interest payment date on which the aggregate current principal balance of
the notes is less than or equal to 20% of the initial aggregate principal
balance of the notes on their date of issuance. The purchase will occur on the
interest payment date following the date on which funds sufficient to pay the
purchase
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price are deposited with the trustee. All notes which are purchased shall be
canceled by the trustee and be disposed of in a manner satisfactory to the
trustee and NELNET Student Loan Corporation-2.
REDEMPTION OR PURCHASE PRICE
Upon redemption or optional purchase, the price to be paid to the holder
of a note, other than an original issue discount note, will be an amount equal
to the aggregate current principal balance plus accrued interest. If a Note is
an original issue discount note, the amount payable upon redemption or optional
purchase will be the amortized face amount on the redemption or purchase date.
The amortized face value of an original issue discount note will be equal to the
issue price plus that portion of the difference between the issue price and the
principal amount of the note that has accrued at the yield to the maturity
described in the prospectus supplement by the redemption or purchase date. The
amortized face value of an original issue discount note will never be greater
than its principal amount.
NOTICE AND PARTIAL REDEMPTION OF NOTES
The trustee will provide notice of any redemption or purchase by mailing
a copy of the redemption or purchase notice to the registered owner of any note
being redeemed or purchased, and to the auction agent with respect to the
auction rate certificate notes designated for redemption or purchase, not less
than 15 days prior to the redemption or purchase date.
If less than all of the notes of any series are to be redeemed or
purchased, we will determine the notes of each class of that series to be
redeemed or purchased. Generally, all of the Class A notes will be redeemed
prior to redemption of any Class B notes, and all of the Class B notes will be
redeemed before any of the Class C notes are redeemed. However, we may redeem
Class B notes while Class A notes remain outstanding if after the redemption of
the Class B notes, the aggregate market value of the assets held in the trust
estate will equal the percentage of all Class A notes then outstanding under the
indenture that is specified in a prospectus supplement. Similarly, we may redeem
Class C notes while Class A notes and Class B notes remain outstanding if after
the redemption of the Class C notes, the aggregate market value of the assets
held in the trust estate will equal the percentage of all Class A notes and
Class B notes then outstanding under the indenture that is specified in a
prospectus supplement.
SECURITY AND SOURCES OF PAYMENT FOR THE NOTES
GENERAL
The notes are limited obligations of NELNET Student Loan Corporation-2,
secured by and payable solely from the trust estate. The following assets serve
as security for the notes:
o revenues, consisting of all principal and interest payments,
proceeds, charges and other income received by the trustee or
NELNET Student Loan Corporation-2, on account of any student
loan, including interest benefit payments and any special
allowance payments with respect to any student loan, and
investment income from all funds created under the indenture and
any proceeds from the sale or other disposition of the student
loans;
o all moneys and investments held in the funds created under the
indenture; and
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o student loans purchased with money from the Acquisition Fund or
otherwise acquired or originated and pledged or credited to the
Acquisition Fund.
In addition, the trust estate may include rights that provide credit
enhancement (for example, the right to draw under any letter of credit or note
insurance) as described in this prospectus and in the related prospectus
supplement.
FLOW OF FUNDS
The following funds will be created by the trustee under the indenture
for the benefit of the registered owners:
o Revenue Fund
o Acquisition Fund
o Reserve Fund
An Operating Fund was established separately by NELNET Student Loan
Corporation-2, and does not constitute security for the notes under the
indenture. Neither the trustee nor the registered owners have any right, title
or interest in the Operating Fund.
All funds received with respect to the student loans are initially
deposited in the Revenue Fund and allocated between principal and interest. The
principal portion is subsequently transferred to the Acquisition Fund.
ACQUISITION FUND; PURCHASE AND SALE OF STUDENT LOANS
We will deposit proceeds from the sale of any notes into the Acquisition
Fund. Money may also be transferred to the Acquisition Fund from the Revenue
Fund. Student loans pledged to the trust estate will be held by the trustee or
its agent or bailee and accounted for as a part of the Acquisition Fund.
Money on deposit in the Acquisition Fund will be used to pay costs of
issuance of the notes, to redeem notes in accordance with the provisions of any
supplemental indenture, and to acquire student loans. See "Description of the
Notes - Revolving Period." If we determine that money held in the Acquisition
Fund cannot be used to purchase additional student loans, then we may redeem
notes in accordance with any supplemental indenture. See "Description of the
Notes - Mandatory Redemption."
If on any note payment date the money on deposit in the Revenue Fund is
not sufficient to make payments of principal and interest due on the notes, then
the amount of the deficiency will be transferred from money available in the
Acquisition Fund.
The trustee will be the legal owner of the student loans pledged to the
trust estate and will have a security interest in the student loans for and on
behalf of the registered owners. The student loans will be held in the name of
the trustee for the account of NELNET Student Loan Corporation-2, but for the
benefit of the registered owners.
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REVENUE FUND
The trustee will deposit into the Revenue Fund all revenues derived from
student loans, from money or assets on deposit in the Acquisition Fund or the
Reserve Fund, from reciprocal payments on derivative products and any other
amounts as we may direct.
On each note payment date and derivative payment date, money in the
Revenue Fund will be used and transferred to other funds or persons in the
following order:
o on a parity basis, to pay interest due on any Class A notes and
any derivative payment that is due and secured on a parity with
the Class A notes;
o on a parity basis, to pay the principal of or premium, if any,
due on any Class A notes;
o on a parity basis, to pay interest due on any Class B notes and
any derivative payment that is due and secured on a parity with
the Class B notes;
o on a parity basis, to pay the principal of or premium, if any,
due on any Class B notes;
o on a parity basis, to pay interest due on Class C notes and to
make any derivative payment due and secured on a parity with the
Class C notes;
o on a parity basis, to pay the principal of or premium, if any,
due on any Class C notes;
o to the Reserve Fund the amount, if any, described under the
heading "Reserve Fund" below;
o at the option of NELNET Student Loan Corporation-2, to the
Acquisition Fund; and
o to NELNET Student Loan Corporation-2 at its option and to the
extent permitted under the indenture.
We may transfer moneys in the Revenue Fund to the Operating Fund,
subject to the limitation described under the heading "Operating Fund" below.
RESERVE FUND
Upon the sale of each class of notes, the trustee will deposit to the
Reserve Fund the amount, if any, specified in each supplemental indenture. On
each note payment date, to the extent money in the Revenue Fund is not
sufficient to make payment of the principal and interest then due on the notes,
the amount of the deficiency shall be paid directly from the Reserve Fund, after
any transfers from the Acquisition Fund.
If the Reserve Fund is used as described above, the trustee will restore
the Reserve Fund to the level specified in a prospectus supplement by transfers
from the Revenue Fund. If the full amount required to restore the Reserve Fund
to the required level is not available in the Revenue
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Fund on the next note payment date, the trustee shall continue to transfer funds
from the Revenue Fund as they become available until the deficiency in the
Reserve Fund has been eliminated.
On any day that the amount in the Reserve Fund exceeds the required
level for any reason, the trustee, at the direction of NELNET Student Loan
Corporation-2, will transfer the excess to the Acquisition Fund.
OPERATING FUND
The trustee will deposit to the Operating Fund the amount, if any,
specified in each prospectus supplement. The Operating Fund is a special fund
created and used to pay program expenses of NELNET Student Loan Corporation-2.
The amount deposited in the Operating Fund by transfer from the Revenue
Fund and, if necessary, from the Acquisition Fund, and the schedule of deposits
will be determined by NELNET Student Loan Corporation-2. However, the amount so
transferred in any one fiscal year may not exceed the amount budgeted by NELNET
Student Loan Corporation-2 for that fiscal year, and may not exceed the amount
designated in the cash flows provided to each rating agency.
TRANSFERS TO NELNET STUDENT LOAN CORPORATION-2
Transfers from the Revenue Fund may be made to NELNET Student Loan
Corporation-2 if the balance in the Reserve Fund exceeds the required level
specified in a prospectus supplement. Additionally, transfers may be made to
NELNET Student Loan Corporation-2 only if immediately after taking into account
the transfer, the aggregate market value of the assets in the trust estate will
be equal to a percentage of the unpaid principal amount of the notes outstanding
that is acceptable to each rating agency then rating the notes, as evidenced by
a confirmation of their ratings.
INVESTMENT OF FUNDS HELD BY TRUSTEE
Upon our order, the trustee will invest amounts credited to any fund
established under the indenture in investment securities described in the
indenture. In the absence of an order from us, and to the extent practicable,
the trustee will invest amounts held under the indenture in direct obligations
of, or in obligations fully guaranteed by, the United States.
The trustee is not responsible or liable for any losses on investments
made by it or for keeping all funds held by it fully invested at all times. Its
only responsibility is to comply with our investment instructions in a
non-negligent manner.
BOOK-ENTRY REGISTRATION
Depository Trust Company, located in New York, New York, is to act as
securities depository for the book entry notes of any series. Unless otherwise
specified with respect to a series, the notes of each series are to be issued as
fully registered securities registered in the name of Cede & Co. One fully
registered bond certificate is to be issued for each class of the notes or any
series, as set forth in the cover page to the prospectus supplement, each in the
aggregate principal amount of such class, and is to be deposited with Depository
Trust Company.
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Depository Trust Company is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act. Depository Trust Company holds securities that its
participants deposit. Depository Trust Company also facilitates the settlement
among participants of securities transactions, such as transfers and pledges in
deposited securities, through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Depository Trust Company is owned by a number of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the Depository Trust Company system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to Depository Trust Company and its
participants are on file with the Securities and Exchange Commission.
Purchases of the notes under the Depository Trust Company system must be
made by or through direct participants, which are to receive a credit for the
notes on Depository Trust Company's records. The ownership interest of each
actual purchaser of each series of notes, or beneficial owner, is in turn to be
recorded on the direct and indirect participants' records. Beneficial owners
shall not receive written confirmation from Depository Trust Company of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct or indirect participant through which the beneficial
owner entered into the transaction. Transfers of ownership interests in the
notes are to be accomplished by entries made on the books of participants acting
on behalf of beneficial owners. Beneficial owners shall not receive certificates
representing their ownership interests in the notes, except in the event that
use of the book-entry system for the series of any notes is discontinued.
To facilitate subsequent transfers, all notes deposited by participants
with Depository Trust Company are registered in the name of Depository Trust
Company's partnership nominee, Cede & Co. The deposit of such notes with
Depository Trust Company and their registration in the name of Cede & Co. effect
no change in beneficial ownership. Depository Trust Company has no knowledge of
the actual beneficial owners of notes; Depository Trust Company's records
reflect only the identity of the direct participants to whose accounts such
notes are credited, which may or may not be the beneficial owners. The
participants remain responsible for keeping account of their holdings on behalf
of their customers.
Conveyance of notices and other communications by Depository Trust
Company to direct participants, by direct participants to indirect participants,
and by direct participants and indirect participants to beneficial owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of a
class of the notes of any series are being redeemed, Depository Trust Company's
practice is to determine by lot the amount of the interest of each Direct
Participant in such class to be redeemed.
Neither Depository Trust Company nor Cede & Co. will consent or vote with
respect to the notes of any series. Under its usual procedures, Depository Trust
Company mails an
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omnibus proxy to NELNET Student Loan Corporation-2, or the trustee, as
appropriate, as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the notes are credited on the record date.
Principal and interest payments on the notes are to be made to
Depository Trust Company. Depository Trust Company's practice is to credit
direct participant's accounts on the due date in accordance with their
respective holdings shown on Depository Trust Company's records unless
Depository Trust Company has reason to believe that it will not receive payment
on the due date. Payments by participants to beneficial owners are 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 shall be the responsibility of the participant and not of Depository
Trust Company, the trustee or NELNET Student Loan Corporation-2, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to Depository Trust Company is the
responsibility of NELNET Student Loan Corporation-2, or the trustee.
Disbursement of such payments to direct participants shall be the responsibility
of Depository Trust Company, and disbursement of such payments to the beneficial
owners shall be the responsibility of direct and indirect participants.
Depository Trust Company may discontinue providing its services as
securities depository with respect to the notes of any series at any time by
giving reasonable notice to NELNET Student Loan Corporation-2 or the trustee. In
the event that a successor securities depository is not obtained, note
certificates are required to be printed and delivered.
Cedelbank, Societe Anonyme is incorporated under the laws of Luxembourg
as a professional depository. Cedelbank holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in Cedelbank in
any of 28 currencies, including United States dollars. Cedelbank provides to its
Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depository, Cedelbank is subject to
regulation by the Luxembourg Monetary Institute. Cedelbank participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to Cedelbank is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Cedelbank participant,
either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of Euroclear 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 any of 27 currencies, including United States
dollars. Euroclear 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 Depository
Trust Company described above. Euroclear is operated by the Brussels, Belgium
office of Morgan Guaranty Trust Company of New York under contract with
Euroclear Clearance Systems S.C., 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 the Cooperative. The Cooperative establishes
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policy for Euroclear on behalf of Euroclear participants. Euroclear participants
include banks, central banks, securities brokers and dealers and other
professional financial intermediaries. Indirect access to Euroclear is also
available to other firms that clear through or 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 and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within the
Euroclear, withdrawals of securities and cash from the Euroclear, and receipts
of payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear operator acts under the
Terms and Conditions only on behalf of Euroclear participants and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to notes held through Cedelbank or Euroclear
will be credited to the cash accounts of Cedelbank participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary. Those distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. Cedelbank or the Euroclear operator, as the case may be, will take
any other action permitted to be taken by a noteholder under the indenture on
behalf of a Cedelbank participant or Euroclear participant only in accordance
with the relevant rules and procedures and subject to the relevant Depositary's
ability to effect such actions on its behalf through depository Trust Company.
Noteholders may hold their notes in the United States through Depository
Trust Company or in Europe through Cedelbank or Euroclear if they are
participants of such systems, or indirectly through organizations which are
participants in such systems.
The notes will initially be registered in the name of Cede & Co., the
nominee of Depository Trust Company. Cedelbank and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities accounts
in Cedelbank's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of Depository Trust Company.
Citibank, N.A. will act as depositary for Cedelbank and Morgan Guaranty Trust
Company of New York will act as depositary for Euroclear.
Transfers between participants will occur in accordance with Depository
Trust Company Rules. Transfers between Cedelbank participants and Euroclear
participants will occur in accordance with their respective rules and operating
procedures.
Because of time-zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a participant will be
made during subsequent securities settlement processing and dated the business
day following the Depository Trust Company settlement date. Such credits or any
transactions in such securities settled during such processing will be reported
to the relevant Euroclear or Cedelbank participants on such business day. Cash
received in
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Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a participant will be received
with value on the Depository Trust Company settlement date but will be available
in the relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in Depository Trust Company.
Cross-market transfers between persons holding directly or indirectly
through Depository Trust Company, on the one hand, and directly or indirectly
through Cedelbank participants or Euroclear participants, on the other, will be
effected in Depository Trust Company in accordance with Depository Trust Company
Rules on behalf of the relevant European international clearing system by its
depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in
Depository Trust Company, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to Depository Trust
Company. Cedelbank participants and Euroclear participants may not deliver
instructions to the depositaries.
Depository Trust Company has advised NELNET Student Loan Corporation-2
that it will take any action permitted to be taken by a noteholder under the
indenture only at the direction of one or more participants to whose accounts
with Depository Trust Company the notes are credited.
Although Depository Trust Company, Cedelbank and Euroclear have agreed
to the foregoing procedures in order to facilitate transfers of interests in the
notes among participants of Depository Trust Company, Cedelbank and Euroclear,
they are under no obligation to perform or continue to perform such procedures
and such procedures may be discontinued at any time.
Depository Trust Company 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." Depository Trust Company has informed its
participants and other members of the financial community that it has developed
and is implementing a program so that its systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within
Depository Trust Company, continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, Depository Trust Company's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, Depository Trust Company'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 on whom Depository
Trust Company licenses software and hardware, and third party vendors on whom
Depository Trust Company relies for information or the provision of services,
including telecommunication and electrical utility service providers, among
others. Depository Trust Company has informed its participants and the financial
industry that it is contacting, and will continue to contact, third party
vendors from whom Depository Trust Company acquires services to:
o impress upon them the importance of such services being Year 2000
compliant;
and
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o determine the extent of their efforts for Year 2000 remediation
and, as appropriate, testing of their services. In addition,
Depository Trust Company is in the process of developing such
contingency plans as it deems appropriate.
According to Depository Trust Company, the information set forth in the
preceding two paragraphs about Depository Trust Company has been provided to its
participants and the financial industry by Depository Trust Company for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
Neither NELNET Student Loan Corporation-2, the sellers, the servicer,
the subservicers, the trustee nor the underwriters will have any responsibility
or obligation to any Depository Trust Company participants, Cedelbank
participants or Euroclear participants or the persons for whom they act as
nominees with respect to
o the accuracy of any records maintained by Depository Trust
Company, Cedelbank or Euroclear or any participant,
o the payment by Depository Trust Company, Cedelbank or Euroclear
or any participant of any amount due to any beneficial owner in
respect of the principal amount or interest on the senior notes,
o the delivery by any Depository Trust Company participant,
Cedelbank participant or Euroclear participant of any notice to
any beneficial owner which is required or permitted under the
terms of the indenture or the trust agreement to be given to
senior noteholders or
o any other action taken by Depository Trust Company as the senior
noteholder.
NELNET Student Loan Corporation-2 may decide to discontinue use of the
system of book entry transfers through Depository Trust Company or a successor
securities depository. In that event, note certificates are to be printed and
delivered.
ADDITIONAL NOTES
We may, upon complying with the provisions of the indenture, issue from
time to time additional notes secured by the trust estate on a parity with or
subordinate to either the Class A notes, the Class B notes or the Class C notes,
if any, then outstanding. In addition, we may enter into any derivative product
we deem necessary or desirable with respect to any or all of the notes. We may
take those actions without the approval of the holders of any outstanding notes.
We will not issue additional notes unless the following conditions have
been satisfied:
o NELNET Student Loan Corporation-2 and the trustee have
entered into a supplemental indenture providing the terms
and forms of the additional notes.
o The trustee has received a rating confirmation from each
rating agency which has assigned a rating to any
outstanding notes that such rating will not be reduced or
withdrawn as a result of the issuance of the proposed
additional notes.
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o The trustee has received an opinion of counsel to the
effect that all of the foregoing conditions to the
issuance of the proposed additional notes have been
satisfied.
The trustee is authorized under the indenture to establish any
additional funds or accounts which it deems necessary or convenient in
connection with the issuance and delivery of any additional notes.
SUMMARY OF THE INDENTURE PROVISIONS
We will issue the notes pursuant to an indenture of trust between us and
the trustee. Each series of notes will be issued pursuant to a supplemental
indenture of trust applicable to that series as indicated in a prospectus
supplement. The following is a summary of some of the provisions of the
indenture. This summary is not comprehensive and reference should be made to the
indenture for a full and complete statement of its provisions.
PARITY AND PRIORITY OF LIEN
The provisions of the indenture are generally for the equal benefit,
protection and security of the registered owners of all of the notes. However,
the Class A notes have priority over the Class B notes with respect to payments
of principal and interest, and the Class B notes have priority over the Class C
notes with respect to payments of principal and interest.
SALE OF STUDENT LOANS HELD IN TRUST ESTATE
Student loans may be sold, or otherwise disposed of by the trustee free
from the lien of the indenture.
Prior to any sale we will provide an order to the trustee stating the
sale price and directing that student loans be sold or otherwise disposed of and
delivered. We will also deliver to the trustee a certificate signed by an
authorized representative of NELNET Student Loan Corporation-2 to the effect
that:
o the disposition price is equal to or in excess of the
principal amount of the student loans (plus accrued
interest) or equal to or in excess of the purchase price
paid by for such student loans (less principal payments
received with respect to such student loan); or
o the disposition price is lower than the principal amount
of the student loans (plus accrued interest), and
o NELNET Student Loan Corporation-2 reasonably
believes that the revenues expected to be received,
after giving effect to the disposition, would be at
least equal to the revenues expected to be received
assuming no such sale or other disposition
occurred, or
o NELNET Student Loan Corporation-2 remains able to
pay debt service on the notes and make payment on
any other obligations under the indenture on a
timely basis, after giving effect to the
disposition, whereas it would not have been able to
do so on a
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timely basis if it had not sold or disposed of the
student loans at such discounted amount, or
o the aggregate market value of the trust estate,
after giving effect to the disposition, will be at
least equal to 100% of the aggregate principal
amount of the notes and other obligations
outstanding under the indenture plus accrued
interest, or
o the amount for which the student loans are being
sold or disposed of is equal to the purchase price
paid by NELNET Student Loan Corporation-2 for such
student loans (less principal amounts received with
respect to such student loans).
SEGREGATION OF FUNDS; PRIORITY OF LIEN
We will not commingle the funds created under the indenture with funds,
proceeds or investment of funds relating to other issues or series of notes
issued by us, except to the extent such commingling is required by the trustee
for ease in administration of its duties and responsibilities. Should the
trustee require this permitted commingling, it will keep complete records in
order that the funds, proceeds or investments under the indenture may at all
times be identified by source and application, and if necessary, separated.
The revenues and other money, student loans and other assets pledged
under the indenture are and will be owned by NELNET Student Loan Corporation-2
free and clear of any pledge, lien, charge or encumbrance, except as otherwise
expressly provided in the indenture. Except as otherwise provided in the
indenture, NELNET Student Loan Corporation-2
o will not create or voluntarily permit to be created any debt,
lien or charge on the student loans which would be on a parity
with, subordinate to, or prior to the lien of the indenture;
o will not take any action or fail to take any action that would
result in the lien of the indenture or the priority of that lien
for the obligations thereby secured being lost or impaired; and
o will pay or cause to be paid, or will make adequate provisions
for the satisfaction and discharge, of all lawful claims and
demands which if unpaid might by law be given precedence to or
any equality with the indenture as a lien or charge upon the
student loans.
DERIVATIVE PRODUCTS; RECIPROCAL PAYMENTS; DERIVATIVE PAYMENTS
We are authorized under the indenture to enter into a derivative
product, defined to mean a written contract under which we become obligated to
pay to a counterparty on specified payments dates certain amounts in exchange
for the counterparty's obligation to make payments to us on specified payment
dates in specified amounts. Our obligation to make payments in connection with a
derivative product may be secured by a pledge of and lien on the trust estate.
We will not enter into a derivative product unless the trustee has received a
confirmation from each rating agency providing a rating for our notes that the
derivative product will not adversely affect the rating on any of the notes.
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If any payment to a counterparty under a derivative product would result
in a deficiency in the amounts required to make payments to the registered
owners of the notes on a note payment date, then the trustee will delay the
making of the payment to the counterparty until the first date on which
sufficient funds are available to make the payment or until the next note
payment date, whichever is earlier.
REPRESENTATIONS AND WARRANTIES OF NELNET STUDENT LOAN CORPORATION-2
We represent and warrant in the indenture that:
o we are duly authorized under the laws of Nevada to create and
issue the notes and to execute and deliver the indenture and any
derivative product, and to make the pledge to the payment of
notes and any company derivative payments under the Indenture,
o all necessary corporate action for the creation and issuance of
the notes and the execution and delivery of the indenture and any
derivative product has been duly and effectively taken,
o the notes in the hands of the registered owners of the notes and
any derivative product are and will be valid and enforceable
special limited obligations of NELNET Student Loan Corporation-2
secured by and payable solely from the trust estate.
FURTHER COVENANTS
We will file financing statements and continuation statements in any
jurisdiction necessary to perfect and maintain the security interest we have
granted under the indenture.
Upon written request of the trustee, we will permit the trustee or its
agents, accountants and attorneys, to examine and inspect the property, books of
account, records, reports and other data relating to the student loans, and will
furnish the trustee such other information as it may reasonably request. The
trustee shall be under no duty to make any examination unless requested in
writing to do so by the registered owners of 51% of the principal amount of the
notes, and unless those registered owners have offered the trustee security and
indemnity satisfactory to it against any costs, expenses and liabilities which
might be incurred in making any examination.
We will cause an annual audit to be made by an independent auditing firm
of national reputation and file one copy of the audit with the trustee and each
rating agency within 150 days of the close of each fiscal year. The trustee is
not obligated to review or otherwise analyze those audits.
On or before the fifteenth day of each month, we will provide to the
trustee for the trustee to forward to each registered owner, a statement setting
forth information with respect to the notes and student loans as of the ending
of the preceding month, including the following:
o the amount of principal payments made with respect to each class
of notes during the preceding month
o the amount of interest payments made with respect to each class
of notes during the preceding month
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o the principal balance of financial student loans as of the close
of business on the last day of the preceding month
o the aggregate outstanding principal amount of the notes of each
class
o the interest rate for the applicable class of notes with respect
to each interest payment
o the number and principal amount of student loans that are
delinquent or for which claims have been filed with a guarantee
agency
o the aggregate market value of the trust estate and the
outstanding principal amount of the notes as of the close of
business on the last day of the preceding month.
A copy of these reports may be obtained by any noteholder by a written
request to the trustee.
ENFORCEMENT OF SERVICING AGREEMENT
We will diligently enforce all terms, covenants and conditions of all
servicing agreements, including the prompt payment of all amounts due to the
servicer under the servicing agreements. We will not permit the release of the
obligations of any servicer under any servicing agreement except in conjunction
with permitted amendments or modifications and will not waive any default by the
servicer under the servicing agreement without the written consent of the
trustee. We will not consent or agree to or permit any amendment or modification
of any servicing agreement which will in any manner materially adversely affect
the rights or security of the registered owners of the notes.
ADDITIONAL COVENANTS WITH
RESPECT TO THE HIGHER EDUCATION ACT
We will verify that the trustee is, or replace the trustee with, an
eligible lender under the Higher Education Act, and will acquire or cause to be
acquired student loans only from an eligible lender.
We are responsible, directly or through our agent, for each of the
following actions with respect to the Higher Education Act:
o Dealing with the Secretary of Education with respect to the
rights, benefits and obligations under the certificates of
insurance and the contract of insurance, and dealing with the
guarantee agencies with respect to the rights, benefits and
obligations under the guarantee agreements with respect to the
student loans;
o Causing to be diligently enforced, and causing to be taken all
reasonable steps necessary or appropriate for the enforcement of
all terms, covenants and conditions of all student loans and
agreements in connection with the student loans, including the
prompt payment of all principal and interest payments and all
other amounts due under the student loans;
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o Causing the student loans to be serviced by entering into a
servicing agreement with the servicer for the collection of
payments made for, and the administration of the accounts of, the
student loans;
o Complying with, and causing all of its officers, directors,
employees and agents to comply, with the provisions of the Higher
Education Act and any regulations or rulings under the Act, with
respect to the student loans; and
o Causing the benefits of the guarantee agreements, the interest
subsidy payments and the special allowance payments to flow to
the trustee.
CONTINUED EXISTENCE; SUCCESSOR
We will preserve and keep in full force and effect our existence, rights
and franchises as a Nevada corporation. We will not sell or otherwise dispose of
all or substantially all of our assets, consolidate with or merge into another
corporation or entity, or permit one or more other corporations or entities to
consolidate with or merge with us. These restrictions do not apply to a transfer
of student loans that is made in connection with a discharge of the indenture or
to a transaction where the transferee or the surviving or resulting corporation
or entity, if other than NELNET Student Loan Corporation-2, by proper written
instrument for the benefit of the trustee, irrevocably and unconditionally
assumes the obligation to perform and observe the agreements and obligations of
NELNET Student Loan Corporation-2 under the indenture.
EVENTS OF DEFAULT
For purposes of the indenture, each of the following events are defined
as events of default:
o default in the due and punctual payment of any interest on any of
the Class A notes when due or failure to make any payment due
under any other senior obligations under the indenture when due;
o if no senior obligations are outstanding under the indenture,
default in the due and punctual payment of the principal of or
interest on any of the Class B notes when due or failure to make
any payment due under any other subordinate obligations under the
indenture when due;
o if no senior obligations or subordinate obligations are
outstanding under the indenture, default in the due and punctual
payment of the principal of or interest on any Class C notes when
due or failure to make any payment due under any other
junior-subordinate obligations under the indenture when due;
o default by NELNET Student Loan Corporation-2 in the performance
or observance of any other of the covenants, agreements or
conditions contained in the indenture or in the notes, and
continuation of such default for a period of 90 days after
written notice thereof by the trustee to NELNET Student Loan
Corporation-2; and
o the occurrence of an event of bankruptcy.
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REMEDIES ON DEFAULT
POSSESSION OF TRUST ESTATE. Upon the happening of any event of default,
the trustee may take possession of any portion of the trust estate that may be
in the custody of others, and all property comprising the trust estate, and may
hold, use, operate, manage and control those assets. The trustee may also, in
the name of NELNET Student Loan Corporation-2 or otherwise, conduct the business
of NELNET Student Loan Corporation-2 and collect and receive all charges, income
and revenues of the trust estate. After deducting all expenses incurred and all
other proper outlays authorized in the indenture, and all payments which may be
made as just and reasonable compensation for its own services, and for the
services of its attorneys, agents, and assistants, the trustee will apply the
rest and residue of the money received by the trustee as follows:
1. if the principal of none of the obligations under the indenture
shall have become due,
o FIRST, to the payment of the interest in default on the
Class A notes and to the payment of all derivative
payments secured on a parity with the Class A notes then
due, in order of the maturity of the interest or
derivative payment installments, with interest on the
overdue installments, which payments will be made ratably
to the parties entitled to the payments without
discrimination or preference,
o SECOND, to the payment of the interest in default on the
Class B notes and to the payment of all derivative
payments secured on a parity with the Class B notes then
due, in order of the maturity of the interest or
derivative payment installments, with interest on the
overdue installments, which payments will be made ratably
to the parties entitled to the payments without
discrimination or preference and,
o THIRD, to the payment of the interest in default on the
Class C notes and to the payment of all derivative
payments secured on a parity with the Class C notes, if
any, then due, in order of the maturity of the interest or
derivative payment installments, with interest on the
overdue installments, which payments will be made ratably
to the parties entitled to the payments without
discrimination or preference, except as may be provided in
a supplemental indenture; and
2. if the principal of any of the obligations under the indenture
shall have become due by declaration of acceleration or otherwise,
o FIRST, to the payment of the interest in default on the
Class A notes and all derivative payments secured on a
parity with the Class A notes then due, in the order of
the maturity of the interest or derivative payment
installments, with interest on overdue installments,
o SECOND, to the payment of the principal of all Class A
notes then due and all derivative payments secured on a
parity with the Class A notes, which payments will be made
ratably to the parties entitled to the payments without
discrimination or preference,
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o THIRD, to the payment of the interest in default on the
Class B notes and all derivative payments secured on a
parity with the Class B notes then due, in the order of
the maturity of the interest or derivative payment
installments, with interest on overdue installments,
o FOURTH, to the payment of the principal of all Class B
notes then due and all derivative payments secured on a
parity with the Class B notes, which payments will be made
ratably to the parties entitled to the payments without
discrimination or preference,
o FIFTH, to the payment of the interest in default on the
Class C notes and all company derivative payments secured
on a parity with such Class C notes then due, in the order
of the maturity of the interest or derivative payment
installments, with interest on overdue installments, and
o SIXTH, to the payment of the principal of all Class C
notes then due and any derivative payment on a parity with
the Class C notes which payments will be made ratably to
the parties entitled to the payments without
discrimination or preference, except as may be provided in
a supplemental indenture.
SALE OF TRUST ESTATE. Upon the happening of any event of default and if
the principal of all of the outstanding notes shall have been declared due and
payable, then the trustee may sell the trust estate to the highest bidder in
accordance with the requirements of applicable law. In addition, the trustee may
proceed to protect and enforce the rights of the trustee or the registered
owners in the manner as counsel for the trustee may advise, whether for the
specific performance of any covenant, condition, agreement or undertaking
contained in the indenture, or in aid of the execution of any power therein
granted, or for the enforcement of such other appropriate legal or equitable
remedies as may in the opinion of such counsel, be more effectual to protect and
enforce the rights aforesaid. The trustee is required to take any of these
actions if requested to do so in writing by the registered owners of at least
51% of the principal amount of the highest priority obligations outstanding
under the indenture.
APPOINTMENT OF RECEIVER. If an event of default occurs, and all of the
outstanding obligations under the indenture have been declared due and payable,
and if any judicial proceedings are commenced to enforce any right of the
trustee or of the registered owners under the indenture, then as a matter of
right, the trustee shall be entitled to the appointment of a receiver for the
trust estate.
ACCELERATED MATURITY. If an event of default occurs, the trustee may
declare, or upon the written direction by the registered owners of at least 51%
of the principal amount of the highest priority obligations then outstanding
under the indenture shall declare, the principal of all obligations issued under
the indenture, and then outstanding, and the interest thereon, immediately due
and payable. A declaration of acceleration upon the occurrence of a default
other than a default in making payments when due requires the consent of 100% of
the registered owners of the highest priority obligations then outstanding.
DIRECTION OF TRUSTEE. If an event of default occurs, the registered
owners of at least 51% of the principal amount of the highest priority
obligations then outstanding under the indenture shall have the right to direct
and control the trustee with respect to any proceedings for any sale of any or
all of the trust estate, or for the appointment of a receiver. The registered
owners may
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not cause the trustee to take any proceedings which in the trustee's opinion
would be unjustly prejudicial to non-assenting registered owners of obligations
outstanding under the indenture.
RIGHT TO ENFORCE IN TRUSTEE. No registered owner of any obligation
issued under the indenture shall have any right as a registered owner to
institute any suit, action or proceedings for the enforcement of the provisions
of the indenture or for the appointment of a receiver or for any other remedy
under the indenture. All rights of action under the indenture are vested
exclusively in the trustee, unless and until the trustee fails to institute an
action or suit after the registered owners
o have given to the trustee written notice of a default under the
indenture, and of the continuance thereof,
o shall have made written request upon the trustee and the trustee
shall have been afforded reasonable opportunity to institute an
action, suit or proceeding in its own name, and
o the trustee shall have been offered reasonable indemnity and
security satisfactory to it against the costs, expenses, and
liabilities to be incurred on an action, suit or proceeding in
its own name.
WAIVERS OF EVENTS OF DEFAULT. The trustee may in its discretion waive
any event of default under the indenture and rescind any declaration of
acceleration of the obligations due under the indenture. The trustee will waive
an event of default upon the written request of the registered owners of at
least a majority of the principal amount of the highest priority obligations
then outstanding under the indenture. A waiver of any event of default in the
payment of the principal or interest due on any obligation issued under the
indenture may not be made unless prior to the waiver or rescission, provision
shall have been made for payment of all arrears of interest or all arrears of
payments of principal, and all expenses of the trustee in connection with such
default. A waiver or rescission of one default will not affect any subsequent or
other default, or impair any rights or remedies consequent to any subsequent or
other default.
THE TRUSTEE
ACCEPTANCE OF TRUST. The trustee has accepted the trusts imposed upon it
by the indenture, and will perform those trusts, but only upon and subject to
the following terms and conditions:
o The trustee undertakes to perform only those duties as are
specifically set forth in the indenture.
o In the absence of bad faith on its part, the trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the trustee and conforming to the
requirements of the indenture.
o In case an event of default has occurred and is continuing, the
trustee, in exercising the rights and powers vested in it by the
indenture, will use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
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o Before taking any action under the indenture requested by
registered owners, the trustee may require that it be furnished
an indemnity bond or other indemnity and security satisfactory to
it by the registered owners for the reimbursement of all expenses
to which it may be put and to protect it against liability
arising from any action taken by the trustee.
TRUSTEE MAY ACT THROUGH AGENTS. The trustee may execute any of the
trusts or powers under the indenture and perform any duty thereunder either
itself or by or through its attorneys, agents, or employees. The trustee will
not be answerable or accountable for any default, neglect or misconduct of any
such attorneys, agents or employees, if reasonable care has been exercised in
the appointment, supervision, and monitoring of the work performed. All
reasonable costs incurred by the trustee and all reasonable compensation to all
such persons as may reasonably be employed in connection with the trusts will be
paid by NELNET Student Loan Corporation-2.
INDEMNIFICATION OF TRUSTEE. The trustee is generally under no obligation
or duty to perform any act at the request of registered owners or to institute
or defend any suit to protect the rights of the registered owners under the
indenture unless properly indemnified and provided with security to its
satisfaction. The trustee is not required to take notice of any event under the
indenture unless and until it shall have been specifically notified in writing
of the event of default by the registered owners or an authorized representative
of NELNET Student Loan Corporation- 2.
However, the trustee may begin suit, or appear in and defend suit,
execute any of the trusts, enforce any of its rights or powers, or do anything
else in its judgment proper, without assurance of reimbursement or indemnity. In
that case the trustee will be reimbursed or indemnified by the registered owners
requesting that action, if any, or NELNET Student Loan Corporation-2 in all
other cases, for all fees, costs and expenses, liabilities, outlays and counsel
fees and other reasonable disbursements properly incurred. If NELNET Student
Loan Corporation-2 or the registered owners, as appropriate, fail to make such
reimbursement or indemnification, the trustee may reimburse itself from any
money in its possession under the provisions of the indenture, subject only to
the prior lien of the notes for the payment of the principal and interest
thereon from the Revenue Fund.
NELNET Student Loan Corporation-2 will indemnify and hold harmless the
trustee against any and all claims, demands, suits, actions or other proceedings
and all liabilities, costs and expenses whatsoever caused by any untrue
statement or misleading statement or alleged untrue statement or alleged
misleading statement of a material fact contained in any offering document
distributed in connection with the issuance of the notes or caused by any
omission or alleged omission from such offering document of any material fact
required to be stated therein or necessary in order to make the statements made
therein in the light of the circumstances under which they were made, not
misleading.
COMPENSATION OF TRUSTEE. NELNET Student Loan Corporation-2 will pay to
the trustee compensation for all services rendered by it under the indenture,
and also all of its reasonable expenses, charges, and other disbursements. The
trustee may not change the amount of its annual compensation without giving
NELNET Student Loan Corporation-2 at least 90 days' written notice prior to the
beginning of a fiscal year.
RESIGNATION OF TRUSTEE. The trustee may resign and be discharged from
the trust created by the indenture by giving to NELNET Student Loan
Corporation-2 notice in writing specifying the date on which such resignation is
to take effect. A resignation will only take effect on the
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day specified in such notice if a successor trustee shall have been appointed
pursuant to the provisions of the indenture and is qualified to be the trustee
under the requirements of the provisions of the indenture.
REMOVAL OF TRUSTEE. The trustee may be removed
o at any time by the registered owners of a majority of the
principal amount of the highest priority obligations then
outstanding under the indenture,
o by NELNET Student Loan Corporation-2 for cause or upon the sale
or other disposition of the trustee or its trust functions or
o by NELNET Student Loan Corporation-2 without cause so long as no
event of default exists or has existed within the last 30 days.
In the event a trustee is removed, removal shall not become effective until
o a successor trustee shall have been appointed, and
o the successor trustee has accepted that appointment.
SUCCESSOR TRUSTEE. If the trustee resigns, is dissolved or otherwise is
disqualified to act or is incapable of acting, or in case control of the trustee
is taken over by any public officer or officers, a successor trustee may be
appointed by NELNET Student Loan Corporation-2. In this case NELNET Student Loan
Corporation-2 will cause notice of the appointment of a successor trustee to be
mailed to the registered owners at the address of each registered owner
appearing on the note registration books.
Every successor trustee
o will be a bank or trust company in good standing, organized and
doing business under the laws of the United States or of a state
therein,
o have a reported capital and surplus of not less than $50,000,000,
o will be authorized under the law to exercise corporate trust
powers, be subject to supervision or examination by a federal or
state authority, and
o will be an eligible lender under the Higher Education Act so long
as such designation is necessary to maintain guarantees and
federal benefits under the Act with respect to the student loans
originated under the Act.
MERGER OF THE TRUSTEE. Any corporation into which the trustee may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the trustee, shall be the successor of the trustee under the
indenture, provided such corporation shall be otherwise qualified and eligible
under the indenture, without the execution or filing of any paper of any further
act on the part of any other parties thereto.
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SUPPLEMENTAL INDENTURES
SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF REGISTERED OWNERS.
NELNET Student Loan Corporation-2 and the trustee may, without the consent of or
notice to any of the registered owners of any obligations outstanding under the
indenture, enter into any indentures supplemental to the indenture for any of
the following purposes:
1. to cure any ambiguity or formal defect or omission in the
indenture;
2. to grant to or confer upon the trustee for the benefit of
the registered owners any additional benefits, rights,
remedies, powers or authorities;
3. to subject to the indenture additional revenues, properties
or collateral;
4. to modify, amend or supplement the indenture or any indenture
supplemental thereto in such manner as to permit the qualification under
the Trust Indenture Act of 1939 or any similar federal statute or to
permit the qualification of the notes for sale under the securities laws
of the United States of America or of any of the states of the United
States of America, and, if they 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;
5. to evidence the appointment of a separate or co-trustee or a
co-registrar or transfer agent or the succession of a new trustee under
the indenture;
6. to add provisions to or to amend provisions of the indenture
as may, in the opinion of counsel, be necessary or desirable to assure
implementation of NELNET Student Loan Corporation-2's student loan
program in conformance with the Act;
7. to make any change as shall be necessary in order to obtain
and maintain for any of the notes an investment grade rating from a
nationally recognized rating service, which changes, in the opinion of
the trustee are not to the prejudice of the registered owner of any of
the obligations outstanding under the indenture;
8. to make any changes necessary to comply with the Act and the
regulations thereunder or the Internal Revenue Code and the regulations
promulgated thereunder;
9. to provide for the issuance of notes pursuant to the
provisions of the indenture, including the creation of appropriate funds
and accounts, with respect to such notes;
10. to make the terms and provisions of the indenture, including
the lien and security interest granted therein, applicable to a
derivative product;
11. to create any additional funds or accounts under the
indenture deemed by the trustee to be necessary or desirable;
12. to amend the indenture to allow for any of the notes to be
supported by a letter of credit or insurance policy or a liquidity
agreement, including amendment to provide for repayment to the provider
of the credit support on a parity with any notes or
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derivative product and providing rights to the provider under the
indenture, including with respect to defaults and remedies;
13. to amend the indenture to provide for use of a surety bond or
other financial guaranty instrument in lieu of cash and investment
securities in all or any portion of the Reserve Fund, so long as such
action shall not adversely affect the ratings on any of the notes;
14. to make any other change with a confirmation by the rating
agencies of their ratings of the notes; or
15. to make any other change which, in the judgment of the
trustee is not to the material prejudice of the registered owners of any
obligations outstanding under the indenture..
SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF REGISTERED OWNERS. Any
amendment of the indenture other than those listed above must be approved by the
registered owners of not less than a majority of the principal amount of the
obligations then outstanding under the indenture.
None of the changes described below may be made in a supplemental
indenture without the consent of the registered owners of all obligations then
outstanding,
o an extension of the maturity date of the principal of or the
interest on any obligation, or
o a reduction in the principal amount of any obligation or the
rate of interest thereon, or
o a privilege or priority of any obligation under the
indenture over any other obligation, or
o a reduction in the aggregate principal amount of the
obligations required for consent to such supplemental
indenture, or
o the creation of any lien other than a lien ratably securing
all of the obligations at any time outstanding under the
indenture.
TRUST IRREVOCABLE
The trust created by the terms and provisions of the indenture is
irrevocable until the notes and interest thereon and all company derivative
payments are fully paid or provision made for its payment as provided in the
indenture.
SATISFACTION OF INDENTURE
If the registered owners of the notes are paid all the principal of and
interest due on the notes, at the times and in the manner stipulated in the
indenture, and if each counterparty on a derivative product is paid all of
derivative payments then due, then the pledge of the trust estate will thereupon
terminate and be discharged. The trustee will execute and deliver to NELNET
Student Loan Corporation-2 instruments to evidence the discharge and
satisfaction, and the
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trustee will pay all money held by it under the indenture to the party entitled
to receive it under the indenture.
Notes will be considered to have been paid if money for their payment or
redemption has been set aside and is being held in trust by the trustee. Any
outstanding note will be considered to have been paid if the note is to be
redeemed on any date prior to its stated maturity and notice of redemption has
been given as provided in the indenture and on said date there shall have been
deposited with the trustee either money or governmental obligations the
principal of and the interest on which when due will provide money sufficient to
pay the principal of and interest to become due on the note.
Any derivative payments will be considered to have been paid and the
applicable derivative product terminated when payment of all derivative payments
due and payable to each counterparty under derivative products have been made or
duly provided for to the satisfaction of each counterparty and the respective
derivative product has been terminated.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of the notes of any series. The amounts and types of credit enhancement
arrangements and the provider of the credit enhancement, if any, will be set
forth in the related prospectus supplement. Credit enhancement may be in the
form of a letter of credit, the subordination of one or more classes of notes,
the use of an insurance policy or surety bonds, the establishment of one or more
reserve funds, interest rate swaps, or any combination of the foregoing.
The presence of a Reserve Fund and other forms of credit enhancement for
the benefit of any class or series of notes is intended to enhance the
likelihood that noteholders of a class or series will receive the full amount of
principal and interest due on the notes and to decrease the likelihood that such
noteholders will experience losses. The credit enhancement will not provide
protection against all risks of loss and will not guarantee payment to such
noteholders of all amounts to which they are entitled unless a guarantee against
losses is described in the related prospectus supplement. If losses or
shortfalls occur that exceed the amount covered by the credit enhancement or
that are not covered by the credit enhancement, noteholders will bear their
allocable share of deficiencies. Moreover, if a form of credit enhancement
covers more than one series of notes, holders of notes of one series will be
subject to the risk that the credit enhancement will be exhausted by the claims
of the holders of notes of one or more other series.
SUBORDINATE NOTES
The notes will be designated Class A notes, Class B notes or Class C
notes in the related prospectus supplement. To the extent specified in the
related prospectus supplement, the rights of the Class B noteholders to receive
distributions on any note payment date will be subordinated to the corresponding
rights of the Class A noteholders, and the rights of the Class C noteholders to
receive distributions on any note payment date will be subordinated to the
corresponding rights of the Class B noteholders. If so provided in the related
prospectus supplement, the subordination of a class may apply only in the event
of, or may be limited to, specific types of losses or shortfalls. The related
prospectus supplement will set forth information concerning the amount of
subordination provided by a class or classes of notes in a series, the
circumstances
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<PAGE>
under which such subordination will be available and the manner in which the
amount of subordination will be made available.
LETTER OF CREDIT
If so specified in the prospectus supplement with respect to a series,
deficiencies in amounts otherwise payable on the notes or certain classes of the
notes will be covered by one or more letters of credit. The bank or financial
institution issuing the letter of credit will be identified in a prospectus
supplement. Under a letter of credit, the issuer will be obligated to honor
draws in an aggregate fixed dollar amount generally equal to a percentage
specified in the related prospectus supplement of the principal balance of the
student loans on a specified date or of the initial aggregate principal balance
of one or more classes of notes. If so specified in the related prospectus
supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments under
the letter of credit and may otherwise be reduced as described in the related
prospectus supplement. The obligations of the issuer of the letter of credit
will expire at the earlier of the date specified in the related prospectus
supplement or the termination of the trust estate.
