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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
From the transition period from ____________ to _____________
Commission File Number 0-14320
UICI
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(Exact name of registrant as specified in its charter)
Delaware 75-2044750
- -------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 McEwen, Suite 200, Dallas, Texas 75244
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (972) 392-6700
---------------
Not Applicable
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Common Stock, $.01
Par Value-- 46,403,907 shares as of November 5, 1999.
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INDEX
UICI AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Consolidated condensed balance sheets-September 30, 1999
(unaudited)-and December 31, 1998 3
Consolidated condensed statements of income
-Three months ended September 30, 1999 and 1998
and nine months ended September 30, 1999 and 1998 4
Consolidated statements of comprehensive income
-Three months ended September 30, 1999 and 1998
and nine months ended September 30, 1999 and 1998 5
Consolidated condensed statements of cash flows
-Nine months ended September 30, 1999 and 1998 6
Notes to consolidated condensed financial statements
-September 30, 1999 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
</TABLE>
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UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Note)
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale--
Fixed maturities, at fair value
(cost: 1999--$885,282; 1998--$865,589) ......... $ 856,765 $ 886,406
Equity securities, at fair value
(cost: 1999--$25,300; 1998--$18,521) ........... 23,362 18,764
Mortgage and collateral loans ......................... 8,460 8,266
Policy loans .......................................... 20,499 21,332
Investment in unconsolidated subsidiary ............... 45,235 45,843
Short-term investments ................................ 136,238 194,273
------------ ------------
Total investments ............................... 1,090,559 1,174,884
Student loans ........................................... 1,204,417 670,429
Credit card loans ....................................... 280,378 136,280
Cash .................................................... 36,020 16,900
Restricted cash ......................................... 249,190 15,343
Agents' receivables ..................................... 11,724 11,249
Reinsurance receivables ................................. 90,564 89,566
Receivables from related parties ........................ 10,129 14,069
Due premiums and other receivables ...................... 50,123 39,675
Investment income due and accrued ....................... 77,048 41,022
Deferred acquisition costs .............................. 83,832 93,008
Goodwill ................................................ 194,367 108,346
Property and equipment, net ............................. 85,496 51,938
Other ................................................... 23,598 12,346
------------ ------------
$ 3,487,445 $ 2,475,055
============ ============
LIABILITIES
Policy liabilities:
Future policy and contract benefits ................... $ 458,163 $ 468,297
Claims ................................................ 316,274 317,298
Unearned premiums ..................................... 89,693 110,569
Other policy liabilities .............................. 20,033 20,590
Federal income taxes .................................... 15,201 36,111
Other liabilities ....................................... 139,808 91,133
Collections payable ..................................... 176,256 --
Notes payable to related parties ........................ -- 497
Time deposits ........................................... 224,449 98,913
Short-term debt ......................................... 10,095 29,778
Long-term debt .......................................... 119,974 21,268
Student loan short-term debt ............................ 283,485 318,853
Student loan long-term debt ............................. 997,825 350,173
------------ ------------
2,851,256 1,863,480
MINORITY INTERESTS ......................................... 13,683 16,784
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share .................. 466 464
Preferred stock, par value $.01 per share ............... -- --
Additional paid-in capital .............................. 163,098 166,489
Treasury stock .......................................... (4,575) --
Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses) .............. (20,093) 13,412
Retained earnings ....................................... 483,610 414,426
------------ ------------
622,506 594,791
------------ ------------
$ 3,487,445 $ 2,475,055
============ ============
</TABLE>
NOTE: The balance sheet as of December 31, 1998 has been derived from the
audited financial statements at that date.
See notes to consolidated condensed financial statements.
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UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Premiums
Health ................................................ $ 169,061 $ 184,814 $ 519,847 $ 558,009
Life premiums and other considerations ................ 12,521 12,210 36,328 37,437
Investment income ....................................... 20,329 19,596 62,231 61,007
Other interest income ................................... 24,309 11,218 70,864 19,361
Credit card fees ........................................ 64,981 27,552 165,173 66,139
Other fee income ........................................ 33,890 30,496 89,391 83,284
Other income ............................................ 1,262 1,919 3,244 37,288
Gains (losses) on sale of investments ................... (89) 727 1,306 4,589
------------ ------------ ------------ ------------
326,264 288,532 948,384 867,114
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses ............... 122,840 147,506 388,472 437,594
Underwriting, acquisition, and insurance expenses ....... 55,819 67,976 180,509 207,333
Other expenses .......................................... 48,286 31,062 136,430 122,739
Depreciation and amortization ........................... 8,000 5,182 16,287 10,761
Provision for doubtful accounts ........................ 38,701 7,664 80,287 15,523
Interest expense ........................................ 2,463 730 4,678 2,105
Interest expense - student loan borrowings .............. 13,737 6,050 37,605 10,438
------------ ------------ ------------ ------------
289,846 266,170 844,268 806,493
INCOME BEFORE FEDERAL INCOME TAXES
AND MINORITY INTERESTS .............................. 36,418 22,362 104,116 60,621
Federal income taxes ....................................... 11,843 7,797 33,844 20,334
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTERESTS ...................... 24,575 14,565 70,272 40,287
Minority interests ......................................... 119 1,034 1,088 4,141
------------ ------------ ------------ ------------
NET INCOME ............................................ $ 24,456 $ 13,531 $ 69,184 $ 36,146
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE ....................... $ 0.52 $ 0.29 $ 1.49 $ 0.78
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE ..................... $ 0.51 $ 0.29 $ 1.45 $ 0.78
============ ============ ============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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UICI AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income ...................................................... $ 24,456 $ 13,531 $ 69,184 $ 36,146
Other comprehensive income (loss), before tax:
Unrealized gains (losses) in securities:
Unrealized holding gains (losses) arising during period .... (12,074) 7,651 (52,705) 7,733
Less: reclassification adjustment for gains (losses)
included in net income ................................... 154 139 1,190 2,764
---------- ---------- ---------- ----------
Other comprehensive income (loss)
before tax ......................................... (11,920) 7,790 (51,515) 10,497
Income tax (expense) benefit related to items of
other comprehensive income ............................... 4,167 (2,725) 18,010 (3,673)
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax .................. (7,753) 5,065 (33,505) 6,824
---------- ---------- ---------- ----------
Comprehensive income ............................................ $ 16,703 $ 18,596 $ 35,679 $ 42,970
========== ========== ========== ==========
</TABLE>
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UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .............................................. $ 69,184 $ 36,146
Adjustments to reconcile net income to
cash provided by operating activities:
Increase in restricted cash ........................... (233,847) --
Increase in reinsurance, related party and
other receivables .................................... (3,787) (15,564)
Increase in accrued investment income ................. (36,026) (19,031)
Decrease (increase) in deferred acquisition costs ..... 9,176 (619)
(Decrease) increase in policy liabilities ............. (17,784) 32,275
Increase (decrease) in federal income taxes payable ... (6,173) 6,373
Increase in other liabilities ........................ 37,640 13,324
Increase in collections payable ....................... 176,256 --
Depreciation and amortization ......................... 16,287 10,761
Provision for doubtful accounts ....................... 80,287 15,523
Net income attributable to minority interests ......... 1,088 5,671
Gains on sale of investments .......................... (1,306) (4,589)
Other items, net ...................................... (10,616) (7,374)
------------ ------------
Cash Provided by Operating Activities ............. 80,379 72,896
------------ ------------
INVESTING ACTIVITIES
Increase in student loans ............................... (511,061) (567,502)
Increase in credit card loans ........................... (223,398) (72,982)
Increase in other investments ........................... (56,657) (18,290)
Decrease (increase) in agents' receivables .............. (1,151) 422
Increase in property and equipment ...................... (35,504) (4,034)
------------ ------------
Cash Used in Investing Activities ................. (827,771) (662,386)
------------ ------------
FINANCING ACTIVITIES
Net cash provided from time deposits .................... 125,536 55,540
Deposits from investment products ....................... 11,998 12,867
Withdrawals from investment products .................... (26,805) (30,229)
Proceeds from student loan borrowings ................... 1,640,924 591,823
Repayment of student loan borrowings .................... (1,082,063) (16,866)
Proceeds from debt ...................................... 154,615 2,252
Repayments of debt ...................................... (46,089) (13,562)
Purchase of treasury stock .............................. (10,649) --
Proceeds from exercise of stock options ................. 5,623 --
Issuance of notes receivable for stock sale ............. (2,938) --
Distributions to minority interests ..................... (3,640) (6,132)
------------ ------------
Cash Provided by Financing Activities ............. 766,512 595,693
------------ ------------
Net Increase in Cash ............................. 19,120 6,203
Net Cash at Beginning of Period ................... 16,900 15,932
------------ ------------
Cash at End of Period ............................. $ 36,020 $ 22,135
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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UICI AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
for UICI and its subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, such financial statements do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. Certain amounts in the 1998 financial
statements have been reclassified to conform with the 1999 financial statement
presentation.
NOTE B--RECENT PRONOUNCEMENTS
The Company is assessed amounts by state guaranty funds to cover losses
of policyholders of insolvent or rehabilitated insurance companies, by state
insurance oversight agencies to cover the operating expenses of such agencies
and by other similar legislative entities. These mandatory assessments may be
partially recovered through a reduction in future premium taxes in certain
states. Effective January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position 97-3 ("SOP 97-3"), under which these assessments are
accrued in the period in which they are incurred. The effects of initially
adopting SOP 97-3 were not material to the Company.
In June 1999, the Financial Accounting Standards Board agreed to defer
for one year the effective date of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Under the new rules, Statement 133 is
effective for all fiscal quarters for fiscal years beginning after June 15,
2000. Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a significant effect
on the results of operations or the financial position of the Company.
NOTE C--ACQUISITIONS
Effective May 1, 1999, the Company acquired all of the minority
interest in United Membership Marketing Group, Inc. (" UMMG") for a cash
purchase price of $32.3 million and, in connection with the acquisition,
recorded $35.9 million in goodwill to be amortized over twenty five years. The
acquisition was funded with existing cash and Company borrowings. As part of
this transaction, UMMG entered into seven-year exclusive marketing agreements
with American Fair Credit Association ("AFCA") and American Credit Educators
("ACE").
Effective July 26, 1999, Educational Finance Group ("EFG") acquired for
$58.2 million 100% of the outstanding stock of AMS Investment Group, Inc., a
holding company whose principal operations include those of Academic Management
Services, Inc. ("AMS"). AMS
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provides tuition payment plans and also originates student loans. The
acquisition was financed with Company borrowings. The Company recorded $ 53.7
million of goodwill in connection with this acquisition and is amortizing it
straight line over twenty-five years.
For financial reporting purposes, the acquisitions were accounted for
using the purchase method of accounting. The effect of these acquisitions on the
Company's results of operations was not material.
NOTE D--Assumption of Agency Matching Total Ownership Plan ("AMTOP") Obligation
In 1986 and 1996, respectively, United General Agency, Inc. (now
Specialized Investment Risks, Inc., as successor to United General Agency, Inc.
("SIR")), which is owned by Ronald L. Jensen, the Company's Chairman,
established, for the benefit of its independent insurance agents, independent
sales representatives and independent organizations associated with SIR, the
Agency Matching Total Ownership Plan I and the Agency Matching Total Ownership
Plan II (collectively, the "Plans"). Effective as of January 1, 1997, SIR
assigned and transferred to UICI certain assets associated with SIR's agency
operations. In connection with that transfer, SIR agreed to retain the liability
to fund the Plans to the extent of 922,587 shares of UICI Common Stock,
representing the corresponding number of unvested AMTOP Credits (as defined in
the Plans) at January 1, 1997. As of August 30, 1999, the liability of SIR to
fund the Plans remained undischarged to the extent of 369,174 shares of UICI
Common Stock (the "Unfunded Obligation").