NOTE INSURANCE AND SURETY BONDS
If so specified in the prospectus supplement with respect to a series of
the notes, deficiencies in amounts otherwise payable on the notes or certain
classes of the notes will be covered by insurance policies or surety bonds
provided by one or more insurance companies or sureties. The insurance policies
or surety bonds may cover timely distributions of interest and full
distributions of principal on the basis of a schedule of principal distributions
set forth in or determined in the manner specified in the related prospectus
supplement.
RESERVE FUND
In addition to the Reserve Fund described in this prospectus under
"Security and Sources of Payment for the Notes-Reserve Fund," one or more
reserve funds may be established with respect to a series of the notes. Cash,
eligible investments, a demand note or a combination thereof, in the amounts so
specified in the related prospectus supplement, may be deposited in such reserve
fund. The reserve fund for a series may also be funded over time by depositing
in the reserve fund a specified amount of the distributions received on the
related receivables as specified in the related prospectus supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income on those amounts, will be applied by the trustee for the
purposes, in the manner and to the extent specified in the related prospectus
supplement. A reserve fund may be provided to increase the likelihood of timely
payments of principal of and interest on the notes, if required as a condition
to the rating of the notes of that series. If so specified in the related
prospectus supplement, a reserve fund may be established to provide limited
protection, in an amount satisfactory to each rating agency rating the notes,
against certain types of losses not covered by insurance policies or other
credit support. Following each interest payment date, amounts in a reserve fund
in excess of any specified reserve fund requirement may be released from the
reserve fund under the conditions specified in the related prospectus supplement
and will not be available for further application by the trustee.
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Additional information concerning any reserve fund is to be set forth in
the related prospectus supplement, including the initial balance of the reserve
fund, the reserve fund balance to be maintained, the purposes for which funds in
the reserve fund may be applied to make distributions to noteholders and use of
investment earnings from the reserve fund, if any.
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<PAGE>
NELNET STUDENT LOAN CORPORATION-2
NELNET Student Loan Corporation-2 is a bankruptcy remote, limited
purpose corporation organized under the laws of the State of Nevada on October
8, 1999 to acquire student loans and pledge such student loans and certain
related collateral to a trustee to secure the notes. NELNET Student Loan
Corporation-2 is a wholly-owned subsidiary of National Education Loan Network,
Inc., a Nevada corporation, organized on January 26, 1996 for the purpose of
facilitating the financing of student loans and other financial assets, and to
engage in activities in connection therewith. NELNET Student Loan Corporation-2
was created as a separate, limited purpose entity pursuant to Articles of
Incorporation that impose limitations on the nature of its business and a
restriction on its ability to commence a voluntary case or proceeding under any
bankruptcy or other insolvency laws without the prior unanimous affirmative vote
of all of its directors. NELNET Student Loan Corporation-2's Articles of
Incorporation also require that it have a director who qualifies as an
"independent director."
NELNET Student Loan Corporation-2 is governed by a board of
directors, which is required by its Articles of Incorporation to include at
least three directors. Directors must be elected at each annual meeting of the
shareholders. The present directors and their addresses and principal
occupations or affiliations are as follows:
<TABLE>
<CAPTION>
Principal Officers and
Other Occupation Directors Term
NAME OF OFFICES HELD AGE ADDRESS OR AFFILIATION FROM TO*
DIRECTOR
<S> <C> <C> <C> <C> <C>
Michael S. Chairman 35 4732 Calvert Street Executive October Present
Dunlap Lincoln, Nebraska Vice 1999
68506 President of
Union Bank
and Trust
Company;
President,
Farmers &
Merchants
Investment, Inc.
Stephen F. President 46 6991 East Camelback Vice- October Present
Butterfield Road, Suite B290 Chairman of 1999
Scottsdale, Arizona National
85251 Education
Loan
Network, Inc.
Ronald W. Vice 50 1801 California Street Senior Vice October Present
Page President, Suite 3920 President of 1999
Treasurer and Denver, CO 80202 Union
Secretary Financial
Services, Inc.
40
<PAGE>
Ross Wilcox -- 56 4732 Calvert Street Chief October Present
Lincoln, Nebraska Executive 1999
68506 Officer of
Union Bank
and Trust
Company
Dr. Paul R. - 64 Hernia Hill, Rural Retired October Present
Hoff Route 1 Physician 1999
Seward, Nebraska
68434
</TABLE>
- -------------
(*) Each director holds office until the next annual meeting of shareholders
following his or her election until such director's successors shall
have been elected and qualified. Annual Meetings for NELNET Student Loan
Corporation-2 are generally held in March of each year.
EXECUTIVE MANAGEMENT
The board of directors and executive officers described below are
responsible for overall management of NELNET Student Loan Corporation-2. NELNET
Student Loan Corporation-2's officers and directors are shareholders, officers
and directors of business entities that have engaged in the business of
purchasing, holding and selling student loans.
MICHAEL S. DUNLAP, CHAIRMAN OF THE BOARD. As the Chairman of the board
of directors, Mr. Dunlap is responsible for the executive direction of NELNET
Student Loan Corporation-2. Mr. Dunlap is also Executive Vice President of Union
Bank and Trust Company, and President of Farmers & Merchants Investment Inc. He
has been an employee of Union Bank and Trust Company for approximately 15 years.
Mr. Dunlap is also a director of Stratus Fund, Inc., Union Bank and Trust
Company and other affiliated banks, Union Financial Services, Inc., National
Education Loan Network, Inc., UNIPAC, InTuition Holdings, Inc. and Farmers and
Merchants Investment, Inc. Mr. Dunlap received a Bachelor of Science degree in
finance and accounting and a Juris Doctor degree from the University of
Nebraska.
STEPHEN F. BUTTERFIELD, PRESIDENT AND DIRECTOR. As President, Mr.
Butterfield is responsible for the overall management and direction of NELNET
Student Loan Corporation-2. Included in his responsibilities are loan
purchasing, marketing of corporate services and coordination of NELNET Student
Loan Corporation-2's capital market activities. Mr. Butterfield has been a
member of the student loan industry since January 1989, first as president of a
for-profit student loan secondary marketing facility located in Scottsdale,
Arizona and currently as President of a non-profit student loan secondary
marketing facility in Scottsdale, Arizona. Prior to his work in the student loan
industry, Mr. Butterfield spent 15 years as an investment banker specializing in
municipal finance. Mr. Butterfield is a director of Outdoor Systems, Inc. Mr.
Butterfield received a Bachelor of Science degree in business from Arizona State
University.
RONALD W. PAGE, VICE PRESIDENT, TREASURER, SECRETARY AND DIRECTOR. As
Vice President, Treasurer and Secretary, Mr. Page is responsible for the
financial operations and record keeping of NELNET Student Loan Corporation-2.
Included in his responsibilities are financial planning and capital market
operations. Mr. Page spent 20 years as an investment banker specializing in
tax-exempt and taxable asset-backed finance, with a specialty in the
securitization of student loans. Mr. Page is a director of Union Financial
Services, Inc., and Ref-Chem Corporation. Mr. Page received a Bachelor of
Science degree in business administration from the University
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of Colorado, Boulder, Colorado, and a Masters of Public Administration in Public
Policy Analysis from the American University, Washington, DC.
ROSS WILCOX, DIRECTOR. Mr. Wilcox is the Chief Executive Officer and a
Director of Union Bank and Trust Company and has been employed or affiliated
with Union Bank and Trust Company for over 30 years. Mr. Wilcox is the Chairman
of the Board for Mills County State Bank and is on the Board of Directors for
UNIPAC and Union Insurance Agency.
DR. R. PAUL HOFF, DIRECTOR. Dr. Hoff is a medical doctor who practiced
as a family physician in Seward, Nebraska for approximately 30 years, until his
retirement three years ago. Dr. Hoff also serves as member of the Board of
Directors of Packers Service Group, Inc. Dr. Hoff has been involved in a number
of business enterprises over the years and currently owns and operates a retail
antique store in Ennis, Montana.
NELNET Student Loan Corporation-2's executive officers are elected
annually by the board of directors and serve at the discretion of the board.
NELNET Student Loan Corporation- 2's directors hold office until the next annual
meeting of stockholders and until their successors have been duly elected and
qualified.
National Education Loan Network, Inc. provides certain administrative
services to NELNET Student Loan Corporation-2 in connection with the operation
of NELNET Student Loan Corporation-2's student loan program. National Education
Loan Network, Inc. receives compensation for those services, but the amount of
such payments is subject to approval by each rating agency and payments are made
only when funds are available in the Operating Fund. The approved compensation
currently is 0.18% of NELNET Student Loan Corporation-2's outstanding assets per
annum, or such other amount as may be specified in the related prospectus
supplement. National Education Loan Network, Inc. also receives compensation
from NELNET Student Loan Corporation-2 for services provided in connection with
structuring, negotiating and implementing NELNET Student Loan Corporation-2's
financing programs. The amount of such fees paid to National Education Loan
Network, Inc., if any, in connection with issuance of a series of the notes will
be described in the applicable prospectus supplement.
THE STUDENT LOAN PROGRAM OF NELNET STUDENT LOAN CORPORATION-2
NELNET Student Loan Corporation-2 established its student loan program
in order to effectuate its general corporate purposes.
LOAN PURCHASE AGREEMENTS
NELNET Student Loan Corporation-2 will purchase its student loans from
"eligible lenders" under the Higher Education Act pursuant to the terms of
student loan purchase agreements. The student loan purchase agreements will
identify the portfolio of student loans to be purchased and will specify the
purchase price to be paid for those loans. Each seller will be obligated under
the student loan purchase agreement to deliver each student loan note and
related documentation to the servicer or subservicer as custodial agent for the
trustee, and to deliver the instruments of transfer for the student loans as
necessary for a valid transfer of the loans.
Each seller will make representations, warranties and covenants with
respect to the student loans sold pursuant to its respective student loan
purchase agreement, including the following:
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<PAGE>
o each loan has been duly executed and delivered and constitutes
the legal, valid and binding obligation of the maker and the
endorser, if any, thereof, enforceable in accordance with its
terms.
o the seller is the sole owner and holder of each loan and has full
right and authority to sell and assign the same free and clear of
all liens, pledges or encumbrances.
o each loan to be sold under the student loan purchase agreement
is either insured or guaranteed.
o the seller and any independent servicer have each exercised and
shall continue until the scheduled sale date to exercise due
diligence and reasonable care in making, administering, servicing
and collecting the loans.
o the seller, or the lender that originated a loan, has reported
the amount of origination fees, if any, authorized to be
collected with respect to the loan pursuant to Section 438(c) of
the Act to the Secretary for the period in which the fee was
authorized to be collected; and the seller or originating lender
has made any refund of an origination fee collected in connection
with any loan which may be required pursuant to the Higher
Education Act.
At the request of NELNET Student Loan Corporation-2 or the trustee, each
seller will be obligated to repurchase any loan purchased by NELNET Student Loan
Corporation-2 from the seller if:
o any representation or warranty made or furnished by the seller in
or pursuant to its respective student loan purchase agreement
shall prove to have been materially incorrect as to the loan;
o the Secretary or a guarantee agency, as the case may be, refuses
to honor all or part of a claim filed with respect to a loan,
including any claim for interest subsidy, special allowance
payments, insurance, reinsurance or guarantee payments on account
of any circumstance or event that occurred prior to the sale of
the loan to NELNET Student Loan Corporation-2; or
o on account of any wrongful or negligent act or omission of the
seller or its servicing agent that occurred prior to the sale of
a loan to NELNET Student Loan Corporation-2, a defense that makes
the loan unenforceable is asserted by a maker or endorser, if
any, of the loan with respect to his or her obligation to pay all
or any part of the loan.
Upon the occurrence of any of the conditions set forth above and upon
the request of NELNET Student Loan Corporation-2 or the trustee, the seller will
be required to pay to the trustee an amount equal to the then-outstanding
principal balance of the loan, plus the percentage of premium paid by NELNET
Student Loan Corporation-2 in connection with the purchase of the loan and
interest and special allowance payments accrued and unpaid with respect to the
loan, plus any attorneys' fees, legal expenses, court costs, servicing fees or
other expenses incurred by NELNET Student Loan Corporation-2, and the trustee in
connection with the loan and arising out of the reasons for the repurchase.
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<PAGE>
SERVICING OF STUDENT LOANS
NELNET Student Loan Corporation-2 is required under the Higher Education
Act, the rules and regulations of the guarantee agency and the indenture to use
due diligence in the servicing and collection of student loans and to use
collection practices no less extensive and forceful than those generally in use
among financial institutions with respect to other consumer debt.
THE TRUSTEE IS ACTING AS "ELIGIBLE LENDER" WITH RESPECT TO THE STUDENT
LOANS AS AN ACCOMMODATION TO NELNET STUDENT LOAN CORPORATION-2 AND NOT FOR THE
BENEFIT OF ANY OTHER PARTY. NOTWITHSTANDING ANY RESPONSIBILITY THAT THE TRUSTEE
MAY HAVE TO THE SECRETARY OF EDUCATION OR ANY GUARANTEE AGENCY UNDER THE HIGHER
EDUCATION ACT, THE TRUSTEE SHALL NOT HAVE ANY RESPONSIBILITY FOR ANY ACTION OR
INACTION OF THE TRUSTEE, NELNET STUDENT LOAN CORPORATION-2 OR ANY OTHER PARTY IN
CONNECTION WITH THE STUDENT LOANS AND THE DOCUMENTS, AGREEMENTS, UNDERSTANDINGS
AND ARRANGEMENTS RELATING TO THE STUDENT LOANS.
THE SERVICING AGREEMENTS
We have entered into a servicing agreement with National Education Loan
Network which continues until the earlier of
o termination of the indenture,
o early termination after material default by the servicer as
provided for in the servicing agreement, or
o the student loans serviced under the servicing agreement are
paid in full.
National Education Loan Network has entered into subservicing agreements
with UNIPAC Service Corporation, a Nebraska corporation and InTuition, Inc.
under which UNIPAC and InTuition, as subservicers, assume all of the duties of
the servicer under the servicing agreement for the term of the servicing
agreement.
UNIPAC and InTuition will provide data processing and other assistance
in connection with the servicing of our portfolio of student loans as required
by the Higher Education Act and the guarantee agencies. We will cause the
trustee to pay from the Revenue Fund established under the indenture to National
Education Loan Network servicing fees, and National Education Loan Network,
pursuant to the subservicing agreements, pays UNIPAC and InTuition subservicing
fees and certain expenses for the services which UNIPAC and InTuition provide.
In the event National Education Loan Network no longer acts as the primary
servicer of our student loan portfolio, UNIPAC and InTuition have agreed to
service our student loans under the terms of and pursuant to the servicing
agreement.
Under the terms of the subservicing agreements, the subservicers may be
obligated to pay us an amount equal to the outstanding principal balance plus
all accrued interest and other fees due to the date of purchase of a student
loan if the subservicer causes the loan to be denied the benefit of any
applicable guarantee and is unable to cause the reinstatement of the guarantee
within twelve (12) months of denial by the applicable guarantee agency. Upon
payment, the loan shall be subrogated to the subservicer. In the event the
subservicer cures any student loan, we will repurchase the loan an amount equal
to the then outstanding principal balance plus all
44
<PAGE>
accrued interest due on the student loan, less the amount subject to the risk
sharing provisions in the Higher Education Act, whereupon the subrogation rights
of the subservicer shall terminate.
NELNET Student Loan Corporation-2 may designate another servicer with
respect to its student loans. Any servicer, other than National Education Loan
Network, shall be confirmed in writing by each rating agency rating our notes.
NATIONAL EDUCATION LOAN NETWORK, INC.
National Education Loan Network, Inc. was formed in 1996 with the
purpose of creating a network of student loan finance industry participants to
provide services to educational institutions, lenders and students across the
country. National Education Loan Network, Inc. provides a wide array of
education loan finance services, including student loan secondary market
operations, administrative management services and asset finance services.
Through its operating subsidiaries, National Education Loan Network, Inc. owns
and administers over $2 billion in student loans. NELNET Student Loan
Corporation-2 is a subsidiary of National Education Loan Network, Inc.
UNIPAC
UNIPAC began its education loan servicing operations on January 1, 1978,
and provides education loan servicing, time sharing, administration and other
services to lenders, secondary market purchasers and guarantee agencies
throughout the United States. UNIPAC is an operating subsidiary of 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. In December 1989, UNIPAC opened a second servicing
center in Lincoln, Nebraska, which as of May 31, 1999, employed approximately
228 people. In November, 1997, UNIPAC opened a third servicing center in St.
Paul, Minnesota, which, as of May 31, 1999, employed approximately 144 people.
As of May 31, 1999, UNIPAC's servicing volume was approximately $9.2 billion for
its full service and secondary market clients.
UNIPAC's due diligence schedule is conducted through automated letter
generation. Telephone calls are made by an auto-dialer system. All functions are
monitored by an internal quality control system to ensure their performance.
Compliance training is provided on both centralized and unit level basis. In
addition, UNIPAC has distinct compliance and internal auditing departments whose
functions are to advise and coordinate compliance issues. In order to provide
these services, UNIPAC has developed and maintains a computer mainframe and
software system. See "Certain Relationships Among Financing Participants."
INTUITION
InTuition has been servicing the education finance industry since 1997.
InTuition has over 200 employees servicing over $2 billion in student loans held
by financial institutions and secondary markets throughout the United States.
InTuition provides a complete line of services from originations and
disbursement processing to collection activities.
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<PAGE>
DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
The Higher Education Act provides for a program of direct federal
insurance for student loans as well as reinsurance of student loans guaranteed
or insured by state agencies or private non-profit corporations.
The Higher Education Act currently authorizes certain student loans to
be covered under the Federal Family Education Loan Program. The 1998 Amendments
to the Higher Education Act extended the principal provisions of the Federal
Family Education Loan Program through September 30, 2004. Congress has extended
similar authorization dates in prior versions of the Higher Education Act.
However, the current authorization dates may not again be extended and the other
provisions of the Higher Education Act may not be continued in their present
form.
Generally, a student is eligible for loans made under the Federal Family
Education Loan Program only if he or she:
o has been accepted for enrollment or is enrolled in good standing
at an eligible institution of higher education;
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;
o has agreed to promptly notify the holder of the loan of any
address change; and
o meets the applicable "needs" requirements.
Eligible institutions include higher educational institutions and
vocational schools that comply with specific federal regulations. Each loan is
to be evidenced by an unsecured note.
The Higher Education Act also 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 Federal Family Education Loan Program.
The Higher Education Act allows lesser rates of interest to be charged.
TYPES OF LOANS
Four types of loans are currently available under the Federal Family
Education Loan 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 and eligibility for interest subsidies and special
allowance payments. Some of these loan types have had other names in the past.
References to these various loan types include, where appropriate, their
predecessors
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The primary loan under the Federal Family Education Loan Program is the
Subsidized Federal Stafford Loan. Students who are not eligible for Subsidized
Stafford Loans based on their economic circumstances may be able to obtain
Unsubsidized Federal Stafford Loans. Parents of students may be able to obtain
Federal PLUS Loans. Consolidation Loans are available to borrowers with existing
loans made under the Federal Family Education Loan Program and other federal
programs to consolidate repayment of the borrower's existing loans. Prior to
July 1, 1994, the Federal Family Education Loan Program also offered Federal
Supplemental Loans for Students ("Federal SLS Loans") to graduate and
professional students and independent undergraduate students and, under certain
circumstances, dependent undergraduate students, to supplement their Stafford
Loans.
SUBSIDIZED FEDERAL STAFFORD LOANS
GENERAL. Subsidized Stafford Loans are eligible for reinsurance under
the Higher Education Act if the eligible student to whom the loan is made has
been accepted or is enrolled in good standing at an eligible institution of
higher education or vocational school and is carrying at least one-half the
normal full-time workload at that institution. Subsidized Stafford Loans have
limits as to the maximum amount which may be borrowed for an academic year and
in the aggregate for both undergraduate and graduate/professional study. Both
aggregate limitations exclude loans made under the Federal SLS and Federal PLUS
Programs. The Secretary of Education has discretion to raise these limits to
accommodate students undertaking specialized training requiring exceptionally
high costs of education.
Subsidized Stafford Loans are generally made only to student borrowers
who meet the needs tests provided in the Higher Education Act. Provisions
addressing the implementation of needs analysis and the relationship between
unmet need for financing and the availability of Subsidized Federal Stafford
Loan Program funding have been the subject of frequent and extensive amendment
in recent years. Further amendment to such provisions may materially affect the
availability of Subsidized Stafford Loan funding to borrowers or the
availability of Subsidized Stafford Loans for secondary market acquisition.
INTEREST RATES FOR SUBSIDIZED FEDERAL STAFFORD LOANS. For a Stafford
Loan made prior to July 1, 1994, the applicable interest rate for a borrower
who, on the date the promissory note was signed, did not have an outstanding
balance on a previous Federal Family Education Loan Program loan:
(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 before 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) 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,
for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, and thereafter shall be
adjusted annually, and for any 12-month period commencing on a July 1
shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills
auctioned
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at the final auction prior to the preceding June 1, plus 3.25% per annum
(but not to exceed 10% per annum); or
(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 U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus 3.1%
per annum (but not to exceed 9% per annum).
For a Stafford Loan made prior to July 1, 1994, the applicable interest
rate for a borrower who, on the date the promissory note evidencing the loan was
signed, had an outstanding balance on a previous loan made insured or guaranteed
under the Federal Family Education Loan Program:
(6) for a loan made prior to July 23, 1992 is the applicable
interest rate on the previous loan or, if the previous loan is not a
Stafford Loan 8% per annum or
(7) for a loan made on or before July 23, 1992 shall be adjusted
annually, and for any twelve month period commencing on a July 1 shall
be equal to the bond equivalent rate of 91-day U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus 3.1%
per annum but not to exceed:
o 7% per annum in the case of a Stafford Loan made to a borrower
who has a loan described in clause (1) above;
o 8% per annum in the case of
o a Stafford Loan made to a borrower who has a loan
described in clause (3) above,
o 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,
o 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;
o 9% per annum in the case of a Stafford Loan made to a borrower
who has a loan described in clauses (2) or (5) above or 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
o 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 prior to July 1, 1998, regardless of whether the borrower is a new borrower
or a repeat borrower, is the rate described in clause (7) above, except that the
interest rate shall not exceed 8.25% per annum. For any Stafford Loan made on or
after July 1, 1995, the interest rate is further reduced prior to the time the
loan enters repayment and during any deferment periods. During deferment
periods,
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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 October 1,
1998, the applicable interest rate shall be adjusted annually, and for any
twelve month period commencing on a July 1 shall be equal to the bond equivalent
rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the
proceeding June 1, plus 1.7% per annum prior to the time the loan enters
repayment and during any deferment periods, and 2.3% per annum during repayment,
but not to exceed 8.25% per annum.
For loans made on or after October 1, 1998, the applicable interest rate
will continue to be adjusted annually, but for any 12-month period commencing on
a July 1 will be equal to the bond equivalent rate of securities with a
comparable maturity (as established by the Secretary of Education), plus 1% per
annum, but not to exceed 8.25% per annum. There can be no assurance that the
interest rate provisions for these loans will not be further amended, either
before or after the rate described in this section becomes effective.
UNSUBSIDIZED FEDERAL STAFFORD LOANS
GENERAL. The Unsubsidized Federal Stafford Loan Program was created by
Congress in 1992 for students who do not qualify for Subsidized Stafford Loans
due to parental and/or student income and assets in excess of permitted amounts.
These students are entitled to borrow the difference between the Stafford Loan
maximum and their Subsidized Stafford eligibility through the Unsubsidized
Stafford program. The general requirements for Unsubsidized Stafford Loans are
essentially the same as those for Subsidized Stafford Loans. The interest rate,
the annual loan limits and the special allowance payment provisions of the
Unsubsidized Stafford Loans are the same as the Subsidized Stafford Loans.
However, the terms of the Unsubsidized Stafford Loans differ materially from
Subsidized Stafford Loans in that the federal government will not make interest
subsidy payments and the loan limitations are determined without respect to the
expected family contribution. The borrower will be required to either pay
interest from the time the loan is disbursed or capitalize the interest until
repayment begins. Unsubsidized Stafford Loans were not available before October
1, 1992. A student meeting the general eligibility requirements for a loan under
the Federal Family Education Loan Program is eligible for an Unsubsidized
Stafford Loan without regard to need.
INTEREST RATES FOR UNSUBSIDIZED FEDERAL STAFFORD LOANS. Unsubsidized
Stafford Loans are subject to the same interest rate provisions as Subsidized
Stafford Loans.
FEDERAL PLUS LOANS
GENERAL. PLUS Loans are made only to borrowers who are parents 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. The basic provisions
applicable to PLUS Loans are similar to those of Subsidized Stafford Loans with
respect to the involvement of guarantee agencies and the Secretary of Education
in providing federal reinsurance on the loans. However, PLUS Loans differ
significantly from Subsidized Stafford Loans, particularly because federal
interest subsidy payments are not available under the PLUS Loan program and
special allowance payments are more restricted.
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INTEREST RATES FOR FEDERAL PLUS LOANS. The applicable interest rate
depends upon the date of issuance of the loan and the period of enrollment for
which the loan is to apply. The applicable interest rate on a PLUS Loan:
o made on or after January 1, 1981, but before October 1, 1981, is
9% per annum;
o made on or after October 1, 1981, but before November 1, 1982,
is 14% per annum;
o made on or after November 1, 1982, but before July 1, 1987, is
12% per annum;
o made on or after July 1, 1987, but before October 1, 1992 shall
be adjusted annually, and for any 12-month period beginning on
July 1 shall be equal to the bond equivalent rate of 52-week U.S.
Treasury bills auctioned at the final auction prior to the
preceding June 1, plus 3.25% per annum (but not to exceed 12% per
annum);
o made on or after October 1, 1992, but before July 1, 1994, shall
be adjusted annually, and for any 12-month period beginning on
July 1 shall be equal to the bond equivalent rate of 52-week U.S.
Treasury bills auctioned at the final auction prior to the
preceding June 1, plus 3.1% per annum (but not to exceed 10% per
annum).
o made on or after July 1, 1994, but before July 1, 1998, is the
same as that for a loan made on or after October 1, 1992, but
before July 1, 1994, except that such rate shall not exceed 9%
per annum; or
o made on or after July 1, 1998, but before October 1, 1998, shall
be adjusted annually, and for any 12-month period beginning on
July 1 shall be equal to the bond equivalent rate of 91-day U.S.
Treasury bills auctioned at the final auction prior to the
proceeding June 1, plus 3.1% per annum (but not to exceed 9% per
annum).
For PLUS Loans made on or after October 1, 1998, the applicable rate
will continue to be adjusted annually, but for any 12-month period commencing on
a July 1 will be equal to the bond equivalent rate of securities with a
comparable maturity (as established by the Secretary of Education), plus 2.1%
per annum, but not to exceed 9% per annum.
If requested by the borrower, an eligible lender may consolidate SLS or
PLUS Loans of the same borrower held by the lender under a single repayment
schedule. The repayment period for each included loan shall be based on the
commencement of repayment of the most recent loan. The consolidated loan shall
bear interest at a rate equal to the weighted average of the rates of the
included loans. Such a consolidation shall not be treated as the making of a new
loan. In addition, at the request of the borrower, a lender may refinance an
existing fixed rate SLS or PLUS Loan, including an SLS or PLUS Loan held by a
different lender who has refused to refinance the loan, at a variable interest
rate. In this case, proceeds of the new loan are used to discharge the original
loan.
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FEDERAL SLS LOANS
GENERAL. SLS Loans were limited to graduate or professional students,
independent undergraduate students, and dependent undergraduate students, if the
students' parents were unable to obtain a PLUS Loan and were also unable to
provide the students' expected family contribution. Except for dependent
undergraduate students, eligibility for SLS Loans was determined without regard
to need. SLS Loans are similar to Subsidized Stafford Loans with respect to the
involvement of guarantee agencies and the Secretary of Education in providing
federal reinsurance on the loans. However, SLS Loans differ significantly from
Subsidized Stafford Loans, particularly because federal interest subsidy
payments are not available under the SLS Loan program and special allowance
payments are more restricted.
INTEREST RATES FOR FEDERAL 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.
FEDERAL CONSOLIDATION LOANS
GENERAL. The Higher Education Act authorizes a program under which
certain borrowers may consolidate their various student loans into a single loan
insured and reinsured on a basis similar to Subsidized Stafford Loans. Federal
Consolidation Loans may be obtained in an amount sufficient to pay outstanding
principal, unpaid interest and late charges on federally insured or reinsured
student loans incurred under the Federal Family Education Loan Program,
excluding Federal PLUS Loans made to "parent borrowers", selected by the
borrower, as well as loans made pursuant to the Perkins (formally "National
Direct Student Loan") and Health Professional Student Loan Programs. To be
eligible for a Consolidation Loan, a borrower must:
o have outstanding indebtedness on student loans made under the
Federal Family Education Loan Program and/or certain other
federal student loan programs, and
o be in repayment status or in a grace period, or
o be a defaulted borrower who has made arrangements to repay any
defaulted loan satisfactory to the holder of the defaulted loan.
A married couple who agree 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. For applications received
on or after January 1, 1993, borrowers may add additional loans to a Federal
Consolidation Loan during the 180-day period following the origination of the
Federal Consolidation Loan.
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INTEREST RATES FOR FEDERAL 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. For a
Consolidation Loan for which the application is received by an eligible lender
on or after November 13, 1997 and before October 1, 1998, the interest rate
shall be adjusted annually, and for any twelve-month period commencing on a July
1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus 3.1% per
annum, but not to exceed 8.25% per annum. Notwithstanding these general interest
rates, the portion, if any, of a Consolidation Loan that repaid a loan made
under title VII, Sections 700-721 of the Public Health Services Act, as amended,
has a different variable interest rate. Such portion is adjusted on July 1 of
each year, but is the sum of the average of the T-Bill Rates auctioned for the
quarter ending on the preceding June 30, plus 3.0%, without any cap on the
interest rate. For a discussion of required payments that reduce the return on
Consolidation Loans, see "Fees - Rebate Fees on Consolidation Loans" in this
prospectus.
MAXIMUM LOAN AMOUNTS
Each type of loan is subject to limits on the maximum principal amount,
both with respect to a given year and in the aggregate. Consolidation Loans are
limited only by the amount of eligible loans to be consolidated. 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 needs analysis. Additional limits are described below.
LOAN LIMITS FOR STAFFORD AND UNSUBSIDIZED STAFFORD LOANS. Stafford and
Unsubsidized Stafford Loans are generally treated as one loan type for loan
limit purposes. A student who has not successfully completed the first year of a
program of undergraduate education may borrow up to $2,625 in an academic year.
A student who has successfully completed the first year, but who has not
successfully completed the second year may borrow up to $3,500 per academic
year. An undergraduate student who 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 the 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.
Prior to the enactment of the Higher Education Amendments of 1992, an
undergraduate student who had not successfully completed the first and second
year of a program of undergraduate education could borrow Stafford Loans in
amounts up to $2,625 in an academic year. An undergraduate student who had
successfully completed the first and second 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
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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.
LOAN LIMITS FOR 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 of SLS
Loans applied with respect to each student on behalf of whom the parent
borrowed.
LOAN LIMITS FOR SLS LOANS. A student who had not successfully completed
the first and second year of a program of undergraduate education could borrow
an SLS Loan in an amount of up to $4,000. A student who had successfully
completed the first and second year, but who had not successfully completed the
remainder of a program of undergraduate education could borrow up to $5,000 per
year. Graduate and professional students could borrow up to $10,000 per year.
SLS Loans were subject to an aggregate maximum of $23,000 ($73,000 for graduate
and professional students). Prior to the 1992 changes, SLS Loans were available
in amounts of $4,000 per academic year, up to a $20,000 aggregate maximum. Prior
to the 1986 changes, a graduate or professional student could borrow $3,000 of
SLS Loans per academic year, up to a $15,000 maximum, and an independent
undergraduate student could borrow $2,500 of SLS Loans per academic year minus
the amount of all other Federal Family Education Loan Program loans to such
student for such academic year, up to the maximum amount of all Federal Family
Education Loan 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 in a manner similar to the limits described above under
"Stafford Loans".
DISBURSEMENT REQUIREMENTS
The Higher Education Act now requires that virtually all Stafford Loans
and PLUS Loans be disbursed by eligible lenders in at least two separate
installments. The proceeds of a loan made to any undergraduate first-year
student borrowing for the first time under the program must be delivered to the
student no earlier than thirty days after the enrollment period begins.
REPAYMENT
REPAYMENT PERIODS. Loans made under the Federal Family Education Loan
Program, other than Consolidation Loans, must provide for repayment of principal
in periodic installments over a period of not less than five nor more than ten
years. After the 1998 Amendments, lenders are required to offer extended
repayment schedules to new borrowers who accumulate outstanding loans of more
than $30,000, in which case the repayment period may extend up to 25 years
subject to certain minimum repayment amounts. A Consolidation Loan must be
repaid during a period agreed to by the borrower and lender, subject to maximum
repayment periods which vary depending upon the principal amount of the
borrower's outstanding student loans, but may not be longer than 30 years. For
Consolidation Loans for which the application was received prior to January 1,
1993, the repayment period could not exceed 25 years. Repayment of principal on
a Stafford Loan does not commence while a student remains a qualified student,
but generally begins upon expiration of the applicable grace period. Grace
periods may be waived by borrowers. For Stafford Loans for which the applicable
rate of interest is 7% per annum, the repayment period commences not more than
twelve months after the borrower ceases to pursue at least a half-time course of
study. For other Stafford Loans and Unsubsidized
\
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Stafford Loans, the repayment period commences not more than six months after
the borrower ceases to pursue at least a half-time course of study. The six
month or twelve month periods are the "grace periods".
In the case of SLS, PLUS and Consolidated Loans, the repayment period
commences on the date of final disbursement of the loan, except that the
borrower of an SLS Loan who also has a Stafford Loan may defer repayment of the
SLS Loan to coincide with the commencement of repayment of the Stafford or
Unsubsidized Stafford Loan. During periods in which repayment of principal is
required, payments of principal and interest must in general be made at a rate
of not less than the greater of $600 per year or the interest that accrues
during the year, except that a borrower and lender may agree to a lesser rate at
any time before or during the repayment period. 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.
INCOME SENSITIVE REPAYMENT SCHEDULES. 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. NELNET Student Loan
Corporation-2 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.
DEFERMENT PERIODS. No principal repayments need be made during certain
periods of deferment 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:
o 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;
o during a period not in excess of three years while the borrower
is a volunteer under the Peace Corps Act;
o during a period not in excess of three years while the borrower
is a full-time
volunteer under the Domestic Volunteer Act of 1973;
o during a period not exceeding three years while the borrower is
in service, comparable to the service described above as a
full-time volunteer for an organization which is exempt from
taxation under Section 501(c)(3) of the Code;
o during a period not exceeding two years while the borrower is
serving an internship necessary to receive professional
recognition required to begin professional practice or service,
or a qualified internship or residency program;
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o 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;
o during a period not to exceed twenty-four months while the
borrower is seeking and unable to find full-time employment;
o during any period that the borrower is pursuing a full-time
course of study at an eligible institution (or, with respect to
a borrower who first obtained a student loan disbursed on or
after July 1, 1987, or a student loan to cover the cost of
instruction for a period of enrollment beginning on or after
July 1, 1987, is pursuing at least a half-time course of study
for which the borrower has obtained a loan under the Federal
Family Education Loan 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;
o during a period, not in excess of 6 months, while the borrower
is on parental leave; and
o 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, 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 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:
o 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;
o during a period not exceeding three years while the borrower is
seeking and unable to find full-time employment; and
o 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 certain of the deferment periods
described above were available to PLUS Loan borrowers, and only certain
deferment periods were available to
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Consolidation Loan borrowers. Prior to the 1986 changes, PLUS Loan borrowers
were not entitled to certain deferment periods. Deferment periods extend the
ten-year maximum term.
FORBEARANCE PERIOD. The Higher Education Act also provides for periods
of forbearance during which the borrower, in case of temporary financial
hardship, may defer any payments. A 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 Federal Family Education Loan
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 in exceptional circumstances such as a local or
national emergency or military mobilization, or when the geographical area in
which the borrower or endorser resides has been designated a disaster area by
the President of the United States or Mexico, the Prime Minister of Canada, or
by the governor of a state. In other circumstances, forbearance is at the
lender's option. Forbearance also extends the ten year maximum term.
INTEREST PAYMENTS DURING GRACE, DEFERMENT AND FORBEARANCE PERIODS. 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 not more frequently than quarterly.
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, borrowers 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 Loan, an Unsubsidized Stafford Loan or PLUS Loan an origination
fee in an amount not to exceed 5% of the principal amount of the loan, and is
required to charge the borrower of an Unsubsidized Stafford Loan an or a PLUS
Loan 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. These fees are not retained by
the lender, but must be passed on to the Secretary of Education.
LENDER ORIGINATION FEE. The lender of any loan under the Federal Family
Education Loan Program made on or after October 1, 1993 is required to pay to
the Secretary of Education a fee equal to 0.5% of the principal amount of such
loan.
REBATE FEE ON CONSOLIDATION LOANS. The holder of any Consolidation Loan
made on or after October 1, 1993 is required to pay to the Secretary of
Education a monthly fee equal to .0875% (1.05% per annum) of the principal
amount of, and accrued interest on the Consolidation
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Loan. For loans made pursuant to applications received on or after October 1,
1998, and on or before January 31, 1999 the fee on consolidation loans of 1.05%
is reduced to .62%.
INTEREST SUBSIDY PAYMENTS
Interest subsidy payments are interest payments paid with respect to an
eligible loan before the time that the loan enters repayment and during grace
and deferment periods. The Secretary of Education and the guarantee agencies
enter into interest subsidy agreements whereby the Secretary of Education agrees
to pay interest subsidy payments to the holders of eligible guaranteed loans for
the benefit of students meeting certain requirements, subject to the holders'
compliance with all requirements of the Higher Education Act. Only Stafford
Loans and Consolidation Loans for which the application was received on or after
January 1, 1993, are eligible for interest subsidy payments. Consolidation Loans
made after August 10, 1993 are eligible for interest subsidy payments only if
all loans consolidated thereby are Stafford Loans, except that Consolidation
Loans for which the application is received by an eligible lender on or after
November 13, 1997 and before October 1, 1998, are eligible for interest subsidy
payments on that portion of the Consolidation Loan that repays Stafford Loans or
similar subsidized loans made under the direct loan program. In addition, to be
eligible for interest subsidy payments, guaranteed loans must be made by an
eligible lender under the applicable guarantee agency's guarantee program, and
must meet requirements prescribed by the rules and regulations promulgated under
the Higher Education Act.
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.
SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for special allowance payments to be
made by the Secretary of Education to eligible lenders. The rates for special
allowance payments are based on formulas that differ according to the type of
loan, the date the loan was originally made or insured and the type of funds
used to finance the loan (taxable or tax-exempt). 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.
FEDERAL SUBSIDIZED AND UNSUBSIDIZED STAFFORD LOANS. The effective
formulas for special allowance payment rates for Stafford and Unsubsidized
Stafford Loans are summarized in the following chart:
DATE OF LOANS ANNUALIZED SAP RATE On or after October 1, 1981 Bill
Rate less Applicable Interest Rate + 3.5% On or after November 16, 1986 T-Bill
Rate less Applicable Interest Rate + 3.25% On or after October 1, 1992 T-Bill
Rate less Applicable Interest Rate + 3.1% On or after July 1, 1995 T-Bill Rate
less Applicable Interest Rate + 2.5%(1) On or after January 1, 2000 and before
July 1, 2003 3 month commercial paper rate less Applicable Interest Rate +2.34%
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On or after July 1, 1998 T-Bill Rate less Applicable Interest Rate + 2.8%(2)
(1) Applies to Stafford and Unsubsidized Stafford Loans prior to the time
such loans enter repayment and during any Deferment Periods.
(2) Substitute 2.2% in this formula while such loans are the grace period.
For Loans made on or after October 1, 1998, the special allowance
formula is revised similarly to the manner in which the applicable interest rate
formula is revised.
The effective formulas for special allowance payment rates for Stafford
Loans and Unsubsidized Stafford Loans differ depending on whether loans to
borrowers were acquired or originated with the proceeds of tax-exempt
obligations. There are minimum special allowance payment rates for Stafford
Loans and Unsubsidized Stafford Loans acquired with proceeds of tax-exempt
obligations, which rates effectively ensure an overall minimum return of 9.5% on
such loans. However, loans acquired with the proceeds of tax-exempt obligations
originally issued after September 30, 1993 are not assured of a minimum special
allowance payment.
FEDERAL PLUS AND SLS LOANS. 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 "Interest
Rates for PLUS Loans" and "Interest Rates for SLS Loans" in this prospectus.
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.
For Plus Loans made after January 1, 2000 and before July 1, 2003, special
allowance is paid only if the sum of the 91-day Treasury bill rate determined at
an auction held on June 1 of each year plus 3.1% exceeds 9%. The portion, if
any, of a Consolidation Loan that repaid a loan made under Title VII, Sections
700-721 of the Public Health Services Act, as amended, is ineligible for special
allowance payments.
The Higher Education Act provides that if special allowance payments or
interest subsidy payments have not been made within 30 days after the Secretary
of Education receives an accurate, timely and complete request therefor, the
special allowance payable to such holder shall be increased by an amount equal
to the daily interest accruing on the special allowance and interest subsidy
payments due the holder.
Special allowance payments and interest subsidy payments are reduced by
the amount which the lender is authorized or required to charge as an
origination fee. In addition, the amount of the lender origination fee is
collected by offset to special allowance payments and interest subsidy payments.
DESCRIPTION OF THE GUARANTEE AGENCIES
The student loans in the trust estate will be guaranteed by any one or
more guarantee agencies identified in the related prospectus supplement. The
following discussion relates to guarantee agencies under the Federal Family
Education Loan Program.
A guarantee agency guarantees loans made to students or parents of
students by lending institutions such as banks, credit unions, savings and loan
associations, certain schools, pension funds and insurance companies. A
guarantee agency generally purchases defaulted student loans which it has
guaranteed with its reserve fund. A lender may submit a default claim to the
guarantee agency after the student loan has been delinquent for at least 270
days. The default
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claim package must include all information and documentation required under the
Federal Family Education Loan Program regulations and the guarantee agency's
policies and procedures.
In general, a guarantee agency's reserve 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
reserve fund, and a portion of the moneys collected from borrowers on guaranteed
lo ans 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 reserve funds at previous levels, and may adversely affect their ability
to meet their guarantee obligations. These changes include:
o the reduction in reinsurance payments from the Secretary of
Education because of reduced reimbursement percentages;
o the reduction in maximum permitted guarantee fees from 3% to 1%
for loans made on or after July 1, 1994;
o the replacement of the administrative cost allowance with a
student loan processing and issuance fee equal to 65 basis points
(40 basis points for loans made one or after October 1, 1993)
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 reduction in supplemental preclaims assistance payments from
the Secretary of Education; and
o the reduction in retention by a guarantee agency of collections
on defaulted loans from 27% to 24% (23% beginning on October 1,
2003).
Additionally, the adequacy of a guarantee agency's reserve 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 discussed below may
adversely affect the volume of new loan guarantees. 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.
The Higher Education Act gives the Secretary of Education various
oversight powers over guarantee agencies. These include requiring a guarantee
agency to maintain its reserve 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 reserve
fund shall be considered to be the property of the United States to be used in
the operation of the Federal Family Education Loan Program or the Federal Direct
Student Loan Program, and, under certain circumstances, the Secretary of
Education may demand payment of amounts in the reserve fund.
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The 1998 Amendments mandate the recall of guarantee agency 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, and under the
1998 Amendments, guarantee agency reserve funds were restructured to provide
guarantee agencies with additional flexibility in choosing how to spend certain
funds they receive. The new recall of reserves for guarantee agencies increases
the risk that resources available to guarantee agencies to meet their guarantee
obligation will be significantly reduced. Relevant federal laws, including the
Higher Education Act, may be further changed in a manner that may adversely
affect the ability of a guarantee agency to meet its guarantee obligations.
Under 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.
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 reserve fund to the Secretary of Education.
Information relating to the particular guarantee agencies guaranteeing
our student loans will be set forth in the prospectus supplement.
FEDERAL AGREEMENTS
GENERAL. A guaranty 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 guarantees agencies and
the Secretary of Education. Each guarantee agency and the Secretary of Education
have entered into federal reimbursement contracts pursuant to the Higher
Education Act, which provide for the guarantee agency to receive reimbursement
of a percentage 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 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.
In addition to guarantee benefits, qualified student loans acquired
under the Federal Family Education Loan Program benefit from certain federal
subsidies. Each guarantee agency and the Secretary of Education have entered
into an Interest Subsidy Agreement under the Higher Education Act which entitles
the holders of eligible loans guaranteed by the guarantee agency to receive
interest subsidy payments from the Secretary of Education on behalf of certain
students while the student is in school, during a six to twelve month grace
period after the student leaves school, and during certain deferment periods,
subject to the holders' compliance with all requirements of the Higher Education
Act.
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
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Education and the guarantee agencies described herein. Amendments to the Higher
Education Act in 1986, 1987, 1992, 1993, and 1998, respectively
o 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,
o 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,
o 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,
o expanded the Secretary of Education's authority to terminate
such contracts and to seize guarantee agencies' reserves, and
o mandated the additional recall of guarantee agency reserve funds.
FEDERAL INSURANCE AND REIMBURSEMENT OF GUARANTEE AGENCIES
EFFECT OF ANNUAL CLAIMS RATE. 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 paid on claims made by lenders,
as discussed in the formula described below, so long as the eligible lender has
properly serviced such loan. The amount of reimbursement is lower for loans
originated after October 1, 1993, as described below. Depending on the claims
rate experience of a guarantee agency, such reimbursement may be reduced as
discussed in the formula described below. The Secretary of Education also agrees
to repay 100% of the unpaid principal plus applicable accrued interest expended
by a guarantee agency in discharging its guarantee obligation as a result of the
bankruptcy, death, or total and permanent disability of a borrower, or in the
case of a PLUS Loan, the death of the student on behalf of whom the loan was
borrowed, or in certain circumstances, as a result of school closures, which
reimbursements are not to be included in the calculations of the guarantee
agency's claims rate experience for the purpose of federal reimbursement under
the Federal Reimbursement Contracts.
The formula used for loans initially disbursed prior to October 1, 1993
is summarized below:
CLAIMS RATE FEDERAL PAYMENT
0% up to 5% 100%
5% up to 9% 100% of claims up to 5%;
90% of claims 5% and over
9% and over 100% of claims up to 5%;
90% of claims 5% and over, up to 9%;
80% of claims 9% and over
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The claims experience is not accumulated from year to year, but is
determined solely on the basis of claims in any one federal fiscal year compared
with the original principal amount of loans in repayment at the beginning of
that year.
The 1993 Amendments reduce the reimbursement amounts described above,
effective for loans initially disbursed on or after October 1, 1993 as follows:
100% reimbursement is reduced to 98%, 90% reimbursement is reduced to 88%, and
80% reimbursement is reduced to 78%, subject to certain limited exceptions. The
1998 Amendments further reduce the federal reimbursement amounts from 98% to 95%
, 88% to 85%, and 78% to 75% respectively, for student loans first disbursed on
or after October 1, 1998.
The reduced reinsurance for federal guaranty agencies increases the risk
that resources available to guarantee agencies to meet their guarantee
obligation will be significantly reduced.
REIMBURSEMENT. The original principal amount of loans guaranteed by a
guarantee agency which are in repayment for purposes of computing reimbursement
payments to a guarantee agency means the original principal amount of all loans
guaranteed by a guarantee agency less:
o the original principal amount of such loans that have been fully
repaid, and
o the original amount of such loans for which the first principal
installment payment has not become due.
Guarantee agencies with default rates below 5% are required to pay the Secretary
of Education annual fees equivalent to 0.51% of new loans guaranteed, while all
other such agencies must pay a 0.5% fee. The Secretary of Education may withhold
reimbursement payments if a guarantee agency makes a material misrepresentation
or fails to comply with the terms of its agreements with the Secretary of
Education or applicable federal law.
Under the guarantee agreements, if a payment on a Federal Family
Education Loan guaranteed by a guarantee agency is received after reimbursement
by the Secretary of Education, the guarantee agency is entitled to receive an
equitable share of the payment.
Any originator of any student loan guaranteed by a guarantee agency is
required to discount from the proceeds of the loan at the time of disbursement,
and pay to the guarantee agency, an insurance premium which may not exceed that
permitted under the Higher Education Act.
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: a percentage amount equal to the complement of
the reimbursement percentage in effect at the time the loan was reimbursed, and
an amount equal to 24% of such payments for certain administrative costs. The
Secretary of Education may, however, require the assignment to the Secretary of
defaulted guaranteed loans, in which event no further collections activity need
be undertaken by the guarantee agency, and no amount of any recoveries shall be
paid to the guarantee agency.
A guarantee agency may enter into an addendum to its Interest Subsidy
Agreement that allows the guarantee agency to refer to the Secretary of
Education certain defaulted guaranteed
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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 of the Higher Education Act,
the Secretary of Education is authorized to enter into an agreement with a
guarantee agency 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
(except that a borrower's loan may only be rehabilitated once).
ELIGIBILITY FOR FEDERAL REIMBURSEMENT. To be eligible for federal
reimbursement payments, guaranteed loans must be made by an eligible lender
under the applicable guarantee agency's guarantee program, which must meet
requirements prescribed by the rules and regulations promulgated under the
Higher Education Act, including the borrower eligibility, loan amount,
disbursement, interest rate, repayment period and guarantee fee provisions
described herein and the other requirements set forth in the Higher Education
Act.
Prior to the 1998 Amendments, a Federal Family Education Loan was
considered in to be in default for purposes of the Higher Education Act when the
borrower failed to make an installment payment when due, or to comply with the
other terms of the loan, and if the failure persists for 180 days in the case of
a loan repayable in monthly installments or for 240 days in the case of a loan
repayable in less frequent installments. Under the 1998 Amendments, the
delinquency period required for a student loan to be declared in default is
increased from 180 days to 240 days for loans payable in monthly installments on
which the delinquency occurs on or after the date of enactment of the 1998
Amendments and from 240 days to 330 days for a loan payable less frequently than
monthly on which the delinquency occurs after the date of enactment of the 1998
Amendments.
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:
o that completed loan applications be processed;
o a determination of whether an applicant is an eligible borrower
attending an eligible institution under the Higher Education Act
be made;
o the borrower's responsibilities under the loan be explained to
him or her;
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o the promissory note evidencing the loan be executed by the
borrower; and
o that the loan proceeds be disbursed by the lender in a specified
manner.
After the loan is made, the lender must establish repayment terms with
the borrower, properly administer deferments and forbearances and credit the
borrower for payments made. If a borrower becomes delinquent in repaying a loan,
a lender must perform certain collection procedures, primarily telephone calls,
demand letters, skiptracing procedures and requesting assistance from the
applicable guarantee agency, that vary depending upon the length of time a loan
is delinquent.
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 direct 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. Participation in the program by
schools is voluntary. The goals set forth in the 1993 Amendments call for the
direct loan program to constitute 5% of the total volume of loans made under the
Federal Family Education Loan Program and the direct 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 direct loan program thereafter. Based upon information
released by the General Accounting Office, participation by schools in the
direct loan program has not been sufficient to meet the goals for the 1995-1996
or 1996-1997 academic years. The 1998 Amendments removed references to the
"phase-in" of the Direct Loan Program, including restrictions on annual limits
for Direct Loan Program volume and the Secretary's authority to select
additional institutions to achieve balanced school representation.
The loan terms are generally the same under the direct loan program as
under the Federal Family Education Loan Program, though more flexible repayment
provisions are available under the direct loan program. At the discretion of the
Secretary of Education, students attending schools that participate in the
direct loan program (and their parents) may still be eligible for participation
in the Federal Family Education Loan Program, though no borrower could obtain
loans under both programs for the same period of enrollment.
It is difficult to predict the impact of the direct lending program.
There is no way to accurately predict the number of schools that will
participate in future years, or, if the Secretary authorizes students attending
participating schools to continue to be eligible for Federal Family Education
Loan Program loans, how many students will seek loans under the direct loan
program instead of the Federal Family Education Loan Program. In addition, it is
impossible to predict whether future legislation will eliminate, limit or expand
the direct loan program or the Federal Family Education Loan Program.
OTHER GUARANTEE AGENCIES
Although NELNET Student Loan Corporation-2 expects that most of the
student loans it acquires under the indenture will be guaranteed by the
guarantee agencies described in the related prospectus supplement, NELNET
Student Loan Corporation-2 may acquire student loans under the indenture which
are guaranteed by other guarantee agencies with the approval of the rating
agencies.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of all material federal income tax
consequences of the purchase, ownership and disposition of notes for the
investors described below and is based on the advice of Kutak Rock LLP, as tax
counsel to NELNET Student Loan Corporation-2. This summary is based upon laws,
regulations, rulings and decisions currently in effect, all of which are subject
to change. The discussion does not deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules, including but not limited to, foreign investors. In addition,
this summary is generally limited to investors who will hold the notes as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
Investors should consult their own tax advisors to determine the federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the notes of any Series. Prospective investors should note that no rulings have
been or will be sought from the Internal Revenue Service (the "Service") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given that the Service will not take contrary positions.
CHARACTERIZATION OF THE TRUST ESTATE
Based upon certain assumptions and certain representations of NELNET
Student Loan Corporation-2, Kutak Rock LLP has rendered, with respect to any
notes previously issued, and will render, with respect to the Additional notes,
its opinion to NELNET Student Loan Corporation-2 to the effect that the notes,
issued or to be issued, as the case may be, should be treated as debt of NELNET
Student Loan Corporation-2, rather than as an interest in the student loans for
federal income tax purposes. In addition, Kutak Rock LLP has rendered its
opinion to the effect that this discussion is a summary of all material federal
income tax consequences as to the purchase, ownership and disposition of the
notes with respect to the investors described herein. Such opinion is not
binding on the courts or the Service. It is possible that the Service could
assert that, for purposes of the Code, the transaction contemplated by this
prospectus constitutes a sale of the student loans (or an interest therein) to
the registered owners or that the relationship which will result from this
transaction is that of a partnership, or an association taxable as a
corporation.
If, instead of treating the transaction as creating secured debt in the
form of the Series issued by NELNET Student Loan Corporation-2 as a corporate
entity, the transaction were treated as creating a partnership among the
registered owners, the servicer and NELNET Student Loan Corporation-2 which has
purchased the underlying student loans, the resulting partnership would not be
subject to federal income tax. Rather, the servicer, NELNET Student Loan
Corporation-2 and each registered owner 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 registered owner could differ if the notes were held to constitute
partnership interests, rather than indebtedness.
If, alternatively, it were determined that this transaction created an
entity other than NELNET Student Loan Corporation-2 which was classified as a
corporation or a publicly traded partnership taxable as a corporation and
treated as having purchased the student loans, the trust would be subject to
federal income tax at corporate income tax rates on the income it derives from
the student loans, which would reduce the amounts available for payment to the
registered owners. Cash payments to the registered owners generally would be
treated as dividends for tax purposes to the extent of such corporation's
accumulated and current earnings and profits. A similar result would apply if
the registered owners were deemed to have acquired stock or other
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equity interests in NELNET Student Loan Corporation-2. However, as noted above,
NELNET Student Loan Corporation-2 has been advised that the notes should be
treated as debt of NELNET Student Loan Corporation-2 for federal income tax
purposes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
NELNET Student Loan Corporation-2 and the registered owners express in
the indenture their intent that, for federal income tax purposes, the notes will
be indebtedness of NELNET Student Loan Corporation-2 secured by the student
loans. NELNET Student Loan Corporation-2 and the registered owners, by accepting
the notes, have agreed to treat the notes as indebtedness of NELNET Student Loan
Corporation-2 for federal income tax purposes. NELNET Student Loan Corporation-2
intends to treat this transaction as a financing reflecting the notes as its
indebtedness for tax and financial accounting purposes.
In general, the characterization of a transaction as a sale of property
or a secured loan, for federal income tax purposes, is a question of fact, the
resolution of which is based upon the economic substance of the transaction,
rather than its form or the manner in which it is characterized. While the
Service and the courts have set forth several factors to be taken into account
in determining whether the substance of a transaction is a sale of property or a
secured indebtedness, the primary factor in making this determination is whether
the transferee has assumed the risk of loss or other economic burdens relating
to the property and has obtained the benefits of ownership thereof.
Notwithstanding the foregoing, in some instances, courts have held that a
taxpayer is bound by the particular form it has chosen for a transaction, even
if the substance of the transaction does not accord with its form.
NELNET Student Loan Corporation-2 believes that it has retained the
preponderance of the primary benefits and burdens associated with ownership of
the student loans and should, thus, be treated as the owner of the student loans
for federal income tax purposes. If, however, the Service were successfully to
assert that this transaction should be treated as a sale of the student loans,
the Service could further assert that the entity created pursuant to the
indenture, as the owner of the student loans for federal income tax purposes,
should be deemed engaged in a business and, therefore, characterized as a
publicly traded partnership taxable as a corporation.
TAXATION OF INTEREST
INCOME OF REGISTERED OWNERS
Payments of interest with regard to the notes will be includible as
ordinary income when received or accrued by the registered owners in accordance
with their respective methods of tax accounting and applicable provisions of the
Code. In particular, Section 1272 of the Code requires the current ratable
inclusion in income of original issue discount using a constant yield method of
accounting. In general, original issue discount is calculated, with regard to
any accrual period, by applying the instrument's yield to its adjusted issue
price at the beginning of the accrual period, reduced by any qualified stated
interest allocable to the period. The aggregate original issue discount
allocable to an accrual period is allocated to each day included in such period.
The holder of a debt instrument must include in income the sum of the daily
portions of original issue discount attributable to the number of days he owned
the instrument. The legislative history of the original issue discount
provisions indicates that the calculation and accrual of original issue discount
should be based on the prepayment assumptions used by the parties in pricing the
transaction.
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Original issue discount is the stated redemption price at maturity of a
debt instrument over its issue price. The stated redemption price at maturity
includes all payments with respect to an instrument other than interest
unconditionally payable at a fixed rate or a qualified variable rate at fixed
intervals of one year or less. NELNET Student Loan Corporation-2 expects that
interest payable with respect to the accrual notes, if any, will not be
qualified stated interest and that such accrual notes will be issued with
original issue discount as described in the related prospectus supplement.
Further, there can be no assurance that the Service would not assert that the
interest payable with respect to the Class B notes may not be qualified stated
interest because such payments are not unconditional and that the Class B notes
are issued with original issue discount.
Payments of interest received with respect to the notes may also
constitute "investment income" for purposes of certain limitations of the Code
concerning the deductibility of investment interest expense. Potential
registered owners or the beneficial owners should consult their own tax advisors
concerning the treatment of interest payments with regard to the notes.
A purchaser who buys a note of any series at a discount from its
principal amount (or its adjusted issue price if issued with original issue
discount greater than a specified de minimis amount) will be subject to the
market discount rules of the Code. In general, the market discount rules of the
Code treat principal payments and gain on disposition of a debt instrument as
ordinary income to the extent of accrued market discount. Although the accrued
market discount on debt instruments such as the notes which are subject to
prepayment based on the prepayment of other debt instruments is to be determined
under regulations yet to be issued, the legislative history of these provisions
of the Code indicate that the same prepayment assumption used to calculate
original issue discount should be utilized. Each potential investor should
consult his tax advisor concerning the application of the market discount rules
to the notes.
The annual statement regularly furnished to registered owners for
federal income tax purposes will include information regarding the accrual of
payments of principal and interest with respect to the notes. As noted above,
NELNET Student Loan Corporation-2 believes, based on the advice of counsel, that
it will retain ownership of the student loans for federal income tax purposes.
In the event the indenture is deemed to create a pass-through entity as the
owner of the student loans for federal income tax purposes instead of NELNET
Student Loan Corporation-2 (assuming such entity is not, as a result, taxed as
an association), the owners of the notes could be required to accrue payments of
interest more rapidly than otherwise would be required.
BACKUP WITHHOLDING
Certain purchasers may be subject to backup withholding at the rate of
31% with respect to interest paid with respect to the notes if the purchasers,
upon issuance, fail to supply the trustee or their brokers with their taxpayer
identification numbers, furnish incorrect taxpayer identification numbers, fail
to report interest, dividends or other "reportable payments" (as defined in the
Code) properly, or, under certain circumstances, fail to provide the trustee
with a certified statement, under penalty of perjury, that they are not subject
to backup withholding. Information returns will be sent annually to the Service
and to each purchaser setting forth the amount of interest paid with respect to
the notes and the amount of tax withheld thereon.
NELNET Student Loan Corporation-2 makes no representations regarding the
tax consequences of purchase, ownership or disposition of the notes under the
tax laws of any state, locality or foreign jurisdiction. Investors considering
an investment in the notes should consult their own tax advisors regarding such
tax consequences.
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LIMITATION ON THE DEDUCTIBILITY OF CERTAIN EXPENSES
Under Section 67 of the Code, an individual may deduct certain
miscellaneous itemized deductions only to the extent that the sum of such
deductions for the taxable year exceed 2% of his or her adjusted gross income.
If contrary to expectation, the entity created under the indenture were treated
as the owner of the student loans (and not as an association taxable as a
corporation), then NELNET Student Loan Corporation-2 believes that a substantial
portion of the expenses to be generated by the Trust could be subject to the
foregoing limitations. As a result, each potential registered owner should
consult his or her personal tax advisor concerning the application of these
limitations to an investment in the notes.
TAX-EXEMPT INVESTORS
In general, an entity which is exempt from federal income tax under the
provisions of Section 501 of the Code is subject to tax on its unrelated
business taxable income. An unrelated trade or business is any trade or business
which is not substantially related to the purpose which forms the basis for such
entity's exemption. However, under the provisions of Section 512 of the Code,
interest may be excluded from the calculation of unrelated business taxable
income unless the obligation which gave rise to such interest is subject to
acquisition indebtedness. If, contrary to expectations, one or more of the notes
of any Series were considered equity for tax purposes and if one or more other
notes were considered debt for tax purposes, those notes treated as equity
likely would be subject to acquisition indebtedness and likely would generate
unrelated business taxable income. However, as noted above, counsel has advised
NELNET Student Loan Corporation-2 that the notes should be characterized as debt
for federal income tax purposes. Therefore, except to the extent any registered
owner incurs acquisition indebtedness with respect to a note, interest paid or
accrued with respect to such note may be excluded by each tax-exempt registered
owner from the calculation of unrelated business taxable income. Each potential
tax-exempt registered owner is urged to consult its own tax advisor regarding
the application of these provisions.
SALE OR EXCHANGE OF NOTES
If a holder sells a note, such person will recognize gain or loss equal
to the difference between the amount realized on such sale and the holder's
basis in such note. If a note was acquired subsequent to its initial issuance at
a discount, a portion of such gain will be recharacterized as interest and
therefore ordinary income. In the event any of the notes are issued with
original issue discount, in certain circumstances, a portion of the gain can be
recharacterized as ordinary income.
If the term of a note was materially modified, in certain circumstances,
a new debt obligation would be deemed created and exchanged for the prior
obligation in a taxable transaction. Among the modifications which may be
treated as material are those which relate to the redemption provisions and, in
the case of a nonrecourse obligation, those which involve the substitution of
collateral. Each potential holder of a note should consult its own tax advisor
concerning the circumstances in which the notes would be deemed reissued and the
likely effects, if any, of such reissuance.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain fiduciary and prohibited transaction restrictions on
employee pension and
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welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975 of the Code
imposes essentially the same prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code
("Qualified Retirement Plans") and on Individual Retirement Accounts ("IRAs")
described in Section 408(b) of the Code (collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to Title I of ERISA. Accordingly, assets of such plans may be invested
in notes without regard to the ERISA considerations described below, subject to
the provisions of applicable federal and state law. Any such governmental plan
or church plan which is qualified under Section 401(a) and exempt from taxation
under Section 501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
In addition to the imposition of general fiduciary requirements
including those of investment prudence and diversification and the requirement
that a Plan's investment be made in accordance with the documents governing the
Plan, Section 406 of ERISA and Section 4975 of the Code prohibit a broad range
of transactions involving assets of ERISA Plans and Tax-Favored Plans and
entities whose underlying assets include plan assets by reason of ERISA Plans or
Tax-Favored Plans investing in such entities (collectively hereafter "Plan" or
"Plans") and persons ("Parties in Interest" or "Disqualified Persons") who have
certain specified relationships to the Plans, unless a statutory or
administrative exemption is available. Certain Parties in Interest (or
Disqualified Persons) that participate in a prohibited transaction may be
subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA or Section 4975 of the Code unless a statutory or administrative exemption
is available. Section 502(l) of ERISA requires the Secretary of the U.S.
Department of Labor (the "DOL") to assess a civil penalty against a fiduciary
who breaks any fiduciary responsibility under or commits any other violation of
part 4 of Title I of ERISA or any other person who knowingly participates in
such breach or violation.
The investment in a security by a Plan may, in certain circumstances, be
deemed to include an investment in the assets of NELNET Student Loan
Corporation-2 of such security. The DOL has promulgated regulations set forth at
29 CFR ss. 2510.3-101 (the "Regulations") concerning whether or not an ERISA
Plan's assets would be deemed to include an interest in the underlying assets of
an entity (such as a Trust Fund) for purposes of the general fiduciary
responsibility provisions of ERISA and for the prohibited transaction provisions
of ERISA and the Code, when a Plan acquires an "equity interest" in such entity.
Under such Regulations the assets of an ERISA Plan will not include an
interest in the assets of an entity, the equity interests of which are acquired
by the ERISA Plan, if at no time do ERISA Plans in the aggregate own 25% or more
of the value of any class of equity interests in such entity. Because the
availability of this exemption depends upon the identity of the registered
owners at any time, there can be no assurance that the notes will qualify for
this exemption.
The Regulations also provide an exemption from "plan asset" treatment
for securities issued by an entity if such securities are debt securities under
applicable state law with no "substantial equity features." Except as specified
with respect to a Series in the related prospectus supplement, the notes are
intended to represent debt of NELNET Student Loan Corporation-2 for state law
and federal income tax purposes; however, there can be no assurance that the DOL
will not challenge such position. Assuming that a class of notes will be
considered debt with no substantial equity features for purposes of the
Regulations, the assets of the Trust
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will not be characterized as "plan assets" under the Regulations. The related
prospectus supplement will set forth whether any class of notes may be purchased
by Plans.
Without regard to whether the notes are treated as an "equity interest"
for such purposes, the acquisition or holding of notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if NELNET Student
Loan Corporation-2 or any of their respective affiliates is or becomes a Party
in Interest or Disqualified Person with respect to such Plan, or in the event
that a note is purchased in the secondary market by a Plan from a Party in
Interest or Disqualified Person with respect to such Plan. There can be no
assurance that NELNET Student Loan Corporation-2 or any of their respective
affiliates will not be or become a party in interest or a disqualified person
with respect to a Plan that acquires notes. However, one or more of the
following prohibited transaction class exemptions may apply to the acquisition,
holding and transfer of the notes: Prohibited Transaction class Exemption
("PTCE") 84-14 (regarding investments by qualified professional asset managers),
PTCE 90-1 (relating to investments by insurance company pooled separate
accounts), PTCE 91-38 (regarding investments by bank collective investment
funds), PTCE 95-60 (regarding investments by insurance company general accounts)
and PTCE 96-23 (regarding investments by in-house asset managers).
Any ERISA Plan fiduciary considering whether to purchase notes of
any Series on behalf of an ERISA Plan should consult with its counsel regarding
the applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment and the availability of any
of the exemptions referred to above. Persons responsible for investing the
assets of Tax-Favored Plans that are not ERISA Plans should seek similar counsel
with respect to the prohibited transaction provisions of the Code.
RELATIONSHIPS AMONG FINANCING PARTICIPANTS
NELNET Student Loan Corporation-2 is a wholly owned subsidiary of
National Education Loan Network, Inc. National Education Loan Network acts as a
servicer for the loans purchased by NELNET Student Loan Corporation-2. National
Education Loan Network, Inc. is a privately held corporation whose minority
owners include employees of Union Bank and Trust Company and certain relatives
of those employees.
National Education Loan Network has engaged UNIPAC Service Corporation
and InTuition, Inc,. to act as subservicers for the student loan portfolio of
NELNET Student Loan Corporation-2. UNIPAC is an operating subsidiary of Union
Bank and Trust Company, Lincoln, Nebraska. The parent company of Union Bank and
Trust Company also control 50% of the voting power of the outstanding stock of
InTuition.
Union Bank and Trust Company is one of the largest originators of
student loans. NELNET Student Loan Corporation-2 expects to purchase loans from
Union Bank and Trust Company. NELNET Student Loan Corporation-2 also expects to
purchase student loans from other entities that are direct or indirect
subsidiaries of National Education Loan Network, Inc., including NHELP-I, Inc.
and NEBHELP, Inc.
PLAN OF DISTRIBUTION
NELNET Student Loan Corporation-2 may sell the notes of each series to
or through underwriters by "best efforts" underwriting or a negotiated firm
commitment underwriting by the underwriters, and also may sell the notes
directly to other purchasers or through agents. If so indicated in the
prospectus supplement, NELNET Student Loan Corporation-2 may sell such
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notes, directly or through agents, through a competitive bidding process
described in the applicable prospectus supplement. NELNET Student Loan
Corporation-2 intends that notes will be offered through such various methods
from time to time and that offerings may be made concurrently through more than
one of these methods or that an offering of a particular series of the notes may
be made through a combination of such methods.
The distribution of the notes may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices based, among other things, upon
existing interest rates, general economic conditions and investors' judgments as
to the price of the notes.
In connection with the sale of the notes, underwriters may receive
compensation from NELNET Student Loan Corporation-2 or from the purchasers of
such notes for whom they may act as agents in the form of discounts, concessions
or commissions. Underwriters may sell the notes of a series to or through
dealers and those dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of the notes may be deemed to be
underwriters and any discounts or commissions received by them from NELNET
Student Loan Corporation-2 and any profit on the resale of the notes by them may
be deemed to be underwriting discounts and commissions under the Securities Act.
The underwriters will be identified, and any compensation received from NELNET
Student Loan Corporation-2 will be described, in the applicable prospectus
supplement.
Under agreements which may be entered into by NELNET Student Loan
Corporation-2, the underwriters and agents who participate in the distribution
of the notes may be entitled to indemnification by NELNET Student Loan
Corporation-2 against liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which the underwriters or
agents may be required to make in respect thereto.
If so indicated in the prospectus supplement, NELNET Student Loan
Corporation-2 will authorize underwriters or other persons acting as NELNET
Student Loan Corporation-2's agents to solicit offers by certain institutions to
purchase the notes from NELNET Student Loan Corporation-2 pursuant to contracts
providing for payment and delivery on a future date. Institutions with which
these contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases the institutions must be approved by
NELNET Student Loan Corporation-2. The obligation of any purchaser under any
contract will be subject to the condition that the purchaser of the notes shall
not be prohibited by law from purchasing such notes. The underwriters and other
agents will not have responsibility in respect of the validity or performance of
these contracts.
The underwriters may, from time to time, buy and sell notes, but there
can be no assurance that an active secondary market will develop and there is no
assurance that any market, if established, will continue.
LEGAL MATTERS
Certain legal matters will be passed upon by Ballard Spahr Andrews &
Ingersoll, LLP, Denver, Colorado as counsel and by Kutak Rock LLP, Denver,
Colorado as note counsel and as
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special tax counsel to NELNET Student Loan Corporation-2. Other counsel, if any,
passing upon legal matters for NELNET Student Loan Corporation-2 or any
placement agent or underwriter will be identified in the related prospectus
supplement.
FINANCIAL INFORMATION
NELNET Student Loan Corporation-2 has determined that its financial
statements are not material to the offering made hereby. NELNET Student Loan
Corporation-2 will not engage in any activities other than as described herein.
Accordingly, financial statements with respect to NELNET Student Loan
Corporation-2 are not included in this prospectus.
RATINGS
It is a condition to the issuance of the notes that notes publicly
offered be rated by at least one nationally recognized statistical rating
organization in one of its generic rating categories which signifies investment
grade (typically, in one of the four highest rating categories). the specific
ratings for class of notes will be described in the related prospectus
supplement.
A securities rating addresses the likelihood of the receipt by owners of
the notes of payments of principal and interest with respect to their notes from
assets in the trust estate. The rating takes into consideration the
characteristics of the student loans, and the structural, legal and tax aspects
associated with the rated notes.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
INCORPORATION OF DOCUMENTS BY REFERENCE;
WHERE TO FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange
Act of 1934 and to comply with those requirements, we will file annual,
quarterly and special reports and other information with the SEC. The SEC allows
us to by reference into this prospectus the information we file with them, which
means that we can disclose important information to you by referring you to the
reports we file with the SEC. We hereby incorporate by reference all periodic
reporting documents we file with the SEC after the date of this prospectus and
before all of the notes have been issued.
We will provide you, without charge, a copy of any of the documents
incorporated by reference upon written or oral request directed to NELNET
Student Loan Corporation-2, 1801 California Street, Suite 3920, Denver, Colorado
80202, Attention: Ronald W. Page, Telephone:
(303) 292-6930.
You may read and copy our registration statement and reports and other
information that we file with the SEC at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains a website at http://www.sec.gov from which our
registration statement and reports are available. Our parent company maintains a
web site that provides information concerning our company at
http://www.ufscorp.com.
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GLOSSARY OF TERMS
Some of the terms used in this prospectus are defined below. The
indenture contains the definition of other terms used in this prospectus and
reference is made to the indenture for those definitions.
"ACT" shall mean the Higher Education Act of 1965, as amended or
supplemented from time to time, or any successor federal act and all
regulations, directives, bulletins, and guidelines promulgated from time to time
thereunder.
"ALL HOLD RATE" means the applicable LIBOR-based rate less 0.20%. The
applicable all hold rate shall not be greater than the applicable maximum
auction rate.
"APPLICABLE LIBOR-BASED 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.
"APPLICABLE NUMBER OF BUSINESS DAYS" means the greater of two business
days or one business day plus the number of business days by which the auction
date precedes the first day of the next succeeding interest period.
"AUCTION RATE CERTIFICATE NOTE INTEREST RATE" means each variable rate
of interest per annum borne by an auction rate certificate note for each auction
period and determined in accordance with the provisions of the indenture.
However, in the event of a payment default, the auction rate certificate note
interest rate will be one-month LIBOR plus 1.50%, but not more than the
applicable maximum auction rate.
"AUCTION" means the implementation of the registered owners on an
auction date.
"AUCTION AGENT" means the initial auction agent under the initial
auction agent agreement unless and until a substitute auction agent agreement
becomes effective, after which auction agent shall mean the substitute auction
agent.
"AUCTION AGENT AGREEMENT" means the initial auction agent agreement
unless and until a substitute auction agent agreement is entered into, after
which auction agent agreement shall mean such substitute auction agreement.
"AUCTION DATE" means, with respect to any class of auction rate
certificate notes, the date specified in the related prospectus supplement, and
thereafter, the business day immediately preceding the first day of each auction
period for each respective class, other than:
(a) each auction period commencing after the ownership of the
applicable auction rate certificate notes is no longer maintained in
book-entry form by the securities depository;
(b) each auction period commencing after and during the
continuance of a payment default; or
(c) each auction period commencing less than the applicable
number of business days after the cure or waiver of a payment default.
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"AUCTION PERIOD" means the interest period applicable to the auction
rate certificate notes during which time the interest rate is determined
pursuant to the indenture, which auction period (after the initial period for
such class) initially shall consist generally of the number of days specified
with respect to any series of the notes in the related prospectus supplement, as
the same may be adjusted pursuant to the indenture.
"AUCTION PERIOD ADJUSTMENT" means an adjustment to the auction period as
provided in the indenture.
"AUCTION PROCEDURES" means the procedures set forth in the indenture by
which the auction rate is determined.
"ACTION RATE" means the rate of interest per annum that results from
implementation of the registered owners and is determined as described in the
indenture.
"AUTHORIZED OFFICER" shall mean, when used with reference to NELNET
Student Loan Corporation-2, its Chairman, President, Vice President or
Secretary, or any other officer or board member authorized in writing by the
board of directors to act on behalf of NELNET Student Loan Corporation-2.
"AUTHORIZED REPRESENTATIVE" shall mean, when used with reference to
NELNET Student Loan Corporation-2, (a) an authorized officer or (b) any
affiliate organization or other entity authorized by the board of directors to
act on NELNET Student Loan Corporation-2's behalf.
"BOND-EQUIVALENT YIELD" means, in respect of any security with a
maturity of six months or less the rate for which is quoted in THE WALL STREET
JOURNAL on a bank discount basis, a yield (expressed as a percentage) calculated
in accordance with the following formula and rounded up to the nearest
one-hundredth of one percent:
Bond Equivalent Yield = Q x N x 100
----------------------
360 - (T x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, "N" refers to 365 or 366 (days), as
the case may be, and "T" refers to the number of days to maturity.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or system under
which (a) the beneficial right to principal and interest may be transferred only
through a book entry, (b) physical securities in registered form are issued only
to a securities depository or its nominee as registered owner, with the
securities "immobilized" to the custody of the securities depository, and (c)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"CARRY-OVER AMOUNT" means, with respect to the auction rate certificate
notes, the excess, if any, of (a) the amount of interest on an auction rate
certificate note that would have accrued with respect to the related interest
period at the applicable auction rate over (b) the amount of interest on such
auction rate certificate note actually accrued with respect to such auction rate
certificate note with respect to such interest period based on the applicable
maximum auction rate without regard to the last two clauses of the definition
thereof together with the unreduced portion of any such excess from prior
interest periods; provided that any reference to "principal" or "interest" in
the indenture and the auction rate certificate notes shall not include within
the
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meanings of such words any carry-over amount or any interest accrued on any
carry-over amount.
"CERTIFICATE OF INSURANCE" shall mean any certificate evidencing a
student loan is insured pursuant to a contract of insurance.
"CLASS A NOTES" shall mean NELNET Student Loan Corporation-2's student
loan asset- backed notes issued pursuant to the indenture and designated as
Class A.
"CLASS B NOTES" shall mean NELNET Student Loan Corporation-2's student
loan asset- backed notes issued pursuant to the indenture and designated as
Class B. Class B notes shall be subordinate to the Class A notes.
"CLASS C NOTES" shall mean NELNET Student Loan Corporation-2's student
loan asset- backed notes issued pursuant to the indenture and designated as
Class C. Class C notes shall be subordinate to the Class A notes and the Class B
notes.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Each reference to a section of the Code herein shall be deemed to
include the United States Treasury Regulations, including temporary and proposed
regulations, relating to such section which are applicable to the notes of the
use of the proceeds thereof. A reference to any specific section of the Code
shall be deemed also to be a reference to the comparable provisions of any
enactment which supersedes or replaces the Code thereunder from time to time.
"CONTRACT OF INSURANCE" shall mean the contract of insurance between an
eligible lender and the Secretary.
"DERIVATIVE PAYMENT" shall mean a payment required to be made by or on
behalf of NELNET Student Loan Corporation-2 due to a reciprocal payor pursuant
to a derivative product.
"DERIVATIVE PAYMENT DATE" shall mean, with respect to a derivative
product, any date specified in the derivative product on which both or either of
NELNET Student Loan Corporation-2 derivative payment and/or a reciprocal payment
is due and payable under the derivative product.
"DERIVATIVE PRODUCT" shall mean a written contract or agreement between
NELNET Student Loan Corporation-2 and a reciprocal payor, which provides that
NELNET Student Loan Corporation-2's obligations thereunder will be conditioned
on the absence of (i) a failure by the reciprocal payor to make any payment
required thereunder when due and payable, or (ii) a default thereunder with
respect to the financial status of the reciprocal payor, and:
(a) under which NELNET Student Loan Corporation-2 is obligated to
pay (whether on a net payment basis or otherwise) on one or more
scheduled and specified derivative payment dates, NELNET Student Loan
Corporation-2 derivative payments in exchange for the reciprocal payor'
s obligation to pay (whether on a net payment basis or otherwise), or to
cause to be paid, to NELNET Student Loan Corporation-2, reciprocal
payments on one or more scheduled and specified derivative payment dates
in the amounts set forth in the derivative product;
(b) for which NELNET Student Loan Corporation-2's obligation to
make derivative payments may be secured by a pledge of and lien on the
trust estate on an
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equal and ratable basis with any class of NELNET Student Loan
Corporation-2's outstanding notes and which derivative payments may be
equal in priority with any priority classification of NELNET Student
Loan Corporation-2's outstanding notes; and
(c) under which reciprocal payments are to be made directly to
the trustee for deposit into the Revenue Fund.
"ELIGIBLE LENDER" shall mean any "eligible lender," as defined in the
Act, and which has received an eligible lender designation from the Secretary
with respect to loans made under the Act.
"EVENT OF BANKRUPTCY" shall mean (a) NELNET Student Loan Corporation-2
shall have commenced a voluntary case or other proceeding seeking liquidation,
reorganization, or other relief with respect to itself or its debts under any
bankruptcy, insolvency, or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian, or other
similar official of it or any substantial part of its property, or shall have
made a general assignment for the benefit of creditors, or shall have declared a
moratorium with respect to its debts or shall have failed generally to pay its
debts as they become due, or shall have taken any action to authorize any of the
foregoing; or (b) an involuntary case or other proceeding shall have been
commenced against NELNET Student Loan Corporation-2 seeking liquidation,
reorganization, or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian, or other
similar official of it or any substantial part of its property provided such
action or proceeding is not dismissed within 60 days.
"FEDERAL REIMBURSEMENT CONTRACTS" shall mean the agreements between the
guarantee agency and the Secretary providing for the payment by the Secretary of
amounts authorized to be paid pursuant to the Act, including (but not
necessarily limited to) reimbursement of amounts paid or payable upon defaulted
student loans and other student loans guaranteed or insured by the guarantee
agency and interest benefit payments and special allowance payments to holders
of qualifying student loans guaranteed or insured by the guarantee agency.
"FITCH" shall mean Fitch IBCA, Inc., a corporation organized and
existing under the laws of the-State of Delaware, its successors and assigns.
"FUNDS" shall mean the funds created under Section 5.01 of the indenture
and held by the trustee, including the Acquisition Fund, the Revenue Fund and
the Reserve Fund.
"GUARANTEE" or "GUARANTEED" shall mean, with respect to student loan,
the insurance or guarantee by the guaranty agency pursuant to such guaranty
agency's guarantee agreement of the maximum percentage of the principal of and
accrued interest on such student loan allowed by the terms of the Act with
respect to such student loan at the time it was originated and the coverage of
such student loan by the federal reimbursement contracts, providing, among other
things, for reimbursement to the guaranty agency for payments made by it on
defaulted student loans insured or guaranteed by the guaranty agency of at least
the minimum reimbursement allowed by the Act with respect to a particular
student loan.
"GUARANTEE AGREEMENTS" shall mean a guaranty or lender agreement between
the trustee and any guaranty agency, and any amendments thereto.
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"GUARANTY AGENCY" shall mean any entity authorized to guarantee student
loans under the Act and with which the trustee maintains a guarantee agreement.
"HIGHEST PRIORITY OBLIGATIONS" shall mean, (a) at any time when senior
obligations are outstanding, the senior obligations, (b) at any time when no
senior obligations are outstanding, the subordinate obligations, and (c) at any
time when no senior obligations or subordinate obligations are outstanding, the
junior-subordinate obligations (and any priorities as between junior-subordinate
obligations as shall be established by supplemental indentures).
"HOLD ORDER" has the meaning set forth under "Description of the
Notes-ARC notes."
"INDENTURE" shall mean the indenture of trust between NELNET Student
Loan Corporation-2 and Zions Bank, as trustee, including all supplements and
amendments thereto.
"INITIAL AUCTION AGENT" means Bankers Trust Company, a New York
corporation, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" means the Auction Agent Agreement by
and among NELNET Student Loan Corporation-2, the trustee and the initial auction
agent, including any amendment thereof or supplement thereto.
"INITIAL INTEREST PAYMENT DATE" shall mean the date specified in the
related prospectus supplement.
"INITIAL INTEREST PERIOD" means, as to the LIBOR rate notes, the period
from and including the date of delivery of the LIBOR rate notes of any class and
ending on the date specified in the related prospectus supplement.
"INITIAL PERIOD" means, as to auction rate certificate notes, the period
commencing on the date of issuance and continuing through the day immediately
preceding the Initial Rate Adjustment Date for such auction rate certificate
notes.
"INITIAL RATE" means, with respect to a class of any series, the rate
per annum specified in the related prospectus supplement.
"INITIAL RATE ADJUSTMENT DATE" means, with respect to the class of any
series, the date specified in the related prospectus supplement.
"INSURANCE" or "INSURED" or "INSURING" means, with respect to student
loan, the insuring by the Secretary (as evidenced by a certificate of insurance
or other document or certification issued under the provisions of the Act) under
the Act of 100% of the principal of and accrued interest on such student loan.
"INTEREST BENEFIT PAYMENT" shall mean an interest payment on student
loans received pursuant to the Act and an agreement with the federal government,
or any similar payments.
"INTEREST PAYMENT DATE" shall mean the interest payment dates specified
for notes in the supplemental indenture authorizing the issuance of such notes.
"INTEREST PERIOD" means, with respect to the auction rate certificate
notes, the initial period and each period commencing on an interest rate
adjustment date for such class and ending
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on the day before (a) the next interest rate adjustment date for such class or
(b) the stated maturity of such class, as applicable. The term "interest period"
with respect to the LIBOR rate notes and Treasury rate notes has the meaning
described under the heading "Description of the Notes - LIBOR Rate Notes" and
"-Treasury Rate Notes."
"INTEREST RATE ADJUSTMENT DATE" means the date on which an auction rate
certificate note interest rate is effective, and means, with respect to the
auction rate certificate notes, the date of commencement of each auction period.
"INTEREST RATE DETERMINATION DATE" means, with respect to the auction
rate certificate notes, the auction date, or if no auction date is applicable to
such class, the business day immediately preceding the date of commencement of
an auction period.
"INVESTMENT AGREEMENT" shall mean any investment agreement approved by
the rating agencies.
"JUNIOR-SUBORDINATE NOTES" shall mean notes, the principal of and
interest on which is payable on a subordinated basis to the payment of the
principal of and interest on the senior notes and the subordinate notes;
provided, however, that any series of the junior-subordinate notes need not
necessarily be payable on a parity with all other series of the
junior-subordinate notes.
"JUNIOR-SUBORDINATE OBLIGATIONS" shall mean Class C notes and any
derivative product, the priority of payment of which is equal with that of any
series or subseries of Class C notes.
"LIBOR-BASED RATE" shall mean one-month LIBOR , three month LIBOR, six
month LIBOR or one year LIBOR plus an amount specified in the related prospectus
supplement.
"MARKET AGENT" means PaineWebber Incorporated, in such capacity
hereunder, or any successor to it in such capacity hereunder.
"MAXIMUM AUCTION RATE" means, for any auction, a per annum interest rate
on the auction rate certificate notes which, when taken together with the
interest rate on the auction rate certificate notes for the one-year period
ending on the final day of the proposed auction period, would result in the
average interest rate on the auction rate certificate notes for such period
either (a) not being in excess (on a per annum basis) of the average of the
Ninety-One Day United States Treasury Bill Rate plus 1.20% for such one-year
period (if all of the ratings assigned by the rating agencies to the auction
rate certificate notes are "Aa3" or "AA-" or better), (b) not being in excess
(on a per annum basis) of the average of the Ninety-One Day United States
Treasury Bill Rate plus 1.50% for such one-year period (if any one of the
ratings assigned by the rating agencies to the auction rate certificate notes is
less than "Aa3" or "AA-" but both are at least any category of "A", or (c) not
being in excess (on a per annum basis) of the average of the Ninety-One Day
United States Treasury Bill Rate plus 1.75% for such one-year period (if any one
of the ratings assigned by the rating agencies to the auction rate certificate
notes is less than the lowest category of "A"). If the auction rate certificate
notes have not been outstanding for at least such one-year period then for any
portion of such period during which such auction rate certificate notes were not
outstanding, the interest rates on the auction rate certificate notes for
purposes of this definition, shall be deemed to be equal to such rates as the
market agent shall determine were the rates of interest on equivalently rated
auction securities with comparable lengths of auction periods during such
period. For purposes of the auction agent and the registered owners, the ratings
referred to in this definition shall be the last ratings of which the auction
agent has been given notice pursuant to the auction agent agreement. The
percentage
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amount to be added to the Ninety-One Day United States Treasury Bill Rate in any
one or more of (a), (b) and (c) above may be increased with a rating
confirmation.
"NINETY-ONE DAY UNITED STATES TREASURY BILL RATE" shall mean the bond
equivalent yield on the 91-day United States Treasury Bills sold at the last
auction thereof that immediately precedes the auction date, as determined by the
market agent on the auction date.
"NOTE PAYMENT DATE" shall mean, for any note, any interest payment date,
its stated maturity or the date of any other regularly scheduled principal
payment with respect thereto.
"NOTES" shall mean NELNET Student Loan Corporation-2's notes or other
obligations issued under the indenture.
"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 at
which United States dollar deposits having a maturity of one month, three
months, six months or one year, respectively, are offered to prime banks in the
London interbank market which appear on the Telerate Page 3750 as of
approximately 11:00 a.m., London time, on the interest rate determination date.
If such rate does not appear on Telerate Page 3750, One-Month LIBOR, Three-Month
LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively, with respect to such
interest period will be determined at approximately 11:00 a.m., London time, on
such interest rate determination date on the basis of the rate at which deposits
in United States dollars having a maturity of one month, three months, six
months or one year, respectively, are offered to prime banks in the London
interbank market by four major banks in the London interbank market selected by
the calculation agent, and in a principal amount of not less than U.S.
$1,000,000 and that is representative for a single transaction in such market at
such time. The calculation agent will request the principal London office of
each of such banks to provide a quotation of its rate. If at least two
quotations are provided, One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or
One-Year LIBOR, respectively, will be the arithmetic mean (rounded upwards, if
necessary, to the nearest one-hundredth of one percent) of such offered rates.
If fewer than two quotations are provided, One-Month LIBOR, Three-Month LIBOR,
Six-Month LIBOR or One- Year LIBOR, respectively, with respect to such interest
period will be the arithmetic mean (rounded upwards, if necessary, to the
nearest one-hundredth of one percent) of the rates quoted at approximately 11:00
a.m., New York City time on such interest rate determination date by major banks
in New York, New York selected by the calculation agent for loans in United
States dollars to leading European banks having a maturity of one month, three
months, six months or one year, respectively, and in a principal amount equal to
an amount of not less than U.S. $1,000,000 and that is representative for a
single transaction in such market at such time. If the banks selected are not
quoting as mentioned in this definition, One-Month LIBOR, Three-Month LIBOR,
Six-Month LIBOR or One-Year LIBOR, respectively, in effect for the applicable
interest period will be One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or
One- Year LIBOR, respectively, in effect for the immediately preceding interest
period.
"OBLIGATIONS" shall mean senior obligations, subordinate obligations and
junior- subordinate obligations.
"PARTICIPANT" means a member of, or participant in, the depository.
"PROGRAM" shall mean NELNET Student Loan Corporation-2's program for the
financing and the purchase of student loans, as the same may be modified from
time to time.
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"PROGRAM EXPENSES" shall mean (a) the fees and expenses of the trustee;
(b) the fees and expenses of any auction agent, any market agent, any
calculation agent and any broker-dealer then acting under a supplemental
indenture with respect to auction rate notes; (c) the fees and expenses of any
remarketing agent then acting under a supplemental indenture with respect to
variable rate notes; (d) the fees and expenses due to any credit provider of any
notes for which a credit facility or liquidity facility is in place; (e) the
fees of any servicer and/or custodian under any servicing agreement or custodian
agreement; (f) the fees and expenses of NELNET Student Loan Corporation-2
incurred in connection with the preparation of legal opinions and other
authorized reports or statements attributable to the notes and the student
loans; (g) transfer fees, purchase premiums and loan origination fees on student
loans; (h) fees and expenses associated with the delivery of a substitute credit
facility or liquidity facility under a supplemental indenture; (i) fees and
expenses associated with (but not payments under) derivative products; (j) the
costs of remarketing any variable rate notes and (k) expenses incurred for
NELNET Student Loan Corporation-2's maintenance and operation of its program as
a direct consequence of the indenture, the notes or the student loans, including
taxes, the reasonable fees and expenses of attorneys, agents, financial
advisors, consultants, accountants and other professionals, attributable to such
maintenance and operation, marketing expenses for the program and a prorated
portion of the rent, personnel compensation, office supplies and equipment,
travel expenses and other lawful payments made to members of the board of
directors.
"RATING" shall mean one of the rating categories of S&P and Fitch or any
other rating agency, provided S&P and Fitch or any other rating agency, as the
case may be, is currently rating the notes.
"RATING AGENCY" shall mean, collectively, S&P and Fitch and their
successors and assigns or any other rating agency requested by NELNET Student
Loan Corporation-2 to maintain a rating on any of the notes.
"RATING CONFIRMATION" means a letter form each rating agency then
providing a rating for any of the notes, confirming that the action proposed to
be taken by NELNET Student Loan Corporation-2 will not, in and of itself, result
in a downgrade of any of the ratings then applicable to the notes, or cause any
rating agency to suspend or withdraw the ratings then applicable to the note.