Effective September 15, 1999, SIR and the Company entered into an
Assumption Agreement, pursuant to which UICI agreed to assume and discharge the
Unfunded Obligation, in consideration of a cash payment made to the Company in
the amount of $10,129,212, representing the dollar value of 369,174 shares of
UICI Common Stock at $27.4375 per share (the closing price of UICI common stock
at September 15). At September 30, 1999, the Company reflected this amount in
receivables from related parties and recorded a liability for the corresponding
unfunded obligation in other liabilities. On October 29, SIR funded the cash
payment.
To ensure that the dollar value of the Unfunded Obligation will not
exceed the dollar proceeds received from SIR plus a reasonable allowance for the
cost of funds, effective September 15, 1999, the Company and Onward and Upward,
Inc. (the sole shareholders of which include Ronald L. Jensen's five adult
children, who collectively own approximately 12.4% of the issued and outstanding
shares of UICI common stock) entered into a Put/Call Agreement. Pursuant to the
Put/Call Agreement, for a thirty day period commencing on July 1 of each year
(commencing in 2000 through 2006), the Company has an option to purchase from
Onward and Upward, and Onward and Upward has a corresponding right to require
the Company to purchase, up to 369,174 shares of Common Stock at an initial
purchase price in 2000 of $28.50 per share. The put/call price escalates over
time in annual dollar increments to recognize an increase in value of the
underlying UICI stock based upon historical past performance (an approximate
6.0% annual rate of appreciation).
The Assumption Agreement and the Put/Call Agreement and the
transactions contemplated thereby were approved by the Board of Directors of the
Company. The Company believes that assumption of the obligations of SIR
represented by the Unfunded Obligation presented an attractive source of funds
at an effective cost less than its prevailing all-in cost of funds. In addition,
the Company believes that the Put/Call Agreement afforded the Company the
necessary hedge on its obligation to deliver a fixed number of shares of UICI
Common Stock in the future,
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at a cost significantly less than it could obtain such a hedge in the open
market from an unaffiliated third party.
NOTE E--LONG TERM DEBT
On May 17, 1999, the Company closed on a $100 million unsecured line of
credit with a group of commercial banks. Amounts outstanding under the line of
credit bear interest at an annual rate of 75 basis points (0.75%) over LIBOR. As
of September 30, 1999, the Company had fully drawn on the line of credit, of
which $50 million was used to repay $50 million of debt outstanding under the
Company's prior bank facility and $50 million was used to fund the UMMG and AMS
acquisitions (completed in May 1999 and July 1999, respectively) and current
operations.
On June 11, 1999, an EFG special purpose financing subsidiary sold, in
a private placement transaction, $319.5 million principal amount of Auction Rate
Student Loan-Backed Notes at an initial interest rate of 5.038%. The interest
rate on the notes will be reset monthly by an auction process. The notes were
sold in two equal tranches and mature in November 2022. The notes received a
"AAA" credit rating from Standard & Poor's and Fitch IBCA and an "Aaa" rating
from Moody's Investor Services.
Effective August 6, 1999, EFG completed a $650 million single seller
asset-backed commercial paper conduit through its special purpose entity, EFG
Funding, LLC. Approximately $515 million of commercial paper was issued in a
private placement, bearing annual interest at rates ranging from 5.05% to 5.69%.
The conduit will issue commercial paper from time to time with maturities from
one to 270 days. Liquidity support is provided by a separate banking facility.
The commercial paper received ratings of A1/P1/F1 from Standard & Poor's,
Moody's, and Fitch, respectively.
NOTE F--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net income available to common shareholders ... $ 24,456 $ 13,531 $ 69,184 $ 36,146
---------- ---------- ---------- ----------
Weighted average shares outstanding--
basic earnings per share ................. 46,305 46,229 46,303 46,229
Effect of dilutive securities:
Employee stock options ................... 1,541 652 1,414 357
---------- ---------- ---------- ----------
Weighted average shares outstanding--
dilutive earnings per share .............. 47,846 46,881 47,717 46,586
---------- ---------- ---------- ----------
Basic earnings per common share ............... $ 0.52 $ 0.29 $ 1.49 $ 0.78
========== ========== ========== ==========
Diluted earnings per common share ............. $ 0.51 $ 0.29 $ 1.45 $ 0.78
========== ========== ========== ==========
</TABLE>
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NOTE G--LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various pending legal
proceedings arising in the ordinary course of business, including some asserting
significant damages arising from claims under insurance policies, disputes with
agents and other matters. Based in part upon the opinion of counsel as to the
ultimate disposition of such lawsuits and claims, management believes that the
liability, if any, resulting from the disposition of such proceedings will not
be material to the Company's financial condition or results of operations.
Sun Communications Litigation
UICI and Ronald L. Jensen (the Company's Chairman) are involved in
litigation (Sun Communications, Inc. v. SunTech Processing Systems, LLC, UICI,
Ronald L. Jensen, et al) (the "Sun Litigation") with a third party concerning
the distribution of the cash proceeds from the sale and liquidation of SunTech
Processing Systems, LLC ("STP") assets in February 1998. The Dallas County,
Texas District Court ruled in December 1998 that, as a matter of law, a March
1997 agreement governing the distribution of such cash proceeds should be read
in the manner urged by Sun Communications, Inc. ("Sun") and consistent with a
court-appointed liquidator's previous ruling. The District Court entered a
judgment directing distribution of the sales proceeds in the manner urged by
Sun. The District Court also entered a finding that UICI violated Texas
securities disclosure laws and breached a fiduciary duty owed to Sun, and the
District Court awarded the plaintiff $1.7 million in attorneys' fees, which
amount could be increased to $2.1 million under certain circumstances.
UICI believes that the District Court was incorrect in the awarding of
attorneys' fees and in its finding that UICI violated Texas securities laws and
breached a fiduciary duty, and on September 10, 1999 the Company appealed the
District Court's decision as to those issues. The Company has not, however,
appealed the District Court's ruling with regard to the interpretation of the
March 1997 agreement. On September 10, 1999, Mr. Jensen filed an appeal of the
trial court's December 1998 finding in the Sun Litigation that Mr. Jensen was
not entitled to any of the proceeds from the sale of Sun. On October 4, 1999,
Sun filed its brief in opposition to the appeal.
In the brief filed in his appeal of the District Court's December 1998
finding, Mr. Jensen has reasserted that the March 1997 agreement requires that,
before STP can make a distribution to UICI and Sun, it must advance
approximately $10 million to Mr. Jensen in satisfaction of certain creditor and
preferred equity claims. If and to the extent that Mr. Jensen's interpretation
of the March 1997 agreement is ultimately adopted in the Sun Litigation after
all rights to appeal have been exhausted, the amount of such proceeds which UICI
may ultimately receive directly from STP may be reduced. However, in such event
and in accordance with an agreement reached with the Company in June 1998 (the
"Assurances Agreement"), Mr. Jensen has agreed to fully reimburse the Company to
the extent of any reduction in cash proceeds from the amount determined by the
District Court to be due the Company directly from STP.
The Company cannot at this time predict how, when or in what fashion
the appellate court will dispose of the various claims of the Company and Mr.
Jensen on appeal. The appellate court may affirm the District Court's judgment,
may return the case to the District Court for trial, or may reverse the District
Court's decision and render a judgment. In addition, there can be no assurances
as to the time period during which the appeals filed by Mr. Jensen or the
Company in the Sun Litigation may be heard and a final judgment rendered which
affords no party in the Sun Litigation the right to further appeal. However, for
financial reporting purposes, any cash ultimately received by the Company from
Mr. Jensen pursuant to the Assurances Agreement
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would be treated as a capital contribution to the Company, and the Company's
pre-tax operating results would be reduced by a corresponding amount. In such
case, however, the Company's consolidated stockholders' equity would not be
adversely affected. In 1998, the Company's results of operations reflected a
pre-tax gain from the STP sale of $9.7 million ($6.7 million after-tax, or $0.15
per share).
On October 8, 1999, Sun filed a motion seeking a partial distribution
of the approximately $19.8 million of STP sales proceeds currently held in the
Court's registry. The trial court entered an order granting relief on October
21, 1999, which order has been stayed pending the Court of Appeals' final
determination with respect to Sun's motion seeking a partial distribution.
The District Court's December 1998 ruling left unresolved the
disposition of approximately $6.0 million of sales proceeds from the sale and
liquidation of STP, to which the Company believes it is entitled in accordance
with the interpretation of the March 1997 agreement adopted by the District
Court. Based on the current caseload in the Texas appellate courts, the Company
does not currently believe that a final judgment in the Sun Litigation will be
rendered prior to 2001. The Company believes it is probable that the outcome of
the appeal and/or potential settlement, if any, will not materially affect the
distribution of the cash sales proceeds to the Company as contemplated by the
District Court's final judgement.
Shareholder Derivative Litigation
On June 1, 1999, the Company was named as a nominal defendant in a
shareholder derivative action captioned Richard Schappel v. UICI, Ronald Jensen,
Richard Estell, Vernon Woelke, J. Michael Jaynes, Gary Friedman, John Allen,
Charles T. Prater, Richard Mockler and Robert B. Vlach, which was filed in the
District Court of Dallas County, Texas (the "Shareholder Derivative
Litigation"). The plaintiff has asserted on behalf of UICI various derivative
claims brought against the individual defendants, alleging, among other things,
breach of fiduciary duty, conversion, waste of corporate assets, constructive
fraud, negligent misrepresentation, conspiracy and breach of contract. Plaintiff
seeks to compel UICI's directors and officers to conduct a complete accounting
and audit relating to all related party transactions and to fully and completely
restate, report and disclose such transactions. Plaintiff further seeks to
recover for UICI's benefit all damages caused by such alleged breach of the
officers' and directors' duty to UICI. The plaintiff in the Shareholder
Derivative Litigation is also the private third-party plaintiff in the Sun
Communications Litigation, and the claims made in the Shareholder Derivative
Litigation arose out of the same transactions that serve as the factual
underpinning to the Sun Communications Litigation referred to above.
UICI has filed notice of removal to the U. S. District Court for the
Northern District of Texas on the basis that federal questions have been raised
which give jurisdiction to the matter to the federal district court. Plaintiff
has filed a motion to remand the case back to Texas state court. The U. S.
District Court has yet to rule on the motion to remand.
At the regular quarterly meeting of the Company's Board of Directors
held on August 4, 1999, George Lane III and Stuart D. Bilton (non-employee
directors of the Company) were appointed, in accordance with Texas and Delaware
law, to serve as a special committee to investigate and assess on behalf of the
Company the underlying claims made in the Shareholder Derivative Litigation.
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Mitchell Litigation
The Company and one of its subsidiaries are named defendants in a
purported class action suit filed in 1997 (Dadra Mitchell v. American Fair
Credit Association, United Membership Marketing Group, LLC and UICI) pending in
California state court, in which plaintiffs have alleged that defendants
violated California law regarding unfair and deceptive trade practices by making
misleading representations about, and falsely advertising the nature and quality
of, the benefits of membership in American Fair Credit Association ("AFCA"). The
Company markets credit cards through AFCA.
The California state court in the Mitchell case has certified a class
of all California residents who entered into a membership contract with AFCA
through April 12, 1999. Defendants' motions to compel arbitration and to narrow
the class definition are pending before the court. On September 27, 1999, the
parties met before a mediator in an attempt to resolve the dispute. In that
mediation, the parties reached an agreement in principle to settle the case. The
proposed settlement remains subject to formal documentation and court approval,
and at this time the portion of any cash outlay for which the Company will be
liable is unclear.
The Company does not currently believe that the settlement, if entered
into in accordance with the terms tentatively agreed to in the mediation, will
have a material adverse effect on the results of operations or financial
condition of the Company.