"RECIPROCAL PAYMENTS" shall mean any payment to be made to, or for the
benefit of, NELNET Student Loan Corporation-2 under a derivative product.
"RECIPROCAL PAYOR" shall mean a third party which, at the time of
entering into a derivative product, has at least an "AA/A-1" rating, or its
equivalent, from a rating agency, and which is obligated to make reciprocal
payments under a derivative product.
"RECOVERIES OF PRINCIPAL" shall mean all amounts received by the trustee
from or on account of any student loan as a recovery of the principal amount
thereof, including scheduled, delinquent and advance payments, payouts or
prepayments, proceeds from insurance or from the sale, assignment, transfer,
reallocation or other disposition of a student loan and any payments
representing such principal from the guarantee or insurance of any student loan.
"REGISTERED OWNER" shall mean the person in whose name a note is
registered on the note registration books maintained by the trustee, and shall
also mean with respect to a derivative product, any reciprocal payor, unless the
context otherwise requires.
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"RESERVE FUND REQUIREMENT" shall mean an amount, if any, required to be
on deposit in the Reserve Fund with respect to any notes issued pursuant to the
supplemental indenture authorizing the issuance of such notes.
"REVENUE" or "REVENUES" shall mean all recoveries of principal,
payments, proceeds, charges and other income received by the trustee or NELNET
Student Loan Corporation-2 from or on account of any student loan (including
scheduled, delinquent and advance payments of and any insurance proceeds with
respect to, interest, including interest benefit payments, on any student loan
and any special allowance payment received by NELNET Student Loan Corporation-2
with respect to any student loan) and all interest earned or gain realized from
the investment of amounts in any fund or account and all payments received by
NELNET Student Loan Corporation-2 pursuant to a derivative product.
"S&P" shall mean Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies, Inc., its successors and assigns.
"SECRETARY" shall mean the Secretary of the United States Department of
Education or any successor to the pertinent functions thereof, under the Higher
Education Act or when the context so requires, the former Commissioner of
Education of the United States Department of Health, Education and Welfare.
"SECURITIES DEPOSITORY" or "DEPOSITORY" shall mean The Depository Trust
Company and its successors and assigns or if, (i) the then securities depository
resigns from its functions as depository of the notes or (ii) NELNET Student
Loan Corporation-2 discontinues use of the securities depository, any other
securities depository which agrees to follow the procedures required to be
followed by a securities depository in connection with the notes and which is
selected by the Issuer with the consent of the trustee.
"SELLER" shall mean an eligible lender from which NELNET Student Loan
Corporation-2 is purchasing or has purchased or agreed to purchase student loans
pursuant to a student loan purchase agreement between NELNET Student Loan
Corporation-2 and the eligible lender.
"SELL ORDER" has the meaning set forth under "Description of the
Notes-ARC Notes."
"SENIOR NOTES" shall mean all notes secured on a senior priority to the
subordinate obligations and the junior-subordinate obligations.
"SENIOR OBLIGATIONS" shall mean Class A notes and any derivative
product, the priority of payment of which is equal with that of senior notes.
"SERVICER" shall mean, collectively, National Education Loan Network,
Inc., UNIPAC Service Corporation, InTuition, Inc. and any other additional
Servicer or successor servicer selected by NELNET Student Loan Corporation-2.
"SERVICING AGREEMENT" shall mean the servicing agreements with any
servicer relating to student loans held by the trustee on behalf of NELNET
Student Loan Corporation-2, as amended from time to time.
"SPECIAL ALLOWANCE PAYMENTS" shall mean the special allowance payments
authorized to be made by the Secretary by Section 438 of the Act, or similar
allowances, if any, authorized from time to time by federal law or regulation.
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"SUBORDINATE NOTES" shall mean any notes secured on a priority
subordinate to the senior obligations and on a priority senior to the
junior-subordinate obligations.
"SUBORDINATE OBLIGATIONS" shall mean Class B notes and any derivative
product, the priority of payment of which is equal with that of Class B notes.
"SUBSTITUTE AUCTION AGENT" means the Person with whom NELNET Student
Loan Corporation-2 and the trustee enter into a substitute auction agent
agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" means an auction agent agreement
containing terms substantially similar to the terms of the initial auction agent
agreement, whereby a person having the qualifications required by the indenture
agrees with the trustee and NELNET Student Loan Corporation-2 to perform the
duties of the auction agent under the indenture.
"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental to the
indenture executed pursuant to the indenture.
"TELERATE PAGE 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service) for the purpose of displaying comparable rates or prices.
"TREASURY BILL RATE" shall mean the bond equivalent yield for auctions
of 91-day United States Treasury Bills on the first day of each calendar week on
which the United States Treasury auctions 91-day Treasury Bills, which currently
is the United States Treasury's first business day of each week.
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APPENDIX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
notes (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company, Cedel Bank 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 Bank and Euroclear will be conducted in the
ordinary way in accordance with their normal rules and operating
procedures and in accordance with conventional Eurobond practice (i.e.,
seven calendar day settlement).
Secondary market trading between investors holding Global
Securities through Depository Trust Company will be conducted according
to the rules and procedures applicable to U.S. corporate debt
obligations and prior Asset-Backed Certificates issues.
Secondary, cross-market trading between Cedel Bank or Euroclear
and Depository Trust Company Participants holding notes will be effected
on a delivery- against-payment basis through the respective Depositaries
of Cedel Bank and Euroclear (in such capacity) and as Depository Trust
Company Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless 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
Depository Trust Company in the name of Cede & Co. as nominee of
Depository Trust Company Investors' interests in the Global Securities
will be represented through financial institutions acting on their
behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as Depository Trust
Company Participants.
Investors electing to hold their Global Securities through
Depository Trust Company will follow the settlement practices applicable
to prior Asset-Backed Certificates issues. 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
Bank or Euroclear accounts will follow the settlement procedures
applicable to conventional Eurobonds, except that there will be no
temporary global security and no "lock-up" or restricted period. Global
Securities will be credited to the securities custody accounts on the
settlement date against payment in same-day funds.
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SECONDARY MARKET TRADING
Since the purchaser 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 DEPOSITORY TRUST COMPANY PARTICIPANTS. Secondary
market trading between Depository Trust Company Participants will be
settled using the procedures applicable to prior Student Loan
Asset-Backed Securities issues in same-day funds.
TRADING BETWEEN CEDEL BANK AND/OR EUROCLEAR PARTICIPANTS.
Secondary market trading between Cedel Bank Participants or
Euroclear Participants will be settled using the procedures
applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DEPOSITORY TRUST COMPANY SELLER AND CEDEL BANK OR
EUROCLEAR PURCHASER. When Global Securities are to be transferred from
the account of a Depository Trust Company Participant to the account of
a Cedel Bank Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel Bank or Euroclear through a Cedel Bank
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel Bank or Euroclear will instruct the respective
Depositary, as the case may be, 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, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days, or a 360-day
year of twelve 30-day months, as applicable. For transactions settling
on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be
made by the respective Depositary of the Depository Trust Company
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 Bank Participant's or Euroclear
Participant's account. The securities credit will appear the next day
(European time) and the cash debt 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 Bank, or Euroclear cash debt will be valued
instead as of the actual settlement date.
Cedel Bank Participants and Euroclear Participants will need to
make available to the respective clearing systems 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
existing lines of credit, as they would for any settlement occurring
within Cedel Bank or Euroclear. Under this approach, they may take on
credit exposure to Cedel Bank or Euroclear until the Global Securities
are credited to their accounts one day later.
As an alternative, if Cedel Bank or Euroclear has extended a line
of credit to them, Cedel Bank Participants or Euroclear Participants can
elect not to preposition funds and allow that credit line to be drawn
upon the finance settlement. Under this procedure, Cedel Bank
Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global
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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 Cedel Bank
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business
hours, Depository Trust Company Participants can employ their usual
procedures for sending Global Securities to the respective European
Depositary for the benefit of Cedel Bank Participants or Euroclear
Participants. The sale proceeds will be available to the Depository
Trust Company seller on the settlement date. Thus, to the Depository
Trust Company Participants a cross-market transaction will settle no
differently than a trade between two Depository Trust Company
Participants.
TRADING BETWEEN CEDEL BANK OR EUROCLEAR SELLER AND DEPOSITORY
TRUST COMPANY PURCHASER. Due to time zone differences in their favor,
Cedel Bank Participants and Euroclear Participants may employ their
customary procedures for transactions in which Global Securities are to
be transferred the respective clearing system, through the respective
Depositary, to a Depository Trust Company Participant. The seller will
send instructions to Cedel Bank or Euroclear through a Cedel Bank
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases Cedel Bank or Euroclear will instruct the
Depositary, as appropriate, to deliver the Global Securities to the
Depository Trust Company Participant's account against payment. Payment
will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a
year assumed to consist of 360 days, or a 360-day year of twelve 30-day
months, as applicable. For transactions settling on the 31st of the
month, payment will include interest accrued to an excluding the first
day of the following month. The payment will then be reflected in the
account of the Cedel Bank Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the Cedel Bank
Participant's 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 Bank Participant or Euroclear
Participant have a line of credit with its respective clearing system
and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft
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 Bank Participant's or Euroclear Participant's
account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel Bank or Euroclear and that
purchase Global Securities from Depository Trust Company Participants
for delivery to Cedel Bank Participants or Euroclear Participants should
note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel Bank or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Cedel Bank or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a
Depository Trust Company Participant no later than one day prior
to settlement, which would
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give the Global Securities sufficient time to be reflected in
their Cedel Bank or Euroclear accounts in order to settle the
sale side of the trade; or
(c) staggering the value dates for the buy and sell sides
of the trade so that the value date for the purchase from the
Depository Trust Company Participant is at least one day prior to
the value date for the sale to the Cedel Bank Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities
through Cedel Bank, or Euroclear (or through Depository Trust Company if
the holder has an address outside the U.S.) will be subject to the 30%
U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies
with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced
tax rate.
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME
(FORM 4224). A non-U.S. Person including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States,
can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with
the Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES. (FORM 1001). Non-U.S. Persons that are Note Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed
at that rate unless the filer alternatively files Form W-8. Form 1001
may be filed by the Note Owners or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Note Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding
directly on the books of the clearing agency). Form W-8 and Form 1001
are effective for three calendar years and Form 4224 is effective for
one calendar year.
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The term "U.S. Person" means (i) a citizen or resident of the
United States, (ii) a corporation or partnership, or other entity
taxable as such, organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which
is includible in gross income for United States tax purposes, regardless
of its source or (iv) a trust other than a "Foreign Trust," as defined
in Section 7701(a)(31) of the Code. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to
consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities as well as the
application of recently issued Treasury regulations relating to tax
documentation requirements that are generally effective with respect to
payments made after December 31, 1998.
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[outside back cover page]
$-----------
NELNET Student Loan Corporation-2
Issuer
Student Loan Asset-Backed notes
Series ____
----------
P R O S P E C T U S S U P P L E M E N T
----------
PAINEWEBBER INCORPORATED
Underwriter
---------- --,----
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING NOTES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
WE REPRESENT THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND PROSPECTUS ONLY AS OF THE DATES OF THEIR RESPECTIVE COVERS.
UNTIL __________ __, ____, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[end of outside back cover page]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the
registrant, other than the underwriting discounts and commissions, in connection
with the issuance and distribution of the Offered Notes hereunder.
SEC registration fee......................... $660,000
*Accounting fees and expenses................ 25,000
*Legal fees and expenses..................... 75,000
*Printing costs.............................. 15,000
*Blue Sky fees and expenses.................. 15,000
*Trustee's fees.............................. 15,000
*Rating Agency fees.......................... 50,000
*Miscellaneous............................... 35,000
Total................................ $890,000
- --------------------
*Estimates based on the offering of a single Series of Offered Notes in the
aggregate principal amount of $2.5 billion.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chapter 78, Section 78.751 of the Nevada Revised Statutes gives Nevada
corporations broad powers to indemnify their present and former directors and
officers, and those of affiliated corporations and other enterprises, against
expenses incurred in the defense or settlement of any legal proceeding to which
they are made parties by reason of being such directors or officers, subject to
specified conditions and exclusions. Section 78.751 also gives a director or
officer who successfully defends an action the right to be so indemnified.
Section 78.752 authorizes a Nevada corporation to buy directors' and officers'
liability insurance.
The registrant has adopted a bylaw which makes indemnification mandatory
under certain circumstances for a person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, by reason of the fact that he is
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<PAGE>
or was a director or officer of the registrant or of affiliated corporations or
other entities. Such persons must be indemnified against reasonably incurred
expenses (including attorneys' fees), judgments, penalties, fines and amounts
paid in settlement if it is determined in accordance with the procedures set
forth in the bylaws that such person conducted himself in good faith and that he
reasonably believed (a) in the case of conduct in his official capacity with the
registrant, that his conduct was in the registrant's best interest, or (b) in
all other cases (except criminal cases), that his conduct was at least not
opposed to the registrant's best interests, or (c) in the case of any criminal
proceeding, that he had no reasonable cause to believe his conduct was unlawful.
The registrant must also indemnify any such person who was wholly successful in
defense of any action, suit, or proceeding as to which he was entitled to
indemnification against expenses (including attorneys' fees) reasonably incurred
by him in connection with the proceeding. No indemnification shall be made to
such persons with respect to any claim, issue or matter in connection with a
proceeding by or in the right of registrant in which the person is adjudged
liable to the registrant, or in connection with any proceeding charging that the
person derived an improper personal benefit in which he was adjudged liable on
the basis that he derived an improper personal benefit.
Pursuant to agreements which the registrant may enter into with
underwriters or agents (forms of which are included as exhibits to this
Registration Statement), officers and directors of the registrant, and
affiliates thereof, may be entitled to indemnification by such underwriters or
agents against certain liabilities, including liabilities under the Securities
Act of 1933, as amended, arising from information which has been furnished to
the registrant by such underwriters or agents that appear in the Registration
Statement or any Prospectus.
ITEM 16. EXHIBITS.
The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
1.1 Form of Underwriting Agreement*
4.1 Form of Indenture of Trust by and between Registrant and
Zions First National Bank, a national banking association*
5.1 Opinion of Kutak Rock LLP as to the validity of the Notes*
8.1 Opinion of Kutak Rock LLP Regarding Tax Matters (included in
Exhibit 5.1)
23.1 Consent of Kutak Rock LLP (included in Exhibit 5.1 hereto)*
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP*
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25.1 Statement of Eligibility of Zions First National Bank, Trustee on
Form T-1**
* Filed herewith.
** To be filed by the Registrant no later than the second business day following
the initial date of public offering of Registrant's Notes pursuant to Section
305(b)(2) of the Trust Indenture Act of 1939, as amended and Rule 5b-3
thereunder.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. 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) 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 Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-3
<PAGE>
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions in Item 15, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
or 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
posteffective amendment that contains a form of prospectus shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering hereof.
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the elegibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), in accordance with the rues and regulations
prescribed by the Commission under Section 305 (b)(2) of the Trust Indenture
Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on December 30, 1999.
NELNET STUDENT LOAN CORPORATION-2, a
Nevada corporation
By /S/STEPHEN F. BUTTERFIELD
-------------------------------------
Stephen F. Butterfield, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ MICHAEL S. DUNLAP Chairman of the Board December 30, 1999
Michael S. Dunlap (Principal Executive Officer)
/S/ STEPHEN F. BUTTERFIELD President and Director December 30, 1999
- ---------------------------
Stephen F. Butterfield
/S/ RONALD W. PAGE Vice-President, Secretary, December 30, 1999
- ---------------------------
Ronald W. Page Treasurer and Director
(Principal Financial and
Accounting Officer)
/S/ ROSS WILCOX Director December 30, 1999
- ---------------------------
Ross Wilcox
/S/ PAUL HOFF Director December 30, 1999
- ---------------------------
Dr. Paul Hoff
II-5
<PAGE>
NELNET STUDENT LOAN CORPORATION-2
REGISTRATION STATEMENT ON FORM S-3
EXHIBIT LIST
EXHIBIT NO. DESCRIPTION
1.1 Form of Underwriting Agreement
4.1 Form of Indenture of Trust by and between Registrant and Zions First
National Bank
5.1 Opinion of Kutak Rock LLP as to the validity of the Notes
8.1 Opinion of Kutak Rock LLP Regarding Tax Matters (included in
Exhibit 5.1)
23.1 Consent of Kutak Rock LLP (included in Exhibit 5.1 hereto)
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP
II-6
NELNET STUDENT LOAN CORPORATION-2
$-----------
Taxable Student Loan Asset-Backed Auction Rate CertificateSM Notes
(Series ____)
UNDERWRITING AGREEMENT
[DATE]
PaineWebber Incorporated
as representative of the Underwriters
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
NELNET Student Loan Corporation-2, a Nevada corporation (the
"Company"), proposes to sell to PaineWebber Incorporated (the "Representative")
and the other underwriters listed on Schedule A hereto (the "Underwriters"),
pursuant to the terms of this Underwriting Agreement, $___________ aggregate
principal amount of its Taxable Student Loan Asset- Backed Auction Rate
CertificateSM Notes, Series ____ (the "Notes"). Zions First National Bank, a
national banking association, will act as eligible lender (the "Eligible
Lender") on behalf of the Company. The Notes will be issued under an Indenture
of Trust dated as of [Date] between the Company and Zions First National Bank, a
national banking association, as indenture trustee (the "Trustee") [as
supplemented by the Series ___ Supplemental Indenture of Trust (the "Indenture
Supplement" and collectively with the Master Indenture] (the "Indenture"). Upon
issuance, the Notes will be secured by, among other things, Financed Eligible
Loans (as defined in the Indenture) pledged to the Trustee and described in the
Prospectus (as defined in Section 3 below). The Financed Eligible Loans are
serviced by National Education Loan Network, Inc. ("NelNet" or the "Servicer")
pursuant to a Servicing Agreement dated as of [Date], (the "Servicing
Agreement"), between NelNet and the Company. NelNet has entered into
subservicing agreements with (i) UNIPAC Service Corporation ("UNIPAC") dated as
of [Date] (the "UNIPAC Subservicing Agreement") pursuant to which UNIPAC will
act as subservicer or, upon inability of NelNet to do so, as servicer with
respect to certain of the Financed Eligible Loans and (ii) InTuition, Inc.
("InTuition"), dated as of [Date] (the "InTuition Subservicing Agreement"),
pursuant to which InTuition will act as subservicer with respect to certain of
the Financed Eligible Loans.
This Agreement, the Loan Sale Agreement, dated as of [Date],
between [Insert name] (the "Seller") and the Company (the "Sale Agreement"), the
Servicing Agreement, the
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<PAGE>
Subservicing Agreements, and the Indenture shall collectively hereinafter be
referred to as the "Basic Documents;"
Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Indenture or the Prospectus.
The Company proposes, upon the terms and conditions set forth
herein, to sell to each of the Underwriters on the Closing Date (as hereinafter
defined) the aggregate principal amount of each Class of Notes set forth next to
the name of each Underwriter on Schedule A hereto.
The Company wishes to confirm as follows this agreement with the
Underwriters in connection with the purchase and resale of the Notes.
1. Agreements to Sell, Purchase and Resell. (a) The Company
hereby agrees, subject to all the terms and conditions set forth herein to sell
to each of the Underwriters and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, each of the Underwriters severally agrees
to purchase from the Company, such principal amount of the Classes of the Notes
at such respective purchase prices as are set forth on Schedule A hereto.
(b) It is understood that the Underwriters propose to offer the
Notes for sale to the public (which may include selected dealers) as set forth
in the Prospectus.
2. Delivery of the Notes and Payment Therefor. Delivery to the
Underwriters of and payment for the Notes shall be made at the office of Kutak
Rock, Denver, Colorado, at _____ a.m., Denver time, on [Date] (the "Closing
Date"). The place of such closing and the Closing Date may be varied by
agreement between the Representative and the Company.
The Notes will be delivered to the Underwriters against payment
of the purchase price therefor to the Company in Federal Funds, by wire, or such
other form of payment as to which the parties may agree. Unless otherwise agreed
to by the Company and the Representative, each Class of Notes will be evidenced
by a single global security in definitive form and/or by additional definitive
securities, and will be registered, in the case of the global Classes of Notes,
in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"),
and in the other cases, in such names and in such denominations as the
Underwriters shall request prior to 1:00 p.m., New York City time, no later than
the business day preceding the Closing Date. The Notes to be delivered to the
Underwriters shall be made available to the Underwriters in Denver, Colorado,
for inspection and packaging not later than 9:30 a.m., Denver time, on the
business day next preceding the Closing Date.
3. Representations and Warranties of the Company. The Company
represents and warrants to each of the Underwriters that:
2
<PAGE>
(a) A registration statement on Form S-3 (No. 333-28551),
including a prospectus and such amendments thereto as may have been required to
the date hereof, relating to the Notes and the offering thereof from time to
time in accordance with Rule 415 under the Securities Act of 1933, as amended
(the "Act"), has been filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") and such registration statement, as amended, has
become effective; such registration statement, as amended, and the prospectus
relating to the sale of the Notes offered thereby constituting a part thereof,
as from time to time amended or supplemented (including the base prospectus, any
prospectus supplement filed with the Commission pursuant to Rule 424(b) under
the Act, the information deemed to be a part thereof pursuant to Rule 430A(b)
under the Act, and the information incorporated by reference therein) are
respectively referred to herein as the "Registration Statement" and the
"Prospectus"; and the conditions to the use of a registration statement on Form
S-3 under the Act, as set forth in the General Instructions to Form S-3, and the
conditions of Rule 415 under the Act, have been satisfied with respect to the
Registration Statement;
(b) On the effective date of the Registration Statement, the
Registration Statement and the Prospectus conformed in all respects to the
requirements of the Act, the rules and regulations of the SEC (the "Rules and
Regulations") and the Trust Indenture Act of 1939, as amended, and the rules and
regulations thereunder (the "Trust Indenture Act"), and, except with respect to
information omitted pursuant to Rule 430A of the Act, did not include any untrue
statement of a material fact or, in the case of the Registration Statement, omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and, in the case of the Prospectus, 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, and on
the date of this Agreement, the Registration Statement and the Prospectus will
conform in all respects to the requirements of the Act, the Rules and
Regulations and the Trust Indenture Act, and neither of such documents included
or will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the foregoing does not apply to
statements in or omissions from the Registration Statement or the Prospectus
based upon written information furnished to the Company by the Underwriters,
specifically for use therein.
(c) The Commission has not issued and, to the best knowledge of
the Company, is not threatening to issue any order preventing or suspending the
use of the Registration Statement.
(d) As of the Closing Date, each consent, approval, authorization
or order of, or filing with, any court or governmental agency or body which is
required to be obtained or made by the Company or its affiliates for the
consummation of the transactions contemplated by this Agreement shall have been
obtained, except as otherwise provided in the Basic Documents.
(e) The [Master Indenture and the Indenture Supplement] have been
duly and validly authorized by the Company and, upon their execution and
delivery by the
3
<PAGE>
Company and assuming due authorization, execution and delivery by the Trustee,
will be valid and binding agreements of the Company, enforceable in accordance
with their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally and
conform in all material respects to the description thereof in the Prospectus.
(f) The Notes have been duly authorized by the Company and the
Notes to be issued on the Closing Date, when executed by the Company and
authenticated by the Trustee in accordance with the Indenture, and delivered to
the Underwriters against payment therefor in accordance with the terms hereof,
will have been validly issued and delivered, and will constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture and
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or other
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and the Notes will conform in all material
respects to the description thereof in the Prospectus.
(g) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as conducted on the date hereof, and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company.
(h) Other than as contemplated by this Agreement or as disclosed
in the Prospectus, there is no broker, finder or other party that is entitled to
receive from the Company or any of its affiliates any brokerage or finder's fee
or other fee or commission as a result of any of the transactions contemplated
by this Agreement.
(i) There are no legal or governmental proceedings pending or, to
the knowledge of the Company threatened, against the Company, or to which the
Company or any of its properties is subject, that are not disclosed in the
Prospectus or that will not be disclosed in any subsequent amendment or
supplement to the Prospectus and which, if adversely decided, are reasonably
likely to materially affect the issuance of the Notes or the consummation of the
transactions contemplated hereby or by the Basic Documents.
(j) Neither the offer, sale or delivery of the Notes by the
Company nor the execution, delivery or performance of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby or thereby (i) requires or will require any consent, approval,
authorization or other order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except for compliance with the securities or Blue Sky laws of various
jurisdictions, the qualification of the Indenture under the Trust Indenture Act
and such other consents, approvals or authorizations as shall have been obtained
prior to the Closing Date) or conflicts or will
4
<PAGE>
conflict with or constitutes or will constitute a breach of, or a default under,
the organizational documents or bylaws of the Company or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
in any material respect, any material agreement, indenture, lease or other
instrument to which the Company is a party or by which the Company or any of its
properties may be bound, or violates or will violate in any material respect any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of its properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to the terms of any agreement or instrument to
which it is a party or by which it may be bound or to which any of its
properties is subject other than as contemplated by the Basic Documents.
(k) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement; the execution and
delivery of, and the performance by the Company of its obligations under, this
Agreement have been duly and validly authorized by the Company and this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement hereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or other
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and subject to the applicability of general
principles of equity, and except as rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or principles of
public policy.
(l) The Seller's assignment and delivery of Financed Eligible
Loans to the order of the Trustee on behalf of the Company as of the applicable
sale date described in the Sale Agreement will vest in the Trustee on behalf of
the Company all of the Seller's right, title and interest therein, subject to no
prior lien, mortgage, security interest, pledge, adverse claim, charge or other
encumbrance.
(m) The Company's assignment of the Financed Eligible Loans to
the Trustee pursuant to the Indenture will vest in the Trustee, for the benefit
of the Noteholders, a first priority perfected security interest therein,
subject to no prior lien, mortgage, security interest, pledge, adverse claim,
charge or other encumbrance.
(n) The Company is not, nor as a result of the issuance and sale
of the Notes as contemplated hereunder will it become, subject to registration
as an "investment company" under the Investment Company Act of 1940, as amended
(the "1940 Act").
(o) The representations and warranties made by the Company in any
Basic Document to which the Company is a party and made in any Officer's
Certificate of the Company will be true and correct at the time made and on and
as of the applicable Closing Date.
4. Agreements of the Company. The Company agrees with each of the
Underwriters as follows:
5
<PAGE>
(a) The Company will prepare a supplement to the Prospectus
setting forth the amount of the Notes covered thereby and the terms thereof not
otherwise specified in the Prospectus, the price at which the Notes are to be
purchased by the Underwriters, either the initial public offering price or the
method by which the price at which the Notes are to be sold will be determined,
the selling concessions and reallowances, if any, and such other information as
the Underwriters and the Company deem appropriate in connection with the
offering of the Notes, and the Company will timely file such supplement to the
prospectus with the SEC pursuant to Rule 424(b) under the Act, but the Company
will not file any amendments to the Registration Statement as in effect with
respect to the Notes or any amendments or supplements to the Prospectus, unless
it shall first have delivered copies of such amendments or supplements to the
Underwriters, or if the Underwriters shall have reasonably objected thereto
promptly after receipt thereof; the Company will immediately advise the
Underwriters or the Underwriters' counsel (i) when notice is received from the
SEC that any post-effective amendment to the Registration Statement has become
or will become effective and (ii) of any order or communication suspending or
preventing, or threatening to suspend or prevent, the offer and sale of the
Notes or of any proceedings or examinations that may lead to such an order or
communication, whether by or of the SEC or any authority administering any state
securities or Blue Sky law, as soon as the Company is advised thereof, and will
use its best efforts to prevent the issuance of any such order or communication
and to obtain as soon as possible its lifting, if issued.
(b) If, at any time when the Prospectus relating to the Notes is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the Company
promptly will prepare and file with the SEC, an amendment or supplement to such
Prospectus that will correct such statement or omission or an amendment that
will effect such compliance.
(c) The Company will immediately inform the Underwriters (i) of
the receipt by the Company of any communication from the SEC or any state
securities authority concerning the offering or sale of the Notes and (ii) of
the commencement of any lawsuit or proceeding to which the Company is a party
relating to the offering or sale of the Notes.
(d) The Company will furnish to the Underwriters, without charge,
copies of the Registration Statement (including all documents and exhibits
thereto or incorporated by reference therein), the Prospectus, and all
amendments and supplements to such documents relating to the Notes, in each case
in such quantities as the Underwriters may reasonably request.
(e) No amendment or supplement will be made to the Registration
Statement or Prospectus which the Underwriters shall not previously have been
advised or to which it shall reasonably object after being so advised.
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<PAGE>
(f) The Company will cooperate with the Underwriters and with its
counsel in connection with the qualification of, or procurement of exemptions
with respect to, the Notes for offering and sale by the Underwriters and by
dealers under the securities or Blue Sky laws of such jurisdictions as the
Underwriters may designate and will file such consents to service of process or
other documents necessary or appropriate in order to effect such qualification
or exemptions; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Notes, in any jurisdiction
where it is not now so subject.
(g) The Company consents to the use, in accordance with the
securities or Blue Sky laws of such jurisdictions in which the Notes are offered
by the Underwriters and by dealers, of the Prospectus furnished by the Company.
(h) To the extent, if any, that the rating or ratings provided
with respect to the Notes by the rating agency or agencies that initially rate
the Notes is conditional upon the furnishing of documents or the taking of any
other actions by the Company, the Company shall cause to be furnished such
documents and such other actions to be taken.
(i) So long as any of the Notes are outstanding, the Company will
furnish to the Underwriters (i) as soon as available, a copy of each document
relating to the Notes required to be filed with the SEC pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any order
of the SEC thereunder, and (ii) such other information concerning the Company as
the Underwriters may request from time to time.
(j) If this Agreement shall terminate or shall be terminated
after execution and delivery pursuant to any provisions hereof (otherwise than
by notice given by the Representative terminating this Agreement pursuant to
Section 8 or Section 9 hereof) or if this Agreement shall be terminated by the
Representative because of any failure or refusal on the part of the Company to
comply with the terms or fulfill any of the conditions of this Agreement, the
Company agrees to reimburse the Underwriters for all out-of-pocket expenses
(including fees and expenses of their counsel) reasonably incurred by it in
connection herewith, but without any further obligation on the part of the
Company for loss of profits or otherwise.
(k) The net proceeds from the sale of the Notes hereunder will be
applied substantially in accordance with the description set forth in the
Prospectus.
(l) Except as stated in this Agreement and in the Prospectus, the
Company has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Notes to facilitate the sale
or resale of the Notes.
(m) For a period from the date of this Agreement until the
retirement of the Notes, the Company will deliver to you the annual statements
of compliance and the annual independent certified public accountants' reports
furnished to the Trustee or the Company
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<PAGE>
pursuant to the Servicing Agreement as soon as such statements and reports are
furnished to the Trustee or the Company.
(n) On or before the Closing Date, the Company shall mark its
accounting and other records, if any, relating to the Financed Eligible Loans
and shall cause the Servicer, UNIPAC and InTuition to mark their respective
computer records relating to the Financed Eligible Loans to show the absolute
ownership by the Trustee, as eligible lender of, and the interest of the Company
in, the Initial Financed Eligible Loans, and from and after each Closing Date
the Company will take, or cause the Servicer, UNIPAC and InTuition to take, as
the case may be, such actions with respect to the respective records of each
with regard to any Additional Acquired Eligible Loans at the time of the
acquisition thereof by the Trustee on behalf of the Company and the Company
shall not take, or shall permit any other person to take, any action
inconsistent with the ownership of, and the interest of the Company in, the
Financed Eligible Loans, other than as permitted by the Basic Documents.
(o) For the period beginning on the date of this Agreement and
ending 90 days hereafter, after none of the Company and any entity affiliated,
directly or indirectly, with the Company will, without the prior written notice
to the Underwriters, offer to sell or sell notes (other than the Notes)
collateralized by FFELP Loans; provided, however, that this shall not be
construed to prevent the sale of FFELP Loans by the Company.
(p) If, at the time the Registration Statement became effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the 1933 Act, then, immediately following the execution of this Agreement,
the Company will prepare, and file or transmit for filing with the Commission in
accordance with such Rule 430A and Rule 424(b) under the 1933 Act, copies of an
amended Prospectus containing all information so omitted.
5. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each of the Underwriters and each person, if any,
who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, the Prospectus, or in
any amendment or supplement thereto, or any preliminary prospectus, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
relating to an Underwriter furnished in writing to the Company by or on behalf
of such Underwriter expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any preliminary prospectus shall not inure to the benefit of an Underwriter
(or to the benefit of any person controlling an Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the of
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Notes by an Underwriter to any person if the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
preliminary prospectus was corrected in the final Prospectus and such
Underwriter sold Notes to that person without sending or giving at or prior to
the written confirmation of such sale, a copy of the final Prospectus (as then
amended or supplemented) if the Company has previously furnished sufficient
copies thereof to such Underwriter. The foregoing indemnity agreement shall be
in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against an
Underwriter or any person controlling an Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party except to the extent that the indemnifying
party is materially prejudiced by such omission. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party). The applicable
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action, suit or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) the
indemnifying parties have agreed in writing to pay such fees and expenses, (ii)
the indemnifying parties have failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both the Underwriter or such controlling person and
the indemnifying parties and the Underwriter or such controlling person shall
have been advised by its counsel that there may be one or more legal defenses
available to it which are different from or additional to or in conflict with
those available to the indemnifying parties and in the reasonable judgment of
such counsel it is advisable for the Underwriter or such controlling person to
employ separate counsel (in which case the indemnifying party shall not have the
right to assume the defense of such action, suit or proceeding on behalf of the
Underwriter or such controlling person). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
each Underwriter and controlling persons not having actual or potential
differing interests with such Underwriter or among themselves, which firm shall
be designated in writing by such Underwriter, and that all such fees and
expenses shall be reimbursed on a monthly basis as provided in paragraph (a)
hereof. An indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement,
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compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and its directors and officers, and any
person who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, to the same extent as the indemnity from the
Company to the Underwriters set forth in paragraph (a) hereof, but only with
respect to information relating to an Underwriter furnished in writing by or on
behalf of such Underwriter expressly for use in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related preliminary
prospectus. If any action, suit or proceeding shall be brought against the
Company, any of its directors or officers, or any such controlling person based
on the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus and in respect of which indemnity
may be sought against an Underwriter pursuant to this paragraph (c), such
Underwriter shall have the rights and duties given to the Company by paragraph
(b) above (except that if the Company shall have assumed the defense thereof the
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Underwriter's expense), and the Company, its
directors and officers, and any such controlling person shall have the rights
and duties given to the Underwriters by paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which the Underwriters
may otherwise have.
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the applicable Underwriter on the other hand from
the offering of the Notes, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the applicable
Underwriter on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and an Underwriter on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Notes (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by such Underwriter. The
relative fault of the Company on the one hand and the Underwriters 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 an Underwriter on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
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(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
a pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 5, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total underwriting discounts and commissions received by such Underwriter exceed
the amount of any damages which such Underwriter 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.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 5 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Company and the Underwriters set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of the Underwriters, the Company
or any person controlling any of them or their respective directors or officers,
(ii) acceptance of any Notes and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to the Underwriters, the Company or
any person controlling any of them or their respective directors or officers,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 5.
6. Conditions of the Underwriters' Obligations. The obligations
of the Underwriters to purchase the Notes hereunder are subject to the following
conditions:
(a) All actions required to be taken and all filings required to
be made by the Company under the Act prior to the sale of the Notes shall have
been duly taken or made. At and prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Underwriters, shall be contemplated by the
Commission.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company, the
Seller, the Servicer, UNIPAC or InTuition not contemplated by the Registration
Statement, which in the opinion of the Representative, would materially
adversely affect the market for the Notes, (ii) any downgrading in the rating of
any debt securities of the
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Company, a Seller, the Servicer, UNIPAC or InTuition by any nationally
recognized statistical rating organization or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company, the Seller, the Servicer, UNIPAC or InTuition (other
than an announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating), or (iii) any event or
development which makes any statement made in the Registration Statement or
Prospectus untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the filing of any amendment to or
change in the Registration Statement or Prospectus in order to state a material
fact required by any law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the Registration
Statement or Prospectus to reflect such event or development would, in the
opinion of the Representative, materially adversely affect the market for the
Notes.
(c) You shall have received an opinion addressed to you of Kutak
Rock, in its capacity as counsel to the Company, dated the Closing Date, in form
and substance satisfactory to you and your counsel with respect to the status of
the Company, to each of the Sale Agreement, Servicing Agreement, Indenture,
Auction Agency Agreement, Broker-Dealer Agreement and this Agreement and to the
validity of the Notes and such related matters as you shall reasonably request.
In addition, you shall have received an opinion addressed to you of Kutak Rock,
in its capacity as counsel for the Company, in form and substance satisfactory
to you and your counsel, concerning "true sale," "non- consolidation" and "first
perfected security interest" and certain other issues with respect to the
transfer of the Financed Eligible Loans from the Seller to the Company and from
the Company to the Trustee.
(d) You shall have received an opinion addressed to you of Kutak
Rock, in its capacity as counsel for the Company, dated the Closing Date, in
form and substance satisfactory to you and your counsel to the effect that the
statements in the Prospectus under the headings "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" and "ERISA CONSIDERATIONS", to the extent that they constitute
statements of matters of law or legal conclusions with respect thereto, have
been prepared or reviewed by such counsel and are correct in all material
respects.
(e) You shall have received an opinion addressed to you of Kutak
Rock, in its capacity as counsel for the Company, dated the Closing Date, in
form and substance satisfactory to you and your counsel with respect to the
character of the Notes for federal tax purposes.
(f) You shall have received an opinion addressed to you of
Stroock & Stroock & Lavan LLP, in its capacity as Underwriters' Counsel, dated
the Closing Date, in form and substance satisfactory to you.
(g) You shall have received an opinion addressed to you of
Ballard Spahr Andrews & Ingersoll LLP, in its capacity as counsel for the
Company, dated the Closing Date in form and substance satisfactory to you and
your counsel with respect to the Prospectus and
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<PAGE>
the Registration Statement and certain matters arising under the Trust Indenture
Act of 1939, as amended, and the Investment Company Act of 1940, as amended.
(h) You shall have received opinions addressed to you of Perry,
Guthery, Haase & Gessford, P.C. in their capacity as counsel to NelNet and
[Seller], each dated the Closing Date and satisfactory in form and substance to
you and your counsel, to the effect that:
i. NelNet is a corporation in good standing under the laws of the
State of Nevada; [Seller] is a corporation in good standing under the
laws of the State of Nevada; each having the full power and authority
(corporate and other) to own its properties and conduct its business, as
presently conducted by it, and to enter into and perform its obligations
under each of the Servicing Agreement, the Sale Agreement and the
Subservicing Agreements to which it is a party.
ii. The Sale Agreement has been duly authorized, executed and
delivered by the Seller and the Servicing Agreement and the Subservicing
Agreements have been duly authorized, executed and delivered by NelNet,
and each such agreement is the legal, valid and binding obligations of
the Seller and NelNet, as the case may be, enforceable against the
Seller and NelNet, as the case may be, in accordance with their
respective terms, except (x) the enforceability thereof may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and (y)
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
iii. Neither the execution and delivery by NelNet of the
Servicing Agreement or the Subservicing Agreements, or the execution by
the Seller of the Sale Agreement, nor the consummation by NelNet or the
Seller of the transactions contemplated therein nor the fulfillment of
the terms thereof by NelNet or the Seller will conflict with, result in
a breach, violation or acceleration of, or constitute a default under,
any term or provision of the by-laws of NelNet or the Seller or of any
indenture or other agreement or instrument to which NelNet or the Seller
is a party or by which NelNet or the Seller is bound, or result in a
violation of or contravene the terms of any statute, order or regulation
applicable to NelNet or the Seller of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
NelNet or the Seller.
iv. There are no actions, proceedings or investigations pending
or, to the best of such counsel's knowledge after due inquiry and
reasonable investigation, threatened against NelNet or the Seller before
or by any governmental authority that might materially and adversely
affect the performance by NelNet or the Seller of its obligations under,
or the validity or enforceability of, the Servicing Agreement, the
Subservicing Agreements or the Sale Agreement to which it is a party.
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<PAGE>
v. Nothing has come to such counsel's attention that would lead
such counsel to believe that the representations and warranties of
NelNet contained in the Servicing Agreement, or the Subservicing
Agreements or the representations and warranties of the Seller contained
in the Sale Agreement are other than as stated therein.
vi. No authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required (a) for the due execution, delivery and performance by NelNet
of the Servicing Agreement or the Subservicing Agreements, (b) for the
due execution, delivery and performance by the Seller of the Sale
Agreement or (c) for the perfection of the Company's and the Trustee's
interest in the Student Loans sold pursuant to the Sale Agreement or the
exercise by the Company (or it permitted assigns) and the Trustee of
their rights and remedies under the Sale Agreement, including
specifically the filings of any Uniform Commercial Code financing
statements, except for the execution and delivery of the Guarantee
Agreements.
vii. The Sale Agreement together with the related bill of sale
and blanket endorsement effects a valid sale to the Trustee of the
Student Loans to be sold under the Sale Agreement enforceable against
creditors of, and purchasers from, the Seller.
viii. As of the date specified in a schedule to such opinion,
there were no (a) UCC financing statements naming the Seller as debtor
or seller and covering any Student Loans to be sold under the Sale
Agreement or interest therein or (b) notices of the filing of any
federal tax lien (filed pursuant to Section 6323 of the Internal Revenue
Code) or lien of the Pension Benefit Guaranty Corporation (filed
pursuant to Section 4068 of ERISA) covering any Student Loan to be sold
under the Sale Agreement or interest therein, listed in the available
records in the respective offices set forth in such schedule opposite
each such date (which are all of the offices that are prescribed under
either the internal law of the conflict of law rules of the Nebraska UCC
as the offices in which filings should be made to perfect security
interests in Student Loans), except as set forth in such schedule.
ix. As of the date of such opinion, by executing the Guarantee
Agreements and upon execution and delivery of the instruments of
transfer described in the Sale Agreement and notification of the
Guarantors and borrowers of the transfer contemplated thereby, and
assuming that the Trustee is an eligible lender as that term is defined
in 20 U.S.C. ss.1085(d)(1) of the Higher Education Act of 1965, as
amended, the Trustee on behalf of the Company will be entitled to the
benefit of the applicable Guarantor and/or Department of Education
payments under the Act related to the Student Loans sold from time to
time under the Sale Agreement, subject to the terms and conditions of
the Guarantee Agreements and the Act.
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(i) You shall have received an opinion addressed to you of
counsel to the Trustee, dated the Closing Date and in form and substance
satisfactory to you and your counsel, to the effect that:
i. The Trustee is a national banking association duly organized
and validly existing under the laws of the United States of America.
ii. The Trustee has the full corporate trust power to accept the
office of indenture trustee under the Indenture and to enter into and
perform its obligations under the Indenture, the Amendments to the
Custodian Agreements, the Auction Agency Agreement, the Market Agent
Agreement and each Guarantee Agreement.
iii. The execution and delivery of each of the Indenture, the
Amendments to the Custodian Agreements, the Auction Agency Agreement,
the Market Agent Agreement and each Guarantee Agreement, and the
performance by the Trustee of its obligations under the Indenture, the
Amendments to the Custodian Agreements, the Auction Agency Agreement,
the Market Agent Agreement and each Guarantee Agreement, have been duly
authorized by all necessary action of the Trustee and each has been duly
executed and delivered by the Trustee.
iv. The Indenture, the Amendments to the Custodian Agreements,
the Auction Agency Agreement, the Market Agent Agreement and each
Guarantee Agreement constitute valid and binding obligations of the
Trustee enforceable against the Trustee.
v. The execution and delivery by the Trustee of the Indenture,
the Amendments to the Custodian Agreements, the Auction Agency
Agreement, the Market Agent Agreement and each Guarantee Agreement do
not require any consent, approval or authorization of, or any
registration or filing with, any state or United States Federal
governmental authority.
vi. Each of the Notes has been duly authenticated by the Trustee.
vii. Neither the consummation by the Trustee of the transactions
contemplated in the Indenture, the Amendments to the Custodian
Agreements, the Auction Agency Agreement and each Guarantee Agreement
nor the fulfillment of the terms thereof by the Trustee will conflict
with, result in a breach or violation of, or constitute a default under
any law or the charter, by-laws or other organizational documents of the
Trustee or the terms of any indenture or other agreement or instrument
known to such counsel and to which the Trustee or any of its
subsidiaries is a party or is bound or any judgment, order or decree
known to such counsel to be applicable to the Trustee or any of its
subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Trustee or
any of its subsidiaries.
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viii. There are no actions, suits or proceedings pending or, to
the best of such counsel's knowledge after due inquiry, threatened
against the Trustee (as indenture trustee under the Indenture or in its
individual capacity) before or by any governmental authority that might
materially and adversely affect the performance by the Trustee of its
obligations under, or the validity or enforceability of, the Indenture,
the Amendments to the Custodian Agreements, the Auction Agency
Agreement, the Market Agent Agreement or any Guarantee Agreement.
ix. The execution, delivery and performance by the Trustee of the
Indenture the Amendments to the Custodian Agreements, the Auction Agency
Agreement, the Market Agent Agreement or any Guarantee Agreement will
not subject any of the property or assets of the Company or any portion
thereof, to any lien created by or arising under the Indenture that is
unrelated to the transactions contemplated in such agreements.
x. The Trustee is an "eligible lender" for purposes of the FFELP
Program in its capacity as trustee with respect to Financed Eligible
Loans held under the Indenture.
(j) You shall have received certificates addressed to you dated
the Closing Date of any two of the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the
Treasurer, any Assistant Treasurer, the principal financial officer or the
principal accounting officer of the Seller and the Servicer in which such
officers shall state that, to the best of their knowledge after reasonable
investigation, (i) the representations and warranties of the Seller or the
Servicer, as the case may be, contained in the Sale Agreement, the Servicing
Agreement and the Subservicing Agreements, as applicable, are true and correct
in all material respects, that each of the Seller and the Servicer has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied under such agreements at or prior to the Closing Date, (ii) that they
have reviewed the Prospectus and that the information therein regarding the
Seller or the Servicer, as applicable, is fair and accurate in all material
respects, and (iii) since the date set forth in such certificate, except as may
be disclosed in the Prospectus, no material adverse change or any development
involving a prospective material adverse change, in or affecting particularly
the business or properties of the Seller or the Servicer, as applicable, has
occurred.
(k) You shall have received certificates addressed to you dated
the Closing Date of any two of the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the
Treasurer, any Assistant Treasurer, the principal financial officer or the
principal accounting officer of UNIPAC and InTuition in which such officers
shall state that, to the best of their knowledge after reasonable investigation,
(i) the representations and warranties of UNIPAC and InTuition contained in the
Subservicing Agreements are true and correct in all material respects, that each
of UNIPAC and InTuition has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied under such agreements at or
prior to the Closing Date, (ii) that they have reviewed the Prospectus and that
the information therein regarding UNIPAC and InTuition is fair and
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accurate in all material respects, and (iii) since the date set forth in such
certificate, except as may be disclosed in the Prospectus, no material adverse
change or any development involving a prospective material adverse change in, or
affecting particularly the business or properties of UNIPAC and InTuition has
occurred.
(l) You shall have received evidence satisfactory to you that, on
or before the Closing Date, UCC-1 financing statements have been or are being
filed in the office of the Secretary of State of the States of Nevada and
Nebraska reflecting the grant of the security interest by the Company in the
Financed Eligible Loans and the proceeds thereof to the Trustee.
(m) You shall have received a certificate addressed to you dated
the Closing Date from a responsible officer acceptable to you of the Trustee in
form and substance satisfactory to you and your counsel and to which shall be
attached each Guarantee Agreement.
(n) The Underwriters shall have received on the Closing Date from
KPMG Peat Marwick a letter dated the Closing Date, and in form and substance
satisfactory to the Representative, to the effect that they have carried out
certain specified procedures, not constituting an audit, with respect to certain
information regarding the Financed Eligible Loans and setting forth the results
of such specified procedures.
(o) All the representations and warranties of the Company
contained in this Agreement and the Basic Documents shall be true and correct in
all material respects on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date and the Underwriters shall have
received a certificate, dated the Closing Date and signed by an executive
officer of the Company to the effect set forth in this Section 6(p) and in
Section 6(q) hereof.
(p) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(q) The Underwriters shall have received by instrument dated the
Closing Date (at the option of the Representative), in lieu of or in addition to
the legal opinions referred to in this Section 6, the right to rely on opinions
provided by such counsel and all other counsel under the terms of the Basic
Documents.
(r) Each of the Class A Notes shall be rated at least "AAA" and
"AAA", respectively, by Fitch IBCA, Inc. ("Fitch") and Standard & Poor's Ratings
Service, a division of The McGraw-Hill Companies ("S&P"), and that neither Fitch
nor S&P have placed the Class A Notes under surveillance or review with possible
negative implications.
(s) The issuance of the Notes shall not have resulted in a
reduction or withdrawal by Fitch or S&P of the current rating of any outstanding
securities issued or originated by the Company or any of its affiliates.
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(t) You shall have received evidence satisfactory to you of the
completion of all actions necessary to effect the transfer of the Financed
Eligible Loans as described in the Prospectus and the recordation thereof on the
Seller's, UNIPAC's and InTuition's computer systems.
(u) You shall have received certificates addressed to you dated
the Closing Date from officers of the Company addressing such additional matters
as you may reasonably request in form and substance satisfactory to you and your
counsel.
(v) You shall have received a signed Indemnity Agreement from
NelNet in form and substance satisfactory to you and your counsel.
(w) You shall have received such other opinions, certificates and
documents as are required under the Indenture as a condition to the issuance of
the Notes.
The Company will provide or cause to be provided to you such
conformed copies of such of the foregoing opinions, notes, letters and documents
as you reasonably request.
7. Expenses. The Company agrees to pay or to otherwise cause the
payment of the following costs and expenses and all other costs and expenses
incident to the performance by it of its obligations hereunder: (i) the
preparation, printing or reproduction of the Registration Statement, the
Prospectus and each amendment or supplement to any of them, this Agreement, and
each other Basic Document; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and packaging)
of such copies of the Registration Statement, the Prospectus and all amendments
or supplements to any of them as may be reasonably requested for use in
connection with the offering and sale of the Notes; (iii) the preparation,
printing, authentication, issuance and delivery of definitive certificates for
the Notes; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Notes; (v) qualification of the Indenture under the Trust Indenture Act;
(vi) the qualification of the Notes for offer and sale under the securities or
Blue Sky laws of the several states as provided in Section 3(h) hereof
(including the reasonable fees, expenses and disbursements of counsel relating
to the preparation, printing or reproduction, and delivery of the preliminary
and supplemental Blue Sky Memoranda and such qualification); (vii) the fees and
disbursements of (A) the Company's counsel, (B) the Underwriters' counsel, (C)
the Trustee and its counsel, (D) the Depository Trust Company in connection with
the book-entry registration of the Notes and (G) KPMG Peat Marwick, accountants
for the Company and issuer of the Comfort Letter; and (viii) the fees charged by
S&P and Fitch for rating the Notes.
8. Effective Date of Agreement. This Agreement shall be deemed
effective as of the date first above written upon the execution and delivery
hereof by all the parties hereto. Until such time as this Agreement shall have
become effective, it may be terminated
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by the Company, by notifying the Representative, or by the Representative, by
notifying the Company.
Any notice under this Section 8 may be given by telecopy or
telephone but shall be subsequently confirmed by letter.
9. Termination of Agreement. This Agreement shall be subject to
termination in the absolute discretion of the Representative, without liability
on the part of the Underwriters to the Company, by notice to the Company, if
prior to the Closing Date (i) trading in securities generally on the New York
Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have
been suspended or materially limited, (ii) a general moratorium on commercial
banking activities in New York shall have been declared by either Federal or
state authorities, or (iii) there shall have occurred any outbreak or escalation
of hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in the judgment of
the Representative, impracticable or inadvisable to commence or continue the
offering of the Notes on the terms set forth in the Prospectus, as applicable,
or to enforce contracts for the resale of the Notes by the Underwriters. Notice
of such termination may be given to the Company by telecopy or telephone and
shall be subsequently confirmed by letter.
10. Information Furnished by the Underwriters. The statements set
forth under the heading "Plan of Distribution" in the Prospectus Supplement
constitute the only information furnished by or on behalf of the Underwriters as
such information is referred to in Sections 3(b) and 5 hereof.
11. Default by One of the Underwriters. If any of the
Underwriters shall fail on the Closing Date to purchase the Notes which it is
obligated to purchase hereunder (the "Defaulted Notes"), the remaining
Underwriters (the "Non-Defaulting Underwriters") shall have the right, but not
the obligation, within one (1) Business Day thereafter, to make arrangements to
purchase all, but not less than all, of the Defaulted Notes upon the terms
herein set forth; if, however, the Non-Defaulting Underwriters shall have not
completed such arrangements within such one (1) Business Day period, then this
Agreement shall terminate without liability on the part of the Non-Defaulting
Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Non-Defaulting Underwriters or the
Company shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements.
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12. Computational Materials. (a) It is understood that the
Underwriters may prepare and provide to prospective investors certain
Computational Materials (as defined below) in connection with the Company's
offering of the Notes, subject to the following conditions:
i. The Underwriters shall comply with all applicable laws and
regulations in connection with the use of Computational Materials
including the No-Action Letter of May 20, 1994 issued by the Commission
to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co.
Incorporated and Kidder Structured Asset Corporation, as made applicable
to other issuers and underwriters by the Commission in response to the
request of the Public Securities Association dated May 24, 1994, and the
No-Action Letter of February 17, 1995 issued by the Commission to the
Public Securities Association (collectively, the "Kidder/PSA Letters").
ii. As used herein, "Computational Materials" and the term "ABS
Term Sheets" shall have the meanings given such terms in the Kidder/PSA
Letters, but shall include only those Computational Materials that have
been prepared or delivered to prospective investors by or at the
direction of an Underwriter.
iii. Each Underwriter shall provide the Company with
representative forms of all Computational Materials prior to their first
use, to the extent such forms have not previously been approved by the
Company for use by such Underwriter. Each Underwriter shall provide to
the Company, for filing on Form 8-K as provided in Section 11(b), copies
of all Computational Materials that are to be filed with the Commission
pursuant to the Kidder/PSA Letters. Each Underwriter may provide copies
of the foregoing in a consolidated or aggregated form. All Computational
Materials described in this subsection (a)(iii) must be provided to the
Company not later than 10:00 A.M., Colorado time, one business day
before filing thereof is required pursuant to the terms of this
Agreement.
iv. If an Underwriter does not provide the Computational
Materials to the Company pursuant to subsection (a)(iii) above, such
Underwriter shall be deemed to have represented, as of the applicable
Closing Date, that it did not provide any prospective investors with any
information in written or electronic form in connection with the
offering of the Notes that is required to be filed with the Commission
in accordance with the Kidder/PSA Letters.
v. In the event of any delay in the delivery by an Underwriter to
the Company of all Computational Materials required to be delivered in
accordance with subsection (a)(iii) above, the Company shall have the
right to delay the release of the Prospectus to investors or to such
Underwriter, to delay the Closing Date and to take other appropriate
actions in each case as necessary in order to allow the Company to
comply with its agreement set forth in Section 11(b) to file the
Computational Materials by the time specified therein.
20
<PAGE>
(b) The Company shall file the Computational Materials (if any)
provided to it by the Underwriter under Section 11(a)(iii) with the Commission
pursuant to a Current Report on Form 8-K no later than 5:30 P.M., New York time,
on the date required pursuant to the Kidder/PSA Letters.
13. Survival of Representations and Warranties. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement or contained in notes of officers of the Company submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation or statement as to the results thereof, made by or on
behalf of the Underwriters, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Notes.
14. Miscellaneous. Except as otherwise provided in Sections 5, 8
and 9 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company, at 6991 East Camelback
Road, Suite B290, Scottsdale, Arizona 85251, Attention: Stephen F. Butterfield,
and (ii) if to the Underwriters, to PaineWebber Incorporated, 1285 Avenue of the
Americas, New York, New York 10019, Attention: John A. Hupalo.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company, their respective directors, officers, trustees and
controlling persons referred to in Section 5 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from an Underwriter of any of the Notes in his status
as such purchaser.
15. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York
without giving effect to the choice of laws or conflict of laws principles
thereof.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof or
thereof shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Underwriters.
Very truly yours,
NELNET STUDENT LOAN CORPORATION-2
21
<PAGE>
By: --------------------------------
Ronald W. Page
Vice President
Confirmed as of the date first above mentioned.
PAINEWEBBER INCORPORATED, as acting on
behalf of itself and as Representative of the Underwriters
By-------------------------------------------
John A. Hupalo, Managing Director
22
<PAGE>
SCHEDULE A
Principal Amount of Notes
Underwriter Class Class Class Class
------------ ----------- ----------- -----------
Total $ $ $ $
=========== =========== =========== ===========
<TABLE>
<CAPTION>
Terms of the Notes
Class Interest Rate Final Maturity Date Price to Public Underwriting Discount Proceeds to Issuer
- ----- ------------- ------------------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
23
INDENTURE OF TRUST
by and between
NELNET STUDENT LOAN CORPORATION-2
and
ZIONS FIRST NATIONAL BANK
as Trustee
Dated as of _________ 1, 1999
<PAGE>
NELNET STUDENT LOAN CORPORATION-2
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture
of Trust dated as of ________ 1, 1999.
TRUST INDENTURE ACT SECTION INDENTURE SECTION
Section 310(a)(1) 7.23
(a)(2) 7.23
(b) 7.23,7.09
Section 312(c) 9.16
Section 314(a) 4.16
(a)(4) 4.17
Section 315(b) 8.04
Section 317(a)(1) 4.18
(a)(2) 7.24
Section 318(a) 9.09
(c) 9.09
- --------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
Attention should also be directed to Section 318(c) of the 1939 Act, which
provides that the provisions of Sections 310 to and including 317 of the 1939
Act are a part of and govern every qualified indenture, whether or not
physically contained therein.
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference only and is not
intended to define, limit or describe the purpose or intent of any provisions of
this Indenture of Trust.)
Page
Article I
DEFINITIONS AND USE OF PHRASES.................................................3
Article II
NOTE DETAILS, FORM OF NOTES, REDEMPTION OF NOTES AND USE OF PROCEEDS OF NOTES
Section 2.01. Note Details...................................................14
Section 2.02. Execution of Notes.............................................14
Section 2.03. Registration, Transfer and Exchange of Notes; Persons Treated as
Registered Owners..............................................14
Section 2.04. Lost, Stolen, Destroyed and Mutilated Notes....................15
Section 2.05. Trustee's Authentication Certificate...........................15
Section 2.06. Cancellation and Destruction of Notes by the Trustee...........15
Section 2.07. Temporary Notes................................................16
Section 2.08. Issuance of Notes..............................................16
Article III
PARITY AND PRIORITY OF LIEN; OTHER OBLIGATIONS; AND DERIVATIVE PRODUCTS
Section 3.01. Parity and Priority of Lien....................................17
Section 3.02. Other Obligations..............................................17
Section 3.03. Derivative Products; Reciprocal Payments;
Issuer Derivative Payments.....................................18
Article IV
PROVISIONS APPLICABLE TO THE NOTES; DUTIES OF THE ISSUER
Section 4.01. Payment of Principal, Interest and Premium.....................19
Section 4.02. Representations and Warranties of the Issuer...................19
Section 4.03. Covenants as to Additional Conveyances.........................19
Section 4.04. Further Covenants of the Issuer................................20
Section 4.05. Enforcement of Servicing Agreements............................21
Section 4.06. Procedures for Transfer of Funds...............................22
Section 4.07. Additional Covenants with Respect to the Act...................22
Section 4.08. Financed Eligible Loans; Collections Thereof;
Assignment Thereof.............................................23
Section 4.09. Appointment of Agents, Etc.....................................23
Section 4.10. Capacity to Sue................................................23
Section 4.11. Continued Existence; Successor to Issuer.......................23
Section 4.12. Amendment of Student Loan Purchase Agreements..................23
Section 4.13. Representations; Negative Covenants............................24
Section 4.14. Additional Covenants...........................................29
Section 4.15. Providing of Notice............................................30
Section 4.16. Reports by Issuer..............................................31
Section 4.17. Statement as to Compliance.....................................31
Section 4.18. Collection of Indebtedness and Suits for Enforcement
by Trustee.....................................................31
Article V
FUNDS
Section 5.01. Creation and Continuation of Funds and Accounts................32
Section 5.02. Acquisition Fund...............................................32
Section 5.03. Revenue Fund...................................................34
Section 5.04. Reserve Fund...................................................35
Section 5.05. Operating Fund.................................................36
Section 5.06. Transfers to Issuer............................................37
Section 5.07. Investment of Funds Held by Trustee............................37
Section 5.08. Release........................................................38
Section 5.09. Purchase of Notes..............................................38
Article VI
DEFAULTS AND REMEDIES
Section 6.01. Events of Default Defined......................................38
Section 6.02. Remedy on Default; Possession of Trust Estate..................39
Section 6.03. Remedies on Default; Advice of Counsel.........................40
Section 6.04. Remedies on Default; Sale of Trust Estate......................40
Section 6.05. Appointment of Receiver........................................41
Section 6.06. Restoration of Position........................................41
Section 6.07. Purchase of Properties by Trustee or Registered Owners.........41
Section 6.08. Application of Sale Proceeds...................................42
Section 6.09. Accelerated Maturity...........................................42
Section 6.10. Remedies not Exclusive.........................................42
Section 6.11. Direction of Trustee...........................................42
Section 6.12. Right to Enforce in Trustee....................................43
Section 6.13. Physical Possession of Obligations not Required................43
Section 6.14. Waivers of Events of Default...................................43
Article VII
THE TRUSTEE
Section 7.01. Acceptance of Trust............................................44
Section 7.02. Recitals of Others.............................................44
Section 7.03. As to Filing of Indenture......................................44
Section 7.04. Trustee May Act Through Agents.................................45
Section 7.05. Indemnification of Trustee.....................................45
Section 7.06. Trustee's Right to Reliance....................................46
Section 7.07. Compensation of Trustee........................................47
Section 7.08. Trustee May Own Notes..........................................47
Section 7.09. Resignation of Trustee.........................................47
Section 7.10. Removal of Trustee.............................................47
Section 7.11. Successor Trustee..............................................48
Section 7.12. Manner of Vesting Title in Trustee.............................48
Section 7.13. Additional Covenants by the Trustee to Conform to the Act......49
Section 7.14. Right of Inspection............................................49
Section 7.15. Limitation with Respect to Examination of Reports..............49
Section 7.16. Servicing Agreement............................................49
Section 7.17. Additional Covenants of Trustee................................49
Section 7.18. Duty of Trustee with Respect to Rating Agencies................50
Section 7.19. Merger of the Trustee..........................................50
Section 7.20. Receipt of Funds from Servicer.................................50
Section 7.21. Special Circumstances Leading to Resignation of Trustee........50
Section 7.22. Survival of Trustee's Rights to Receive Compensation,
Reimbursement and Indemnification..............................51
Section 7.23. Corporate Trustee Required; Eligibility; Conflicting Interests.51
Section 7.24. Trustee May File Proofs of Claim...............................51
Article VIII
SUPPLEMENTAL INDENTURES
Section 8.01. Supplemental Indentures Not Requiring Consent of
Registered Owners..............................................52
Section 8.02. Supplemental Indentures Requiring Consent of Registered Owners.53
Section 8.03. Additional Limitation on Modification of Indenture.............54
Section 8.04. Notice of Defaults.............................................54
Section 8.05. Conformity with the Trust Indenture Act........................55
Article IX
GENERAL PROVISIONS
Section 9.01. Notices........................................................55
Section 9.02. Covenants Bind Issuer..........................................56
Section 9.03. Lien Created...................................................56
Section 9.04. Severability of Lien...........................................56
Section 9.05. Consent of Registered Owners Binds Successors..................57
Section 9.06. Nonliability of Directors; No General Obligation...............57
Section 9.07. Nonpresentment of Notes or Interest Checks.....................57
Section 9.08. Security Agreement.............................................57
Section 9.09. Laws Governing.................................................57
Section 9.10. Severability...................................................57
Section 9.11. Exhibits.......................................................58
Section 9.12. Non-Business Days..............................................58
Section 9.13. Parties Interested Herein......................................58
Section 9.14. Obligations Are Limited Obligations............................58
Section 9.15. Reciprocal Payor Rights........................................58
Section 9.16. Disclosure of Names and Addresses of Registered Owners.........58
Section 9.17. Aggregate Principal Amount of Obligations......................58
Section 9.18. Financed Eligible Loans........................................58
Article X
PAYMENT AND CANCELLATION OF NOTES AND SATISFACTION OF INDENTURE
Section 10.01. Trust Irrevocable..............................................59
Section 10.02. Satisfaction of Indenture......................................59
Section 10.03. Cancellation of Paid Notes.....................................60
Article XI
TERMINATION
Section 11.01. Termination of the Trust.......................................61
Section 11.02. Notice.........................................................62
Article XII
REPORTING REQUIREMENTS
Section 12.01. Annual Statement as to Compliance..............................62
Section 12.02. Annual Independent Public Accountants' Servicing Report........62
Section 12.03. Servicer's Certificate.........................................63
Section 12.04. Statements to Registered Owners................................63
<PAGE>
INDENTURE OF TRUST
THIS INDENTURE OF TRUST, dated as of _________ 1, 1999 (this
"Indenture"), is by and between NELNET STUDENT LOAN CORPORATION-2 (the
"Issuer"), a corporation duly organized and existing under the laws of the State
of Nevada (the "State"), and ZIONS FIRST NATIONAL BANK, a national banking
association duly organized and operating under the laws of the United States of
America (together with its successors, the "Trustee"), as trustee hereunder (all
capitalized terms used in these preambles, recitals and granting clauses shall
have the same meanings assigned thereto in Article I hereof);
W I T N E S S E T H:
WHEREAS, the Issuer represents that it is duly created as a corporation
under the laws of the State and that by proper action of its governing body it
has duly authorized the execution and delivery of this Indenture, which
Indenture provides for the payment of student loan asset-backed notes (the
"Notes") and the payments to any Reciprocal Payor (as defined herein), all to be
issued pursuant to the terms of Supplemental Indentures; and
WHEREAS, this Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act" or "TIA"), that are
deemed to be incorporated into this Indenture and shall, to the extent
applicable, be governed by such provisions; and
WHEREAS, the Trustee has agreed to accept the trusts herein created upon
the terms herein set forth; and
WHEREAS, it is hereby agreed between the parties hereto, the Registered
Owners of any Notes (the Registered Owners evidencing their consent by their
acceptance of the Notes) and any Reciprocal Payor (the Reciprocal Payor
evidencing its consent by its execution and delivery of a Derivative Product (as
defined herein)) that in the performance of any of the agreements of the Issuer
herein contained, any obligation it may thereby incur for the payment of money
shall not be general debt on its part, but shall be secured by and payable
solely from the Trust Estate, payable in such order of preference and priority
as provided herein;
NOW, THEREFORE, the Issuer, in consideration of the premises and
acceptance by the Trustee of the trusts herein created, of the purchase and
acceptance of the Notes by the Registered Owners thereof, of the execution and
delivery of any Derivative Product by a Reciprocal Payor and the Issuer and the
acknowledgement thereof by the Trustee, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
does hereby GRANT, CONVEY, PLEDGE, TRANSFER, ASSIGN AND DELIVER to the Trustee,
for the benefit of the Registered Owners of the Notes, any Reciprocal Payor (to
secure the payment of any and all amounts which may from time to time become due
and owing to a Reciprocal Payor pursuant to any Derivative Product), all of the
moneys, rights, and properties described in the granting clauses A through F
below (the "Trust Estate"), as follows:
GRANTING CLAUSE A
The Revenues (other than Revenues deposited in the Operating Fund or
otherwise released from the lien of the Trust Estate as provided herein);
GRANTING CLAUSE B
All moneys and investments held in the Funds created under Section
5.01(a) hereof (other than the moneys and investments held in the Operating
Fund);
GRANTING CLAUSE C
The Financed Eligible Loans;
GRANTING CLAUSE D
The rights of the Issuer in and to the Servicing Agreements, the Student
Loan Purchase Agreements and the Guarantee Agreements as the same relate to
Financed Eligible Loans;
GRANTING CLAUSE E
The rights of the Issuer in and to any Derivative Product and any
Reciprocal Payor Guarantee; provided, however, that this Granting Clause E shall
not be for the benefit of a Reciprocal Payor with respect to its Derivative
Product; and
GRANTING CLAUSE F
Any and all other property, rights and interests of every kind or
description that from time to time hereafter is granted, conveyed, pledged,
transferred, assigned or delivered to the Trustee as additional security
hereunder.
TO HAVE AND TO HOLD the Trust Estate, whether now owned or held or
hereafter acquired, unto the Trustee and its successors or assigns,
IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for
the equal and proportionate benefit and security of all present and future
Registered Owners of the Notes, without preference of any Note over any other,
except as provided herein, and for enforcement of the payment of the Notes in
accordance with their terms, and all other sums payable hereunder (including
payments due and payable to any Reciprocal Payor) or on the Notes, and for the
performance of and compliance with the obligations, covenants, and conditions of
this Indenture, as if all the Notes and other Obligations (as defined herein) at
any time Outstanding had been executed and delivered simultaneously with the
execution and delivery of this Indenture;
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall
well and truly pay, or cause to be paid, the principal of the Notes and the
interest due and to become due thereon, or provide fully for payment thereof as
herein provided, at the times and in the manner mentioned in the Notes according
to the true intent and meaning thereof, and shall make all required payments
into the Funds as required under Article V hereof, or shall provide, as
permitted hereby, for the payment thereof by depositing with the Trustee sums
sufficient to pay or to provide for payment of the entire amount due and to
become so due as herein provided (including payments due and payable to any
Reciprocal Payor), then this Indenture (other than Sections 4.13, 4.14 and 7.05
hereof) and the rights hereby granted shall cease, terminate and be void;
otherwise, this Indenture shall be and remain in full force and effect;
NOW, THEREFORE, it is mutually covenanted and agreed as follows:
ARTICLE I
DEFINITIONS AND USE OF PHRASES
The following terms have the following meanings unless the context
clearly requires otherwise:
"ACCOUNT" shall mean any of the accounts created and established within
any Fund by this Indenture.
"ACQUISITION FUND" shall mean the Fund by that name created in Section
5.01(a)(i) hereof and further described in Section 5.02 hereof, including any
Accounts and Subaccounts created therein.
"ACT" shall mean the Higher Education Act of 1965, as amended or
supplemented from time to time, or any successor federal act and all
regulations, directives, bulletins, and guidelines promulgated from time to time
thereunder.
"ADMINISTRATIVE SERVICES AGREEMENT" shall mean any administrative
services agreement entered into between the Issuer and an entity who will
provide administrative services for the Issuer, as supplemented and amended.
"AGENT MEMBER" shall mean a member of, or participant in, the Securities
Depository.
"AGGREGATE MARKET VALUE" shall mean on any calculation date the sum of
the Values of all assets of the Trust Estate, less moneys in any Fund or Account
which the Issuer is then entitled to receive for deposit into the Operating Fund
but which has not yet been removed from the Trust Estate.
"AUTHORIZED OFFICER" shall mean, when used with reference to the Issuer,
its Chairman, President, Vice President or Secretary, or any other officer or
board member authorized in writing by the Board to act on behalf of the Issuer.
"AUTHORIZED REPRESENTATIVE" shall mean, when used with reference to the
Issuer, (a) an Authorized Officer or (b) any affiliate organization or other
entity authorized by the Board to act on the Issuer's behalf.
"BOARD" or "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Issuer.
"BUSINESS DAY" shall mean the definition of Business Day found in the
Supplemental Indenture authorizing a series of Notes.
"CERTIFICATE OF INSURANCE" shall mean any Certificate evidencing a
Financed Eligible Loan is Insured pursuant to a Contract of Insurance.
"COMMISSION" shall mean the Securities and Exchange Commission.
"CONTRACT OF INSURANCE" shall mean the contract of insurance between the
Eligible Lender and the Secretary.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Each reference to a section of the Code herein shall be deemed to
include the United States Treasury Regulations, including applicable temporary
and proposed regulations, relating to such section which are applicable to the
Notes or the use of the proceeds thereof. A reference to any specific section of
the Code shall be deemed also to be a reference to the comparable provisions of
any enactment which supersedes or replaces the Code thereunder from time to
time.
"CUSTODIAN AGREEMENT" shall mean, collectively, the custodian agreements
with any Servicer or other custodian or bailee related to Financed Eligible
Loans.
"DATE OF ISSUANCE" shall mean the date of original issuance and delivery
of any Notes to an Underwriter or placement agent.
"DERIVATIVE PAYMENT DATE" shall mean, with respect to a Derivative
Product, any date specified in the Derivative Product on which both or either of
the Issuer Derivative Payment and/or a Reciprocal Payment is due and payable
under the Derivative Product.
"DERIVATIVE PRODUCT" shall mean a written contract or agreement between
the Issuer and a Reciprocal Payor, which provides that the Issuer's obligations
thereunder will be conditioned on the absence of (i) a failure by the Reciprocal
Payor to make any payment required thereunder when due and payable, or (ii) a
default thereunder with respect to the financial status of the Reciprocal Payor,
and:
(a) under which the Issuer is obligated to pay (whether on a net
payment basis or otherwise) on one or more scheduled and specified
Derivative Payment Dates, the Issuer Derivative Payments in exchange for
the Reciprocal Payor's obligation to pay (whether on a net payment basis
or otherwise), or to cause to be paid, to the Issuer, Reciprocal
Payments on one or more scheduled and specified Derivative Payment Dates
in the amounts set forth in the Derivative Product;
(b) for which the Issuer's obligation to make Issuer Derivative
Payments may be secured by a pledge of and lien on the Trust Estate on
an equal and ratable basis with any class of the Issuer's Outstanding
Notes and which Issuer Derivative Payments may be equal in priority with
any priority classification of the Issuer's Outstanding Notes; and
(c) under which Reciprocal Payments are to be made directly to
the Trustee for deposit into the Revenue Fund.
"DERIVATIVE VALUE" shall mean the value of the Derivative Product, if
any, to the Reciprocal Payor, provided that such value is defined and calculated
in substantially the same manner as amounts are defined and calculated pursuant
to the applicable provisions of an ISDA Master Agreement.
"DISSOLUTION" means, with respect to Article XI and the Issuer, the
occurrence of any of the events which would cause a dissolution of a limited
partnership organized under the laws of the State of Delaware, the sole general
partner of which is the Issuer.
"ELIGIBLE LENDER" shall mean any "ELIGIBLE LENDER," as defined in the
Act, and which has received an eligible lender designation from the Secretary
with respect to Eligible Loans made under the Act.
"ELIGIBLE LOAN" shall mean any loan made to finance post-secondary
education that is (a) made under the Act; (b) insured by the Secretary of Health
and Human Services pursuant to the Public Health Services Act; or (c) otherwise
permitted to be acquired by the Issuer pursuant to its Program (provided a
Rating Confirmation is received with respect thereto).
"ELIGIBLE LOAN ACQUISITION CERTIFICATE" shall mean a certificate signed
by an Authorized Representative of the Issuer in substantially the form attached
as Exhibit A hereto.
"EVENT OF BANKRUPTCY" shall mean (a) the Issuer shall have commenced a
voluntary case or other proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of it or any
substantial part of its property, or shall have made a general assignment for
the benefit of creditors, or shall have declared a moratorium with respect to
its debts or shall have failed generally to pay its debts as they become due, or
shall have taken any action to authorize any of the foregoing; or (b) an
involuntary case or other proceeding shall have been commenced against the
Issuer seeking liquidation, reorganization, or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property provided such action or proceeding is not dismissed within 60
days.
"EVENT OF DEFAULT" shall have the meaning specified in Article VI
hereof.
"FINANCED" or "FINANCING," when used with respect to Eligible Loans,
shall mean or refer to Eligible Loans (a) acquired by the Issuer with balances
in the Acquisition Fund or otherwise deposited in or accounted for in the
Acquisition Fund or otherwise constituting a part of the Trust Estate and (b)
Eligible Loans substituted or exchanged for Financed Eligible Loans, but does
not include Eligible Loans released from the lien of this Indenture and sold or
transferred, to the extent permitted by this Indenture.
"FISCAL YEAR" shall mean the fiscal year of the Issuer as established
from time to time.
"FITCH" shall mean Fitch IBCA, Inc., a corporation organized and
existing under the laws of the State of Delaware, its successors and assigns.
"FUNDS" shall mean each of the Funds created pursuant to Section 5.01(a)
and (b) hereof.
"GUARANTEE" or "GUARANTEED" shall mean, with respect to an Eligible
Loan, the insurance or guarantee by the Guaranty Agency pursuant to such
Guaranty Agency's Guarantee Agreement of the maximum percentage of the principal
of and accrued interest on such Eligible Loan allowed by the terms of the Act
with respect to such Eligible Loan at the time it was originated and the
coverage of such Eligible Loan by the federal reimbursement contracts,
providing, among other things, for reimbursement to the Guaranty Agency for
payments made by it on defaulted Eligible Loans insured or guaranteed by the
Guaranty Agency of at least the minimum reimbursement allowed by the Act with
respect to a particular Eligible Loan.
"GUARANTEE AGREEMENTS" shall mean a guaranty or lender agreement between
the Trustee and any Guaranty Agency, and any amendments thereto.
"GUARANTY AGENCY" shall mean any entity authorized to guarantee student
loans under the Act and with which the Trustee maintains a Guarantee Agreement.
"HIGHEST PRIORITY OBLIGATIONS" shall mean, (a) at any time when Senior
Obligations are Outstanding, the Senior Obligations, (b) at any time when no
Senior Obligations are Outstanding, the Subordinate Obligations, and (c) at any
time when no Senior Obligations or Subordinate Obligations are Outstanding, the
Junior-Subordinate Obligations (and any priorities as between Junior-Subordinate
Obligations as shall be established by Supplemental Indentures).
"INDENTURE" shall mean this Indenture of Trust, including all
supplements and amendments hereto.
"INSURANCE" or "INSURED" or "INSURING" means, with respect to an
Eligible Loan, the insuring by the Secretary (as evidenced by a Certificate of
Insurance or other document or certification issued under the provisions of the
Act) under the Act of 100% of the principal of and accrued interest on such
Eligible Loan.
"INTEREST BENEFIT PAYMENT" shall mean an interest payment on Eligible
Loans received pursuant to the Act and an agreement with the federal government,
or any similar payments.
"INTEREST PAYMENT DATE" shall mean the Interest Payment Dates specified
for Notes in the Supplemental Indenture authorizing the issuance of such Notes.
"INVESTMENT AGREEMENT" shall mean any investment agreement approved by
the Rating Agencies.
"INVESTMENT SECURITIES" shall mean:
(a) direct obligations of, or obligations on which the timely
payment of the principal of and interest on which are unconditionally
and fully guaranteed by, the United States of America;
(b) interest-bearing time or demand deposits, certificates of
deposit or other similar banking arrangements with a maturity of 12
months or less with any bank, trust company, national banking
association or other depository institution, including those of the
Trustee, provided that, at the time of deposit or purchase such
depository institution has commercial paper which is rated "A-1+" by S&P
and "F-1+" by Fitch;
(c) interest-bearing time or demand deposits, certificates of
deposit or other similar banking arrangements with a maturity of 24
months or less, but more than 12 months, with any bank, trust company,
national banking association or other depository institution, including
those of the Trustee and any of its affiliates, provided that, at the
time of deposit or purchase such depository institution has senior debt
rated "A" or higher by S&P and "A" or higher, and, if commercial paper
is outstanding, commercial paper which is rated "A-1+" by S&P and "F-1+"
by Fitch;
(d) interest-bearing time or demand deposits, certificates of
deposit or other similar banking arrangements with a maturity of more
than 24 months with any bank, trust company, national banking
association or other depository institution, including those of the
Trustee and any of its affiliates, provided that, at the time of deposit
or purchase such depository institution has senior debt rated "AA" or
higher by S&P and "AA" or higher by Fitch and, if commercial paper is
outstanding, commercial paper which is rated "A-1+" by S&P and "F-1+" by
Fitch;
(e) bonds, debentures, notes or other evidences of indebtedness
issued or guaranteed by any of the following agencies: Federal Farm
Credit Banks, Federal Home Loan Mortgage Corporation; the Export-Import
Bank of the United States; the Federal National Mortgage Association;
the Student Loan Marketing Association; the Farmers Home Administration;
Federal Home Loan Banks provided such obligation is rated "AAA" by S&P
and "AAA" by Fitch; or any agency or instrumentality of the United
States of America which shall be established for the purposes of
acquiring the obligations of any of the foregoing or otherwise providing
financing therefor;
(f) repurchase agreements and reverse repurchase agreements,
other than overnight repurchase agreements and overnight reverse
repurchase agreements, with banks, including the Trustee and any of its
affiliates, which are members of the Federal Deposit Insurance
Corporation or firms which are members of the Securities Investors
Protection Corporation, in each case whose outstanding, unsecured debt
securities are rated no lower than two subcategories below the highest
rating on any series of Outstanding Notes by S&P and Fitch and, if
commercial paper is outstanding, commercial paper which is rated "A-1+"
by S&P and "F-1+" by Fitch;
(g) overnight repurchase agreements and overnight reverse
repurchase agreements at least 101% collateralized by securities
described in subparagraph (a) of this definition and with a
counterparty, including the Trustee and any of its affiliates, that has
senior debt rated "A" or higher by S&P and "A" or higher by Fitch and,
if commercial paper is outstanding, commercial paper which is rated
"A-1+" by S&P and "F-1+" by Fitch or a counterparty approved in writing
by S&P and Fitch, respectively;
(h) investment agreements or guaranteed investment contracts,
which may be entered into by and among the Issuer and/or the Trustee and
any bank, bank holding company, corporation or any other financial
institution, including the Trustee and any of its affiliates, whose
outstanding (i) commercial paper is rated "A-1+" by S&P and "F-1+" by
Fitch for agreements or contracts with a maturity of 12 months or less;
(ii) unsecured long-term debt is rated no lower than two subcategories
below the highest rating on any series of Outstanding Notes by S&P and
Fitch and, if commercial paper is outstanding, commercial paper which is
rated "A-1+" by S&P and "F-1+" by Fitch for agreements or contracts with
a maturity of 24 months or less, but more than 12 months, or (iii)
unsecured long-term debt which is rated no lower than two subcategories
below the highest rating on any series of Outstanding Notes by S&P and
Fitch and, if commercial paper is outstanding, commercial paper which is
rated "A-1+" by S&P and "F-1+" by Fitch for agreements or contracts with
a maturity of more than 24 months, or, in each case, by an insurance
company whose claims-paying ability is so rated;
(i) collateralized investment agreements or collateralized
guaranteed investment agreements, which may be entered into by and among
the Issuer, the Trustee and any bank, bank holding company, corporation
or any other financial institution, including the Trustee and any of its
affiliates, so long as (i) the collateral consists of securities of the
types specified in (a) or (e) above, at the levels shown below under (v)
below; (ii) the Trustee has possession of the collateral; (iii) the
Trustee has a perfected first priority security interest in the
collateral; (iv) the collateral is free and clear of third-party liens
and, in the case of a SIPC broker, was not acquired pursuant to a
repurchase agreement or reverse repurchase agreement; and (v) the
collateral shall be valued (based upon current market price plus accrued
interest) weekly and shall be equal to not less than 103% of the amount
of the deposit (or 105% in the case where the collateral consists of
obligations of the Federal National Mortgage Association or the Federal
Home Loan Mortgage Issuer);
(j) "tax exempt bonds" as defined in Section 150(a)(6) of the
Code, other than "specified private activity bonds" as defined in
Section 57(a)(5)(C) of the Code, that are rated in the highest category
by S&P and Fitch for long-term or short-term debt or shares of a
so-called money market or mutual fund rated "AA/A1" or higher by S&P and
"AA/F1+" or higher by Fitch, that do not constitute "investment
property" within the meaning of Section 148(b)(2) of the Code, provided
that the fund has all of its assets invested in obligations of such
rating quality;
(k) commercial paper, including that of the Trustee and any of
its affiliates, which is rated in the single highest classification,
"A-1+" by S&P and "F-1+" by Fitch, and which matures not more than 270
days after the date of purchase;
(l) investments in a money market fund rated at least "AA" or
"A-1" by S&P and "AA" or "F-1+" by Fitch, including funds for which the
Trustee or an affiliate thereof acts as investment advisor or provides
other similar services for a fee;
(m) any Investment Agreement; and
(n) any other investment with a Rating Confirmation from each
Rating Agency.
"ISDA MASTER AGREEMENT" shall mean the ISDA Interest Rate and Currency
Exchange Agreement, copyright 1992, as amended from time to time, and as in
effect with respect to any Derivative Product.
"ISSUER" shall mean NELNET Student Loan Corporation-2, a corporation
organized and existing under the laws of the State, and any successor thereto.
"ISSUER ORDER" shall mean a written order signed in the name of the
Issuer by an Authorized Representative.
"ISSUER DERIVATIVE PAYMENT" shall mean a payment required to be made by
or on behalf of the Issuer due to a Reciprocal Payor pursuant to a Derivative
Product.
"JUNIOR-SUBORDINATE NOTES" shall mean Notes, the principal of and
interest on which is payable on a subordinated basis to the payment of the
principal of and interest on the Senior Notes and the Subordinate Notes;
provided, however, that any series of the Junior-Subordinate Notes need not
necessarily be payable on a parity with all other series of the
Junior-Subordinate Notes.
"JUNIOR-SUBORDINATE OBLIGATIONS" shall mean Junior-Subordinate Notes and
any Derivative Product, the priority of payment of which is equal with that of
any series or subseries of Junior-Subordinate Notes.
"MATURITY" when used with respect to any Note, shall mean the date on
which the principal thereof becomes due and payable as therein or herein
provided, whether at its Stated Maturity, by earlier redemption, by declaration
of acceleration, or otherwise.
"NOTE PAYMENT DATE" shall mean, for any Note, any Interest Payment Date,
its Stated Maturity or the date of any other regularly scheduled principal
payment with respect thereto.
"NOTES" shall mean any notes or other debt obligations issued pursuant
to Section 2.08 of this Indenture.
"OBLIGATIONS" shall mean Senior Obligations, Subordinate Obligations and
Junior-Subordinate Obligations.
"OPERATING FUND" shall mean the fund by that name continued by Section
5.01 and further described in Section 5.05 hereof.
"OUTSTANDING" shall mean, when used in connection with any Note, a Note
which has been executed and delivered pursuant to this Indenture which at such
time remains unpaid as to principal or interest, unless provision has been made
for such payment pursuant to Section 10.02 hereof, excluding Notes which have
been replaced pursuant to Section 2.09 hereof.
"PERSON" shall mean an individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
or government or agency or political subdivision thereof.
"PRINCIPAL OFFICE" shall mean the principal office of the party
indicated, as set forth in Section 9.01 hereof or elsewhere in this Indenture.
"PROGRAM" shall mean the Issuer's program for the origination and the
purchase of Eligible Loans, as the same may be modified from time to time.
"PROGRAM EXPENSES" shall mean (a) the fees and expenses of the Trustee;
(b) the fees and expenses of any auction agent, any market agent, any
calculation agent and any broker-dealer then acting under a Supplemental
Indenture with respect to auction rate Notes; (c) the fees and expenses of any
remarketing agent then acting under a Supplemental Indenture with respect to
variable rate Notes; (d) the fees and expenses due to any credit provider of any
Notes for which a credit facility or liquidity facility is in place; (e) the
fees of any Servicer and/or Custodian under any servicing agreement or custodian
agreement; (f) the fees and expenses of the Issuer incurred in connection with
the preparation of legal opinions and other authorized reports or statements
attributable to the Notes and the Financed Eligible Loans; (g) transfer fees,
purchase premiums and loan origination fees on Financed Eligible Loans; (h) fees
and expenses associated with the delivery of a substitute credit facility or
liquidity facility under a Supplemental Indenture; (i) fees and expenses
associated with (but not payments under) Derivative Products; (j) the costs of
remarketing any variable rate Notes and (k) expenses incurred for the Issuer's
maintenance and operation of its Program as a direct consequence of this
Indenture, the Notes or the Financed Eligible Loans; including, but not limited
to, taxes, the reasonable fees and expenses of attorneys, agents, financial
advisors, consultants, accountants and other professionals, attributable to such
maintenance and operation, marketing expenses for the Program and a prorated
portion of the rent, personnel compensation, office supplies and equipment,
travel expenses and other lawful payments made to members of the Board.
"RATING" shall mean one of the rating categories of S&P and Fitch or any
other Rating Agency, provided S&P and Fitch or any other Rating Agency, as the
case may be, is currently rating the Notes.
"RATING AGENCY" shall mean, collectively, S&P and Fitch and their
successors and assigns or any other Rating Agency requested by the Issuer to
maintain a Rating on any of the Notes.
"RATING CONFIRMATION" means a letter from each Rating Agency then
providing a Rating for any of the Notes, confirming that the action proposed to
be taken by the Issuer will not, in and of itself, result in a downgrade of any
of the Ratings then applicable to the Notes, or cause any Rating Agency to
suspend or withdraw the Ratings then applicable to the Notes.
"RECIPROCAL PAYMENTS" shall mean any payment to be made to, or for the
benefit of, the Issuer under a Derivative Product.
"RECIPROCAL PAYOR" shall mean a third party which, at the time of
entering into a Derivative Product, has at least an "AA/A-1" rating, or its
equivalent, from a Rating Agency, and which is obligated to make Reciprocal
Payments under a Derivative Product.
"RECORD DATE" shall mean the Record Date established for any Notes
pursuant to the Supplemental Indenture authorizing the issuance of such Notes.
"RECOVERIES OF PRINCIPAL" shall mean all amounts received by the Trustee
from or on account of any Financed Eligible Loan as a recovery of the principal
amount thereof, including scheduled, delinquent and advance payments, payouts or
prepayments, proceeds from insurance or from the sale, assignment, transfer,
reallocation or other disposition of a Financed Eligible Loan and any payments
representing such principal from the guarantee or insurance of any Financed
Eligible Loan.
"REGISTERED OWNER" shall mean the Person in whose name a Note is
registered on the Note registration books maintained by the Trustee, and shall
also mean with respect to a Derivative Product, any Reciprocal Payor, unless the
context otherwise requires.
"REGULATIONS" shall mean the Regulations promulgated from time to time
by the Secretary or any Guaranty Agency guaranteeing Financed Eligible Loans.
"RESERVE FUND" shall mean the Fund by that name created in Section
5.01(a)(iii) hereof and further described in Section 5.04 hereof, including any
Accounts and Subaccounts created therein.
"RESERVE FUND REQUIREMENT" shall mean an amount, if any, required to be
on deposit in the Reserve Fund with respect to any Notes issued pursuant to the
Supplemental Indenture authorizing the issuance of such Notes.
"RESOLUTION" shall mean a resolution duly adopted by the Board.
"REVENUE" or "REVENUES" shall mean all Recoveries of Principal,
payments, proceeds, charges and other income received by the Trustee or the
Issuer from or on account of any Financed Eligible Loan (including scheduled,
delinquent and advance payments of and any insurance proceeds with respect to,
interest, including Interest Benefit Payments, on any Financed Eligible Loan and
any Special Allowance Payment received by the Issuer with respect to any
Financed Eligible Loan) and all interest earned or gain realized from the
investment of amounts in any Fund or Account and all payments received by the
Issuer pursuant to a Derivative Product.
"REVENUE FUND" shall mean the Fund by that name created in Section
5.01(a)(ii) hereof and further described in Section 5.03 hereof.
"S&P" shall mean Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies, Inc., its successors and assigns.
"SECRETARY" shall mean the Secretary of the United States Department of
Education or any successor to the pertinent functions thereof under the Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES DEPOSITORY" or "DEPOSITORY" shall mean The Depository Trust
Company and its successors and assigns or if, (a) the then Securities Depository
resigns from its functions as depository of the Notes or (b) the Issuer
discontinues use of the Securities Depository, any other securities depository
which agrees to follow the procedures required to be followed by a securities
depository in connection with the Notes and which is selected by the Issuer with
the consent of the Trustee.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
"SELLER" shall mean an Eligible Lender from which the Issuer is
purchasing or has purchased or agreed to purchase Eligible Loans pursuant to a
Student Loan Purchase Agreement between the Issuer and such Eligible Lender.
"SENIOR NOTES" shall mean all Notes secured on a senior priority to the
Subordinate Obligations and the Junior-Subordinate Obligations.
"SENIOR OBLIGATIONS" shall mean Senior Notes and any Derivative Product,
the priority of payment of which is equal with that of Senior Notes.
"SERVICER" shall mean, collectively, Union Bank and Trust Company,
UNIPAC Service Corporation, InTuition, Inc., USA Group Loan Services, Inc., AFSA
Data Corporation, Pennsylvania Higher Education Association and any other
additional Servicer or successor Servicer selected by the Issuer, including an
affiliate of the Issuer, so long as the Issuer obtains a Rating Confirmation as
to each such other Servicer.
"SERVICING AGREEMENT" shall mean the servicing agreements with any
Servicer relating to Financed Eligible Loans, as amended from time to time.
"SPECIAL ALLOWANCE PAYMENTS" shall mean the special allowance payments
authorized to be made by the Secretary by Section 438 of the Act, or similar
allowances, if any, authorized from time to time by federal law or regulation.
"SPECIAL RECORD DATE" shall have the meaning set forth in a Supplemental
Indenture.
"STATE" shall mean the State of Nevada.
"STATED MATURITY" shall mean the date specified in the Notes as the
fixed date on which principal of such Notes is due and payable.