Klinefelter Litigation
The MEGA Life and Health Insurance Company (a wholly-owned subsidiary
of the Company) ("Mega") is a party defendant in a purported class action suit
filed in December 1996 (The Klinefelter Family Revocable Living Trust, et al. v.
First Life Assurance Company, et al.) pending in the District Court of Hidalgo
County, Texas, in which the named plaintiffs have alleged breach of contract,
violations of the Texas Deceptive Trade Practices Act and the Texas Insurance
Code arising from the sale of so-called "vanishing premium" life insurance
policies. The trial court has certified a nationwide class consisting of all
purchasers of the insurance policies. Mega has appealed what it believes to be
an improper class certification order, and Mega has moved for summary judgment
as to all claims asserted by the representative plaintiffs on an individual
basis and as to the claims asserted by the class as a whole. Defendants' motion
for summary judgment has been stayed pending outcome of the appeal of the class
certification order.
The parties have been engaged in intense settlement negotiations and
multiple mediations. The Company does not currently believe that the outcome of
the Klinefelter case will have a material adverse effect on the results of
operations or financial condition of the Company.
Alabama Litigation
During the quarter ended September 30, 1999, United Credit National
Bank ("UCNB") (an indirect wholly-owned subsidiary of the Company) was named as
a defendant in two lawsuits in Macon County, Alabama (LaTonya Tarver v. UCNB,
American Credit Educators, L.L.C. ("ACE") and various unnamed defendants and
Wylean Tarver v. UCNB, ACE and unnamed defendants) and two lawsuits in Bullock
County, Alabama (Mandy B. Shell v. UCNB, ACE, Charles P. Ostrowski and unnamed
defendants and Ruby N. Cunningham v. UCNB, ACE, Charles P. Ostrowski and unnamed
defendants) arising from 1999 telemarketing activities undertaken by UCNB and/or
ACE.
12
<PAGE> 13
UCNB has filed motions to dismiss and motions to compel arbitration in
all four lawsuits, which motions are pending. The Company believes that it has
meritorious defenses to the allegations and intends to vigorously contest the
cases. The telemarketing activities in question were conducted for UCNB by a
third party on an outsourced basis, and the Company believes that UCNB is
entitled to indemnification by the third party in connection with the cases.
Katz Litigation
The Company is currently involved in a dispute with the former owners
of ELA Corporation, a student loan marketing business acquired by the Company in
December 1997. The former owners allege that, as part of the negotiations
leading to the acquisition, the Company and the former owners entered into an
oral option agreement, pursuant to which the former owners were granted the
right, for a five-year period, to purchase 6.5% of the student loan business of
Educational Finance Group, Inc. ("EFG") for $5.7 million. The former owners
further allege that the 6.5% percentage is subject to adjustment of up to 50%
based on the relative post-acquisition performance of ELA Corporation to the
performance of EFG (including ELA Corporation) as a whole. Attempts to reach
agreement on the terms of the option over an 18 month period were unsuccessful.
On July 28, 1999, EFG filed a declaratory judgment action in U.S.
District Court in Boston (EFG, Inc. v. Marcus Katz, et al) seeking a finding
that no option existed since there had been no agreement on essential terms. The
former owners have filed a motion to dismiss the action. On July 30, 1999, the
former owners filed an action in California state court (Marcus Katz et al v.
UICI, Educational Finance Group, Inc. et al) seeking a declaration that the
option does exist. The Company and EFG removed the case to federal court and
moved to dismiss the action or, alternatively, to stay the action pending a
decision in the prior filed Federal case. The former owners have moved to remand
the case back to the California state court.
NOTE H--SEGMENT INFORMATION
The Company's operating segments are: (i) Insurance, which includes the
businesses of the Self Employed Agency, Student Insurance, the OKC Division,
Special Risk and National Motor Club; (ii) Financial Services, which includes
the businesses of United CreditServ, Educational Finance Group, Insurdata and
Other Business Units and (iii) Other Key Factors. Other Key Factors include
investment income not allocated to the other segments, interest and general
expenses relating to corporate operations, amortization of goodwill, realized
gains or losses on sale of investments and the operations of the Company's AMLI
subsidiary. Allocations of investment income and certain general expenses are
based on a number of assumptions and estimates and the business segments
reported operating results would change if different methods were applied.
Certain assets are not individually identifiable by segment and, accordingly,
have been allocated by formulas. Segment revenues include premiums and other
policy charges and considerations, net investment income, and fees and other
income. Operations which do not constitute reportable operating segments have
been combined with Other Key Factors. Depreciation expense and capital
expenditures are not considered material. Management does not allocate income
taxes to segments. Transactions between reportable operating segments are
accounted for under respective agreements which are generally at cost. Financial
information by operating segment for revenues, income before federal income
taxes and minority interests ("Operating Income"), and identifiable assets is
summarized as follows:
13
<PAGE> 14
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues
Insurance:
Self Employed Agency .............. $ 139,717 $ 156,222 $ 429,735 $ 460,994
Student Insurance ................. 24,668 23,251 80,462 76,870
OKC Division ...................... 23,844 25,038 71,389 74,729
Special Risk ...................... 14,139 17,344 42,944 52,873
National Motor Club ............... 7,619 7,736 21,961 22,582
---------- ---------- ---------- ----------
209,987 229,591 646,491 688,048
Financial Services:
Credit Services ................... 75,094 30,449 186,253 71,824
Educational Finance Group ......... 27,934 15,048 79,503 35,309
Insurdata ......................... 12,175 10,955 35,010 31,360
Other Business Units .............. 238 1,180 587 33,677
---------- ---------- ---------- ----------
115,441 57,632 301,353 172,170
Other Key Factors ................... 8,847 7,670 26,187 26,083
---------- ---------- ---------- ----------
Inter Segment Eliminations .......... (8,011) (6,361) (25,647) (19,187)
---------- ---------- ---------- ----------
Total Revenues ......................... $ 326,264 $ 288,532 $ 948,384 $ 867,114
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Operating Income
Insurance:
Self Employed Agency ................ $ 18,507 $ (2,679) $ 35,906 $ (8,728)
Student Insurance ................... 279 3,046 1,782 7,675
OKC Division ........................ 3,807 5,444 14,252 14,977
Special Risk ........................ (471) 869 131 4,269
National Motor Club ................. 1,422 799 3,677 3,527
---------- ---------- ---------- ----------
23,544 7,479 55,748 21,720
Financial Services:
United CreditServ ................... 9,429 11,741 35,776 25,488
Educational Finance Group ........... 123 (490) 2,502 (2,872)
Insurdata ........................... 1,128 345 2,283 2,221
Other Business Units ................ -- 2 -- 21
---------- ---------- ---------- ----------
10,680 11,598 40,561 24,858
Other Key Factors ...................... 2,194 3,285 7,807 14,043
---------- ---------- ---------- ----------
Total Operating Income ................. $ 36,418 $ 22,362 $ 104,116 $ 60,621
========== ========== ========== ==========
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Identifiable Assets
Insurance:
Self Employed Agency ................ $ 410,875 $ 444,240
Student Insurance ................... 56,357 87,303
OKC Division ........................ 590,738 585,055
Special Risk ........................ 78,733 51,580
National Motor Club ................. 23,346 26,038
------------ ------------
1,160,049 1,194,216
Financial Services:
United CreditServ ................... 372,099 195,242
Educational Finance Group ........... 1,595,680 773,412
Insurdata ........................... 18,490 22,338
Other Business Units ................ 19,787 19,226
------------ ------------
2,006,056 1,010,218
Other Key Factors ................... 321,340 270,621
------------ ------------
Total assets ........................... $ 3,487,445 $ 2,475,055
============ ============
</TABLE>
The increase in United CreditServ's assets is attributable to the increase in
accounts processed from December 31, 1998 to September 30, 1999.
The increase in Educational Finance Group's assets is due to increased loan
origination volume.
NOTE I--SUBSEQUENT EVENTS
On October 5, 1999 the Company and HealthPlan Services Corporation
("HPS") entered into an agreement contemplating the acquisition by the Company
of HPS in a stock-for-stock merger transaction. Assuming an average closing
price per share of the Company's stock at October 5, 1999, the Company would
issue approximately 4.6 million shares of its stock in the merger, and the
purchase price would be approximately $120.2 million plus the assumption of
approximately $93 million of HPS's debt. Upon completion of the merger, HPS will
become a wholly owned, separately operated subsidiary of the Company. Completion
of the merger is subject to several closing conditions, including the approval
of HPS's stockholders. The merger is currently expected to be completed in early
2000.
On October 7, 1999, EFG completed a $344 million capital market
transaction, which included the issuance of $229 million principal amount of
three month LIBOR-indexed floating rate notes and the issuance of $115 million
principal amount of auction rate notes. The $229 million notes were priced with
a spread of 42 basis points over LIBOR with the interest rate resetting
quarterly. The notes mature in April 2009 and have an expected average life of
3.5 years. The $115 million auction rate notes bear interest initially at an
annual rate of 6.38% and the interest rate resets quarterly. The notes mature in
July 2027.
PART I. FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UICI and its subsidiaries (the "Company") reported net income of $0.51
per share for the three-month period ended September 30, 1999 compared to net
income of $0.29 per share for the comparable period in 1998. There were no gains
per share from the sale of investments for the three-month period ended
September 30, 1999, compared to gains of $0.01 per share for the comparable
period in 1998. For the nine-month period ended September 30, 1999, net income
was $1.49 per share compared to net income of $0.78 per share for the comparable
period in 1998. Included in net income were gains from the sale of investments
of $0.02 per share and $0.06 per share for the nine month period ended September
30, 1999 and September 30, 1998, respectively.
15
<PAGE> 16
The Company's business segments are: (i) Insurance, which includes the
businesses of the Self Employed Agency, Student Insurance, the OKC Division,
Special Risk and National Motor Club; (ii) Financial Services, which includes
the businesses of United CreditServ, Educational Finance Group, Insurdata and
Other Business Units and (iii) Other Key Factors. Allocation of investment
income is based on a number of assumptions and estimates and the business
segments reported operating results would change if different methods were
applied. Segment revenues include premiums and other policy charges and
considerations, net investment income, and fees and other income. Financial
information by segment for revenues and income before federal income taxes and
minority interests ("Operating Income").
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues
Insurance:
Self Employed Agency .............. $ 139,717 $ 156,222 $ 429,735 $ 460,994
Student Insurance ................. 24,668 23,251 80,462 76,870
OKC Division ...................... 23,844 25,038 71,389 74,729
Special Risk ...................... 14,139 17,344 42,944 52,873
National Motor Club ............... 7,619 7,736 21,961 22,582
---------- ---------- ---------- ----------
209,987 229,591 646,491 688,048
Financial Services:
Credit Services ................... 75,094 30,449 186,253 71,824
Educational Finance Group ......... 27,934 15,048 79,503 35,309
Insurdata ......................... 12,175 10,955 35,010 31,360
Other Business Units .............. 238 1,180 587 33,677
---------- ---------- ---------- ----------
115,441 57,632 301,353 172,170
Other Key Factors ................... 8,847 7,670 26,187 26,083
---------- ---------- ---------- ----------
Inter Segment Eliminations .......... (8,011) (6,361) (25,647) (19,187)
---------- ---------- ---------- ----------
Total Revenues ......................... $ 326,264 $ 288,532 $ 948,384 $ 867,114
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Operating Income
Insurance:
Self Employed Agency ................ $ 18,507 $ (2,679) $ 35,906 $ (8,728)
Student Insurance ................... 279 3,046 1,782 7,675
OKC Division ........................ 3,807 5,444 14,252 14,977
Special Risk ........................ (471) 869 131 4,269
National Motor Club ................. 1,422 799 3,677 3,527
---------- ---------- ---------- ----------
23,544 7,479 55,748 21,720
Financial Services:
United CreditServ ................... 9,429 11,741 35,776 25,488
Educational Finance Group ........... 123 (490) 2,502 (2,872)
Insurdata ........................... 1,128 345 2,283 2,221
Other Business Units ................ -- 2 -- 21
---------- ---------- ---------- ----------
10,680 11,598 40,561 24,858
Other Key Factors ...................... 2,194 3,285 7,807 14,043
---------- ---------- ---------- ----------
Total Operating Income ................. $ 36,418 $ 22,362 $ 104,116 $ 60,621
========== ========== ========== ==========
</TABLE>
16
<PAGE> 17
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 COMPARED TO 1998
Self Employed Agency ("SEA"). Operating income for the three months
ended September 30, 1999 for the SEA Division increased to $18.5 million from a
loss of $2.7 million in the comparable 1998 period, an increase of $21.2
million, and for the nine months ended September 30, 1999 operating income
increased to $35.9 million from a loss of $8.7 million in the comparable 1998
period. The increases are the result of the continued success in directing a
larger portion of new sales to traditional indemnity products and the improved
loss ratio on the PPO products. Revenue for the three months ended September 30,
1999 for the SEA Division decreased to $139.7 million from $156.2 million for
the same period in 1998, and for the nine months ended September 30, 1999
revenue decreased to $429.7 million compared to $461.0 million in the comparable
1998 period. The decrease in revenues in the 1999 periods reflects the negative
impact on new sales and recruiting efforts of rate increases implemented
starting in 1998.