"STUDENT LOAN PURCHASE AGREEMENT" shall mean a loan purchase agreement
entered into for the purchase of Eligible Loans into the Trust Estate.
"SUBACCOUNT" shall mean any of the subaccounts which may be created and
established within any Account by this Indenture.
"SUBORDINATE NOTES" shall mean any Notes secured on a priority
subordinate to the Senior Obligations and on a priority senior to the
Junior-Subordinate Obligations.
"SUBORDINATE OBLIGATIONS" shall mean Subordinate Notes and any
Derivative Product, the priority of payment of which is equal with that of
Subordinate Notes.
"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental hereto
executed pursuant to Article VIII hereof.
"TRUST ESTATE" shall mean the property described as such in the granting
clauses hereto.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939, as
amended, and as in force at the date as of which this Indenture was executed,
except as provided in Section 8.05.
"TRUSTEE" shall mean Zions First National Bank, acting in its capacity
as Trustee under this Indenture, or any successor trustee designated pursuant to
this Indenture.
"UNDERWRITER" shall mean the underwriter or underwriters of the Notes.
"VALUE" on any calculation date when required under this Indenture shall
mean the value of the Trust Estate calculated by the Issuer as to (a) below and
by the Trustee as to (b) through (e), inclusive, below, as follows:
(a) with respect to any Eligible Loan, the unpaid principal
amount thereof plus any accrued but unpaid interest, Interest Benefit
Payments and Special Allowance Payments;
(b) with respect to any funds of the Issuer held under this
Indenture and on deposit in any commercial bank or as to any banker's
acceptance or repurchase agreement or investment contract, the amount
thereof plus accrued but unpaid interest;
(c) with respect to any Investment Securities of an investment
company, the bid price of the shares as reported by the investment
company plus accrued but unpaid interest;
(d) as to investments the bid and asked prices of which are
published on a regular basis in THE WALL STREET JOURNAL (or, if not
there, then in THE NEW YORK Times): the average of the bid and asked
prices for such investments so published on or most recently prior to
such time of determination; and
(e) as to investments the bid and asked prices of which are not
published on a regular basis in THE WALL STREET JOURNAL or THE NEW YORK
TIMES: (i) the lower of the bid prices at such time of determination for
such investments by any two nationally recognized government securities
dealers (selected by the Issuer in its absolute discretion) at the time
making a market in such investments or (ii) the bid price published by a
nationally recognized pricing service.
Words importing the masculine gender include the feminine gender, and
words importing the feminine gender include the masculine gender. Words
importing persons include firms, associations and corporations. Words importing
the singular number include the plural number and vice versa. Additional terms
are defined in the body of this Indenture.
ARTICLE II
NOTE DETAILS, FORM OF NOTES, REDEMPTION OF NOTES
AND USE OF PROCEEDS OF NOTES
SECTION 2.01. NOTE DETAILS. The details of each series of Notes authorized
pursuant to this Indenture and a Supplemental Indenture, shall be contained in
the applicable Supplemental Indenture. Such details shall include, but are not
limited to, the principal amount, authorized denomination, dated date, interest
rate, principal maturity date, redemption provisions and registration
provisions.
SECTION 2.02. EXECUTION OF NOTES. The Notes shall be executed in the name and
on behalf of the Issuer by the manual or facsimile signature of the Chairman of
the Board, President or the acting Chairman of the Board and attested by the
manual or facsimile signature of the Secretary of the Issuer or any other member
of the Board (to the extent not executed by such person). Any Note may be signed
(manually or by facsimile) or attested on behalf of the Issuer by any person
who, at the date of such act, shall hold the proper office, notwithstanding that
at the date of authentication, issuance or delivery, such person may have ceased
to hold such office.
SECTION 2.03. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; PERSONS TREATED AS
REGISTERED OWNERS. The Issuer shall cause books for the registration and for the
transfer of the Notes as provided in this Indenture to be kept by the Trustee
which is hereby appointed the transfer agent of the Issuer for the Notes.
Notwithstanding such appointment and with the prior written consent of the
Issuer, the Trustee is hereby authorized to make any arrangements with other
institutions which it deems necessary or desirable in order that such
institutions may perform the duties of transfer agent for the Notes. Upon
surrender for transfer of any Note at the Principal Office of the Trustee, duly
endorsed for transfer or accompanied by an assignment duly executed by the
Registered Owner or his attorney duly authorized in writing, the Issuer shall
execute and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new fully registered Note or Notes of the same
interest rate and for a like series, subseries, if any, and aggregate principal
amount of the same maturity.
Notes may be exchanged at the Principal Office of the Trustee for a like
aggregate principal amount of fully registered Notes of the same series,
subseries, if any, interest rate and maturity in authorized denominations. The
Issuer shall execute and the Trustee shall authenticate and deliver Notes which
the Registered Owner making the exchange is entitled to receive, bearing numbers
not contemporaneously outstanding. The execution by the Issuer of any fully
registered Note of any authorized denomination shall constitute full and due
authorization of such denomination and the Trustee shall thereby be authorized
to authenticate and deliver such fully registered Note.
The Trustee shall not be required to transfer or exchange any Note
during the period of 15 business days next preceding the mailing of notice of
redemption as herein provided. After the giving of such notice of redemption,
the Trustee shall not be required to transfer or exchange any Note, which Note
or portion thereof has been called for redemption.
As to any Note, the person in whose name the same shall be registered
shall be deemed and regarded as the absolute owner thereof for all purposes, and
payment of either principal or interest on any fully registered Note shall be
made only to or upon the written order of the Registered Owner thereof or his
legal representative but such registration may be changed as hereinabove
provided. All such payments shall be valid and effectual to satisfy and
discharge the liability upon such Note to the extent of the sum or sums paid.
The Trustee shall require the payment by any Registered Owner requesting
exchange or transfer of any tax or other governmental charge required to be paid
with respect to such exchange or transfer. The applicant for any such transfer
or exchange may be required to pay all taxes and governmental charges in
connection with such transfer or exchange.
SECTION 2.04. LOST, STOLEN, DESTROYED AND MUTILATED NOTES. Upon receipt by the
Trustee of evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and, in the case of a lost, stolen or
destroyed Note, of indemnity satisfactory to it, and upon surrender and
cancellation of the Note, if mutilated, (a) the Issuer shall execute, and the
Trustee shall authenticate and deliver, a new Note of the same series,
subseries, if any, interest rate, maturity and denomination in lieu of such
lost, stolen, destroyed or mutilated Note or (b) if such lost, stolen, destroyed
or mutilated Note shall have matured or have been called for redemption, in lieu
of executing and delivering a new Note as aforesaid, the Issuer may pay such
Note. Any such new Note shall bear a number not contemporaneously outstanding.
The applicant for any such new Note may be required to pay all taxes and
governmental charges and all expenses and charges of the Issuer and of the
Trustee in connection with the issuance of such Note. All Notes shall be held
and owned upon the express condition that, to the extent permitted by law, the
foregoing conditions are exclusive with respect to the replacement and payment
of mutilated, destroyed, lost or stolen Notes, negotiable instruments or other
securities.
SECTION 2.05. TRUSTEE'S AUTHENTICATION CERTIFICATE. The Trustee's
authentication certificate upon any Notes shall be substantially in the form
provided in the Supplemental Indenture authorizing the issuance of such Notes.
No Note shall be secured hereby or entitled to the benefit hereof, or shall be
valid or obligatory for any purpose, unless a certificate of authentication,
substantially in such form, has been duly executed by the Trustee; and such
certificate of the Trustee upon any Note shall be conclusive evidence and the
only competent evidence that such Note has been authenticated and delivered
hereunder and under a Supplemental Indenture. The Trustee's certificate of
authentication shall be deemed to have been duly executed by it if manually
signed by an authorized officer or signatory of the Trustee, but it shall not be
necessary that the same person sign the certificate of authentication on all of
the Notes issued hereunder.
SECTION 2.06. CANCELLATION AND DESTRUCTION OF NOTES BY THE TRUSTEE. Whenever
any Outstanding Notes shall be delivered to the Trustee for the cancellation
thereof pursuant to this Indenture, upon payment of the principal amount and
interest represented thereby, or for replacement pursuant to Section 2.03
hereof, such Notes shall be promptly cancelled and, within a reasonable time,
cremated or otherwise destroyed by the Trustee and counterparts of a certificate
of destruction evidencing such cremation or other destruction shall be furnished
by the Trustee to the Issuer.
SECTION 2.07. TEMPORARY NOTES. Pending the preparation of definitive Notes,
the Issuer may execute and the Trustee shall authenticate and deliver temporary
Notes. Temporary Notes shall be issuable as fully registered Notes without
coupons, of any denomination, and substantially in the form of the definitive
Notes but with such omissions, insertions and variations as may be appropriate
for temporary Notes, all as may be determined by the Issuer. Every temporary
Note shall be executed by the Issuer and be authenticated by the Trustee upon
the same conditions and in substantially the same manner, and with like effect,
as the definitive Notes. As promptly as practicable the Issuer shall execute and
shall furnish definitive Notes and thereupon temporary Notes may be surrendered
in exchange therefor without charge at the principal office of the Trustee, and
the Trustee shall authenticate and deliver in exchange for such temporary Notes
a like aggregate principal amount of definitive Notes. Until so exchanged the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 2.08. ISSUANCE OF NOTES.
(a) The Issuer shall have the authority, upon complying with the provisions
of this Section, to issue and deliver from time to time Notes secured by
the Trust Estate on a parity with the Senior Notes, the Subordinate
Notes or the Junior-Subordinate Notes, if any, secured hereunder as
shall be determined by the Issuer. In addition, the Issuer may enter
into any Derivative Products it deems necessary or desirable with
respect to any or all of the Notes.
(b) No Notes shall be authenticated and delivered pursuant to this Indenture
until the following conditions have been satisfied:
(i) The Issuer and the Trustee have entered into a Supplemental
Indenture (which Supplemental Indenture shall not require the
approval of the Registered Owners of any of the Outstanding
Notes or Derivative Products) providing the terms and forms of
the proposed Notes as described in Section 2.01 hereof,
including the designation of such Notes as Senior Notes,
Subordinate Notes or Junior-Subordinate Notes, the redemption
and selection provisions applicable to such Notes, and the
Reserve Fund Requirement with respect to such Notes, if any.
(ii) The Trustee shall have received a Rating Confirmation from each
Rating Agency which has assigned a Rating or Ratings to any
Outstanding Notes that such Rating or Ratings will not be
reduced or withdrawn as a result of the issuance of the proposed
Notes.
(iii) The Trustee shall have received an opinion of Note Counsel to
the effect that all of the foregoing conditions to the issuance
of the proposed Notes have been satisfied.
(iv) Upon the issuance of the proposed Notes, an amount equal to the
Reserve Fund Requirement with respect to such Notes, if any,
shall be deposited in the Reserve Fund.
(c) The Trustee is authorized to set up any additional Funds or Accounts or
Subaccounts under this Indenture which it deems necessary or convenient
in connection with the issuance and delivery of any Notes.
ARTICLE III
PARITY AND PRIORITY OF LIEN; OTHER OBLIGATIONS;
AND DERIVATIVE PRODUCTS
SECTION 3.01. PARITY AND PRIORITY OF LIEN. The provisions, covenants and
agreements herein set forth to be performed by or on behalf of the Issuer shall
be for the equal benefit, protection and security of the Registered Owners of
any and all of the Obligations, all of which, regardless of the time or times of
their issuance or maturity, shall be of equal rank without preference, priority
or distinction of any of the Obligations over any other thereof, except as
expressly provided in this Indenture with respect to certain payment and other
priorities.
SECTION 3.02. OTHER OBLIGATIONS.
(a) The Issuer reserves the right to issue other notes or obligations which
do not constitute or create a lien on the Trust Estate.
(b) The Issuer shall not commingle the Funds established by this Indenture
with funds, proceeds, or investment of funds relating to other issues or
series of notes heretofore or hereafter issued, except to the extent
such commingling is required by the Trustee for ease in administration
of its duties and responsibilities; provided, however, that should the
Trustee require such permitted commingling, it shall keep complete
records in order that the funds, proceeds, or investments under this
Indenture may at all times be identified by source and application, and
if necessary, separated.
(c) The revenues and other moneys, Financed Eligible Loans, securities,
evidences of indebtedness, interests, rights and properties pledged
under this Indenture are and will be owned by the Issuer free and clear
of any pledge, lien, charge or encumbrance thereon or with respect
thereto prior to, of equal rank with or subordinate to the respective
pledges created by this Indenture, except as otherwise expressly
provided herein, and all action on the part of the Issuer to that end
has been duly and validly taken. If any Financed Eligible Loan is found
to have been subject to a lien at the time such Financed Eligible Loan
was acquired, the Issuer shall cause such lien to be released, shall
purchase such Financed Eligible Loan from the Trust Estate for a
purchase price equal to its principal amount plus any unamortized
premium, if any, and interest accrued thereon or shall replace such
Financed Eligible Loan with another Eligible Loan with substantially
identical characteristics which replacement Eligible Loan shall be free
and clear of liens at the time of such replacement. Except as otherwise
provided herein, the Issuer shall not create or voluntarily permit to be
created any debt, lien, or charge on the Financed Eligible Loans which
would be on a parity with, subordinate to, or prior to the lien of this
Indenture; shall not do or omit to do or suffer to be done or omitted to
be done any matter or things whatsoever whereby the lien of this
Indenture or the priority of such lien for the Obligations hereby
secured might or could be lost or impaired; and will pay or cause to be
paid or will make adequate provisions for the satisfaction and discharge
of all lawful claims and demands which if unpaid might by law be given
precedence to or any equality with this Indenture as a lien or charge
upon the Financed Eligible Loans; provided, however, that nothing in
this subsection (c) shall require the Issuer to pay, discharge, or make
provision for any such lien, charge, claim, or demand so long as the
validity thereof shall be by it in good faith contested, unless thereby,
in the opinion of the Trustee, the same will endanger the security for
the Obligations; and provided further that any subordinate lien hereon
(i.e., subordinate to the lien securing the Senior Obligations, the
Subordinate Obligations and the Junior-Subordinate Obligations) shall be
entitled to no payment from the Trust Estate, nor may any remedy be
exercised with respect to such subordinate lien against the Trust Estate
until all Obligations have been paid or deemed paid hereunder.
SECTION 3.03. DERIVATIVE PRODUCTS; RECIPROCAL PAYMENTS; ISSUER DERIVATIVE
PAYMENTS. The Issuer hereby authorizes and directs the Trustee to acknowledge
and agree to any Derivative Product hereafter entered into by the Issuer and a
Reciprocal Payor under which (a) the Issuer may be required to make, from time
to time, Issuer Derivative Payments and (b) the Trustee may receive, from time
to time, Reciprocal Payments for the account of the Issuer. No Derivative
Product shall be entered into unless (i) the Trustee shall have received a
Rating Confirmation from each Rating Agency that such Derivative Product will
not adversely affect the Rating on any of the Notes and (ii) all Issuer
Derivative Payments and Reciprocal Payments are made on the third Business Day
immediately preceding a Note Payment Date. Anything in this Indenture to the
contrary notwithstanding, any Revenues representing Reciprocal Payments shall
not be available to make an Issuer Derivative Payment or to pay any other
amounts owed to a Reciprocal Payor under a Derivative Product.
No later than the fourth Business Day immediately preceding each Note
Payment Date on which a Reciprocal Payment or Issuer Derivative Payment is due
pursuant to the applicable Derivative Product through and including the
termination date of a Derivative Product, the Issuer shall give written notice
to the Trustee stating either (a) the amount of any Reciprocal Payment due to be
received by the Trustee for the account of the Issuer on the third Business Day
immediately preceding such Note Payment Date or (b) the amount of any Issuer
Derivative Payment to be paid to the Reciprocal Payor on the third Business Day
immediately preceding such Note Payment Date. If the Trustee fails to receive
such written notification from the Issuer by the end of such fourth Business
Day, it shall immediately notify the Issuer of such fact in writing.
On the third Business Day immediately preceding each Note Payment Date
on which a Reciprocal Payment is due pursuant to the applicable Derivative
Product in accordance with the written notification received from the Issuer,
the Trustee shall deposit all moneys received representing such Reciprocal
Payment in the Revenue Fund to be applied in accordance with the provisions of
Section 5.03 hereof. The Trustee shall notify the Issuer on such Business Day,
if (a) the amount received from the Reciprocal Payor is not equal to the amount
specified in the written notification of the Issuer, (b) no amount is received
from the Reciprocal Payor or (c) the amount received is not received in
immediately available funds.
On the third Business Day immediately preceding any Note Payment Date
with respect to which an Issuer Derivative Payment is due in accordance with the
written notification received from the Issuer or, with respect to a payment in
respect of an early termination date due pursuant to the terms of a Derivative
Product from the Issuer, the Trustee shall make payment to the Reciprocal Payor
from moneys in the Revenue Fund of the amount of the Issuer Derivative Payment
specified in such written notification of the Issuer, due on such date by the
deposit or wire transfer of immediately available funds to the credit of the
account of the Reciprocal Payor specified in such written notification of the
Issuer, but only to the extent such payment will not result in a deficiency in
the amount due on the next succeeding Note Payment Date to the Registered Owners
of any class of Obligations having a priority equal to or higher than such
Reciprocal Payor under such Derivative Product.
If any payment to such a Reciprocal Payor described in the paragraph
above would result in a deficiency in the amounts required to make payments to
the Registered Owners of the Obligations referred to in the paragraph above on
such Note Payment Date, then the Trustee shall delay the making of such payment
to the Reciprocal Payor until the first date on which no deficiency would result
from such payment.
ARTICLE IV
PROVISIONS APPLICABLE TO THE NOTES;
DUTIES OF THE ISSUER
SECTION 4.01. PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM. The Issuer covenants
that it will promptly pay, but solely from the Trust Estate, the principal of
and interest, if any, on each and every Obligation issued under the provisions
of this Indenture at the places, on the dates and in the manner specified herein
and in said Obligations and any premium required for the retirement of said
Obligations by purchase or redemption according to the true intent and meaning
thereof. The Obligations shall be and are hereby declared to be payable from and
equally secured by an irrevocable first lien on and pledge of the properties
constituting the Trust Estate, subject to the application thereof as permitted
by this Indenture, but in no event shall the Registered Owners or any Reciprocal
Payor have any right to possession of any Financed Eligible Loans, which shall
be held only by the Trustee or its agent or bailee.
SECTION 4.02. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
represents and warrants that it is duly authorized under the laws of the State
to create and issue the Notes and to execute and deliver this Indenture and any
Derivative Product and to make the pledge to the payment of Notes and any Issuer
Derivative Payments hereunder, that all necessary action on the part of the
Issuer and the Board for the creation and issuance of the Notes and the
execution and delivery of this Indenture and any Derivative Product has been
duly and effectively taken; and that the Notes in the hands of the Registered
Owners thereof and the Issuer Derivative Payments are and will be valid and
enforceable special limited obligations of the Issuer secured by and payable
solely from the Trust Estate.
SECTION 4.03. COVENANTS AS TO ADDITIONAL CONVEYANCES. At any and all times,
the Issuer will duly execute, acknowledge, and deliver, or will cause to be
done, executed, and delivered, all and every such further acts, conveyances,
transfers, and assurances in law as the Trustee shall reasonably require for the
better conveying, transferring, and pledging and confirming unto the Trustee,
all and singular, the properties constituting the Trust Estate hereby
transferred and pledged, or intended so to be transferred and pledged.
SECTION 4.04. FURTHER COVENANTS OF THE ISSUER.
(a) The Issuer will cause financing statements and continuation statements
with respect thereto at all times to be filed in the office of the
Secretary of State of the State and any other jurisdiction necessary to
perfect and maintain the security interest granted by the Issuer
hereunder.
(b) The Issuer will duly and punctually keep, observe and perform each and
every term, covenant, and condition on its part to be kept, observed,
and performed, contained in this Indenture and the other agreements to
which the Issuer is a party pursuant to the transactions contemplated
herein, and will punctually perform all duties required by the Articles
of Incorporation and Bylaws of the Issuer and the laws of the State.
(c) The Issuer shall be operated on the basis of its Fiscal Year.
(d) The Issuer shall cause to be kept full and proper books of records and
accounts, in which full, true, and proper entries will be made of all
dealings, business, and affairs of the Issuer which relate to the Notes
and any Derivative Product.
(e) The Issuer, upon written request of the Trustee, will permit at all
reasonable times the Trustee or its agents, accountants, and attorneys,
to examine and inspect the property, books of account, records, reports,
and other data relating to the Financed Eligible Loans, and will furnish
the Trustee such other information as it may reasonably request. The
Trustee shall be under no duty to make any such examination unless
requested in writing to do so by the Registered Owners of 66% in
collective aggregate principal amount of the Notes at the time
Outstanding, and unless such Registered Owners shall have offered the
Trustee security and indemnity satisfactory to it against any costs,
expenses and liabilities which might be incurred thereby.
(f) The Issuer shall cause an annual audit to be made by an independent
auditing firm of national reputation and file one copy thereof with the
Trustee and each Rating Agency within 150 days of the close of each
Fiscal Year. The Trustee shall be under no obligation to review or
otherwise analyze such audit.
(g) The Issuer covenants that all Financed Eligible Loans upon receipt
thereof shall be delivered to the Trustee or its agent or bailee to be
held pursuant to this Indenture and pursuant to the Servicing Agreement
or a custodian agreement.
(h) Notwithstanding anything to the contrary contained herein, except upon
the occurrence and during the continuance of an Event of Default
hereunder, the Issuer hereby expressly reserves and retains the
privilege to receive and, subject to the terms and provisions of this
Indenture, to keep or dispose of, claim, bring suits upon or otherwise
exercise, enforce or realize upon its rights and interest in and to the
Financed Eligible Loans and the proceeds and collections therefrom, and
neither the Trustee nor any Registered Owner shall in any manner be or
be deemed to be an indispensable party to the exercise of any such
privilege, claim or suit and the Trustee shall be under no obligation
whatsoever to exercise any such privilege, claim or suit; provided,
however, that the Trustee shall have and retain possession of the
Financed Eligible Loans pursuant to Section 5.02 hereof (which Financed
Eligible Loans may be held by the Trustee's agent or bailee) so long as
such loans are subject to the lien of this Indenture.
(i) The Issuer shall notify the Trustee and each Rating Agency in writing
prior to entering into any Derivative Product.
SECTION 4.05. ENFORCEMENT OF SERVICING AGREEMENTS. The Issuer shall comply
with and shall require the Servicer to comply with the following whether or not
the Issuer is otherwise in default under this Indenture:
(a) cause to be diligently enforced and taken all reasonable steps, actions
and proceedings necessary for the enforcement of all terms, covenants
and conditions of all Servicing Agreements, including the prompt payment
of all amounts due the Issuer thereunder, including without limitation
all principal and interest payments, and Guarantee payments which relate
to any Financed Eligible Loans and cause the Servicer to specify whether
payments received by it represent principal or interest;
(b) not permit the release of the obligations of any Servicer under any
Servicing Agreement except in conjunction with amendments or
modifications permitted by (g) below;
(c) at all times, to the extent permitted by law, cause to be defended,
enforced, preserved and protected the rights and privileges of the
Issuer and of the Registered Owners under or with respect to each
Servicing Agreement;
(d) at its own expense, the Issuer shall duly and punctually perform and
observe each of its obligations to the Servicer under the Servicing
Agreement in accordance with the terms thereof;
(e) the Issuer agrees to give the Trustee prompt written notice of each
default on the part of the Servicer of its obligations under the
Servicing Agreement coming to the Issuer's attention;
(f) the Issuer shall not waive any default by the Servicer under the
Servicing Agreement without the written consent of the Trustee; and
(g) not consent or agree to or permit any amendment or modification of any
Servicing Agreement which will in any manner materially adversely affect
the rights or security of the Registered Owners. The Issuer shall be
entitled to receive and rely upon an opinion of its counsel that any
such amendment or modification will not materially adversely affect the
rights or security of the Registered Owners.
SECTION 4.06. PROCEDURES FOR TRANSFER OF FUNDS. In any instance where this
Indenture requires a transfer of funds or money from one Fund to another, a
transfer of ownership in investments or an undivided interest therein may be
made in any manner agreeable to the Issuer and the Trustee, and in the
calculation of the amount transferred, interest on the investment which has or
will accrue before the date the money is needed in the fund to which the
transfer is made shall not be taken into account or considered as money on hand
at the time of such transfer.
SECTION 4.07. ADDITIONAL COVENANTS WITH RESPECT TO THE ACT. The Issuer
covenants that it will cause the Trustee to be, or replace the Trustee with, an
Eligible Lender under the Act, that it will acquire or cause to be acquired
Eligible Loans originated and held only by an Eligible Lender and that it will
not dispose of or deliver any Financed Eligible Loans or any security interest
in any such Financed Eligible Loans to any party who is not an Eligible Lender
so long as the Act or Regulations adopted thereunder require an Eligible Lender
to be the owner or holder of Guaranteed Eligible Loans; provided, however, that
nothing above shall prevent the Issuer from delivering the Eligible Loans to the
Servicer or the Guarantee Agency. The Registered Owners of the Notes shall not
in any circumstances be deemed to be the owner or holder of the Guaranteed
Eligible Loans.
The Issuer, or its designated agent, shall be responsible for each of
the following actions with respect to the Act:
(a) the Issuer, or its designated agent, shall be responsible for dealing
with the Secretary with respect to the rights, benefits and obligations
under the Certificates of Insurance and the Contract of Insurance, and
the Issuer shall be responsible for dealing with the Guarantee Agencies
with respect to the rights, benefits and obligations under the Guarantee
Agreements with respect to the Financed Eligible Loans;
(b) the Issuer, or its designated agent, shall cause to be diligently
enforced, and shall cause to be taken all reasonable steps, actions and
proceedings necessary or appropriate for the enforcement of all terms,
covenants and conditions of all Financed Eligible Loans and agreements
in connection therewith, including the prompt payment of all principal
and interest payments and all other amounts due thereunder;
(c) the Issuer, or its designated agent, shall cause the Financed Eligible
loans to be serviced by entering into the Servicing Agreement or other
agreement with the Servicer for the collection of payments made for, and
the administration of the accounts of, the Financed Eligible Loans;
(d) the Issuer, or its designated agent, shall comply, and shall cause all
of its officers, directors, employees and agents to comply, with the
provisions of the Act and any regulations or rulings thereunder, with
respect to the Financed Eligible Loans; and
(e) the Issuer, or its designated agent, shall cause the benefits of the
Guarantee Agreements, the Interest Subsidy Payments and the Special
Allowance Payments to flow to the Trustee. The Trustee shall have no
liability for actions taken at the direction of the Issuer, except for
negligence or willful misconduct in the performance of its express
duties hereunder. The Trustee shall have no obligation to administer,
service or collect the loans in the Trust Estate or to maintain or
monitor the administration, servicing or collection of such loans.
The Trustee shall not be deemed to be the designated agent for
the purposes of this Section 4.07 unless it has agreed in writing to be
such agent.
SECTION 4.08. FINANCED ELIGIBLE LOANS; COLLECTIONS THEREOF; ASSIGNMENT
THEREOF. The Issuer, through the Servicer, shall diligently collect all
principal and interest payments on all Financed Eligible Loans, and all Interest
Benefit Payments, insurance, guarantee and default claims and Special Allowance
Payments which relate to such Financed Eligible Loans. The Issuer shall cause
the filing and assignment of such claims (prior to the timely filing deadline
for such claims under the Regulations) by the Servicer. The Issuer will comply
with the Act and Regulations which apply to the Program and to such Financed
Eligible Loans.
SECTION 4.09. APPOINTMENT OF AGENTS, ETC. The Issuer shall employ and appoint
all employees, agents, consultants and attorneys which it may consider
necessary. No member of the Board, neither singly or collectively, shall be
personally liable for any act or omission not willfully fraudulent or mala fide.
SECTION 4.10. CAPACITY TO SUE. The Issuer shall have the power and capacity to
sue and to be sued on matters arising out of or relating to the financing of the
Financed Eligible Loans.
SECTION 4.11. CONTINUED EXISTENCE; SUCCESSOR TO ISSUER. The Issuer agrees that
it will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, rights and franchises as a Nevada corporation,
except as otherwise permitted by this Section 4.11. The Issuer further agrees
that it will not (a) sell, transfer or otherwise dispose of all or substantially
all, of its assets (except Financed Eligible Loans if such sale, transfer or
disposition will discharge this Indenture in accordance with Article X hereof);
(b) consolidate with or merge into another corporation or entity; or (c) permit
one or more other corporations or entities to consolidate with or merge into it.
The preceding restrictions in (a), (b) and (c) shall not apply to a transaction
if the transferee or the surviving or resulting corporation or entity, if other
than the Issuer, by proper written instrument for the benefit of the Trustee,
irrevocably and unconditionally assumes the obligation to perform and observe
the agreements and obligations of the Issuer under this Indenture.
If a transfer is made as provided in this Section, the provisions of
this Section shall continue in full force and effect and no further transfer
shall be made except in compliance with the provisions of this Section.
SECTION 4.12. AMENDMENT OF STUDENT LOAN PURCHASE AGREEMENTS. The Issuer shall
notify the Trustee in writing of any proposed amendments to any existing Student
Loan Purchase Agreement. No such amendment shall become effective unless and
until the Trustee consents thereto in writing. The consent of the Trustee shall
not be unreasonably withheld and shall not be withheld if the Trustee receives
an opinion of counsel acceptable to them that such an amendment is required by
the Act and is not materially prejudicial to the Registered Owners.
Notwithstanding the foregoing, however, the Trustee shall consent to an
amendment from time to time so long as it is not materially prejudicial to the
interests of the Registered Owners, and the Trustee may rely on an opinion of
counsel to such effect.
SECTION 4.13. REPRESENTATIONS; NEGATIVE COVENANTS.
(a) The Issuer hereby makes the following representations and warranties to
the Trustee on which the Trustee relies in authenticating the Notes and
on which the Registered Owners have relied in purchasing the Notes. Such
representations and warranties shall survive the transfer and assignment
of the Trust Estate to the Trustee.
(i) ORGANIZATION AND GOOD STANDING. The Issuer is duly organized and
validly existing under the laws of the State, and has the power
to own its assets and to transact the business in which it
presently engages.
(ii) DUE QUALIFICATION. The Issuer is duly qualified to do business
and is in good standing, and has obtained all material necessary
licenses and approvals, in all jurisdictions where the failure
to be so qualified, have such good standing or have such
licenses or approvals would have a material adverse effect on
the Issuer's business and operations or in which the actions as
required by this Indenture require or will require such
qualification.
(iii) AUTHORIZATION. The Issuer has the power, authority and legal
right to execute, deliver and perform this Indenture and to
grant the Trust Estate to the Trustee and the execution,
delivery and performance of this Indenture and grant of the
Trust Estate to the Trustee have been duly authorized by the
Issuer by all necessary corporate action.
(iv) BINDING OBLIGATION. This Indenture, assuming due authorization,
execution and delivery by the Trustee, constitutes a legal,
valid and binding obligation of the Issuer enforceable against
the Issuer in accordance with its terms, except that (A) such
enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether
statutory, regulatory or decisional) now or hereafter in effect
relating to creditors' rights generally and (B) the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may
be brought, whether a proceeding at law or in equity.
(v) NO VIOLATION. The consummation of the transactions contemplated
by this Indenture and the fulfillment of the terms hereof does
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 the organizational documents of
the Issuer, or any material indenture, agreement, mortgage, deed
of trust or other instrument to which the Issuer is a party or
by which it is bound, or result in the creation or imposition of
any lien upon any of its material properties pursuant to the
terms of any such indenture, agreement, mortgage, deed of trust
or other instrument, other than this Indenture, nor violate any
law or any order, rule or regulation applicable to the Issuer of
any court or of any federal or state regulatory body,
administrative agency, or other governmental instrumentality
having jurisdiction over the Issuer or any of its properties.
(vi) NO PROCEEDINGS. There are no proceedings, injunctions, writs,
restraining orders or investigations to which the Issuer or any
of such entity's affiliates is a party pending, or, to the best
of such entity's knowledge, threatened, before any court,
regulatory body, administrative agency, or other tribunal or
governmental instrumentality (A) asserting the invalidity of
this Indenture, (B) seeking to prevent the issuance of any Notes
or the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that
might materially and adversely affect the performance by the
Issuer of its obligations under, or the validity or
enforceability of this Indenture.
(vii) APPROVALS. All approvals, authorizations, consents, orders or
other actions of any person, corporation or other organization,
or of any court, governmental agency or body or official,
required on the part of the Issuer in connection with the
execution and delivery of this Indenture have been taken or
obtained on or prior to the Date of Issuance.
(viii) PLACE OF BUSINESS. The Issuer's place of business and chief
executive office is in 2255-A Renaissance Drive, Las Vegas,
Nevada 89119.
(ix) TAX AND ACCOUNTING TREATMENT. The Issuer intends to treat the
transactions contemplated by the Student Loan Purchase
Agreements as an absolute transfer rather than as a pledge of
the Financed Eligible Loans from the Seller for federal income
tax and financial accounting purposes and the Issuer will be
treated as the owner of the Financed Eligible Loans for all
purposes. The Issuer further intends to treat the Senior Notes
as its indebtedness for federal income tax and financial
accounting purposes.
(x) TAXES. The Issuer has filed (or caused to be filed) all federal,
state, county, local and foreign income, franchise and other tax
returns required to be filed by it through the date hereof, and
has paid all taxes reflected as due thereon. The Issuer has
taken all steps necessary to ensure that it is eligible to file
a consolidated federal income tax return with National Education
Loan Network, Inc. and such returns will be filed for all
taxable years in which the Notes are Outstanding. There is no
pending dispute with any taxing authority that, if determined
adversely to the Issuer, would result in the assertion by any
taxing authority of any material tax deficiency, and the Issuer
has no knowledge of a proposed liability for any tax year to be
imposed upon such entity's properties or assets for which there
is not an adequate reserve reflected in such entity's current
financial statements.
(xi) LEGAL NAME. The legal name of the Issuer is "NELNET Student Loan
Corporation-2" and has not changed since its inception. The
Issuer has no tradenames, fictitious names, assumed names or
"dba's" under which it conducts its business and has made no
filing in respect of any such name.
(xii) BUSINESS PURPOSE. The Issuer has acquired the Financed Eligible
Loans conveyed to it under a Student Loan Purchase Agreement for
a bona fide business purpose and has undertaken the transactions
contemplated herein as principal rather than as an agent of any
other person. The Issuer has no subsidiaries, has adopted and
operated consistently with all corporate formalities with
respect to its operations and has engaged in no other activities
other than those specified in this Indenture and the Student
Loan Purchase Agreements and in accordance with the transactions
contemplated herein and therein.
(xiii) COMPLIANCE WITH LAWS. The Issuer is in compliance with all
applicable laws and regulations with respect to the conduct of
its business and has obtained and maintains all permits,
licenses and other approvals as are necessary for the conduct of
its operations.
(xiv) VALID BUSINESS REASONS; No Fraudulent Transfers. The
transactions contemplated by this Indenture are in the ordinary
course of the Issuer's business and the Issuer has valid
business reasons for granting the Trust Estate pursuant to this
Indenture. At the time of each such grant: (A) the Issuer
granted the Trust Estate to the Trustee without any intent to
hinder, delay, or defraud any current or future creditor of the
Issuer; (B) the Issuer was not insolvent and did not become
insolvent as a result of any such grant; (C) the Issuer was not
engaged and was not about to engage in any business or
transaction for which any property remaining with such entity
was an unreasonably small capital or for which the remaining
assets of such entity are unreasonably small in relation to the
business of such entity or the transaction; (D) the Issuer did
not intend to incur, and did not believe or should not have
reasonably believed, that it would incur, debts beyond its
ability to pay as they become due; and (E) the consideration
paid received by the Issuer for the grant of the Trust Estate
was reasonably equivalent to the value of the related grant.
(xv) NO MANAGEMENT OF AFFAIRS OF SELLER. The Issuer is not and will
not be involved in the day-to-day management of the Seller or
the Issuer's parent or any affiliate.
(xvi) NO INTERCORPORATE TRANSFERS WITH SELLER OR AFFILIATES. Other
than the acquisition of assets and the transfer of any Notes
pursuant to this Indenture, the Issuer does not engage in and
will not engage in any intercorporate transactions with the
Seller and affiliates, except as provided herein with respect to
Maintenance and Operating Expenses or the payment of dividends
to the Issuer's parent.
(xvii) ABILITY TO PERFORM. There has been no material impairment in the
ability of the Issuer to perform its obligations under this
Indenture.
(xviii) FINANCIAL CONDITION. No material adverse change has occurred in
the Issuer's financial status since the date of its formation.
(xix) EVENT OF DEFAULT. No Event of Default has occurred and no event
has occurred that, with the giving of notice, the passage of
time, or both, would become an Event of Default.
(xx) ACQUISITION OF FINANCED ELIGIBLE LOANS LEGAL. The Issuer has
complied with all applicable federal, state and local laws and
regulations in connection with its acquisition of the Financed
Eligible Loans from the Seller.
(xxi) NO MATERIAL MISSTATEMENTS OR OMISSIONS. No information,
certificate of an officer, statement furnished in writing or
report delivered to the Trustee, the Servicer or any Registered
Owner by the Issuer contains any untrue statement of a material
fact or omits a material fact necessary to make such
information, certificate, statement or report not misleading.
(b) The Issuer will not:
(i) sell, transfer, exchange or otherwise dispose of any portion of
the Trust Estate except as expressly permitted by this
Indenture;
(ii) claim any credit on, or make any deduction from, the principal
amount of any of the Notes by reason of the payment of any taxes
levied or assessed upon any portion of the Trust Estate;
(iii) except as otherwise provided herein, dissolve or liquidate in
whole or in part, except with the prior written consent of the
Trustee, and to the extent Notes remain Outstanding, approval of
the Registered Owners and a Rating Confirmation;
(iv) permit the validity or effectiveness of this Indenture, any
Supplement or any grant hereunder to be impaired, or permit the
lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to
be released from any covenants or obligations under this
Indenture, except as may be expressly permitted hereby;
(v) except as otherwise provided herein, permit any lien, charge,
security interest, mortgage or other encumbrance (other than the
lien of this Indenture) to be created on or extend to or
otherwise arise upon or burden the Trust Estate or any part
thereof or any interest therein or the proceeds thereof;
(vi) permit the lien of this Indenture not to constitute a valid
first priority, perfected security interest in the Trust Estate;
(vii) incur or assume any indebtedness or guarantee any indebtedness
of any Person whether secured by any Financed Eligible Loans
under this Indenture or otherwise, except for such obligations
as may be incurred by the Issuer in connection with the issuance
of the Notes pursuant to this Indenture and unsecured trade
payables in the ordinary course of its business;
(viii) operate such that it would be consolidated with its parent or
any other affiliate and its separate corporate existence
disregarded in any federal or state proceeding;
(ix) act as agent of any Seller or, except as provided in the
Servicing Agreement, allow the Seller to act as its agent;
(x) allow the Seller or its parent or any other affiliate to pay its
expenses, guarantee its obligations or advance funds to it for
payment of expenses; or
(xi) consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating
to the Issuer or of or relating to all or substantially all of
its property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for
the appointment of a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
Issuer; or the Issuer shall not consent to the appointment of a
receiver, conservator or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to
the Issuer or of or relating to all or substantially all of its
property; or admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage
of any applicable insolvency, bankruptcy or reorganization
statute, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations.
(c) The Issuer makes the following representations and warranties as to the
Trust Estate which is granted to the Trustee hereunder on such date, on
which the Trustee relies in accepting the Trust Estate. Such
representations and warranties shall survive the grant of the Trust
Estate to the Trustee pursuant to this Indenture:
(i) FINANCED ELIGIBLE LOANS. Each Financed Eligible Loan acquired by
the Issuer shall constitute an Eligible Loan and contain the
characteristics found in a Student Loan Purchase Agreement.
Notwithstanding the definition of "Eligible Loans" herein, the
Issuer covenants not to acquire Eligible Loan delinquent by more
than 91 days. In addition, the Issuer covenants that no more
than 20% of each purchase of Eligible Loans will be made up of
Eligible Loans delinquent by more than 30 days.]
(ii) SCHEDULE OF FINANCED ELIGIBLE LOANS. The information set forth
in each Schedule of Financed Eligible Loans is true and correct
in all material respects as of the opening of business on the
Date of Issuance.
(iii) GRANT. It is the intention of the Issuer that the transfer
herein contemplated constitutes a grant of the Financed Eligible
Loans to the Trustee.
(iv) ALL FILINGS MADE. All filings (including, without limitation,
UCC filings) necessary in any jurisdiction to give the Trustee a
first priority perfected ownership and security interest in the
Trust Estate, including the Financed Eligible Loans, have been
made no later than the Date of Issuance and copies of the
file-stamped financing statements shall be delivered to the
Trustee within five Business Days of receipt by the Issuer or
its agent from the appropriate secretary of state. The Issuer
has not caused, suffered or permitted any lien, pledges,
offsets, defenses, claims, counterclaims, charges or security
interest with respect to the promissory notes relating to the
Financed Eligible Loans (other than the security interest
created in favor of the Trustee) to be created.
(v) TRANSFER NOT SUBJECT TO BULK TRANSFER ACT. Each grant of the
Financed Eligible Loans by the Issuer pursuant to this Indenture
is not subject to the bulk transfer act or any similar statutory
provisions in effect in any applicable jurisdiction.
(vi) NO TRANSFER TAXES DUE. Each grant of the Financed Eligible Loans
(including all payments due or to become due thereunder) by the
Issuer pursuant to this Indenture is not subject to and will not
result in any tax, fee or governmental charge payable by the
Issuer or the Seller to any federal, state or local government.
SECTION 4.14. ADDITIONAL COVENANTS. So long as any of the Notes are Outstanding:
(a) The Issuer shall not engage in any business or activity other than in
connection with the activities contemplated hereby and in the Student
Loan Purchase Agreements, and in connection with the issuance of Notes.
(b) The Issuer shall not consolidate or merge with or into any other entity
or convey or transfer its properties and assets substantially as an
entirety to any entity except as otherwise provided herein.
(c) The funds and other assets of the Issuer shall not be commingled with
those of any other individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, or government or any agency or political subdivision
thereof.
(d) The Issuer shall not be, become or hold itself out as being liable for
the debts of any other party.
(e) The Issuer shall not form, or cause to be formed, any subsidiaries.
(f) The Issuer shall act solely in its own name and through its duly
authorized officers or agents in the conduct of its business, and shall
conduct its business so as not to mislead others as to the identity of
the entity with which they are concerned.
(g) The Issuer shall maintain its records and books of account and shall not
commingle its records and books of account with the records and books of
account of any other Person. The books of the Issuer may be kept
(subject to any provision contained in the statutes) inside or outside
the State at such place or places as may be designated from time to time
by the board of trustees or in the bylaws of the Issuer.
(h) All actions of the Issuer shall be taken by a duly authorized officer or
agent of the Issuer.
(i) The Issuer shall not amend, alter, change or repeal any provision
contained in this Section 4.14 without (i) the prior written consent of
the Trustee and (ii) a Rating Confirmation from each Rating Agency
rating any Notes Outstanding (a copy of which shall be provided to the
Trustee) that such amendment, alteration, change or repeal will have no
adverse effect on the rating assigned to the Notes.
(j) The Issuer shall not amend its Articles of Incorporation without first
obtaining the prior written consent of each Rating Agency.
(k) All audited financial statements of the Issuer that are consolidated
with those of any affiliate thereof will contain detailed notes clearly
stating that (i) all of the Issuer's assets are owned by the Issuer, and
(ii) the Issuer is a separate entity with creditors who have received
ownership and/or security interests in the Issuer's assets.
(l) The Issuer will strictly observe legal formalities in its dealings with
the Seller, the Issuer's parent or any affiliate thereof, and funds or
other assets of the Issuer will not be commingled with those of the
Seller, the Issuer's parent or any other affiliate thereof. The Issuer
shall not maintain joint bank accounts or other depository accounts to
which the Seller, the Issuer's parent or any other affiliate has
independent access. None of the Issuer's funds will at any time be
pooled with any funds of the Seller, the Issuer's parent or any other
affiliate.
(m) The Issuer will maintain an arm's length relationship with the Seller
(and any affiliate). Any Person that renders or otherwise furnishes
services to the Issuer will be compensated by the Issuer at market rates
for such services it renders or otherwise furnishes to the Issuer except
as otherwise provided in this Indenture. Except as contemplated in this
Indenture, the Student Loan Purchase Agreements or the Servicing
Agreement, the Issuer will not hold itself out to be responsible for the
debts of the Seller, the parent or the decisions or actions respecting
the daily business and affairs of the Seller or parent.
SECTION 4.15. PROVIDING OF NOTICE. The Issuer, upon learning of any failure on
its part to observe or perform in any material respect any covenant,
representation or warranty of the Issuer set forth in this Indenture or the
Student Loan Purchase Agreements, or of any failure on the part of the Seller to
observe or perform in any material respect any covenant, representation or
warranty of the Seller set forth in the Student Loan Purchase Agreements, shall
promptly notify the Trustee, the Servicer and each Rating Agency of such
failure.
SECTION 4.16. REPORTS BY ISSUER. The Issuer will:
(a) file with the Trustee, within 15 days after the Issuer is required to
file the same with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by rules
and regulations prescribe) which the Issuer may be required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act;
(b) file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance
by the Issuer with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(c) transmit by mail to the Registered Owners of Notes, within 30 days after
the filing thereof with the Trustee, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information,
documents and reports required to be filed by the Issuer pursuant to
clauses (a) and (b) of this Section 4.16 as may be required by rules and
regulations prescribed from time to time by the Commission.
SECTION 4.17. STATEMENT AS TO COMPLIANCE. The Issuer will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Issuer's compliance with
all conditions and covenants under this Indenture and, in the event of any
noncompliance, specifying such noncompliance and the nature and status thereof.
For purposes of this Section 4.17, such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture.
SECTION 4.18. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Issuer covenants that if:
(a) default is made in the payment of any installment of interest, if any,
on any Notes when such interest becomes due and payable and such default
continues for a period of 30 days; or
(b) default is made in the payment of the principal of (or premium, if any,
on) any Notes at its Maturity,
then the Issuer will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Registered Owners, the whole amount then due and payable on such
Notes for principal (and premium, if any) and interest, with interest upon any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installments of
interest, if any, at the rate or rates borne by or provided for in such Notes,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee and its agents and counsel.
If the Issuer fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as Trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Issuer or any other obligor upon such Notes of such series and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Issuer or any other obligor upon such Notes,
wherever situated.
If an Event of Default with respect to Notes occurs and is continuing,
the Trustee may, after being indemnified to its satisfaction and in its
discretion, proceed to protect and enforce its rights and the rights of the
Registered Owners of Notes and any related coupons by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
ARTICLE V
FUNDS
SECTION 5.01. CREATION AND CONTINUATION OF FUNDS AND ACCOUNTS.