Student Insurance. Operating income for the three months ended
September 30, 1999 for the Student Insurance Division decreased to $279,000 from
$3.0 million for the same period in 1998, a decrease of $2.7 million, and for
the nine-month period in 1999 operating income decreased to $1.8 million from
$7.7 million in the comparable 1998 period. The reduced earnings reflect lower
margins resulting from increased loss ratios on the 98/99 policy year. Revenue
for the three months ended September 30, 1999 from the Student Insurance
Division increased to $24.7 million from $23.3 million in the corresponding 1998
period, and for the nine month period ended September 30, 1999 revenue increased
to $80.5 million from $76.9 million in the 1998 period.
OKC Division. Operating income for the three months ended September 30,
1999 for the OKC Division decreased to $3.8 million from $5.4 million for the
comparable 1998 period, a decrease of $1.6 million, and for the nine months
ended September 30, 1999 operating income decreased to $14.3 million from $15.0
million in the corresponding 1998 period. The decrease in operating income is
due to lower profit margins in the workers compensation business and an
additional deferred acquisition cost write off due to a higher third quarter
lapse in its College Fund Life Division ("CFLD") business. The Company believes
that the higher lapse will decline in future periods, as changes made early in
the year to its CFLD program take effect. Revenues for the three months ended
September 30, 1999 for the OKC Division decreased to $23.8 million from $25.0
million in the comparable 1998 period, and for the nine month 1999 period
revenues decreased to $71.4 million from $74.7 million in the comparable nine
month period of 1998. This decrease in revenues was primarily due to decreased
premium in the workers compensation business.
Special Risk. Operating income for the three months ended September 30,
1999 for the Special Risk Division decreased to a loss of $471,000 from income
of $869,000 in the comparable 1998 period, and for the nine months ended
September 30, 1999 operating income decreased to $131,000 from $4.3 million in
the 1998 nine-month period. The decrease in operating income is due to higher
loss ratios on closed blocks of business and reserve adjustments on the marine
medical business. Revenue for the three months ended September 30, 1999
decreased to $14.1 million from $17.3 million in the corresponding 1998 period,
and for the nine months ended September 30, 1999 revenue decreased to $42.9
million from $52.9 million in the comparable 1998 period. The decrease in
revenue is primarily due to elimination of unprofitable blocks of business and
implementation of rate increases on stop-loss accounts.
17
<PAGE> 18
National Motor Club. Operating income for the three months ended
September 30, 1999 for the National Motor Club increased to $1.4 million from
$799,000 in the 1998 period, an increase of $623,000, and for the nine months
ended September 30, 1999 operating income increased to $3.7 million from $3.5
million in the comparable 1998 period, an increase of $150,000. Operating income
before amortization costs for the nine months ended September 30, 1999 increased
to $4.6 million from $3.7 million in 1998. Revenues for the three and nine month
periods of 1999 are comparable to revenues in the corresponding 1998 periods.
United CreditServ ("UCS"). Operating income for the three months ended
September 30, 1999 for UCS's business decreased to $9.4 million from $11.7
million in the 1998 period, and for the nine months ended September 30, 1999
operating income increased to $35.8 million from $25.5 million in the nine
months ended September 30, 1998. Operating income in the quarter ended September
30, 1999, reflected the sale by the Company to the independent organization that
markets credit cards for the Company of previously charged off accounts for $13
million in cash. This sale was made pursuant to the terms of UCS's ongoing
marketing agreement with the independent organization, which requires such
transactions if certain levels of card performance are not realized. The
decrease in operating income in the three-month period was due to additional
costs incurred to expand facilities, hire personnel and improve collections and
administrative systems. UCS has directed considerable resources to its
collections department to enable it to process the higher volumes generated by a
new credit product introduced in the fourth quarter of 1997 and to anticipate
future needs as marketing programs expand. Revenues for the three months ended
September 30, 1999 increased to $75.1 million from $30.4 million in the
comparable 1998 period, and for the nine months ended September 30, 1999
revenues increased to $186.3 million from $71.8 million in the nine month 1998
period. The increase in revenues in 1999 compared to 1998 was primarily
attributable to a new program introduced in 1997 for which significant sales
were not recognized until the fourth quarter of 1998.
Educational Finance Group ("EFG"). EFG`s operating income for the three
months ended September 30, 1999 increased to $123,000 from a loss of $490,000 in
the 1998 three-month period, and for the nine months ended September 30, 1999
operating income increased to $2.5 million from a loss of $2.9 million for the
same period in 1998. The increase was primarily due to lower "all-in" financing
costs achieved from recent financing activities, as well as growth in student
loans. Revenues for the three months ended September 30, 1999 increased to $27.9
million from $15.0 million in the corresponding 1998 period, and for the nine
months ended September 30, 1999 revenues increased to $79.5 million from $35.3
million in the 1998 period. The increase in revenues for the three and nine
month periods is due to increased origination and interest income derived from
EFG's higher student loan volume.
Insurdata. Operating income for the three months ended September 30,
1999 for Insurdata increased to $1.1 million from $345,000 in the comparable
1998 period, and for the nine months ended September 30, 1999 operating income
was comparable to the 1998 period. The increase in the three-month period in
1999 as compared to 1998 is due to higher than normal expenses in 1998 due to a
cancelled IPO. Revenues in the three months ended September 30, 1999 increased
to $12.2 million from $11.0 million in the corresponding 1998 period, and for
the nine months ended September 30, 1999 revenues increased to $35.0 million
from $31.4 million in the comparable 1998 period. Of Insurdata's total revenue
in the nine months ended September 30, 1999, $17.3 million was attributable to
data processing services provided to the health insurance
18
<PAGE> 19
operations of UICI, compared to $15.9 million of such revenue in the nine month
period ended September 30, 1998.
Other Business Units. During 1998, this category ceased to exist, with
the Other Business Units sold, closed or transferred to other categories.
Other Key Factors. The Other Key Factors category includes investment
income not allocated to the other segments, interest expense on corporate debt,
general expenses relating to corporate operations, amortization of goodwill,
realized gains or losses on sale of investments and the operations of the
Company's AMLI subsidiary. Operating income for the three months ended September
30, 1999 associated with this category decreased to $2.2 million from $3.3
million in the three months ended September 30, 1998, and for the nine months
ended September 30, 1999 such operating income decreased to $7.8 million from
$14.0 million in the comparable 1998 period. The decrease in the three months
and nine months ended September 30, 1999 as compared to 1998 is due to an
increase in amortization of goodwill, interest expense, general corporate
operations and a decrease in realized gains which was partially offset by an
increase in investment income on equity not allocated to the other segments. The
amount of realized gains or losses on the sale of investments is a function of
interest rates, market trends and the timing of sales with losses more likely
during periods of rising interest rates. In addition, due to rising interest
rates, the net unrealized investment gains or losses on securities classified as
"available for sale," reported in accumulated other comprehensive income as a
separate component of stockholders' equity and net of applicable income taxes
and minority interests was a $20.1 million unrealized loss at September 30, 1999
compared to a $13.4 million unrealized gain at December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's invested assets of $1.1 billion at September 30, 1999
were comparable to invested assets at December 31, 1998. The growth in the
assets provided by current operations and corporate borrowings was offset by the
decrease in market values of the fixed maturity securities held as "available
for sale". The decrease in market values of the fixed maturity securities held
as "available for sale" was the direct result of increases in long-term interest
rates.
The growth in the credit card receivables portfolio from $136 million
at December 31, 1998 to $280 million at September 30, 1999 was funded using time
deposits at United Credit National Bank ("UCNB"), which deposits increased from
$99 million at December 31, 1998 to $224 million at September 30, 1999, and cash
provided from current operations.
The growth in the student loans from $670 million at December 31, 1998
to $1.2 billion at September 30, 1999 was funded from the proceeds of student
loan borrowings and the issuance of long term notes, which indebtedness in the
aggregate increased from $669 million at December 31, 1998 to $1.2 billion at
September 30, 1999.
On June 11, 1999, an EFG special purpose financing subsidiary sold, in
a private placement transaction, $319.5 million principal amount of Auction Rate
Student Loan-Backed Notes at an initial interest rate of 5.038%. The interest
rate on the notes will be reset monthly by an auction process. The notes were
sold in two equal tranches and mature in November 2022. The notes received a
"AAA" credit rating from Standard & Poor's and Fitch IBCA and an "Aaa" rating
from Moody's Investor Services.
19
<PAGE> 20
Effective August 6, 1999, EFG completed a $650 million single seller
asset-backed commercial paper conduit through its special purpose entity, EFG
Funding, LLC. Approximately $515 million of commercial paper was issued in a
private placement, bearing annual interest at rates ranging from 5.05% to 5.69%.
The conduit will issue commercial paper from time to time with maturities from
one to 270 days. Liquidity support is provided by a separate banking facility.
The commercial paper received ratings of A1/P1/F1 from Standard & Poor's,
Moody's, and Fitch, respectively.
On May 17, 1999, the Company closed on a $100 million unsecured line of
credit with a group of commercial banks. Amounts outstanding under the line of
credit bear interest at an annual rate of 75 basis points (0.75%) over LIBOR. As
of September 30, 1999, the Company had fully drawn on the line of credit, of
which $50 million was used to repay $50 million of debt outstanding under the
Company's prior bank facility and $50 million was used to fund the UMMG and AMS
acquisitions (completed in May 1999 and July 1999, respectively) and current
operations.
In connection with its AMS acquisition, the Company has $176 million of
restricted cash representing amounts collected under the tuition plan program
and a corresponding liability due to the various educational institutions.
YEAR 2000 READINESS
State of Readiness. Some of the Company's older computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognize a
date using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send premium
notices, process credit cards or student loans or engage in similar normal
business activities. As a result, the Company has implemented a project intended
to ensure that hardware and software systems operated or licensed in the
Company's business are designed to operate and properly manage dates beyond
December 31, 1999 ("Year 2000 Ready"). To date, the Year 2000 Project has
assessed the Company's information technology and operating systems ("IT
Systems") and is assessing non-information technology systems, including
embedded technology, relating to, among other systems, security systems,
elevator systems and heating, ventilating and air conditioning systems ("Non-IT
Systems"). The Year 2000 Project consists of five phases: (i) awareness, (ii)
assessment, (iii) analysis, design and remediation, (iv) testing and validation
and (v) creation of contingency plans in the event of Year 2000 failures.
IT Systems. The Company completed its Year 2000 project for its IT
Systems during the third quarter of 1999.
Non-IT Systems. The Company believes that Year 2000 non-readiness of
its own Non-IT Systems would not have a material adverse effect on the Company's
business or operations. Accordingly, the Company has primarily focused its
efforts on its IT Systems.
Readiness of Third Parties. The Company relies on hardware and software
of third parties as material components of its IT Systems, including network
access between the Company's data center and credit card transaction processors.
As part of the Year 2000 Project, the Company tested such software, hardware and
interfaces for Year 2000 Readiness. In addition, the Company
20
<PAGE> 21
polled the third parties that provide software, hardware or data to the Company
regarding each of such third party's Year 2000 readiness plans and state of
readiness. The Company requested written responses from such third parties that
their software, hardware and data is, or will be on a timely basis, Year 2000
ready.
The Company provides services to third parties. If a Year 2000 problem
caused the interruption of such services to those customers, such interruption
could have a material adverse effect on the Company's business and the Company
could incur liability as a result.
Year 2000 Costs. The Company expected to incur internal labor costs, as
well as other expenses, in its Year 2000 Project. The Company's total estimated
cost of the project is approximately $10.5 million, of which approximately $9.1
million, cumulatively, was incurred as of September 30, 1999 and $2.9 million
was incurred during the nine -month period ended September 30, 1999. Future
costs of the Year 2000 project will primarily result from the re-deployment of
information technology resources, although no significant internal IT Systems
projects are being deferred to further the Year 2000 Project. Costs associated
with the Year 2000 project are expensed as incurred and are paid from operating
cash flows.
Risks of Year 2000 Non-Readiness and Contingency Plans. The economy in
general may be adversely affected by risks associated with the Year 2000. The
Company's business, financial condition, and results of operations could be
materially adversely affected if systems that it operates or licenses to third
parties, or systems that are operated by other parties (e.g., utilities,
telecommunications service providers, data providers, associates, credit card
transaction processors) with which the Company's systems interface, are not Year
2000 Ready in time. There can be no assurance that these systems will continue
to properly function and interface and will otherwise be Year 2000 Ready.
Although the Company is not aware of any threatened claims related to the Year
2000, the Company may be subject to litigation arising from such claims and,
depending on the outcome, such litigation could have a material adverse affect
on the Company. It is not clear whether the Company's insurance coverage would
be adequate to offset these and other business risks related to the Year 2000.
The Company has not had any material processing disruptions to date
that were caused by Year 2000 issues. Internal testing provides the Company with
a level of confidence that, in a most reasonably likely "worst case" scenario,
these systems will not cause a material disruption on a forward-looking basis. A
most reasonably likely "worst case" scenario would anticipate that it is
possible that potential consequences would include, among other possibilities,
the inability to accurately and timely process benefit claims, update customers'
accounts, bill customers, calculate financial and actuarial data, and report
accurate data to management, shareholders, customers and regulators. The Company
cannot guarantee that it will be able to resolve all of its Year 2000 issues.
Any critical unresolved Year 2000 issues could have a material adverse effect on
the Company's results of operations, liquidity or financial condition.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements set forth herein or incorporated by reference herein
from the Company's filings that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions, including
21
<PAGE> 22
the performance of financial markets, and interest rates; competitive,
regulatory or tax changes that affect the cost of or demand for the Company's
products; health care reform, ability to predict and effectively manage claims
related to health care costs; reliance on key management and adequacy of claim
liabilities and the ability of the Company and third party vendors to modify
computer systems for the Year 2000 data conversion in a timely manner. United
CreditServ segment's future results also could be adversely affected by the
possibility of future economic downturns causing an increase in credit losses or
changes in regulations for credit cards or credit card national banks. The
Company has certain risks associated with the Educational Finance Group
business. The changes in the Higher Education Act or other relevant federal or
state laws, rules and regulations and the programs implemented thereunder may
adversely impact the education credit market. In addition, existing legislation
and future measures by the federal government may adversely affect the amount
and nature of federal financial assistance available with respect to loans made
through the U.S. Department of Education. Finally the level of competition
currently in existence in the secondary market for loans made under the Federal
Loan Programs could be reduced, resulting in fewer potential buyers of the
Federal Loans and lower prices available in the secondary market for those
loans. Investors are also directed to other risks and uncertainties discussed in
documents filed by the Company with the Securities and Exchange Commission.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates, and
other relevant market rate or price changes. Market risk is directly influenced
by the volatility and liquidity in the markets in which the related underlying
assets are traded.
The primary market risk to the Company's investment portfolio is
interest rate risk associated with investments and the amount of interest that
policyholders expect to have credited to their policies. The interest rate risk
taken in the investment portfolio is managed relative to the duration of the
liabilities. The Company's investment portfolio consists mainly of high quality,
liquid securities that provide current investment returns. The Company believes
that the annuity and universal life-type policies are generally competitive with
those offered by other insurance companies of similar size. The Company does not
anticipate significant changes in the primary market risk exposures or in how
those exposures are managed in the future reporting periods based upon what is
known or expected to be in effect in future reporting periods.
Profitability of the student loans is affected by the spreads between
the interest yield on the student loans and the cost of the funds borrowed under
the various credit facilities. Although the interest rates on the student loans
and the interest rate on the credit facilities are variable, the interest earned
on the student loans uses the 91-day T-bill as the base rate while the base rate
on the credit facilities is LIBOR. The effect of rising interest rates is
generally small as both revenues and costs adjust to new market levels.
United CreditServ 's operations are subject to risk resulting from
interest rate fluctuations to the extent that there is a difference between the
amount of interest earned on the credit cards and the amount of the interest
paid on the time deposits. The maturity of the time deposits is less than one
year. The principal objective of the Company's asset/liability management
activities is to provide maximum levels of net interest income while maintaining
acceptable levels of interest rate and liquidity risk and facilitating the
funding needs of the Company.
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<PAGE> 23
PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various pending legal
proceedings arising in the ordinary course of business, including some asserting
significant damages arising from claims under insurance policies, disputes with
agents and other matters. Based in part upon the opinion of counsel as to the
ultimate disposition of such lawsuits and claims, management believes that the
liability, if any, resulting from the disposition of such proceedings will not
be material to the Company's financial condition or results of operations.
Sun Communications Litigation
UICI and Ronald L. Jensen (the Company's Chairman) are involved in
litigation (Sun Communications, Inc. v. SunTech Processing Systems, LLC, UICI,
Ronald L. Jensen, et al) (the "Sun Litigation") with a third party concerning
the distribution of the cash proceeds from the sale and liquidation of SunTech
Processing Systems, LLC ("STP") assets in February 1998. The Dallas County,
Texas District Court ruled in December 1998 that, as a matter of law, a March
1997 agreement governing the distribution of such cash proceeds should be read
in the manner urged by Sun Communications, Inc. ("Sun") and consistent with a
court-appointed liquidator's previous ruling. The District Court entered a
judgment directing distribution of the sales proceeds in the manner urged by
Sun. The District Court also entered a finding that UICI violated Texas
securities disclosure laws and breached a fiduciary duty owed to Sun, and the
District Court awarded the plaintiff $1.7 million in attorneys' fees, which
amount could be increased to $2.1 million under certain circumstances.
UICI believes that the District Court was incorrect in the awarding of
attorneys' fees and in its finding that UICI violated Texas securities laws and
breached a fiduciary duty, and on September 10, 1999 the Company appealed the
District Court's decision as to those issues. The Company has not, however,
appealed the District Court's ruling with regard to the interpretation of the
March 1997 agreement. On September 10, 1999, Mr. Jensen filed an appeal of the
trial court's December 1998 finding in the Sun Litigation that Mr. Jensen was
not entitled to any of the proceeds from the sale of Sun. On October 4, 1999,
Sun filed its brief in opposition to the appeal.
In the brief filed in his appeal of the District Court's December 1998
finding, Mr. Jensen has reasserted that the March 1997 agreement requires that,
before STP can make a distribution to UICI and Sun, it must advance
approximately $10 million to Mr. Jensen in satisfaction of certain creditor and
preferred equity claims. If and to the extent that Mr. Jensen's interpretation
of the March 1997 agreement is ultimately adopted in the Sun Litigation after
all rights to appeal have been exhausted, the amount of such proceeds which UICI
may ultimately receive directly from STP may be reduced. However, in such event
and in accordance with an agreement reached with the Company in June 1998 (the
"Assurances Agreement"), Mr. Jensen has agreed to fully reimburse the Company to
the extent of any reduction in cash proceeds from the amount determined by the
District Court to be due the Company directly from STP.
The Company cannot at this time predict how, when or in what fashion
the appellate court will dispose of the various claims of the Company and Mr.
Jensen on appeal. The appellate court may affirm the District Court's judgment,
may return the case to the District Court for trial, or may reverse the District
Court's decision and render a judgment. In addition, there can be no
23
<PAGE> 24
assurances as to the time period during which the appeals filed by Mr. Jensen or
the Company in the Sun Litigation may be heard and a final judgment rendered
which affords no party in the Sun Litigation the right to further appeal.
However, for financial reporting purposes, any cash ultimately received by the
Company from Mr. Jensen pursuant to the Assurances Agreement would be treated as
a capital contribution to the Company, and the Company's pre-tax operating
results would be reduced by a corresponding amount. In such case, however, the
Company's consolidated stockholders' equity would not be adversely affected. In
1998, the Company's results of operations reflected a pre-tax gain from the STP
sale of $9.7 million ($6.7 million after-tax, or $0.15 per share).
On October 8, 1999, Sun filed a motion seeking a partial distribution
of the approximately $19.8 million of STP sales proceeds currently held in the
Court's registry. The trial court entered an order granting relief on October
21, 1999, which order has been stayed pending the Court of Appeals' final
determination with respect to Sun's motion seeking a partial distribution.
The District Court's December 1998 ruling left unresolved the
disposition of approximately $6.0 million of sales proceeds from the sale and
liquidation of STP, to which the Company believes it is entitled in accordance
with the interpretation of the March 1997 agreement adopted by the District
Court. Based on the current caseload in the Texas appellate courts, the Company
does not currently believe that a final judgment in the Sun Litigation will be
rendered prior to 2001. The Company believes it is probable that the outcome of
the appeal and/or potential settlement, if any, will not materially affect the
distribution of the cash sales proceeds to the Company as contemplated by the
District Court's final judgement.
Shareholder Derivative Litigation
On June 1, 1999, the Company was named as a nominal defendant in a
shareholder derivative action captioned Richard Schappel v. UICI, Ronald Jensen,
Richard Estell, Vernon Woelke, J. Michael Jaynes, Gary Friedman, John Allen,
Charles T. Prater, Richard Mockler and Robert B. Vlach, which was filed in the
District Court of Dallas County, Texas (the "Shareholder Derivative
Litigation"). The plaintiff has asserted on behalf of UICI various derivative
claims brought against the individual defendants, alleging, among other things,
breach of fiduciary duty, conversion, waste of corporate assets, constructive
fraud, negligent misrepresentation, conspiracy and breach of contract. Plaintiff
seeks to compel UICI's directors and officers to conduct a complete accounting
and audit relating to all related party transactions and to fully and completely
restate, report and disclose such transactions. Plaintiff further seeks to
recover for UICI's benefit all damages caused by such alleged breach of the
officers' and directors' duty to UICI. The plaintiff in the Shareholder
Derivative Litigation is also the private third-party plaintiff in the Sun
Communications Litigation, and the claims made in the Shareholder Derivative
Litigation arose out of the same transactions that serve as the factual
underpinning to the Sun Communications Litigation referred to above.
UICI has filed notice of removal to the U. S. District Court for the
Northern District of Texas on the basis that federal questions have been raised
which give jurisdiction to the matter to the federal district court. Plaintiff
has filed a motion to remand the case back to Texas state court. The U. S.
District Court has yet to rule on the motion to remand.