(a) There are hereby created and established the following Funds to be held
and maintained by the Trustee for the benefit of the Registered Owners:
(i) Acquisition Fund;
(ii) Revenue Fund; and
(iii) Reserve Fund.
(b) The Operating Fund has previously been established by the Issuer, is
hereby continued, does not constitute a Fund within the meaning of this
Indenture, and is held by a depository bank of the Issuer for the
benefit of the Issuer; and the Registered Owners shall have no right,
title or interest therein.
The Trustee is hereby authorized for the purpose of facilitating the
administration of the Trust Estate and for the administration of any Notes
issued hereunder to create further Accounts or Subaccounts in any of the various
Funds and Accounts established hereunder which are deemed necessary or
desirable.
SECTION 5.02. ACQUISITION FUND. There shall be deposited into the Acquisition
Fund moneys from proceeds of any Notes, moneys transferred thereto from the
Revenue Fund pursuant to Section 5.03(c) hereof. Financed Eligible Loans shall
be held by the Trustee or its agent or bailee (including the Servicer) and shall
be pledged to the Trust Estate and accounted for as a part of the Acquisition
Fund.
Moneys on deposit in the Acquisition Fund shall be used, upon Issuer
Order, solely to pay costs of issuance of the Notes, to redeem Notes in
accordance with the provisions of any Supplemental Indenture, and, upon receipt
by the Trustee of an Eligible Loan Acquisition Certificate, to acquire Eligible
Loans at a price which would permit the results of cash flow analyses provided
to each Rating Agency on any Date of Issuance to be sustained as certified to
the Trustee on the Acquisition Certificate; provided that such price may be
increased if Rating Agency Confirmation is obtained, based on new cash flow
analyses containing such assumptions as the Issuer shall reasonably determine.
Any such Issuer Order or Eligible Loan Acquisition Certificate shall state that
such proposed use of moneys in the Acquisition Fund is in compliance with the
provisions of this Indenture. If the Issuer determines that all or any portion
of such moneys cannot be so used, then an Authorized Representative of the
Issuer may, by Issuer Order, direct the Trustee to redeem Notes in accordance
with any Supplemental Indenture.
Notwithstanding the foregoing, if on any Note Payment Date there are not
sufficient moneys on deposit in the Revenue Fund to make the transfers required
by Section 5.03(d)(i) through (vii) hereof, then, an amount equal to any such
deficiency may, upon Issuer Order, be transferred directly from the Acquisition
Fund.
While the Issuer will be the beneficial owner of the Financed Eligible
Loans and the Registered Owners will have a security interest therein, it is
understood and agreed that the Trustee will be the legal owner thereof and will
have a security interest in the Financed Eligible Loans for and on behalf of the
Registered Owners. The notes representing the Financed Eligible Loans will be
held in the name of the Trustee for the account of the Issuer, for the benefit
of the Registered Owners.
Financed Eligible Loans shall be sold, transferred or otherwise disposed
of (other than for consolidation, serialization or transfer to a Guaranty
Agency) by the Trustee free from the lien of this Indenture at any time pursuant
to an Issuer Order and if the Trustee is provided with the following:
(a) an Issuer Order stating the sale price and directing that Financed
Eligible Loans be sold, transferred or otherwise disposed of and
delivered to:
(i) if the Eligible Loan is originated under the Act and the Act
requires any such Eligible Loan to be held only by an Eligible
Lender, an Eligible Lender under the Act whose name shall be
specified; or
(ii) the trustee under another indenture securing notes issued by the
Issuer; and
(b) a certificate signed by an Authorized Representative of the Issuer to
the effect that:
(i) the disposition price is equal to or in excess of the principal
amount thereof (plus accrued interest) or equal to or in excess
of the purchase price paid by the Issuer for such Financed
Eligible Loan (less principal amounts received with respect to
such Financed Eligible Loan); or
(ii) the disposition price is lower than the principal amount thereof
(plus accrued interest), and (A) the Issuer reasonably believes
that the Revenues expected to be received (after giving effect
to such disposition) would be at least equal to the Revenues
expected to be received assuming no such sale, transfer or other
disposition occurred, or (B) the Issuer shall remain able to pay
debt service on the Notes and make payment on any other
Obligations on a timely basis (after giving effect to such sale,
transfer or other disposition) whereas it would not have been
able to do so on a timely basis if it had not sold, transferred
or disposed of the Financed Eligible Loans at such discounted
amount, or (C) the Aggregate Market Value of the Trust Estate
(after giving effect to such sale, transfer or other
disposition) will be at least equal to 100% of the aggregate
principal amount of the Obligations plus accrued interest, or
(D) the amount for which the Financed Eligible Loans are being
sold, assigned, transferred or disposed of is equal to the
purchase price paid by the Issuer for such Financed Eligible
Loans (less principal amounts received with respect to such
Financed Eligible Loans).
Further, Financed Eligible Loans shall also be sold, transferred or
otherwise disposed of by the Trustee pursuant to an Issuer Order in which the
Issuer determines that such disposition of Financed Eligible Loans from the
Trust Estate is necessary in order to avoid the occurrence of an Event of
Default hereunder or to avoid any default in the payment obligations of the
Issuer under any reimbursement agreement, in such amount and at such times and
prices as may be specified in such Issuer Order. The Trustee, following receipt
of the foregoing and of a certificate of the Issuer indicating that such
purchaser or transferee is one of the entities described in clause (a) above, if
applicable, shall deliver such Financed Eligible Loans free from the lien of
this Indenture upon the receipt of the purchase price or consideration specified
in the Issuer Order, in compliance with the foregoing. The proceeds to be
received upon any disposition may consist of cash, Investment Securities and/or
Eligible Loans.
SECTION 5.03. REVENUE FUND.
(a) The Trustee shall deposit into the Revenue Fund all Revenues derived
from Financed Eligible Loans acquired by the Issuer, and all other
Revenue derived from moneys or assets on deposit in the Acquisition
Fund, the Reserve Fund, all Reciprocal Payments and any other amounts
deposited thereto upon receipt of an Issuer Order.
(b) Upon receipt of an Issuer Order directing the same, moneys in the
Revenue Fund shall be used, on any date, to make a transfer to the
Operating Fund, subject to Section 5.05 hereof.
(c) All Recoveries of Principal constituting a portion of the Revenue
deposited in the Revenue Fund and so identified to the Trustee, shall be
transferred, as soon as practicable, to the Acquisition Fund.
(d) In addition, on each Note Payment Date and Derivative Payment Date,
money in the Revenue Fund shall be used and transferred to other funds
or Persons in the following order of precedence (any money not so
transferred or paid to remain in the Revenue Fund until subsequently
applied pursuant to this Section):
(i) on a parity basis, to pay interest due on any Senior Notes on
such Note Payment Date and any Issuer Derivative Payment secured
on a parity with the Senior Notes due on such Derivative Payment
Date;
(ii) on a parity basis, to pay the principal of or premium, if any,
on any Senior Notes due on such Note Payment Date (if such Note
Payment Date is a Stated Maturity or mandatory sinking fund
redemption date with respect to such Senior Notes);
(iii) on a parity basis, to pay interest due on any Subordinate Notes
on such Note Payment Date and any Issuer Derivative Payment
secured on a parity with the Subordinate Notes due on such
Derivative Payment Date;
(iv) on a parity basis, to pay the principal of or premium, if any,
on any Subordinate Notes due on such Note Payment Date (if such
Note Payment Date is a Stated Maturity or mandatory sinking fund
redemption date with respect to such Subordinate Notes);
(v) on a parity basis, to pay interest on Junior-Subordinate Notes
on such Note Payment Date and to make any Issuer Derivative
Payment secured on a parity with such Junior-Subordinate Notes
due on such Derivative Payment Date;
(vi) on a parity basis, to pay the principal of or premium, if any,
on any Junior-Subordinate Notes due on such Note Payment Date
(if such Note Payment Date is a Stated Maturity or mandatory
sinking fund redemption date with respect to such
Junior-Subordinate Notes);
(vii) to the Reserve Fund the amount, if any, required by Section
5.04(b) hereof;
(viii) at the option of the Issuer and upon Issuer Order, to the
Acquisition Fund; and
(ix) at the option of the Issuer and upon Issuer Order, to the Issuer
to the extent permitted by Section 5.06 hereof.
SECTION 5.04. RESERVE FUND.
(a) The Trustee shall deposit to the Reserve Fund the amount, if any,
specified in each Supplemental Indenture. On each Note Payment Date, to
the extent there are insufficient moneys in the Revenue Fund to make the
transfers required by Sections 5.03(d)(i) through (vi) hereof, then, the
amount of such deficiency shall be paid directly from the Reserve Fund
if such deficiency has not been paid from the Acquisition Fund.
(b) If the Reserve Fund is used for the purposes described in Section
5.04(a) hereof, the Trustee shall restore the Reserve Fund to the
Reserve Fund Requirement with respect thereto by transfers from the
Revenue Fund on the next Note Payment Date pursuant to Section
5.03(d)(vii) hereof or from the Acquisition Fund pursuant to Section
5.02 hereof. If the full amount required to restore the Reserve Fund to
the applicable Reserve Fund Requirement is not available in the Revenue
Fund on such next succeeding Note Payment Date, the Trustee shall
continue to transfer funds from the Revenue Fund as they become
available and in accordance with Section 5.03(d)(vii) until the
deficiency in the Reserve Fund has been eliminated.
(c) On any day that the amount in the Reserve Fund exceeds the Reserve Fund
Requirement with respect thereto for any reason, the Trustee, at the
direction of the Issuer, shall transfer the excess to the Acquisition
Fund.
SECTION 5.05. OPERATING FUND. The Trustee shall deposit to the Operating Fund or
transfer to the Issuer's depository bank if not the Trustee, the amount, if any,
specified in each Supplemental Indenture. The Operating Fund is a special fund
created with a depository bank of the Issuer and shall be used to pay Program
Expenses. The Operating Fund shall be held by such depository bank of the
Issuer, and no Registered Owner shall have any right, title or interest in the
Operating Fund. Amounts deposited in the Operating Fund shall be used to pay
Program Expenses.
The amount deposited in the Operating Fund by transfer from the Revenue
Fund and, if necessary, from the Acquisition Fund, and the schedule of deposits
shall be determined by the Issuer, but the amount so transferred in any one
Fiscal Year shall not exceed the amount budgeted by the Issuer as Program
Expenses for such Fiscal Year with respect to the Notes and as may be limited by
a Supplemental Indenture, and shall not exceed the amount designated therefor in
the cash flows provided to each Rating Agency on each Date of Issuance, unless
the Issuer, after furnishing each Rating Agency with revised cash flows, shall
have received a Rating Confirmation. The Issuer shall provide the Trustee with
an Issuer Order from time to time as to the amount to be transferred.
At any time in order to meet expenses which have been incorporated in an
amended budget, the Issuer may requisition from the Trustee the amount which it
is anticipated will be required to pay the Program Expenses not in excess of the
amount budgeted with respect to the Notes for the period to the next deposit
into the Operating Fund. The requisition, in the form of an Issuer Order, shall
include a statement that the amount requisitioned, when combined with the amount
requisitioned previously in the Fiscal Year, does not exceed the amount
currently budgeted for that year as Program Expenses or as may be further
limited by a Supplemental Indenture.
Upon the receipt of such requisition, the Trustee shall withdraw the
amount requisitioned from the Revenue Fund, and if necessary, from the
Acquisition Fund (or so much thereof as is then on deposit in such Funds) and
transfer the same into the Operating Fund. The Issuer may request that the
Trustee pay the requisitioned amount in installments as specified by the Issuer.
In the event there is not sufficient money on hand in the Revenue Fund and the
Acquisition Fund to transfer the full amount requisitioned, the Trustee shall
notify the Issuer and the Issuer shall then determine the amount to be
transferred.
SECTION 5.06. TRANSFERS TO ISSUER. Transfers from the Revenue Fund to the Issuer
may be made in accordance with Section 5.03(d)(ix); provided, however, that no
transfer of assets to the Issuer (other than pursuant to the Operating Fund as
otherwise permitted in Article V of the Indenture) shall be made if there is not
on deposit in the Reserve Fund an amount equal to at least the Reserve Fund
Requirement; and further provided, that no transfer shall be made to the Issuer
unless immediately after taking into account any such transfer, the Aggregate
Market Value of the assets in the Trust Estate will be equal to at least ___% of
the unpaid principal amount of the Senior Notes Outstanding and ___% of all
Senior and Subordinate Notes Outstanding, or such lesser percentages as are
acceptable to each Rating Agency then rating the Notes, as evidenced by a Rating
Confirmation.
The amounts so transferred to the Issuer may be used for any proper
purpose of the Issuer and investment earnings thereon shall be the property of
the Issuer.
SECTION 5.07. INVESTMENT OF FUNDS HELD BY TRUSTEE. The Trustee shall invest
money held for the credit of any Fund or Account or Subaccount held by the
Trustee hereunder as directed in writing (or orally, confirmed in writing) by an
Authorized Representative of the Issuer, to the fullest extent practicable and
reasonable, in Investment Securities which shall mature or be redeemed at the
option of the holder prior to the respective dates when the money held for the
credit of such Fund or Account will be required for the purposes intended. In
the absence of any such direction and to the extent practicable, the Trustee
shall invest amounts held hereunder in those Investment Securities described in
clause (a) of the definition of the Investment Securities. The Trustee and the
Issuer hereby agree that unless an Event of Default shall have occurred
hereunder, the Issuer acting by and through an Authorized Representative shall
be entitled to, and shall, provide written direction or oral direction confirmed
in writing to the Trustee with respect to any discretionary acts required or
permitted of the Trustee under any Investment Securities and the Trustee shall
not take such discretionary acts without such written direction.
The Investment Securities purchased shall be held by the Trustee and
shall be deemed at all times to be part of such Fund or Account or Subaccounts
or combination thereof, and the Trustee shall inform the Issuer of the details
of all such investments. Upon direction in writing (or orally, confirmed in
writing) from an Authorized Representative of the Issuer, the Trustee shall use
its best efforts to sell at the best price obtainable, or present for
redemption, any Investment Securities purchased by it as an investment whenever
it shall be necessary to provide money to meet any payment from the applicable
Fund. The Trustee shall advise the Issuer in writing, on or before the fifteenth
day of each calendar month (or such later date as reasonably consented to by the
Issuer), of all investments held for the credit of each Fund in its custody
under the provisions of this Indenture as of the end of the preceding month and
the value thereof, and shall list any investments which were sold or liquidated
for less than their Value at the time thereof.
Money in any Fund constituting a part of the Trust Estate may be pooled
for the purpose of making investments and may be used to pay accrued interest on
Investment Securities purchased. The Trustee and its affiliates may act as
principal or agent in the acquisition or disposition of any Investment
Securities.
Notwithstanding the foregoing, the Trustee shall not be responsible or
liable for any losses on investments made by it hereunder or for keeping all
Funds held by it, fully invested at all times, its only responsibility being to
comply with the investment instructions of the Issuer or its designee in a
non-negligent manner.
The Issuer acknowledges that to the extent the regulations of the
Comptroller of the Currency or other applicable regulatory agency grant the
Issuer the right to receive brokerage confirmations of security transactions,
the Issuer waives receipt of such confirmations.
SECTION 5.08. RELEASE. The Trustee shall, upon Issuer Order and subject to the
provisions of this Indenture, take all actions reasonably necessary to effect
the release of any Financed Eligible Loans from the lien of this Indenture to
the extent the terms hereof permit the sale, disposition or transfer of such
Financed Eligible Loans.
SECTION 5.09. PURCHASE OF NOTES. Pursuant to this Indenture, any amounts held
under this Indenture which are available to redeem Notes may instead be used to
purchase Notes outstanding under this Indenture at the same times and subject to
the same conditions (except as to price) as apply to the redemption of Notes.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT DEFINED. For the purpose of this Indenture, the
following events are hereby defined as, and are declared to be, "Events of
Default":
(a) default in the due and punctual payment of the principal of or interest
on any of the Senior Notes when due or failure to make any payment due
under any other Senior Obligations when due;
(b) if no Senior Obligations are Outstanding hereunder, default in the due
and punctual payment of the principal of or interest on any of the
Subordinate Notes when due or failure to make any payment due under any
other Subordinate Obligations when due;
(c) if no Senior Obligations or Subordinate Obligations are Outstanding
hereunder, default in the due and punctual payment of the principal of
or interest on any of the Junior-Subordinate Notes when due or failure
to make any payment due under any other Junior-Subordinate Obligations
when due;
(d) default in the performance or observance of any other of the covenants,
agreements, or conditions on the part of the Issuer to be kept,
observed, and performed contained in this Indenture or in the Notes, and
continuation of such default for a period of 90 days after written
notice thereof by the Trustee to the Issuer; and
(e) the occurrence of an Event of Bankruptcy.
Any notice herein provided to be given to the Issuer with respect to any default
shall be deemed sufficiently given if sent by registered mail with postage
prepaid to the Person to be notified, addressed to such Person at the post
office address as shown in Section 9.01 of this Indenture or such other address
as may hereafter be given as the principal office of the Issuer in writing to
the Trustee by an Authorized Officer of the Issuer. The Trustee may give any
such notice in its discretion and shall give such notice if requested to do so
in writing by the Registered Owners of at least 51% of the collective aggregate
principal amount of the Highest Priority Obligations at the time Outstanding
("Registered Owner Approval").
SECTION 6.02. REMEDY ON DEFAULT; POSSESSION OF TRUST ESTATE. Subject to Section
6.09 hereof, upon the happening and continuance of any Event of Default, the
Trustee personally or by its attorneys or agents may enter into and upon and
take possession of such portion of the Trust Estate as shall be in the custody
of others, and all property comprising the Trust Estate, and each and every part
thereof, and exclude the Issuer and its agents, servants, and employees wholly
therefrom, and have, hold, use, operate, manage, and control the same and each
and every part thereof, and in the name of the Issuer or otherwise, as they
shall deem best, conduct the business thereof and exercise the privileges
pertaining thereto and all the rights and powers of the Issuer and use all of
the then existing Trust Estate for that purpose, and collect and receive all
charges, income and Revenue of the same and of every part thereof, and after
deducting therefrom all expenses incurred hereunder and all other proper outlays
herein authorized, and all payments which may be made as just and reasonable
compensation for its own services, and for the services of its attorneys,
agents, and assistants, the Trustee shall apply the rest and residue of the
money received by the Trustee as follows:
(a) if the principal of none of the Obligations shall have become due,
first, to the payment of the interest in default on the Senior Notes and
to the payment of all Issuer Derivative Payments secured on a parity
with the Senior Notes then due, in order of the maturity of the
installments thereof, with interest on the overdue installments thereof
at the same rates, respectively, as were borne by the Senior Notes on
which such interest shall be in default and any such Issuer Derivative
Payments as provided in the ISDA Master Agreement then due, such
payments to be made ratably to the parties entitled thereto without
discrimination or preference, second, to the payment of the interest in
default on the Subordinate Notes and to the payment of all Issuer
Derivative Payments secured on a parity with the Subordinate Notes then
due, in order of the maturity of the installments of such interest and
any such Issuer Derivative Payments, with interest on the overdue
installments thereof at the same rates, respectively, as were borne by
the Subordinate Notes on which such interest shall be in default and any
such Issuer Derivative Payments then due, such payments to be made
ratably to the parties entitled thereto without discrimination or
preference and, third, to the payment of the interest in default on the
Junior-Subordinate Notes and to the payment of all Issuer Derivative
Payments secured on a parity with such Junior-Subordinate Notes then
due, in order of the maturity of the installments of such interest and
any such Issuer Derivative Payments, with interest on the overdue
installments thereof at the same rates, respectively, as were borne by
the Junior-Subordinate Notes on which such interest shall be in default
and any such Issuer Derivative Payments then due, such payments to be
made ratably to the parties entitled thereto without discrimination or
preference, except as may be provided in a Supplemental Indenture; and
(b) if the principal of any of the Obligations shall have become due by
declaration of acceleration or otherwise, first to the payment of the
interest in default on the Senior Notes and all Issuer Derivative
Payments secured on a parity with the Senior Notes then due, in the
order of the maturity of the installments thereof, with interest on
overdue installments thereof at the same rates, respectively, as were
borne by the Senior Notes on which such interest shall be in default and
such Issuer Derivative Payments as provided in the ISDA Master Agreement
then due, as the case may be, second, to the payment of the principal of
all Senior Notes then due and any amount owed to a Reciprocal Payor
secured on a parity with Senior Obligations under the ISDA Master
Agreement, such payments to be made ratably to the parties entitled
thereto without discrimination or preference, third, to the payment of
the interest in default on the Subordinate Notes and all Issuer
Derivative Payments secured on a parity with the Subordinate Notes then
due, in the order of the maturity of the installments thereof with
interest on overdue installments thereof at the same rates,
respectively, as were borne by the Subordinate Notes on which such
interest shall be in default and such Issuer Derivative Payments as
provided in the ISDA Master Agreement then due, as the case may be,
fourth, to the payment of the principal of all Subordinate Notes then
due and any amount owed to a Reciprocal Payor secured on a parity with
Subordinate Obligations under the ISDA Master Agreement, such payments
to be made ratably to the parties entitled thereto without
discrimination or preference, fifth, to the payment of the interest in
default on the Junior-Subordinate Notes and all Issuer Derivative
Payments secured on a parity with such Junior-Subordinate Notes then
due, in the order of the maturity of the installments thereof, with
interest on overdue installments thereof at the same rates,
respectively, as were borne by the Junior-Subordinate Notes on which
such interest shall be in default and such Issuer Derivative Payments as
provided in the ISDA Master Agreement then due, as the case may be, and
sixth, to the payment of the principal of all Junior-Subordinate Notes
then due and any amount owed to a Reciprocal Payor secured on a parity
with Junior-Subordinate Obligations under the ISDA Master Agreement,
such payments to be made ratably to the parties entitled thereto without
discrimination or preference, except as may be provided in a
Supplemental Indenture.
SECTION 6.03. REMEDIES ON DEFAULT; ADVICE OF COUNSEL. Upon the happening of any
Event of Default, the Trustee may proceed to protect and enforce the rights of
the Trustee and the Registered Owners in such manner as counsel for the Trustee
may advise, whether for the specific performance of any covenant, condition,
agreement or undertaking herein contained, or in aid of the execution of any
power herein granted, or for the enforcement of such other appropriate legal or
equitable remedies as, in the opinion of such counsel, may be more effectual to
protect and enforce the rights aforesaid.
SECTION 6.04. REMEDIES ON DEFAULT; SALE OF TRUST ESTATE. Upon the happening of
any Event of Default and if the principal of all of the Outstanding Obligations
shall have been declared due and payable, then and in every such case, and
irrespective of whether other remedies authorized shall have been pursued in
whole or in part, the Trustee may sell, with or without entry, to the highest
bidder the Trust Estate, 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 Trustee may make and deliver to the purchaser or purchasers a
good and sufficient assignment or conveyance for the same, which sale shall be a
perpetual bar both at law and in equity against the Issuer and all Persons
claiming such properties. No purchaser at any sale shall be bound to see to the
application of the purchase money or to inquire as to the authorization,
necessity, expediency or regularity of any such sale. The Trustee is hereby
irrevocably appointed the true and lawful attorney-in-fact of the Issuer, in its
name and stead, to make and execute all bills of sale, instruments of assignment
and transfer and such other documents of transfer as may be necessary or
advisable in connection with a sale of all or part of the Trust Estate, but the
Issuer, if so requested by the Trustee, shall ratify and confirm any sale or
sales by executing and delivering to the Trustee or to such purchaser or
purchasers all such instruments as may be necessary, or in the judgment of the
Trustee, proper for the purpose which may be designated in such request. In
addition, the Trustee may proceed to protect and enforce the rights of the
Trustee and the Registered Owners of the Obligations in such manner as counsel
for the Trustee may advise, whether for the specific performance of any
covenant, condition, agreement or undertaking herein contained, or in aid of the
execution of any power herein granted, or for the enforcement of such other
appropriate legal or equitable remedies as may in the opinion of such counsel,
be more effectual to protect and enforce the rights aforesaid. The Trustee shall
take any such action or actions if requested to do so in writing by the
Registered Owners of at least 51% of the collective aggregate principal amount
of the Highest Priority Obligations at the time Outstanding.
SECTION 6.05. APPOINTMENT OF RECEIVER. In case an Event of Default occurs, and
if all of the Outstanding Obligations shall have been declared due and payable
and in case any judicial proceedings are commenced to enforce any right of the
Trustee or of the Registered Owners under this Indenture or otherwise, then as a
matter of right, the Trustee shall be entitled to the appointment of a receiver
of the Trust Estate and of the earnings, income or Revenue, rents, issues and
profits thereof with such powers as the court making such appointments may
confer.
SECTION 6.06. RESTORATION OF POSITION. In case the Trustee shall have proceeded
to enforce any rights under this Indenture by sale or otherwise, and such
proceedings shall have been discontinued, or shall have been determined
adversely to the Trustee, then and in every such case to the extent not
inconsistent with such adverse decree, the Issuer, the Trustee and the
Registered Owners shall be restored to their former respective positions and the
rights hereunder in respect to the Trust Estate, and all rights, remedies, and
powers of the Trustee and of the Registered Owners shall continue as though no
such proceeding had been taken.
SECTION 6.07. PURCHASE OF PROPERTIES BY TRUSTEE OR REGISTERED OWNERS. In case of
any such sale of the Trust Estate, any Registered Owner or Registered Owners or
committee of Registered Owners or the Trustee, may bid for and purchase such
property and upon compliance with the terms of sale may hold, retain possession,
and dispose of such property as the absolute right of the purchaser or
purchasers without further accountability and shall be entitled, for the purpose
of making any settlement or payment for the property purchased, to use and apply
any Obligations hereby secured and any interest thereon due and unpaid, by
presenting such Obligations in order that there may be credited thereon the sum
apportionable and applicable thereto out of the net proceeds of such sale, and
thereupon such purchaser or purchasers shall be credited on account of such
purchase price payable to him or them with the sum apportionable and applicable
out of such net proceeds to the payment of or as a credit on the Obligations so
presented.
SECTION 6.08. APPLICATION OF SALE PROCEEDS. The proceeds of any sale of the
Trust Estate, together with any funds at the time held by the Trustee and not
otherwise appropriated, shall be applied by the Trustee as set forth in Section
6.02 hereof, and then to the Issuer or whomsoever shall be lawfully entitled
thereto.
SECTION 6.09. ACCELERATED MATURITY. If an Event of Default shall have occurred
and be continuing, the Trustee may declare, or upon the written direction by the
Registered Owners of at least 51% of the collective aggregate principal amount
of the Highest Priority Obligations then Outstanding, shall declare, the
principal of all Obligations then Outstanding, and the interest thereon, if not
previously due, immediately due and payable, anything in the Obligations or this
Indenture to the contrary notwithstanding; provided, however, that for a
declaration of acceleration upon a default pursuant to Section 6.01(d) hereof
shall require the consent of 100% of the Registered Owners of the collective
aggregate principal amount of the Highest Priority Obligations then Outstanding.
SECTION 6.10. REMEDIES NOT EXCLUSIVE. The remedies herein conferred upon or
reserved to the Trustee or the Registered Owners of Obligations are not intended
to be exclusive of any other remedy, but each remedy herein provided shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing, and every power and remedy hereby given to the Trustee or
to the Registered Owners of Obligations, or any supplement hereto, may be
exercised from time to time as often as may be deemed expedient. No delay or
omission of the Trustee or of any Registered Owner of Obligations to exercise
any power or right arising from any default hereunder shall impair any such
right or power or shall be construed to be a waiver of any such default or to be
acquiescence therein.
SECTION 6.11. DIRECTION OF TRUSTEE. Upon the happening of any Event of Default,
the Registered Owners of at least 51% of the collective aggregate principal
amount of the Highest Priority Obligations then Outstanding, shall have the
right by an instrument or instruments in writing delivered to the Trustee to
direct and control the Trustee as to the method of taking any and all
proceedings for any sale of any or all of the Trust Estate, or for the
appointment of a receiver, if permitted by law, and may at any time cause any
proceedings authorized by the terms hereof to be so taken or to be discontinued
or delayed; provided, however, that such Registered Owners shall not be entitled
to cause the Trustee to take any proceedings which in the Trustee's opinion
would be unjustly prejudicial to non-assenting Registered Owners of Obligations,
but the Trustee shall be entitled to assume that the action requested by the
Registered Owners of at least 51% of the collective aggregate principal amount
of the Highest Priority Obligations then Outstanding will not be prejudicial to
any non-assenting Registered Owners unless the Registered Owners of more than
50% of the collective aggregate principal amount of the non-assenting Registered
Owners of such Obligations, in writing, show the Trustee how they will be
prejudiced. Provided, however, that anything in this Indenture to the contrary
notwithstanding, the Registered Owners of a majority of the collective aggregate
principal amount of the Highest Priority Obligations then Outstanding together
with the Registered Owners of a majority of the collective aggregate principal
amount of all other Obligations then Outstanding shall have the right, at any
time, by an instrument or instruments in writing executed and delivered to the
Trustee, to direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions of this
Indenture, or for the appointment of a receiver or any other proceedings
hereunder, provided that such direction shall not be otherwise than in
accordance with the provisions of law and of this Indenture. The provisions of
this Section 6.11 shall be expressly subject to the provisions of Sections
7.01(c) and 7.05 hereof.
SECTION 6.12. RIGHT TO ENFORCE IN TRUSTEE. No Registered Owner of any Obligation
shall have any right as such Registered Owner to institute any suit, action, or
proceedings for the enforcement of the provisions of this Indenture or for the
execution of any trust hereunder or for the appointment of a receiver or for any
other remedy hereunder, all rights of action hereunder being vested exclusively
in the Trustee, unless and until such Registered Owner shall have previously
given to the Trustee written notice of a default hereunder, and of the
continuance thereof, and also unless the Registered Owners of the requisite
principal amount of the Obligations then Outstanding shall have made written
request upon the Trustee and the Trustee shall have been afforded reasonable
opportunity to institute such action, suit or proceeding in its own name, and
unless the Trustee shall have been offered indemnity and security satisfactory
to it against the costs, expenses, and liabilities to be incurred therein or
thereby, which offer of indemnity shall be an express condition precedent
hereunder to any obligation of the Trustee to take any such action hereunder,
and the Trustee for 30 days after receipt of such notification, request, and
offer of indemnity, shall have failed to institute any such action, suit or
proceeding. It is understood and intended that no one or more Registered Owners
of the Obligations shall have the right in any manner whatever by his or their
action to affect, disturb, or prejudice the lien of this Indenture or to enforce
any right hereunder except in the manner herein provided and for the equal
benefit of the Registered Owners of not less than a majority of the collective
aggregate principal amount of the Obligations then Outstanding.
SECTION 6.13. PHYSICAL POSSESSION OF OBLIGATIONS NOT REQUIRED. In any suit or
action by the Trustee arising under this Indenture or on all or any of the
Obligations issued hereunder, or any supplement hereto, the Trustee shall not be
required to produce such Obligations, but shall be entitled in all things to
maintain such suit or action without their production.
SECTION 6.14. WAIVERS OF EVENTS OF DEFAULT. The Trustee may in its discretion
waive any Event of Default hereunder and its consequences and rescind any
declaration of acceleration of Obligations, and shall do so upon the written
request of the Registered Owners of at least a majority of the collective
aggregate principal amount of the Highest Priority Obligations then Outstanding;
provided, however, that there shall not be waived (a) any Event of Default in
the payment of the principal of or premium on any Outstanding Obligations at the
date of maturity or redemption thereof, or any default in the payment when due
of the interest on any such Obligations, unless prior to such waiver or
rescission, all arrears of interest or all arrears of payments of principal and
premium, if any, and all expenses of the Trustee, in connection with such
default shall have been paid or provided for or (b) any default in the payment
of amounts set forth in Section 7.05 hereof. In case of any such waiver or
rescission, or in case any proceedings taken by the Trustee on account of any
such default shall have been discontinued or abandoned or determined adversely
to the Trustee, then and in every such case the Issuer, the Trustee and the
Registered Owners of Obligations shall be restored to their former positions and
rights hereunder respectively, but no such waiver or rescission shall extend to
or affect any subsequent or other default, or impair any rights or remedies
consequent thereon.
ARTICLE VII
THE TRUSTEE
SECTION 7.01. ACCEPTANCE OF TRUST. The Trustee hereby accepts the trusts imposed
upon it by this Indenture, and agrees to perform said trusts, but only upon and
subject to the following terms and conditions:
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such
certificates or opinions which by any provisions hereof are
specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform as to form with the requirements of
this Indenture and whether or not they contain the statements
required under this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee,
in exercising the rights and powers vested in it by this Indenture,
shall use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs.
(c) Before taking any action hereunder requested by Registered Owners, the
Trustee may require that it be furnished an indemnity bond or other
indemnity and security satisfactory to it by the Registered Owners, as
applicable, for the reimbursement of all expenses to which it may be put
and to protect it against all liability.
SECTION 7.02. RECITALS OF OTHERS. The recitals, statements, and representations
set forth herein and in the Notes shall be taken as the statements of the
Issuer, and the Trustee assumes no responsibility for the correctness of the
same. The Trustee makes no representations as to the title of the Issuer in the
Trust Estate or as to the security afforded thereby and hereby, or as to the
validity or sufficiency of this Indenture or of the Notes issued hereunder, and
the Trustee shall incur no responsibility in respect of such matters.
SECTION 7.03. AS TO FILING OF INDENTURE. The Trustee shall be under no duty (a)
to file or record, or cause to be filed or recorded, this Indenture or any
instrument supplemental hereto, (b) or to procure any further order or
additional instruments of further assurance, (c) to see to the delivery to it of
any personal property intended to be mortgaged or pledged hereunder or
thereunder, (d) or to do any act which may be suitable to be done for the better
maintenance of the lien or security hereof (other than the filing of any
continuation (but not initial) statements), or (e) for giving notice of the
existence of such lien, or for extending or supplementing the same or to see
that any rights to Revenue and Funds intended now or hereafter to be transferred
in trust hereunder are subject to the lien hereof. The Trustee shall not be
liable for failure of the Issuer to pay any tax or taxes in respect of such
property, or any part thereof, or the income therefrom or otherwise, nor shall
the Trustee be under any duty in respect of any tax which may be assessed
against it or the Registered Owners in respect of such property or pledged
Revenue and Funds. The Trustee agrees to prepare, request that the Issuer
execute (if such execution is necessary for any such filing) and file in a
timely manner (if received from the Issuer in a timely manner) with any
necessary execution by the Issuer, the continuation statements referred to
herein; provided, that the Trustee shall have no responsibility for the
sufficiency, adequacy or priority of any initial filing and in the absence of
written notice to the contrary by the Issuer or other Authorized Representative,
may rely and shall be protected in relying on all information and exhibits in
such initial filings for the purposes of any continuation statements.
SECTION 7.04. TRUSTEE MAY ACT THROUGH AGENTS. The Trustee may execute any of the
trusts or powers hereof and perform any duty hereunder, either itself or by or
through its attorneys, agents, or employees, and it shall not be answerable or
accountable for any default, neglect, or misconduct of any such attorneys,
agents, or employees, if reasonable care has been exercised in the appointment,
supervision, and monitoring of the work performed. All reasonable costs incurred
by the Trustee and all reasonable compensation to all such persons as may
reasonably be employed in connection with the trusts hereof shall be paid by the
Issuer.
SECTION 7.05. INDEMNIFICATION OF TRUSTEE. Other than with respect to its duties
to make payment on the Obligations when due, and its duty to pursue the remedy
of acceleration as provided in Section 6.02 hereof, for each of which no
additional security or indemnity may be required, the Trustee shall be under no
obligation or duty to perform any act at the request of Registered Owners or to
institute or defend any suit in respect thereof unless properly indemnified and
provided with security to its satisfaction as provided in Section 7.01(c)
hereof. The Trustee shall not be required to take notice, or be deemed to have
knowledge, of any default or Event of Default of the Issuer or the Board
hereunder and may conclusively assume that there has been no such default or
Event of Default (other than an Event of Default described in Sections 6.01(a),
(b), (c), or (d) hereof) unless and until it shall have been specifically
notified in writing at the address in Section 9.01 hereof of such default or
Event of Default by (a) the Registered Owners of the required percentages in
principal amount of the Obligations then Outstanding hereinabove specified or
(b) an Authorized Representative of the Issuer. However, the Trustee may begin
suit, or appear in and defend suit, execute any of the trusts hereby created,
enforce any of its rights or powers hereunder, or do anything else in its
judgment proper to be done by it as Trustee, without assurance of reimbursement
or indemnity, and in such case the Trustee shall be reimbursed or indemnified by
the Registered Owners requesting such action, if any, or the Issuer in all other
cases, for all fees, costs and expenses, liabilities, outlays and counsel fees
and other reasonable disbursements properly incurred in connection therewith,
unless such costs and expenses, liabilities, outlays and attorneys' fees and
other reasonable disbursements properly incurred in connection therewith are
adjudicated to have resulted from the negligence or willful misconduct of the
Trustee. In furtherance and not in limitation of this Section 7.05, the Trustee
shall not be liable for, and shall be held harmless by the Issuer from,
following any Orders, instructions or other directions upon which the Trustee is
authorized to rely pursuant to this Indenture or any other agreement to which it
is a party. If the Issuer or the Registered Owners, as appropriate, shall fail
to make such reimbursement or indemnification, the Trustee may reimburse itself
from any money in its possession under the provisions of this Indenture, subject
only to the prior lien of the Notes for the payment of the principal thereof,
premium, if any, and interest thereon from the Revenue Fund. None of the
provisions contained in this Indenture or any other Agreement to which it is a
party shall require the Trustee to act or to expend or risk its own funds or
otherwise incur individual financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers if the Registered
Owners shall not have offered security and indemnity acceptable to it or if it
shall have reasonable grounds for believing that prompt repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
The Issuer agrees to indemnify and hold harmless the Trustee against any
and all claims, demands, suits, actions or other proceedings and all
liabilities, costs and expenses whatsoever caused by any untrue statement or
misleading statement or alleged untrue statement or alleged misleading statement
of a material fact contained in any offering document distributed in connection
with the issuance of the Notes or caused by any omission or alleged omission
from such offering document of any material fact required to be stated therein
or necessary in order to make the statements made therein in the light of the
circumstances under which they were made, not misleading.
SECTION 7.06. TRUSTEE'S RIGHT TO RELIANCE. The Trustee shall be protected in
acting upon any notice, resolution, request, consent, order, certificate,
report, appraisal, opinion, report or document of the Issuer or the Servicer or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Trustee may consult with experts
and with counsel (who may but need not be counsel for the Issuer, the Trustee,
or for a Registered Owner or who may be Note Counsel), and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken or suffered, and in respect of any determination made by it
hereunder in good faith and in accordance with the opinion of such counsel.
Whenever in the administration hereof the Trustee shall reasonably deem
it desirable that a matter be proved or established prior to taking, suffering,
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
a certificate signed by an Authorized Representative of the Issuer or an
authorized officer of the Servicer.
The Trustee shall not be liable for any action taken, suffered, or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it hereby; provided, however, that
the Trustee shall be liable for its negligence or willful misconduct in taking
such action.
The Trustee is authorized, under this Indenture, subject to Section 4.12
hereof, to sell, assign, transfer or convey Financed Eligible Loans in
accordance with an Issuer Order. If such Financed Eligible Loan was originated
under the Act, such Issuer Order shall certify that the Person to whom such
Financed Eligible Loan is sold, assigned, transferred, or conveyed is an
Eligible Lender unless not required by the Act. The Trustee is further
authorized to enter into agreements with other Persons, in its capacity as
Trustee, in order to carry out or implement the terms and provisions of this
Indenture.
SECTION 7.07. COMPENSATION OF TRUSTEE. Except as otherwise expressly provided
herein, all advances, counsel fees (including without limitation allocated fees
of in-house counsel) and other expenses reasonably made or incurred by the
Trustee in and about the execution and administration of the trust hereby
created and reasonable compensation to the Trustee for its services in the
premises shall be paid by the Issuer. The compensation of the Trustee shall not
be limited to or by any provision of law in regard to the compensation of
trustees of an express trust. If not paid by the Issuer, the Trustee shall have
a lien against all money held pursuant to this Indenture, subject only to the
prior lien of the Obligations against the money and investments in the Revenue
Fund for the payment of the principal thereof, premium, if any, and interest
thereon, for such reasonable compensation, expenses, advances and counsel fees
incurred in and about the execution of the trusts hereby created and the
exercise and performance of the powers and duties of the Trustee hereunder and
the cost and expense incurred in defending against any liability in the premises
of any character whatsoever (unless such liability is adjudicated to have
resulted from the negligence or willful misconduct of the Trustee).
SECTION 7.08. TRUSTEE MAY OWN NOTES. The Trustee hereunder, or any successor
Trustee, in its individual or other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Issuer, with the same rights it would have
if it were not the Trustee. The Trustee may act as depository for, and permit
any of its officers or directors to act as a member of, or act in any other
capacity in respect to, any committee formed to protect the rights of the
Registered Owners or to effect or aid in any reorganization growing out of the
enforcement of the Notes or of this Indenture, whether or not any such committee
shall represent the Registered Owners of more than 60% of the collective
aggregate principal amount of the Outstanding Obligations.
SECTION 7.09. RESIGNATION OF TRUSTEE. The Trustee and any successor to the
Trustee may resign and be discharged from the trust created by this Indenture by
giving to the Issuer notice in writing which notice shall specify the date on
which such resignation is to take effect; provided, however, that such
resignation shall only take effect on the day specified in such notice if a
successor Trustee shall have been appointed pursuant to Section 7.11 hereof (and
is qualified to be the Trustee under the requirements of Section 7.11 hereof).
If no successor Trustee has been appointed by the date specified or within a
period of 90 days from the receipt of the notice by the Issuer, whichever period
is the longer, the Trustee may (a) appoint a temporary successor Trustee having
the qualifications provided in Section 7.11 hereof or (b) request a court of
competent jurisdiction to (i) require the Issuer to appoint a successor, as
provided in Section 7.11 hereof, within three days of the receipt of citation or
notice by the court, or (ii) appoint a Trustee having the qualifications
provided in Section 7.11 hereof. In no event may the resignation of the Trustee
be effective until a qualified successor Trustee shall have been selected and
appointed. In the event a temporary successor Trustee is appointed pursuant to
(a) above, the Board may remove such temporary successor Trustee and appoint a
successor thereto pursuant to Section 7.11 hereof.
SECTION 7.10. REMOVAL OF TRUSTEE. The Trustee or any successor Trustee may be
removed (a) at any time by the Registered Owners of a majority of the collective
aggregate principal amount of the Highest Priority Obligations then Outstanding,
(b) by the Issuer for cause or upon the sale or other disposition of the Trustee
or its corporate trust functions or (c) by the Issuer without cause so long as
no Event of Default as described in Sections 6.01(a), (b), (c), (e) or (f)
exists or has existed within the last 30 days, upon payment to the Trustee so
removed of all money then due to it hereunder and appointment of a successor
thereto by the Issuer and acceptance thereof by said successor. One copy of any
such order of removal shall be filed with the President of the Issuer and the
other with the Trustee so removed.
In the event a Trustee (or successor Trustee) is removed, by any person
or for any reason permitted hereunder, such removal shall not become effective
until (a) in the case of removal by the Registered Owners, such Registered
Owners by instrument or concurrent instruments in writing (signed and
acknowledged by such Registered Owners or their attorneys-in-fact) filed with
the Trustee removed have appointed a successor Trustee or otherwise the Issuer
shall have appointed a successor, and (b) the successor Trustee has accepted
appointment as such.
SECTION 7.11. SUCCESSOR TRUSTEE. In case at any time the Trustee or any
successor Trustee shall resign, be dissolved, or otherwise shall be disqualified
to act or be incapable of acting, or in case control of the Trustee or of any
successor Trustee or of its officers shall be taken over by any public officer
or officers, a successor Trustee may be appointed by the Board by an instrument
in writing duly authorized by resolution. In the case of any such appointment by
the Board of a successor to the Trustee, the Board shall forthwith cause notice
thereof to be mailed to the Registered Owners of the Notes at the address of
each Registered Owner appearing on the note registration books maintained by the
Registrar.
Every successor Trustee appointed by the Registered Owners, by a court
of competent jurisdiction, or by the Board shall be a bank or trust company in
good standing, organized and doing business under the laws of the United States
or of a state therein, which has a reported capital and surplus of not less than
$50,000,000, be authorized under the law to exercise corporate trust powers, be
subject to supervision or examination by a federal or state authority, and be an
Eligible Lender so long as such designation is necessary to maintain guarantees
and federal benefits under the Act with respect to the Financed Eligible Loans
originated under the Act.
SECTION 7.12. MANNER OF VESTING TITLE IN TRUSTEE. Any successor Trustee
appointed hereunder shall execute, acknowledge, and deliver to its predecessor
Trustee, and also to the Issuer, an instrument accepting such appointment
hereunder, and thereupon such successor Trustee, without any further act, deed,
or conveyance shall become fully vested with all the estate, properties, rights,
powers, trusts, duties, and obligations of its predecessors in trust hereunder
(except that the predecessor Trustee shall continue to have the benefits to
indemnification hereunder together with the successor Trustee), with like effect
as if originally named as Trustee herein; but the Trustee ceasing to act shall
nevertheless, on the written request of an Authorized Representative of the
Issuer, or an authorized officer of the successor Trustee, execute, acknowledge,
and deliver such instruments of conveyance and further assurance and do such
other things as may reasonably be required for more fully and certainly vesting
and confirming in such successor Trustee all the right, title, and interest of
the Trustee which it succeeds, in and to pledged Revenue and Funds and such
rights, powers, trusts, duties, and obligations, and the Trustee ceasing to act
also, upon like request, pay over, assign, and deliver to the successor Trustee
any money or other property or rights subject to the lien of this Indenture,
including any pledged securities which may then be in its possession. Should any
deed or instrument in writing from the Issuer be required by the successor
Trustee for more fully and certainly vesting in and confirming to such new
Trustee such estate, properties, rights, powers, and duties, any and all such
deeds and instruments in writing shall on request be executed, acknowledged and
delivered by the Issuer.
In case any of the Notes to be issued hereunder shall have been
authenticated but not delivered, any successor Trustee may adopt the certificate
of authentication of the Trustee or of any successor to the Trustee; and in case
any of the Notes shall not have been authenticated, any successor to the Trustee
may authenticate such Notes in its own name; and in all such cases such
certificate shall have the full force which it has anywhere in the Notes or in
this Indenture.