At the regular quarterly meeting of the Company's Board of Directors
held on August 4, 1999, George Lane III and Stuart D. Bilton (non-employee
directors of the Company) were appointed, in accordance with Texas and Delaware
law, to serve as a special committee to
24
<PAGE> 25
investigate and assess on behalf of the Company the underlying claims made in
the Shareholder Derivative Litigation.
Mitchell Litigation
The Company and one of its subsidiaries are named defendants in a
purported class action suit filed in 1997 (Dadra Mitchell v. American Fair
Credit Association, United Membership Marketing Group, LLC and UICI) pending in
California state court, in which plaintiffs have alleged that defendants
violated California law regarding unfair and deceptive trade practices by making
misleading representations about, and falsely advertising the nature and quality
of, the benefits of membership in American Fair Credit Association ("AFCA"). The
Company markets credit cards through AFCA.
The California state court in the Mitchell case has certified a class
of all California residents who entered into a membership contract with AFCA
through April 12, 1999. Defendants' motions to compel arbitration and to narrow
the class definition are pending before the court. On September 27, 1999, the
parties met before a mediator in an attempt to resolve the dispute. In that
mediation, the parties reached an agreement in principle to settle the case. The
proposed settlement remains subject to formal documentation and court approval,
and at this time the portion of any cash outlay for which the Company will be
liable is unclear.
The Company does not currently believe that the settlement, if entered
into in accordance with the terms tentatively agreed to in the mediation, will
have a material adverse effect on the results of operations or financial
condition of the Company.
Klinefelter Litigation
The MEGA Life and Health Insurance Company (a wholly-owned subsidiary
of the Company) ("Mega") is a party defendant in a purported class action suit
filed in December 1996 (The Klinefelter Family Revocable Living Trust, et al. v.
First Life Assurance Company, et al.) pending in the District Court of Hidalgo
County, Texas, in which the named plaintiffs have alleged breach of contract,
violations of the Texas Deceptive Trade Practices Act and the Texas Insurance
Code arising from the sale of so-called "vanishing premium" life insurance
policies.
The trial court has certified a nationwide class consisting of all
purchasers of the insurance policies. Mega has appealed what it believes to be
an improper class certification order, and Mega has moved for summary judgment
as to all claims asserted by the representative plaintiffs on an individual
basis and as to the claims asserted by the class as a whole. Defendants' motion
for summary judgment has been stayed pending outcome of the appeal of the class
certification order.
The parties have been engaged in intense settlement negotiations and
multiple mediations. The Company does not currently believe that the outcome of
the Klinefelter case will have a material adverse effect on the results of
operations or financial condition of the Company.
25
<PAGE> 26
Alabama Litigation
During the quarter ended September 30, 1999, United Credit National
Bank ("UCNB") (an indirect wholly-owned subsidiary of the Company) was named as
a defendant in two lawsuits in Macon County, Alabama (LaTonya Tarver v. UCNB,
American Credit Educators, L.L.C. ("ACE") and various unnamed defendants and
Wylean Tarver v. UCNB, ACE and unnamed defendants) and two lawsuits in Bullock
County, Alabama (Mandy B. Shell v. UCNB, ACE, Charles P. Ostrowski and unnamed
defendants and Ruby N. Cunningham v. UCNB, ACE, Charles P. Ostrowski and unnamed
defendants) arising from 1999 telemarketing activities undertaken by UCNB and/or
ACE.
UCNB has filed motions to dismiss and motions to compel arbitration in
all four lawsuits, which motions are pending. The Company believes that it has
meritorious defenses to the allegations and intends to vigorously contest the
cases. The telemarketing activities in question were conducted for UCNB by a
third party on an outsourced basis, and the Company believes that UCNB is
entitled to indemnification by the third party in connection with the cases.
Katz Litigation
The Company is currently involved in a dispute with the former owners
of ELA Corporation, a student loan marketing business acquired by the Company in
December 1997. The former owners allege that, as part of the negotiations
leading to the acquisition, the Company and the former owners entered into an
oral option agreement, pursuant to which the former owners were granted the
right, for a five-year period, to purchase 6.5% of the student loan business of
Educational Finance Group, Inc. ("EFG") for $5.7 million. The former owners
further allege that the 6.5% percentage is subject to adjustment of up to 50%
based on the relative post-acquisition performance of ELA Corporation to the
performance of EFG (including ELA Corporation) as a whole. Attempts to reach
agreement on the terms of the option over an 18 month period were unsuccessful.
On July 28, 1999, EFG filed a declaratory judgment action in U.S.
District Court in Boston (EFG, Inc. v. Marcus Katz, et al) seeking a finding
that no option existed since there had been no agreement on essential terms. The
former owners have filed a motion to dismiss the action. On July 30, 1999, the
former owners filed an action in California state court (Marcus Katz et al v.
UICI, Educational Finance Group, Inc. et al) seeking a declaration that the
option does exist. The Company and EFG removed the case to federal court and
moved to dismiss the action or, alternatively, to stay the action pending a
decision in the prior filed Federal case. The former owners have moved to remand
the case back to the California state court.
26
<PAGE> 27
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
NUMBER
<S> <C> <C>
(a) Exhibits.
Exhibit 10.1 - Repurchase Agreement dated as of March 27, 1998
as amended between Lehman Commercial Paper, Inc. and
Educational Finance Group
Exhibit 10.2 - Loan Agreement among UICI, Bank of America, as
administrative agent, The First National Bank of Chicago as
documentation agent, and Fleet National Bank as co-agent dated
May 17, 1999
Exhibit 10.3 - Indenture Agreement dated as of August 5, 1999
between EFG-III, LP, as Issuer and The First National Bank of
Chicago, as Indenture Trustee and Eligible Lender Trustee.
Exhibit 10.4 - Indenture Agreement dated as of June 14, 1999
among EFG-II, LP as Issuer and The First National Bank of
Chicago, as Indenture Trustee and Eligible Lender Trustee
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
1. A current report on Form 8-K dated September 10, 1999
regarding an appeal filing in the Sun Litigation.
2. A current report on Form 8-K dated October 5, 1999
regarding the merger between UICI and HealthPlan Services.
</TABLE>
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
UICI
-----------------------------------
(Registrant)
Date: November 15, 1999 /s/Gregory T. Mutz
------------------- -----------------------------------
Gregory T. Mutz, President, Chief
Executive Officer, and Director
Date: November 15, 1999 /s/William P. Benac
------------------- -----------------------------------
William P. Benac, Vice President,
(Chief Financial Officer)
</TABLE>
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Repurchase Agreement dated as of March 27, 1998 as
amended between Lehman Commercial Paper, Inc. and
Educational Finance Group
10.2 Loan Agreement among UICI, Bank of America, as
administrative agent, The First National Bank of
Chicago as documentation agent, and Fleet National
Bank as co-agent dated May 17, 1999
10.3 Indenture Agreement dated as of August 5, 1999
between EFG-III, LP, as Issuer and The First National
Bank of Chicago, as Indenture Trustee and Eligible
Lender Trustee.
10.4 Indenture Agreement dated as of June 14, 1999 among
EFG-II, LP as Issuer and The First National Bank of
Chicago, as Indenture Trustee and Eligible Lender
Trustee
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
MASTER REPURCHASE AGREEMENT
Dated March 27, 1998
Between
LEHMAN COMMERCIAL PAPER INC.,
as Buyer
and
EDUCATIONAL FINANCE GROUP, LIMITED
as Seller
1. APPLICABILITY
From time to time for a period of 364 days from the date hereof, the
parties hereto may, subject to the terms hereof, enter into transactions in
which Education Finance Group, Limited ("Seller") agrees to transfer to Lehman
Commercial Paper Inc., ("Buyer") all of Seller's right, title and interest in
and to certain Student Loans against the transfer of funds by Buyer, with a
simultaneous agreement by Buyer to transfer to Seller its right, title and
interest in and to such Student Loans at a date certain not later than the date
then set for termination of this Agreement pursuant to Section 20 herein, as
specified in the Confirmation, against the transfer of funds by Seller. Each
such transaction shall be referred to herein as a "Transaction" and shall be
governed by this Agreement and the related Confirmation, unless otherwise agreed
in writing. Each Transaction shall commence on the Purchase Date and terminate
on the Repurchase Date therefor and shall be limited to a maximum of 30 days,
after which, subject to Section 20 herein, the Buyer and Seller may agree to
roll such Transaction into a new Transaction which shall likewise have a maximum
term of 30 days. Pursuant to an agreement dated as of the date hereof (the
"Guarantor Agreement"), between Buyer and UICI (the "Guarantor"), the Guarantor
will fully and unconditionally guarantee the obligations of Buyer hereunder.
Buyer and Seller acknowledge that the Higher Education Act requires that legal
title to federally guaranteed student loans be held by an "eligible lender" as
defined in such act. Seller agrees, therefore, that prior to giving effect to
each Transaction relating to any Federal Student Loans, Seller shall hold the
beneficial interest in such Federal Student Loans pursuant to a Trust Agreement,
dated as of February 24, 1998 (the "EFG Trust Agreement," and the Trust created
thereby, the "EFG Trust"), between Seller and The First National Bank of
Chicago, as trustee (in such capacity, the "EFG Trustee"). In addition, Buyer
and Seller agree that each transfer of Federal Student Loans under this
Agreement shall, notwithstanding anything herein to the contrary, constitute a
transfer of all of the beneficial interest in such Federal Student Loans granted
to Seller under the EFG Trust and only of such beneficial interest, with the
legal title thereto being retained at all times by
<PAGE> 2
the EFG Trustee pursuant to the EFG Trust Agreement, together with a pledge of a
security interest in such Federal Student Loans (including a pledge of legal
title by the EFG Trustee) as provided in Section 6. Buyer and Seller further
agree that at all times hereunder with respect to each Transaction, The First
National Bank of Chicago, (i) as EFG Trustee shall retain legal title to the
Purchased Federal Student Loans for the benefit of Seller (which beneficial
interest the Seller transfers and pledges together with the other rights and
interests it holds in such loans, as described above, pursuant to each
Transaction to the Eligible Lender Trustee for Buyer's benefit), and (ii) as
Eligible Lender Trustee, shall hold the beneficial interest and security
interest in the Purchased Federal Student Loans described in the preceding
sentence under the Repurchase Trust Agreement for the sole and exclusive benefit
of Buyer under such agreement and, accordingly, all references herein to the
purchase or other transfer of any of Seller's right, title and interest in the
Purchased Federal Student Loans to, or the ownership or other retention of the
Purchased Federal Student Loans by, Buyer, or the granting of the security
interest therein pursuant to Section 6, shall be deemed to refer solely to such
Student Loans held in such capacity and manner, notwithstanding anything else in
this Agreement to the contrary. Notwithstanding anything in this Agreement to
the contrary, Buyer shall have no obligation to enter into any Transaction
hereunder.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any Person and its Affiliates, (i)
the filing of a petition, commencing, or authorizing the commencement of any
case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law relating to the protection of creditors,
or suffering any such petition or proceeding to be commenced by another which is
consented to, not timely contested or results in entry of an order for relief;
(ii) the seeking the appointment of a receiver, trustee, custodian or similar
official for such party or an Affiliate or any substantial part of the property
of either, (iii) the appointment of a receiver, conservator, or manager for such
party or an Affiliate by any governmental agency or authority having the
jurisdiction to do so; (iv) the making or offering by such party or an Affiliate
of a composition with its creditors or a general assignment for the benefit of
creditors; (v) the admission by such party or an Affiliate of such party of its
inability to pay its debts or discharge its obligations as they become due or
mature; or (vi) that any governmental authority or agency or any person, agency
or entity acting or purporting to act under governmental authority shall have
taken any action to condemn, seize or appropriate, or to assume custody or
control of, all or any substantial part of the property of such party or of any
of its Affiliates, or shall have taken any action to displace the management of
such party or of any of its Affiliates.
"Additional Student Loans" means Student Loans provided by Seller to Buyer or
its designee pursuant to Section 4(a).
"Affiliate" means an affiliate of a party as such term is defined in the United
States Bankruptcy Code in effect from time to time.
"Agreement" means this Master Repurchase Agreement between Buyer and Seller, as
amended from time to time.
2
<PAGE> 3
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a day on
which the Buyer or the New York Stock Exchange or banks located in Chicago,
Illinois are authorized or obligated by law or executive order to be closed.
"Buyer" has the meaning specified in Section 1.
"Collateral Amount" means, with respect to any Transaction, the amount obtained
by application of the applicable Collateral Amount Percentage to the unpaid
principal balance (such balance to include, in the case of Federal Student
Loans, accrued interest that is not then payable but is to be capitalized and
added to principal) for the Purchased Student Loans subject to such Transaction.
"Collateral Amount Percentage" means the amount set forth in the Confirmation
which, in any event, shall not be less than 105% for Purchased Student Loans.
"Collateral Deficit" has the meaning specified in Section 4(a).
"Computer Tape" means, with respect to each Transaction, a list in computer
readable form of the Purchased Student Loans, containing such information with
respect thereto as Buyer shall have requested.
"Confirmation" has the meaning specified in Section 3(a).
"DOE" means the U.S. Department of Education, and any successor thereto.
"EFG Trust" has the meaning specified in Section 1.
"EFG Trust Agreement" has the meaning specified in Section 1.
"EFG Trustee" has the meaning specified in Section 1.
"Eligible Lender Trustee" means The First National Bank of Chicago, in its
capacity as trustee under the Repurchase Trust Agreement.
"Event of Default" has the meaning specified in Section 13.
"Federal Student Loans" means student loans which are guaranteed as to principal
and interest by a guaranty agency pursuant to a Guaranty Agreement, under
pertinent provisions of the Higher Education Act.
"Guarantor" has the meaning specified in Section 1.
"Guarantor Agreement" has the meaning specified in Section 1.
"Guaranty Agreement" means each guaranty agreement entered into with a guaranty
agency under the Higher Education Act and covering one or more of the Purchased
Federal Student Loans or the TERI Guaranty Agreement with respect to the
Purchased Private Student Loans.
"Higher Education Act" means the Higher Education Act of 1965, as amended,
together with any rules, regulations and interpretations thereunder of DOE or
the applicable guaranty agency.
3
<PAGE> 4
"Income" means, with respect to any Purchased Student Loan at any time, any
principal thereof when paid and all interest, guaranty payments, Subsidy
Payments or other distributions paid in respect of such Student Loan less any
related servicing fee(s) charged by the Servicer and any trustee fee(s) pursuant
to the Repurchase Trust Agreement.
"Loan Files" means the file customarily maintained for Student Loans by the
Seller's servicer.
"Market Value" means as of any date with respect to any Student Loans, the price
at which such Student Loans could readily be sold or securitized as determined
by Buyer in its sole discretion pursuant to Section 4; provided, however, that
Buyer shall not take into account, for purposes of calculating Market Value, any
Student Loan (i) which is a Federal Student Loan that is more than 120 days
delinquent or a Private Student Loan that is more than 90 days delinquent, or
(ii) with respect to which there is a breach of a representation, warranty or
covenant made by Seller in this Agreement and which breach has not been cured.
"Non-cash generating" means any Purchased Student Loan that is not generating
current cash flow exclusive of, in the case of Purchased Federal Student Loans,
special allowance payments.
"Obligor" means a borrower on a Student Loan or any other Person who is indebted
under the related Student Loan.
"Periodic Payment" has the meaning specified in Section 5(b).
"Person" means an individual, partnership, corporation, joint stock company,
trust or unincorporated organization or a governmental agency or political
subdivision thereof.
"Price Differential" means, with respect to any Transaction hereunder as of any
date, the aggregate amount obtained by daily application of the Pricing Rate for
such Transaction to the Purchase Price for such Transaction on a 360 day per
year basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the Repurchase Date (reduced by any amount of such Price Differential previously
paid by Seller to Buyer with respect to such Transaction).
"Pricing Rate" means the sum of (i) the variable rate per annum described in the
Confirmation for determination of the Price Differential plus (ii) the
applicable Pricing Spread.
"Pricing Spread" means with respect to the portion of the Purchase Price of each
Transaction allocable to Federal Student Loans, (i) 50 basis points in the case
of a Transaction for which the Purchase Price was set at 100% of the aggregate
outstanding principal balance of the related Purchased Student Loans, (ii) 55
basis points in the case of a Transaction for which the Purchase Price was set
at 100.5% or less (but greater than 100%) of the aggregate outstanding principal
balance of the related Purchased Federal Student Loans, (iii) 60 basis points in
the case of a Transaction for which the Purchase Price was set at 101% or less
(but greater than 100.5%) of the aggregate outstanding principal balance of the
related Federal Purchased Student Loans, (iv) 65 basis points in the case of a
Transaction for which the Purchase Price was set at 102% or less (but greater
than 101%) of the aggregate outstanding principal balance of the related Federal
Purchased Student Loans and (v) 70 basis points in the case of a Transaction for
which the Purchase Price was set at 103% or less (but greater than 102%) of the
aggregate outstanding
4
<PAGE> 5
principal balance of the related Federal Purchased Student Loans; and with
respect to the portion of the Purchase Price of each Transaction allocable to
Private Student Loans, 85 basis points.
"Prime Rate" means the rate of interest published by The Wall Street Journal,
northeast edition, as the "prime rate".
"Private Student Loans" means student loans that are fully guaranteed against
non-payment of principal and interest by TERI.
"Purchase Date" means the date on which Purchased Student Loans are transferred
by Seller to Buyer or its designee as specified in the Confirmation.
"Purchased Federal Student Loans" means Purchased Student Loans that are Federal
Student Loans, which are and shall be held hereunder in the form provided for in
Section 1 are in the Repurchase Trust Agreement.
"Purchased Private Student Loans" means Purchased Student Loans that are Private
Student Loans.
"Purchased Student Loans" means the Student Loans (including any Additional
Student Loans) sold by Seller to Buyer in a Transaction, any Additional Student
Loans and any Substituted Student Loans.
"Purchase Price" means on each Purchase Date and for each Transaction, the price
at which the Purchased Student Loans for such Transaction are transferred by
Seller to Buyer or its designee, provided that in no event shall the Purchase
Price be greater than 103% of the unpaid principal balance (such balance to
include, in the case of Federal Student Loans, accrued interest that is not then
payable but is to be capitalized and added to principal) for such Purchased
Student Loans. It is agreed that the Purchase Price for any Student Loans will
not exceed the amount paid by Seller for the same Student Loans, but that in any
event it will include an amount equal to accrued and unpaid interest on the
Student Loans which is payable, and is not to be capitalized, on the next due
date therefor.
"Repurchase Date" means the date on which Seller is to repurchase the Purchased
Student Loans from Buyer which will be the first Business Day of the immediately
succeeding month after the Purchase Date, unless otherwise determined by
application of the provisions of Sections 3, 5 or 13.
"Repurchase Price" means the price at which Purchased Student Loans are to be
transferred from Buyer or its designee to Seller upon termination of a
Transaction, which will be determined in each case (including Transactions
terminable upon demand) as (i) the sum of the Purchase Price and the accreted
value as of the date of such determination of the Price Differential decreased
by (ii) all cash, Income and Periodic Payments actually received for such
Transaction to and including such date of determination by Buyer pursuant to
Sections 4(a), 5(a) and 5(b), respectively.
"Repurchase Trust Agreement" means the Repurchase Trust Agreement, dated the
date hereof, between the Buyer and the Eligible Lender Trustee.
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"Seller" has the meaning specified in Section 1.
"Servicer" means, with respect to any Student Loans, the entity servicing such
Student Loans, and identified as such on the Student Loan Schedule with respect
thereto.
"Servicing Agreement" has the meaning specified in Section 25.
"Servicing Records" has the meaning specified in Section 6.
"Student Loans" means Federal Student Loans and Private Student Loans.
"Subsidy Payments" means interest subsidy payments, special allowance payments
and any other payments of a similar nature made to the Seller pursuant to the
terms of the Higher Education Act.
"Substituted Student Loans" means any Student Loans substituted for Purchased
Student Loans in accordance with Section 9 hereof.
"TERI" means The Education Resources Institute, Inc., a Massachusetts non-profit
corporation, and its successors.
"TERI Guaranty Agreement" means the agreement among TERI, the Eligible Lender
Trustee and Buyer pursuant to which the Purchased Private Student Loans are
fully guaranteed against non-payment of principal and interest by TERI.
"Transaction" has the meaning specified in Section 1.
"UCC" means the Uniform Commercial Code, as in effect from time to time in the
relevant jurisdiction.
3. INITIATION; CONFIRMATION; TERMINATION;
MAXIMUM TRANSACTION AMOUNTS
(a) An agreement to enter into a Transaction may be entered into orally or in
writing at the initiation of either Buyer or Seller. In any event, Buyer shall
confirm the terms of each Transaction by issuing a written confirmation to
Seller promptly after the parties enter into such Transaction in the form of
Exhibit I attached hereto (a "Confirmation"), and Seller shall thereupon provide
a copy of such written confirmation to the Trustee. Such Confirmation shall set
forth the description of the related Student Loans and shall identify Buyer and
Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the
Repurchase Date, unless the Transaction is to be terminable on demand, (iv) the
Pricing Rate applicable to the Transaction, (v) the amount of the related
Student Loans that are Federal Student Loans (and the Federal programs
represented and the amount represented by each) and the amount that are Private
Student Loans, (vi) the applicable Collateral Amount Percentages with respect to
such Student Loans and (vii) additional terms or conditions not inconsistent
with this Agreement. After receipt of the Confirmation, Seller shall, subject to
the provisions of subsection (c) below, sign the Confirmation and promptly
return it to Buyer. Each Transaction shall have a Purchase Price of at least
$1,000,000.
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(b) Any Confirmation by Buyer shall be deemed to have been received by Seller on
the date actually received by Seller.
(c) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected to
in writing by Seller no more than two (2) Business Days after the date the
Confirmation was received by Seller or unless a corrected Confirmation is sent
by Buyer. An objection sent by Seller must state specifically that such writing
is an objection, must specify the provision(s) being objected to by Seller, must
set forth such provision(s) in the manner that the Seller believes they should
be stated, and must be received by Buyer no more than two (2) Business Days
after the Confirmation was received by Seller.
(d) In the case of Transactions terminable upon demand, such demand shall be
made by Buyer or Seller by telephone or otherwise (in each case, confirmed by
fax), no later than 1:00 p.m. (New York time) on the Business Day prior to the
day on which such termination will be effective.
(e) On the Repurchase Date, termination of the Transaction will be effected by
transfer to Seller or its designee of the Purchased Student Loans (and any
Income in respect thereof received by Buyer not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to Section 5)
against the simultaneous transfer of the Repurchase Price to an account of
Buyer. Buyer agrees to permit Seller to repurchase all or a portion of the
Purchased Student Loans in connection with a securitization or other financing
or in connection with a sale or transfer to any Person (or any eligible lender
on behalf of any such Person), in each case (other than Section 9) pursuant to
which Buyer is paid the allocable portion of Repurchase Price (and, in addition,
any amount due in accordance with the last sentence of Section 8), and with
respect thereto, Buyer shall issue a revised Confirmation for the remaining
Purchased Student Loans and, if Buyer and Seller so agree, establish a new
Repurchase Date.
(f) With respect to all Transactions hereunder the aggregate Purchase Price for
all Purchased Student Loans at any one time subject to then outstanding
Transactions shall not exceed $750,000,000.