SECTION 7.13. ADDITIONAL COVENANTS BY THE TRUSTEE TO CONFORM TO THE ACT. The
Trustee covenants that it will at all times be an Eligible Lender under the Act
so long as such designation is necessary, as determined by the Issuer, to
maintain the guarantees and federal benefits under the Act with respect to the
Financed Eligible Loans, that it will acquire Eligible Loans originated under
the Act in its capacity as an Eligible Lender and that it will not dispose of or
deliver any Financed Eligible Loans originated under the Act or any security
interest in any such Financed Eligible Loans to any party who is not an Eligible
Lender so long as the Act or Regulations adopted thereunder require an Eligible
Lender to be the owner or holder of such Financed Eligible Loans; provided,
however, that nothing above shall prevent the Trustee from delivering the
Eligible Loans to the Servicer or the Guaranty Agency.
SECTION 7.14. RIGHT OF INSPECTION. A Registered Owner shall be permitted at
reasonable times during regular business hours and in accordance with reasonable
regulations prescribed by the Trustee to examine at the principal office of the
Trustee a copy of any report or instrument theretofore filed with the Trustee
relating to the condition of the Trust Estate.
SECTION 7.15. LIMITATION WITH RESPECT TO EXAMINATION OF REPORTS. Except as
provided in this Indenture, the Trustee shall be under no duty to examine any
report or statement or other document required or permitted to be filed with it
by the Issuer.
SECTION 7.16. SERVICING AGREEMENT. The Trustee acknowledges the receipt of a
copy of the Servicing Agreement described in Section 4.05 hereof.
SECTION 7.17. ADDITIONAL COVENANTS OF TRUSTEE. The Trustee, by the execution
hereof, covenants, represents and agrees that:
(a) it will not exercise any of the rights, duties, or privileges under this
Indenture in such manner as would cause the Eligible Loans held or
acquired under the terms hereof to be transferred, assigned, or pledged
as security to any person or entity other than as permitted by this
Indenture; and
(b) it will comply with the Act and the Regulations and will, upon written
notice from an Authorized Representative of the Issuer, the Secretary,
or the Guaranty Agency, use its reasonable efforts to cause this
Indenture to be amended (in accordance with Section 8.01 hereof) if the
Act or Regulations are hereafter amended so as to be contrary to the
terms of this Indenture.
SECTION 7.18. DUTY OF TRUSTEE WITH RESPECT TO RATING AGENCIES. It shall be the
duty of the Trustee to notify each Rating Agency then rating any of the Notes
(but the Trustee shall incur no liability for any failure to do so) of (a) any
change, expiration, extension, or renewal of this Indenture, (b) redemption or
defeasance of any or all the Notes, (c) any change in the Trustee or (d) any
other information reasonably required to be reported to each Rating Agency under
any Supplemental Indenture; provided, however, the provisions of this Section do
not apply when such documents have been previously supplied to such Rating
Agency and the Trustee has received written evidence to such effect, all as may
be required by this Indenture. All notices required to be forwarded to the
Rating Agencies under this Section shall be sent in writing at the following
addresses:
Standard & Poor's Ratings Group
25 Broadway
New York, New York 10004
Attention: Asset-Backed Surveillance Group
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
Attention: Structured Finance
The Trustee also acknowledges that each Rating Agency's periodic review
for maintenance of a Rating on any series of the Notes may involve discussions
and/or meetings with representatives of the Trustee at mutually agreeable times
and places.
SECTION 7.19. MERGER OF THE TRUSTEE. Any corporation into which the Trustee may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Indenture, without the execution or filing of any paper of any further act on
the part of any other parties hereto.
SECTION 7.20. RECEIPT OF FUNDS FROM SERVICER. The Trustee shall not be
accountable or responsible in any manner whatsoever for any action of the
Issuer, the depository bank of any funds of the Issuer, or the Servicer while
the Servicer is acting as bailee or agent of the Trustee with respect to the
Eligible Loans except, to the extent provided in any Servicing Agreement or
custodian agreement, for actions taken in compliance with any instruction or
direction given to the Trustee, or for the application of funds or moneys by the
Servicer until such time as funds are received by the Trustee.
SECTION 7.21. SPECIAL CIRCUMSTANCES LEADING TO RESIGNATION OF TRUSTEE. Because
the Trustee serves as trustee hereunder for Obligations of different priorities,
it is possible that circumstances may arise which will cause the Trustee to
resign from its position as trustee for one or more of the Obligations. In the
event that the Trustee makes a determination that it should so resign, due to
the occurrence of an Event of Default or potential default hereunder, or
otherwise, the Issuer may permit such resignation as to one or more of the
Obligations or request the Trustee's resignation as to all Obligations, as the
Issuer may elect. If the Issuer should determine that a conflict of interest has
arisen as to the trusteeship of any of the Obligations, it may authorize and
execute a Supplemental Indenture with one or more successor Trustees, under
which the administration of certain of the Obligations would be separated from
the administration of the other Obligations.
SECTION 7.22. SURVIVAL OF TRUSTEE'S RIGHTS TO RECEIVE COMPENSATION,
REIMBURSEMENT AND INDEMNIFICATION. The Trustee's rights to receive compensation,
reimbursement and indemnification of money due and owing hereunder at the time
of the Trustee's resignation or removal shall survive the Trustee's resignation
or removal.
SECTION 7.23. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY; CONFLICTING INTERESTS.
There shall at all times be a Trustee hereunder which shall be eligible to act
as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 7.23, 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. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 7.23, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VII. Neither the Issuer nor any Person
directly or indirectly controlling or controlled by, or under common control
with, the Issuer shall serve as Trustee.
SECTION 7.24. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Issuer or
any other obligor upon the Notes or the property of the Issuer or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Notes of any series shall then be due and payable as therein expressed or
by declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Issuer for the payment of overdue principal, premium, if
any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or such lesser amount as
may be provided for in the Notes, of principal (and premium, if any) and
interest, if any, owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee and its agents and counsel) and of the Registered Owners allowed
in such judicial proceeding; and
(b) to collect and receive any money or other property payable or
deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby
authorized by each Registered Owner of Notes to make such payments to
the Trustee, and if the Trustee shall consent to the making of such
payments directly to the Registered Owners, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and any predecessor Trustee,
their agents and counsel, and any other amounts due the Trustee or any
predecessor Trustee.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Registered Owner of
a Note any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Registered Owner thereof, or to
authorize the Trustee to vote in respect of the claim of any Registered Owner of
a Note in any such proceeding.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Registered Owners of the Notes, and it shall not be necessary to make any
Registered Owners of the Notes parties to any such proceedings.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.01. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF REGISTERED
OWNERS. The Issuer and the Trustee may, without the consent of or notice to any
of the Registered Owners of any Obligations enter into any indenture or
indentures supplemental to this Indenture for any one or more of the following
purposes:
(a) to cure any ambiguity or formal defect or omission in this Indenture;
(b) to grant to or confer upon the Trustee for the benefit of the Registered
Owners any additional benefits, rights, remedies, powers or authorities
that may lawfully be granted to or conferred upon the Registered Owners
or the Trustee;
(c) to subject to this Indenture additional revenues, properties or
collateral;
(d) to modify, amend or supplement this Indenture or any indenture
supplemental hereto in such manner as to permit the qualification hereof
and thereof under the Trust Indenture Act of 1939 or any similar federal
statute hereafter in effect or to permit the qualification of the Notes
for sale under the securities laws of the United States of America or of
any of the states of the United States of America, and, if they so
determine, to add to this Indenture or any indenture supplemental hereto
such other terms, conditions and provisions as may be permitted by said
Trust Indenture Act of 1939 or similar federal statute;
(e) to evidence the appointment of a separate or co-Trustee or a
co-registrar or transfer agent or the succession of a new Trustee
hereunder, or any additional or substitute Guaranty Agency or Servicer;
(f) to add such provisions to or to amend such provisions of this Indenture
as may, in Note Counsel's opinion, be necessary or desirable to assure
implementation of the Program in conformance with the Act if along with
such Supplemental Indenture there is filed a Note Counsel's opinion to
the effect that the addition or amendment of such provisions will in no
way impair the existing security of the Registered Owners of any
Outstanding Obligations;
(g) to make any change as shall be necessary in order to obtain and maintain
for any of the Notes an investment grade Rating from a nationally
recognized rating service, which changes, in the opinion of the Trustee
are not to the prejudice of the Registered Owner of any of the
Obligations;
(h) to make any changes necessary to comply with the Act, the Regulations or
the Code and the regulations promulgated thereunder;
(i) to provide for the issuance of Notes pursuant to the provisions of
Section 2.08 of this Indenture, including the creation of appropriate
Funds, Accounts and Subaccounts with respect to such Notes;
(j) to make the terms and provisions of this Indenture, including the lien
and security interest granted herein, applicable to a Derivative
Product, and to modify Section 3.03 hereof with respect to any
particular Derivative Product;
(k) to create any additional Funds or Accounts or Subaccounts under this
Indenture deemed by the Trustee to be necessary or desirable;
(l) to amend the Indenture to allow for any Notes to be supported by a
letter of credit or insurance policy or a liquidity agreement, including
amendments with respect to repayment to such a provider on a parity with
any Notes or Derivative Product and providing rights to such provider
under this Indenture, including with respect to defaults and remedies;
(m) to amend the Indenture to provide for use of a surety bond or other
financial guaranty instrument in lieu of cash and/or Investment
Securities in all or any portion of the Reserve Fund, so long as such
action shall not adversely affect the Ratings on any of the Notes;
(n) to make any other change with a Rating Confirmation; or
(o) to make any other change which, in the judgment of the Trustee is not to
the material prejudice of the Registered Owners of any Obligations;
provided, however, that nothing in this Section shall permit, or be construed as
permitting, any modification of the trusts, powers, rights, duties, remedies,
immunities and privileges of the Trustee without the prior written approval of
the Trustee, which approval shall be evidenced by execution of a Supplemental
Indenture.
SECTION 8.02. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF REGISTERED OWNERS.
Exclusive of Supplemental Indentures covered by Section 8.01 hereof and subject
to the terms and provisions contained in this Section, and not otherwise, the
Registered Owners of not less than a majority of the collective aggregate
principal amount of the Obligations then Outstanding shall have the right, from
time to time, to consent to and approve the execution by the Issuer and the
Trustee of such other indenture or indentures supplemental hereto as shall be
deemed necessary and desirable by the Trustee for the purpose of modifying,
altering, amending, adding to or rescinding, in any particular, any of the terms
or provisions contained in this Indenture or in any Supplemental Indenture;
provided, however, that nothing in this Section shall permit, or be construed as
permitting (a) without the consent of the Registered Owners of all then
Outstanding Obligations, (i) an extension of the maturity date of the principal
of or the interest on any Obligation, or (ii) a reduction in the principal
amount of any Obligation or the rate of interest thereon, or (iii) a privilege
or priority of any Obligation or Obligations over any other Obligation or
Obligations except as otherwise provided herein, or (iv) a reduction in the
aggregate principal amount of the Obligations required for consent to such
Supplemental Indenture, or (v) the creation of any lien other than a lien
ratably securing all of the Obligations at any time Outstanding hereunder except
as otherwise provided herein or (b) any modification of the trusts, powers,
rights, obligations, duties, remedies, immunities and privileges of the Trustee
without the prior written approval of the Trustee.
If at any time the Issuer shall request the Trustee to enter into any
such Supplemental Indenture for any of the purposes of this Section, the Trustee
shall, upon being satisfactorily indemnified with respect to expenses, cause
notice of the proposed execution of such Supplemental Indenture to be mailed by
registered or certified mail to each Registered Owner of an Obligation at the
address shown on the registration books or listed in any Derivative Product.
Such notice (which shall be prepared by the Issuer) shall briefly set forth the
nature of the proposed Supplemental Indenture and shall state that copies
thereof are on file at the principal corporate trust office of the Trustee for
inspection by all Registered Owners. If, within 60 days, or such longer period
as shall be prescribed by the Issuer, following the mailing of such notice, the
Registered Owners of not less than a majority of the collective aggregate
principal amount of the Obligations Outstanding at the time of the execution of
any such Supplemental Indenture shall have consented in writing to and approved
the execution thereof as herein provided, no Registered Owner of any Obligation
shall have any right to object to any of the terms and provisions contained
therein, or the operation thereof, or in any manner to question the propriety of
the execution thereof, or to enjoin or restrain the Trustee or the Issuer from
executing the same or from taking any action pursuant to the provisions thereof.
Upon the execution of any such Supplemental Indenture as in this Section 8.02
permitted and provided, this Indenture shall be and be deemed to be modified and
amended in accordance therewith.
SECTION 8.03. ADDITIONAL LIMITATION ON MODIFICATION OF INDENTURE. None of the
provisions of this Indenture (including Sections 8.01 and 8.02 hereof) shall
permit an amendment to the provisions of the Indenture which permits the
transfer of all or part of the Financed Eligible Loans originated under the Act
or granting of a security interest therein to any Person other than an Eligible
Lender or the Servicer, unless the Act or Regulations are hereafter modified so
as to permit the same.
SECTION 8.04. NOTICE OF DEFAULTS. Within 90 days after the occurrence of any
default hereunder with respect to the Notes, the Trustee shall transmit in the
manner and to the extent provided in TIA Section 313(c), notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest with respect to any Note,
or in the payment of any sinking fund installment with respect to the Notes, the
Trustee shall be protected in withholding such notice if and so long as an
authorized officer of the Trustee in good faith determine that the withholding
of such notice is in the interest of the Registered Owners of the Notes. For the
purpose of this Section 8.04, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default with
respect to the Notes.
SECTION 8.05. CONFORMITY WITH THE TRUST INDENTURE ACT. Every supplemental
indenture executed pursuant to this Article VIII shall conform to the
requirements of the Trust Indenture Act as then in effect.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. NOTICES. Any notice, request or other instrument required by this
Indenture to be signed or executed by the Registered Owners of Obligations may
be executed by the execution of any number of concurrent instruments of similar
tenor, and may be signed or executed by such Registered Owners of Obligations in
person or by agent appointed in writing. As a condition for acting thereunder
the Trustee may demand proof of the execution of any such instrument and of the
fact that any person claiming to be the owner of any of said Obligations is such
owner and may further require the actual deposit of such Obligation or
Obligations with the Trustee. The fact and date of the execution of such
instrument may be proved by the certificate of any officer in any jurisdiction
who by the laws thereof is authorized to take acknowledgments of deeds within
such jurisdiction, that the person signing such instrument acknowledged before
him the execution thereof, or may be proved by any affidavit of a witness to
such execution sworn to before such officer.
The amount of Notes held by any person executing such instrument as a
Registered Owner of Notes and the fact, amount, and numbers of the Notes held by
such person and the date of his holding the same may be proved by a certificate
executed by any responsible trust company, bank, banker, or other depository in
a form approved by the Trustee, showing that at the date therein mentioned such
person had on deposit with such depository the Notes described in such
certificate; provided, however, that at all times the Trustee may require the
actual deposit of such Note or Notes with the Trustee.
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, telecopy or facsimile or
similar writing) at the following addresses, and each address shall constitute
each party's respective "Principal Office" for purposes of the Indenture:
If intended for the Issuer:
NELNET Student Loan Corporation-2
1801 California Street
Suite 3920
Denver, CO 80202
Attention: Secretary
Telephone: (303) 292-6930
Telecopier: (303) ________
E-Mail: [email protected]
If intended for the Trustee:
Zions First National Bank
717 Seventeenth Street, Suite 301
Denver, Colorado 80202
Attention: Corporate Trust Department
Telephone: (303) 296-6263
Telecopier: (303) 296-6516
E-Mail: [email protected]
Any party may change the address to which subsequent notices to such party are
to be sent, or of its Principal Office, by notice to the others, delivered by
hand or received by telex or telecopier or registered first-class mail, postage
prepaid. Each such notice, request or other communication shall be effective
when delivered by hand or received by telex or telecopier or registered
first-class mail, postage prepaid.
SECTION 9.02. COVENANTS BIND ISSUER. The covenants, agreements, conditions,
promises, and undertakings in this Indenture shall extend to and be binding upon
the successors and assigns of the Issuer, and all of the covenants hereof shall
bind such successors and assigns, and each of them, jointly and severally. All
the covenants, conditions, and provisions hereof shall be held to be for the
sole and exclusive benefit of the parties hereto and their successors and
assigns and of the Registered Owners from time to time of the Obligations.
No extension of time of payment of any of the Obligations shall operate
to release or discharge the Issuer, it being agreed that the liability of the
Issuer, to the extent permitted by law, shall continue until all of the
Obligations are paid in full, notwithstanding any transfer of Financed Eligible
Loans or extension of time for payment.
SECTION 9.03. LIEN CREATED. This Indenture shall operate effectually as (a) a
grant of lien on and security interest in, and (b) an assignment of, the Trust
Estate.
SECTION 9.04. SEVERABILITY OF LIEN. If the lien of this Indenture shall be or
shall ever become ineffectual, invalid, or unenforceable against any part of the
Trust Estate, which is not subject to the lien, because of want of power or
title in the Issuer, the inclusion of any such part shall not in any way affect
or invalidate the pledge and lien hereof against such part of the Trust Estate
as to which the Issuer in fact had the right to pledge.
SECTION 9.05. CONSENT OF REGISTERED OWNERS BINDS SUCCESSORS. Any request or
consent of the Registered Owner of any Obligations given for any of the purposes
of this Indenture shall bind all future Registered Owners of the same Obligation
or any Obligations issued in exchange therefor or in substitution thereof in
respect of anything done or suffered by the Issuer or the Trustee in pursuance
of such request or consent.
SECTION 9.06. NONLIABILITY OF DIRECTORS; NO GENERAL OBLIGATION. It is hereby
expressly made a condition of this Indenture that any agreements, covenants, or
representations herein contained or contained in the Notes do not and shall
never constitute or give rise to a personal or pecuniary liability or charge
against the incorporators, officers, employees, agents, or directors of the
Issuer, or against the general credit of the Issuer, and in the event of a
breach of any such agreement, covenant, or representation, no personal or
pecuniary liability or charge payable directly or indirectly from the general
revenues of the Issuer shall arise therefrom. Nothing contained in this Section,
however, shall relieve the Issuer from the observance and performance of the
several covenants and agreements on its part herein contained.
SECTION 9.07. NONPRESENTMENT OF NOTES OR INTEREST CHECKS. Should any of the
Notes or interest checks not be presented for payment when due, the Trustee
shall retain from any money transferred to it for the purpose of paying the
Notes or interest checks so due, for the benefit of the Registered Owners
thereof, a sum of money sufficient to pay such Notes or interest checks when the
same are presented by the Registered Owners thereof for payment. Such money
shall not be required to be invested. All liability of the Issuer to the
Registered Owners of such Notes or interest checks and all rights of such
Registered Owners against the Issuer under the Notes or interest checks or under
this Indenture shall thereupon cease and determine, and the sole right of such
Registered Owners shall thereafter be against such deposit. If any Note or
interest check shall not be presented for payment within the period of two years
following its payment or redemption date, the Trustee shall return to the Issuer
the money theretofore held by it for payment of such Note or interest check, and
such Note or interest check shall (subject to the defense of any applicable
statute of limitation) thereafter be an unsecured obligation of the Issuer. The
Trustee's responsibility for any such money shall cease upon remittance thereof
to the Issuer.
SECTION 9.08. SECURITY AGREEMENT. This Indenture constitutes a Financing
Statement and a Security Agreement under the Nevada Uniform Commercial Code.
SECTION 9.09. LAWS GOVERNING. It is the intent of the parties hereto that this
Indenture shall in all respects be governed by the laws of the State. This
Indenture is subject to the provisions of the TIA that are required to be part
of this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 9.10. SEVERABILITY. Of any covenant, agreement, waiver, or part thereof
in this Indenture contained be forbidden by any pertinent law or under any
pertinent law be effective to render this Indenture invalid or unenforceable or
to impair the lien hereof, then each such covenant, agreement, waiver, or part
thereof shall itself be and is hereby declared to be wholly ineffective, and
this Indenture shall be construed as if the same were not included herein.
SECTION 9.11. EXHIBITS. The terms of the Schedules and Exhibits, if any,
attached to this Indenture are incorporated herein in all particulars.
SECTION 9.12. NON-BUSINESS DAYS. Except as may otherwise be provided herein, if
the date for making payment of any amount hereunder or on any Note, or if the
date for taking any action hereunder, is not a Business Day, then such payment
can be made without accruing further interest or action can be taken on the next
succeeding Business Day, with the same force and effect as if such payment were
made when due or action taken on such required date.
SECTION 9.13. PARTIES INTERESTED HEREIN. Nothing in this Indenture expressed or
implied is intended or shall be construed to confer upon, or to give to, any
person or entity, other than the Trustee, the paying agent, if any, and the
Registered Owners of the Obligations, any right, remedy or claim under or by
reason of this Indenture or any covenant, condition or stipulation hereof, and
all covenants, stipulations, promises and agreements in this Indenture contained
by and on behalf of the Issuer shall be for the sole and exclusive benefit of
the Trustee, the paying agent, if any, and the Registered Owners of the
Obligations.
SECTION 9.14. OBLIGATIONS ARE LIMITED OBLIGATIONS. The Notes and the obligations
of the Issuer contained in this Indenture are special, limited obligations of
the Issuer, secured by and payable solely from the Trust Estate herein provided.
The Issuer shall not be obligated to pay the Notes, the interest thereon, or any
other obligation created by or arising from this Indenture from any other
source.
SECTION 9.15. RECIPROCAL PAYOR RIGHTS. Notwithstanding any provision of this
Indenture, no Reciprocal Payor which shall be in default under any Derivative
Product with the Issuer shall have any of the rights granted to a Reciprocal
Payor or as the Registered Owner of an Obligation hereunder.
SECTION 9.16. DISCLOSURE OF NAMES AND ADDRESSES OF REGISTERED OWNERS. Registered
Owners of Notes, by receiving and holding the same, agree with the Issuer and
the Trustee that neither the Issuer nor the Trustee nor any Securities
Depository shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the Registered Owners of Notes in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 9.17. AGGREGATE PRINCIPAL AMOUNT OF OBLIGATIONS. Whenever in this
Indenture reference is made to the aggregate principal amount of any
Obligations, such phrase shall mean, at any time, the principal amount of any
Notes and the Derivative Value of any Derivative Product. SECTION 9.18. FINANCED
ELIGIBLE LOANS. The Issuer expects to acquire Eligible Loans and to transfer
Eligible Loans to the Trustee, in accordance with this Indenture, which Eligible
Loans, upon becoming subject to the lien of this Indenture, constitute Financed
Eligible Loans, as defined herein. If for any reason a Financed Eligible Loan
does not constitute an Eligible Loan, or ceases to constitute an Eligible Loan,
such loan shall continue to be subject to the lien of this Indenture as a
Financed Eligible Loan.
ARTICLE X
PAYMENT AND CANCELLATION OF NOTES
AND SATISFACTION OF INDENTURE
SECTION 10.01. TRUST IRREVOCABLE. The trust created by the terms and provisions
of this Indenture is irrevocable until the indebtedness secured hereby (the
Notes and interest thereon) and all Issuer Derivative Payments are fully paid or
provision made for its payment as provided in this Article.
SECTION 10.02. SATISFACTION OF INDENTURE.
(a) If the Issuer shall pay, or cause to be paid, or there shall otherwise
be paid (i) to the Registered Owners of the Notes, the principal of and
interest on the Notes, at the times and in the manner stipulated in this
Indenture and (ii) to each Reciprocal Payor, all Issuer Derivative
Payments then due, then the pledge of the Trust Estate which is not
pledged hereunder, and all covenants, agreements, and other obligations
of the Issuer to the Registered Owners of Notes shall thereupon cease,
terminate, and become void and be discharged and satisfied. In such
event, the Trustee shall execute and deliver to the Issuer all such
instruments as may be desirable to evidence such discharge and
satisfaction, and the Trustee shall pay over or deliver all money held
by it under this Indenture to the party entitled to receive the same
under this Indenture. If the Issuer shall pay or cause to be paid, or
there shall otherwise be paid, to the Registered Owners of any
Outstanding Notes the principal of and interest on such Notes and to
each Reciprocal Payor all Reciprocal Payments then due, at the times and
in the manner stipulated in this Indenture and in the Derivative
Product, such Notes and each Reciprocal Payor shall cease to be entitled
to any lien, benefit, or security under this Indenture, and all
covenants, agreements, and obligations of the Issuer to the Registered
Owners thereof and each Reciprocal Payor shall thereupon cease,
terminate, and become void and be discharged and satisfied.
(b) Notes or interest installments shall be deemed to have been paid within
the meaning of Section 10.02(a) hereof if money for the payment or
redemption thereof has been set aside and is being held in trust by the
Trustee at the Stated Maturity or earlier redemption date thereof. Any
Outstanding Note shall, prior to the Stated Maturity or earlier
redemption thereof, be deemed to have been paid within the meaning and
with the effect expressed in Section 10.02(a) hereof if (i) such Note is
to be redeemed on any date prior to its Stated Maturity and (ii) the
Issuer shall have given notice of redemption as provided herein on said
date, there shall have been deposited with the Trustee either money
(fully insured by the Federal Deposit Insurance Issuer or fully
collateralized by Governmental Obligations) in an amount which shall be
sufficient, or Governmental Obligations (including any Governmental
Obligations issued or held in book-entry form on the books of the
Department of Treasury of the United States of America) the principal of
and the interest on which when due will provide money which, together
with the money, if any, deposited with the Trustee at the same time,
shall be sufficient, to pay when due the principal of and interest to
become due on such Note on and prior to the redemption date or Stated
Maturity thereof, as the case may be. Notwithstanding anything herein to
the contrary, however, no such deposit shall have the effect specified
in this subsection (b) if made during the existence of an Event of
Default, unless made with respect to all of the Notes then Outstanding.
Neither Governmental Obligations nor money deposited with the Trustee
pursuant to this subsection (b) nor principal or interest payments on
any such Governmental Obligations shall be withdrawn or used for any
purpose other than, and shall be held irrevocably in trust in an escrow
account for, the payment of the principal of and interest on such Notes.
Any cash received from such principal of and interest on such
Governmental Obligations deposited with the Trustee, if not needed for
such purpose, shall, to the extent practicable, be reinvested in
Governmental Obligations maturing at times and in amounts sufficient to
pay when due the principal of and interest on such Notes on and prior to
such redemption date or Stated Maturity thereof, as the case may be, and
interest earned from such reinvestments shall be paid over to the
Issuer, as received by the Trustee, free and clear of any trust, lien,
or pledge. Any payment for Governmental Obligations purchased for the
purpose of reinvesting cash as aforesaid shall be made only against
delivery of such Governmental Obligations. For the purposes of this
Section, "Governmental Obligations" shall mean and include only
non-callable direct obligations of the Department of the Treasury of the
United States of America or portions thereof (including interest or
principal portions thereof), and such Governmental Obligations shall be
of such amounts, maturities, and interest payment dates and bear such
interest as will, without further investment or reinvestment of either
the principal amount thereof or the interest earnings therefrom, be
sufficient to make the payments required herein, and which obligations
have been deposited in an escrow account which is irrevocably pledged as
security for the Notes. Such term shall not include mutual funds and
unit investment trusts.
(c) Any Issuer Derivative Payments are deemed to have been paid and the
applicable Derivative Product terminated when payment of all Issuer
Derivative Payments due and payable to each Reciprocal Payor under its
respective Derivative Product have been made or duly provided for to the
satisfaction of each Reciprocal Payor and the respective Derivative
Product has been terminated.
(d) In no event shall the Trustee deliver over to the Issuer any Financed
Eligible Loans originated under the Act unless the Issuer is an Eligible
Lender, if the Act or Regulations then in effect require the owner or
holder of such Financed Eligible Loans to be an Eligible Lender.
(e) The provisions of this Section are applicable to the Notes and the
Issuer Derivative Payments.
SECTION 10.03. CANCELLATION OF PAID NOTES. Any Notes which have been paid or
purchased by the Issuer, mutilated Notes replaced by new Notes, and any
temporary Note for which definitive Notes have been delivered shall (unless
otherwise directed by the Issuer by Issuer Order) forthwith be cancelled by the
Trustee and, except for temporary Notes, returned to the Issuer.
ARTICLE XI
TERMINATION
SECTION 11.01. TERMINATION OF THE TRUST.
(a) The trust created by this Indenture (the "Trust") shall terminate upon
the earlier of (i) the later of (A) payment to the Registered Owners and
to the Trustee of all amounts required to be paid to them pursuant to
this Indenture and any Supplemental Indenture and the disposition of all
property held as part of the Trust Estate or (B) the day following the
date on which all reimbursement obligations to the Reciprocal Payors, if
any, and any other Person as may be provided for in any Supplemental
Indenture have been paid in full, (ii) the expiration of 21 years from
the death of the last survivor of the descendants of Joseph P. Kennedy
(the late ambassador of the United States to the Court of St. James)
living on the date of this Indenture or (iii) subject to Section
11.01(d), upon the occurrence of a Liquidation Event (as hereinafter
defined). The Issuer shall promptly notify the Trustee of any
prospective termination pursuant to this Section 11.01.
(b) Notice of any prospective termination, specifying the Note Payment Date
for payment of the final distribution and requesting the surrender of
the Notes for cancellation, shall be given promptly by the Trustee by
letter to Registered Owners mailed not less than 10 nor more than 15
days preceding the specified Note Payment Date stating (i) the Note
Payment Date upon which final payment of the Notes shall be made, (ii)
the amount of any such final payment, and (iii) the location for
presentation and surrender of the Notes. Payment of the final
distribution which shall be made only upon presentation and surrender of
the Notes at the corporate trust office of the Trustee specified in the
notice.
(c) A "Liquidation Event" shall be deemed to have occurred, subject to
Section 11.01(d), upon Dissolution of the Issuer.
(d) The Issuer shall not voluntarily take any action that would cause it to
be deemed dissolved within the meaning of this Article XI.
In the event of the Dissolution of the Issuer or any action that
would cause the Issuer to cease being deemed a general partner of the
Trust if the Trust were deemed a limited partnership formed under the
Delaware Revised Uniform Limited Partnership Act, and the Issuer's
interest were deemed to represent the sole general partnership interest
in such a partnership, the Trust shall terminate 90 days after the date
of such event and its assets liquidated in accordance with Section
11.01(e) unless both of the following occur:
(i) the Registered Owners representing Registered Owner Approval, as
defined in Section 6.01 hereof, inform the Trustee in writing
before the end of such 90 day period that they disapprove of the
liquidation of the assets of the Trust; and
(ii) the Issuer, the Trustee and the Reciprocal Payors, if any, shall
receive an opinion of counsel to the effect that the
continuation of the Trust shall not cause the Trust to be
treated as an association taxable as a corporation for federal
income tax purposes.
(e) Upon receipt by the Trustee from the Issuer of notice of the occurrence
of a Liquidation Event (as defined in Section 11.01(c)), the Trustee
shall, subject to the direction of the Registered Owners constituting
Registered Owner Approval (provided that, if Registered Owners
constituting Registered Owner Approval shall not have provided such
direction to the Trustee within 30 days of the Trustee having sent a
written request for such direction to the Registered Owners, the Trustee
shall proceed without such direction) sell the remaining assets of the
Trust Estate, if any, at public or private sale, in a commercially
reasonable manner and on commercially reasonable terms. The Issuer
agrees to cooperate with the Trustee to effect any such sale, including
by executing such instruments of conveyance or assignment as shall be
necessary or required by the purchaser. Proceeds of sale, net of
expenses, shall be treated as collections on the assets of the Trust and
shall be deposited into the Revenue Fund. On the next Note Payment Date
the Trustee shall cause to be paid to Registered Owners and the Issuer
amounts distributable on such Note Payment Date pursuant to Article V.
Following the termination of the Trust, all right, title and interest in
and to the Financed Eligible Loans and other property and funds in the
Trust Estate (other than funds on deposit in certain accounts for the
payment of expenses) shall be conveyed and transferred to the Issuer.
SECTION 11.02. NOTICE. The Trustee shall give notice of termination of the Trust
to the Issuer and each Rating Agency.
ARTICLE XII
REPORTING REQUIREMENTS
SECTION 12.01. ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer will deliver to
each Rating Agency, the Trustee and the Issuer, on or before [March 31] of each
year, beginning with [March 31, 1999], a certificate stating that (a) a review
of the activities of the Servicer during the preceding calendar year and of its
performance under the Servicing Agreement has been made under the supervision of
the officer signing such certificate and (b) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its obligations
under the Servicing Agreement throughout such year, or, there has been a default
in the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and statue thereof.
SECTION 12.02. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT. On or
before [March 31] of each year, beginning [March 31, 1999], the Servicer at its
expense shall cause a firm of independent public accountants which is a member
of the American Institute of Certified Public Accountants to furnish a statement
to each Rating Agency, the Issuer and the Trustee to the effect that such firm
has examined certain documents and records relating to the servicing of the
Financed Eligible Loans (during the preceding fiscal year) under servicing
agreements substantially similar one to another and to the Servicing Agreement
and that, on the basis of such examination, such servicing has been conducted in
compliance with such servicing agreements except for such significant exceptions
or errors in records that, in the opinion of such firm, requires it to report
and which are set forth in such report.
SECTION 12.03. SERVICER'S CERTIFICATE. Each month, not later than the fifteenth
day of each month, the Servicer shall deliver to the Trustee, a certificate
certified by an officer of the Servicer certifying to the accuracy of the
monthly statement contemplated by Section 12.04.
SECTION 12.04. STATEMENTS TO REGISTERED OWNERS. On or before the fifteenth day
of each month, the Servicer or the Issuer shall provide to the Trustee (with a
copy to the Rating Agencies) for the Trustee to forward within five days of
receipt to each Registered Owner, a statement setting forth at least the
following information with respect to the preceding month, to the extent
applicable;
(a) the amount of payments with respect to each Series of Notes paid with
respect to principal during the preceding month;
(b) the amount of payments with respect to each Series of Notes paid with
respect to interest during the preceding month;
(c) the amount of the payments allocable to any Registered Owners' Interest
Carryover, if any, together with any remaining outstanding amount of
each thereof;
(d) the principal balance of Financial Eligible Loans as of the close of
business on the last day of the preceding month;
(e) the aggregate outstanding principal amount of the Notes of each Series
as of the close of business on the last day of the preceding month,
after giving effect to payments allocated to principal reported under
clause (a) above;
(f) the interest rate for any Series of variable rate Notes, indicating such
interest rate is calculated;
(g) the amount of the servicing fees allocated to the Servicer as of the
close of business on the last day of the preceding month;
(h) the amount of the Administration Fee, the Auction Agent Fee, Market
Agent Fee, Calculation Agent Fee and the Trustee Fee, if any, allocated
as of the close of business on the last day of the preceding month;
(i) the amount of the recoveries of principal and interest received during
the preceding month relating to Financed Eligible Loans;
(j) the amount of the payment attributable to amounts in the Reserve Fund,
the amount of any other withdrawals from the Reserve Fund and the
balance of the Reserve Fund as of the close of business on the last day
of the preceding month;
(k) the portion, if any, of the payments attributable to amounts on deposit
in the Acquisition Fund;
(l) the aggregate amount, if any, paid by the Trustee to acquire Eligible
Loans from amounts on deposit in the Acquisition Fund during the
preceding month;
(m) the amount remaining in the Acquisition Fund that has not been used to
acquire Eligible Loans and is being transferred to the Revenue Fund;
(n) the aggregate amount, if any, paid for Financed Eligible Loans purchased
from the Trust during the preceding month;
(o) the number and principal amount of Financed Eligible Loans, as of the
close of business on the last day of the preceding month, that are (i)
30 to 60 days delinquent, (ii) 61 to 90 days delinquent, (iii) 91 to 120
days delinquent, (iv) more than 120 days delinquent and (v) for which
claims have been filed with the appropriate Guarantee Agency and which
are awaiting payment; and
(p) the Aggregate Market Value of the Trust Estate and the Outstanding
principal amount of the Notes as of the close of business on the last
day of the preceding month.
Each amount set forth pursuant to paragraph (a), (b), (g) and (h) above
shall be expressed as a dollar amount per Authorized Denomination of a Note. A
copy of the statements referred to above may be obtained by any Registered Owner
by a written request to the Trustee, addressed to its corporate trust office.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed
in its corporate name and behalf by its President, and the Trustee, to evidence
its acceptance of the trusts hereby created, has caused this Indenture to be
executed in its corporate name and behalf, all in multiple counterparts, each of
which shall be deemed an original, and the Issuer and the Trustee have caused
this Indenture to be dated as of the date herein above first shown.
NELNET STUDENT LOAN CORPORATION-2
By
Stephen F. Butterfield, President
ZIONS FIRST NATIONAL BANK, as Trustee
By
Vice President
Union Bank and Trust Company (the "Servicer") hereby acknowledges and
accepts the duties and obligations assigned to the Servicer in Article XII
hereof.
UNION BANK AND TRUST COMPANY, as Servicer
By
Name
Title
<PAGE>
EXHIBIT A
ELIGIBLE LOAN ACQUISITION CERTIFICATE
This Eligible Loan Acquisition Certificate is submitted pursuant to the
provisions of Section 5.02 of the Indenture of Trust, dated as of _________ 1,
1999 (the "Indenture"), between NELNET Student Loan Corporation-2 (the "Issuer")
and Zions First National Bank, as Trustee. All capitalized terms used in this
Certificate and not otherwise defined herein shall have the same meanings given
to such terms in the Indenture. In your capacity as Trustee, you are hereby
authorized and requested to disburse to _________________ (the "Lender") the sum
of $____________ (or, in the case of an exchange, the Eligible Loans listed in
Exhibit A hereto) for the acquisition of Eligible Loans. With respect to the
Eligible Loans so to be acquired, the Issuer hereby certifies as follows:
1. The Eligible Loans to be acquired are those specified in Schedule A
attached hereto (the "Acquired Eligible Loans"). The remaining unpaid principal
amount of each Acquired Eligible Loan is as shown on such Schedule A.
2. The amount to be disbursed pursuant to this Certificate does not
exceed the amount permitted by Section 5.02 of the Indenture (or, if a Financed
Eligible Loan is being sold in exchange for an Acquired Eligible Loan under the
Indenture, the aggregate unpaid principal amount of, and accrued interest on,
such Financed Eligible Loan does not exceed the amount permitted by Section 5.02
of the Indenture).
3. Each Acquired Eligible Loan is an Eligible Loan authorized so to be
acquired by the Indenture.
4. You have been previously, or are herewith, provided with the
following items (the items listed in (a), (b), (c), (d), (f) and (g) have been
received and are being retained, on your behalf, by the Issuer or the Servicer):
(a) a copy of the Student Loan Purchase Agreement between the
Issuer and the Eligible Lender with respect to the Acquired Eligible
Loans;
(b) with respect to each Insured Loan included among the Acquired
Eligible Loans, the Certificate of Insurance relating thereto;
(c) with respect to each Guaranteed Loan included among the
Acquired Eligible Loans, a certified copy of the Guarantee Agreement
relating thereto;
(d) an opinion of counsel to the Issuer specifying each action
necessary to perfect a security interest in all Eligible Loans to be
acquired by the Issuer pursuant to the Student Loan Purchase Agreements
in favor of the Trustee in the manner provided for by the provisions of
20 U.S.C. ss. 1087-2(d)(3) (you are authorized to rely on the advice of
a single blanket opinion of counsel to the Issuer until such time as the
Issuer shall provide any amended opinion to you);
(e) a certificate of an Authorized Representative of the Issuer
to the effect that (i) the Issuer is not in default in the performance
of any of its covenants and agreements made in the Student Loan Purchase
Agreement relating to the Acquired Eligible Loans; (ii) with respect to
all Acquired Eligible Loans which are Insured, Insurance is in effect
with respect thereto, and with respect to all Acquired Eligible Loans
which are Guaranteed, the Guarantee Agreement is in effect with respect
thereto; and (iii) the Issuer is not in default in the performance of
any of its covenants and agreements made in any Contract of Insurance or
the Guarantee Agreement applicable to the Acquired Eligible Loans;
(f) evidence that the promissory notes evidencing the Acquired
Eligible Loans have had stamped thereon or affixed thereto (individually
or by blanket endorsement) a notice specifying that they have been
assigned to the Trustee with all necessary endorsements; and
(g) instruments duly assigning the Acquired Eligible Loans to the
Trustee.
5. The Issuer is not, on the date hereof, in default under the Indenture
or in the performance of any of its covenants and agreements made in the Student
Loan Purchase Agreement relating to the Acquired Eligible Loans, and, to the
best knowledge of the Issuer, the Eligible Lender is not in default under the
Student Loan Purchase Agreement applicable to the Acquired Eligible Loans. The
Issuer is not aware of any default existing on the date hereof under any of the
other documents referred to in paragraph 4 hereof, nor of any circumstances
which would reasonably prevent reliance upon the opinion of counsel referred to
in paragraphs 4(d) hereof.
6. All of the conditions specified in the Student Loan Purchase
Agreement applicable to the Acquired Eligible Loans and the Indenture for the
acquisition of the Acquired Eligible Loans and the disbursement hereby
authorized and requested have been satisfied; provided that the Issuer may waive
the requirement of receiving an opinion of counsel from the counsel to the
Lender.
7. If a Financed Eligible Loan is being sold in exchange for an Acquired
Eligible Loan, the final expected maturity date of such Acquired Eligible Loan
shall be substantially similar to that of the Financed Eligible Loan being sold
and such sale and exchange shall not adversely affect the ability of the Trust
Estate to make timely principal and interest payments on its Obligations.
8. With respect to all Acquired Eligible Loans which are Insured,
Insurance is in effect with respect thereto, and with respect to all Acquired
Eligible Loans which are Guaranteed, the Guarantee Agreement is in effect with
respect thereto.
9. The Issuer is not in default in the performance of any of its
covenants and agreements made in any Contract of Insurance or the Guarantee
Agreement applicable to the Acquired Eligible Loans.
10. The undersigned is authorized to sign and submit this Certificate on
behalf of the Issuer.
11. Eligible Loans are being acquired at a price which permits the
results of the cash flow analyses provided to the Rating Agencies on the Date of
Issuance to be sustained.
<PAGE>
WITNESS my hand this _____ day of ___________.
NELNET STUDENT LOAN CORPORATION-2
By
Name
Title
KUTAK ROCK LLP
SUITE 2900 ATLANTA
717 SEVENTEENTH STREET KANSAS CITY
LINCOLN
DENVER, COLORADO 80202-3329 LITTLE ROCK
NEW YORK
303-297-2400 NEWPORT BEACH
FACSIMILE 303-292-7799 OKLAHOMA CITY
OMAHA
http://www.kutakrock.com PASADENA
PHOENIX
PITTSBURGH
WASHINGTON
December 30, 1999
NELNET Student Loan Corporation-2
1801 California Street
Suite 3920
Denver, CO 80202
Gentlemen:
We have acted as special counsel to NELNET Student Loan Corporation-2
(the "Registrant") in connection with the preparation of (i) the section
entitled "Federal Income Tax Consequences" contained in the base prospectus of
the Registration Statement on Form S-3 filed with the Securities and Exchange
Commission (the "Commission") on December 30, 1999 under the Securities Act of
1933, as amended (the "Act"), including the forms of Prospectus and Prospectus
Supplements forming a part thereof (collectively, the "Prospectus") and (ii)
Pre-Effective Amendments thereto (together, the "Registration Statement"). The
Registration Statement and the Prospectus relate to the registration of Student
Loan Asset- Backed Notes (the "Securities"). Each Series of Securities will be
created and issued pursuant to an Indenture of Trust entered into between you
and Zions First National Bank, as trustee, and a supplement to such Indenture of
Trust relating to such Series (collectively, the "Indenture"), as described in
the Registration Statement. Except as otherwise indicated herein, all terms
defined in the Prospectus are used herein as so defined.
We have made such investigations of law as we deemed appropriate and
have examined the proceedings heretofore taken and are familiar with the
procedures proposed to be taken by the Registrant in connection with the
authorization, issuance and sale of the Securities. We have examined the
Registration Statement, the Prospectus and such other documents as we have
deemed necessary or advisable for purposes of rendering this opinion.
Additionally, our advice has formed the basis for the description of the
selected federal income tax consequences of the purchase, ownership and
disposition of the Securities to an original purchaser that appears under the
heading "Federal Income Tax Consequences" in the Prospectus.
In rendering the following opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all certifications,
documents and other proceedings examined by us that have been executed or
certified by officials of the Registrant acting within the scope of their
official capacities and have not verified the accuracy or truthfulness thereof.
We also have assumed the genuineness of the signatures appearing upon such
public records, certifications, documents and proceedings.
<PAGE>
KUTAK ROCK LLP
December 30, 1999
Page 2
We have assumed for the purposes of the opinions set forth below that
(i) the Indenture has been and any supplements with respect to each Series will
be duly authorized by all necessary action and duly executed and delivered by
the parties thereto substantially in the form filed in the Exhibits to the
Registration Statement, (ii) the Securities will be created and issued
substantially in the form set forth in the Indenture and sold in Series, all as
described in the Registration Statement, (iii) the Securities of each Series
will be duly authorized by all necessary action, duly executed, authenticated by
the trustee and delivered in accordance with the provisions of the Indenture,
and (iv) such Securities will be sold by you for reasonably equivalent
consideration. In addition, we have assumed that the parties to the Indenture
will satisfy their respective obligations thereunder.
The opinion set forth in paragraph numbered 2 of this letter is based
upon the applicable provisions of the Internal Revenue Code of 1986, as amended,
Treasury regulations promulgated and proposed thereunder, current positions of
the Internal Revenue Service (the "IRS") contained in published Revenue Rulings
and Revenue Procedures, current administrative positions of the IRS 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. No tax rulings will be sought from the IRS with respect to any
of the matters discussed herein.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
1. The Securities of each Series offered pursuant to the Registration
Statement will, when sold, be legally and validly issued, fully paid and
nonassessable, and will be binding obligations of the Registrant, entitled to
the benefits of the Indenture and the supplements pursuant to which such
Securities were issued; and
2. The above-mentioned description of selected federal income tax
consequences of the ownership of the Securities discusses all material federal
income tax consequences of the purchase, ownership and disposition of the
Securities, to the purchasers described in such description, subject to special
rules under the Internal Revenue Code of 1986, as amended, and the description
is accurate in all material respects with respect to those tax consequences that
are discussed. There can be no assurance, however, that the tax conclusions
presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, or changes in IRS positions or
judicial decisions, any of which challenges or alterations may be applied
retroactively with respect to completed transactions. We further note that the
form of Prospectus Supplement filed herewith does not relate to a specific
transaction.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Federal Income Tax Consequences," "Legal Matters" and other references thereto
in the Prospectus forming a part of the Registration Statement, without
admitting that we are "experts" within the meaning of the Act or the rules and
<PAGE>
KUTAK ROCK LLP
December 30, 1999
Page 3
regulations or the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Respectfully submitted,
/s/ Kutak Rock LLP
CONSENT OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP
The Board of Directors
NELNET Student Loan Corporation-2
We consent to the use of our name in the registration statement of NELNET
Student Corporation-2 to which this consent is attached, which is being filed to
register $2,500,000,000 of the company's student loan asset-backed notes.
/s/ Ballard Spahr Andrews & Ingersoll, LLP
December 30, 1999