(g) At least two Business Days prior to any Purchase Date or any substitution of
Student Loans pursuant to Section 9, the Seller shall deliver to Buyer via
electronic modem, computer tape or any other format as agreed to by Buyer the
information requested by the Buyer related to the Student Loans to be so
purchased or substituted.
(h) The Confirmation may specify any Repurchase Date for the related Transaction
agreed upon by Buyer and Seller; provided that in no event shall such date be
more than 30 days after the Purchase Date.
4. COLLATERAL AMOUNT MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased Student Loans
subject to all Transactions plus all cash delivered to Buyer is less than the
aggregate Collateral Amount for all such Transactions (a "Collateral Deficit"),
then Buyer may by notice to Seller require Seller to transfer to Buyer or its
designee Student Loans "Additional Student Loans") or cash, so that the
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cash and aggregate Market Value of the Purchased Student Loans, including any
such Additional Student Loans, will thereupon equal or exceed the aggregate
Collateral Amount.
(b) Notice required pursuant to subsection (a) above may be given by any means
of telecopier or telegraphic transmission. A notice for the payment or delivery
in respect of a Collateral Deficit must be met not later than 5:00 p.m. on the
same Business Day, local time of the party receiving the notice. Any notice
given on a Business Day after 9:00 a.m., local time of the party receiving the
notice, shall be met not later than 2:00 p.m. (New York time) on the next
Business Day. The failure of Buyer, on any one or more occasions, to exercise
its rights under subsection (a) of this Section shall not change or alter the
terms and conditions to which this Agreement is subject or limit the right of
the Buyer to do so at a later date. Buyer and Seller agree that a failure or
delay to exercise its rights under subsection (a) of this Section shall not
limit Buyer's rights under this Agreement or otherwise existing by law or in any
way create additional rights for Seller.
(c) In the event that Seller fails to comply with the provisions of this Section
4, Buyer shall not enter into any additional Transactions hereunder after the
date of such failure.
5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income payment date,
Income on the Purchased Student Loans shall be the property of Buyer.
Notwithstanding the foregoing, so long as no Event of Default shall have
occurred and be continuing, Seller shall be entitled to all Income with respect
to Purchased Student Loans. Upon the occurrence and continuance of an Event of
Default, all Income with respect to Purchased Student Loans shall be paid to
Buyer and distributed to Buyer pursuant to Section 14 hereof.
(b) Notwithstanding that Buyer and Seller intend that the Transactions hereunder
be sales to Buyer of the Purchased Student Loans, Seller shall pay by wire
transfer to Buyer the accredit value of the Price Differential (less any amount
of such Price Differential previously paid by Seller to Buyer)(each such
payment, a "Periodic Payment") on the Repurchase Date.
(c) Buyer shall offset against the Repurchase Price of each such Transaction all
Income and Periodic Payments actually received by Buyer pursuant to Sections
5(a) and 5(b), respectively.
6. SECURITY INTEREST
(a) Buyer and the Seller intend that the Transactions hereunder be sales to
Buyer of Seller's right, title and interest in and to the Purchased Student
Loans and not loans from Buyer to Seller secured by the Purchased Student Loans.
However, in order to preserve Buyer's rights under this Agreement, in the event
that a court or other forum recharacterizes the Transactions hereunder as loans
and as security for the performance by Seller of all of Seller's obligations to
Buyer under this Agreement and the Transactions entered into pursuant to this
Agreement, Seller grants (which grant is made with respect to the Purchased
Federal Student Loans to the Eligible Lender Trustee for the benefit of Buyer) a
first priority security interest in the Purchased Student Loans, any proceeds
thereof, to the Servicing Agreements to the extent they pertain to the Purchased
Student Loans, and all servicing records pertaining to Purchased Student Loans,
owned by Seller, including but not limited to any and all files, documents,
records, data bases,
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computer tapes, copies of computer tapes, closing documentation, payment history
records, and any other records relating to or evidencing the servicing of
Purchased Student Loans (the "Servicing Records") and which grant includes as to
Federal Student Loans, the grant by the EFG Trustee, which the EFG Trustee
hereby makes at the instruction of the Seller, to the Eligible Lender Trustee of
a first priority security interest in legal title to the Federal Student Loans
and all other rights to the Purchased Federal Student Loans held by the EFG
Trust, and in each case all proceeds thereof.
(b) Seller shall pay all fees and expenses associated with perfecting Buyer's
security interest in the Purchased Student Loans, including, without limitation,
the cost of filing financing statements under the UCC, as and when required by
Buyer in its sole discretion.
7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
(b) On the Purchase Date for each Transaction, ownership of the Purchased
Student Loans shall be transferred to the Buyer or its designee (subject in the
case of Purchased Federal Student Loans, to the retention of legal title thereto
by the EFG Trustee in its capacity as "eligible lender" under the Higher
Education Act as in Section 1 set forth,) against the simultaneous transfer of
the Purchase Price to an account of Seller specified in the Confirmation.
Seller, simultaneously with the delivery to Buyer or its designee of the
Purchased Student Loans relating to each Transaction hereby sells, transfers,
conveys and assigns to Buyer or its designee without recourse, but subject to
the terms of this Agreement, all the right, title and interest of Seller in and
to the Purchased Student Loans, including all right, title and interest in and
to the Guaranty Agreements with respect thereto, all Subsidy Payments and all
federal guaranty or reinsurance payments with respect thereto and all proceeds
of each of the foregoing.
(c) Any Loan Files are and shall be held in trust by Seller's designated
servicer as bailee or custodian of the Eligible Lender Trustee for the benefit
of Buyer as the beneficial owner thereof as specifically designated in the
Repurchase Trust Agreement. The books and records (including, without
limitation, any computer records or tapes) of Seller and the Eligible Lender
Trustee pertaining to the Purchased Student Loans shall be marked appropriately
to reflect clearly the sale of the related Purchased Student Loan to Buyer.
8. REHYPOTHECATION OR PLEDGE OF PURCHASED STUDENT LOANS
Title to all Purchased Student Loans shall pass to Buyer (except that, with
respect to the Purchased Federal Student Loans, title shall be held of record by
the EFG Trustee as set forth in Section 1). Buyer shall have free and
unrestricted use of all Purchased Student Loans, subject to the requirement, in
the case of Purchased Federal Student Loans, that legal title thereto shall at
all times remain held by an "eligible lender" as defined in the Higher Education
Act. Nothing in this Agreement shall preclude Buyer from engaging in repurchase
transactions with the Purchased Student Loans or interests therein or otherwise
pledging, repledging, hypothecating, or rehypothecating the Purchased Student
Loans or interests therein, but no such transaction shall relieve Buyer of its
obligations to transfer Purchased Student Loans to Seller pursuant to Section 3.
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Nothing contained in this Agreement shall obligate Buyer to segregate any
Purchased Student Loans delivered to Buyer by Seller. In the event that there is
a material adverse change or other development in the repurchase markets which
results in Buyer being unable to finance its position through the repurchase
market with its traditional repurchase counterparties, Buyer may accelerate the
Repurchase Date for any outstanding Transactions following reasonable written
notice to Seller of the occurrence of such event. In addition, in the event that
any payment of the Repurchase Price occurs prior to the Repurchase Date set
forth in the applicable Confirmation, Seller shall pay upon demand any resulting
loss, cost or expense incurred by the Buyer, including, but not limited to, any
loss (including loss of anticipated profits), cost or expense incurred in
liquidating or employing deposits from third parties or other financing
arrangements with respect to its position in the Purchased Student Loans.
9. SUBSTITUTION
(a) Subject to Section 9(b), Seller may, upon five (5) Business Days' written
notice to Buyer, substitute other Student Loans for any Purchased Student Loans.
Such substitution shall be made by transfer to Buyer or its designee (such
transfer to be reflected on Schedule I hereto) of the Loan File of such other
Student Loans and transfer to Seller or its designee of the Purchased Student
Loans requested for release. After substitution, the substituted Student Loans
shall be deemed to be Purchased Student Loans subject to the same Transaction as
the released Student Loans.
(b) Notwithstanding anything to the contrary in this Agreement, Seller may not
substitute other Student Loans for any Purchased Student Loans (i) if after
taking into account such substitution, a Collateral Deficit would occur or (ii)
such substitution would cause a breach of any provision of this Agreement.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) Each of Buyer and Seller represents and warrants to the other that (i) it is
duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance; (ii) it will engage in such Transactions as principal; (iii) the
person signing this Agreement on its behalf is duly authorized to do so on its
behalf and upon execution this Agreement will create a legal, valid and binding
obligation, enforceable in accordance with its terms; (iv) no approval, consent
or authorization of the Transactions contemplated by this Agreement from any
federal, state, or local regulatory authority having jurisdiction over it is
required or, if required, such approval, consent or authorization has been or
will, prior to the Purchase Date, be obtained; (v) the execution, delivery, and
performance of this Agreement and the Transactions hereunder will not violate
any law, regulation, order, judgment, decree, ordinance, charter, by-law, or
rule applicable to it or its property or constitute a default (or an event
which, with notice or lapse of time, or both would constitute a default) under
or result in a breach of any agreement or other instrument by which it is bound
or by which any of its assets are affected; (vi) it has received approval and
authorization to enter into this Agreement and each and every Transaction
actually entered into hereunder pursuant to its internal policies and
procedures; and (vii) neither this Agreement nor any Transaction pursuant hereto
are entered into in contemplation of insolvency or with intent to hinder, delay
or defraud any creditor.
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(b) Seller represents and warrants to Buyer that as of the Purchase Date for the
purchase of any Purchased Student Loans by Buyer from Seller and as of the date
of this Agreement and any Transaction hereunder and at all times while this
Agreement and any Transaction hereunder is in full force and effect:
(i) Seller represents and warrants that it is duly authorized under the
laws of the Commonwealth of Massachusetts to execute and deliver this
Master Repurchase Agreement and to provide funds for the origination of
Student Loans (in the case of Federal Student Loans, by an eligible
lender) hereunder, all necessary action on the part of the Seller for
the execution and delivery of this Agreement has been duly and
effectively taken and this Agreement is the valid and enforceable
obligation of the Seller in accordance with its terms.
(ii) Seller covenants that it will service or cause to be serviced all
Purchased Federal Student Loans in accordance with applicable
provisions of the Higher Education Act and all Purchased Private
Student Loans in accordance with applicable requirements of TERI.
(c) Seller represents and warrants to the Buyer that each Purchased Student Loan
sold hereunder and each pool of Purchased Student Loans sold in a Transaction
hereunder, as of the related Purchase Date conform to the representations and
warranties set forth in Exhibit III attached hereto and that each Student Loan
delivered hereunder as Additional Student Loans or Substituted Student Loans, as
of the date of such delivery, conforms to the representations and warranties set
forth in Exhibit III attached hereto. Seller further represents and warrants to
the Buyer that the Computer Tape with respect to each Purchased Student Loan is
complete, true and correct as of the last calendar day of each month. It is
understood and agreed that the representations and warranties set forth in
Exhibit III attached hereto shall survive delivery of the respective Loan File
to Buyer or its designee.
(d) On the Purchase Date for any Transaction, Buyer and Seller shall each be
deemed to have made all the foregoing representations with respect to itself as
of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until this
Agreement is no longer in force with respect to any Transaction, Seller
covenants that it will not:
(a) take any action which would directly or indirectly impair or adversely
affect Buyer's rights in or the value of the Purchased Student Loans;
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or otherwise
transfer any interest in the Purchased Student Loans to any person not a party
to this Agreement nor will the Seller create, incur or permit to exist any lien,
encumbrance or security interest in or on the Purchased Student Loans except as
described in Section 6; or
(c) amend, alter, modify or change in any material way its underwriting
guidelines with respect to Purchased Student Loans without Buyer's consent.
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12. AFFIRMATIVE COVENANTS OF THE SELLER
For so long as this Agreement is in effect:
(a) Seller covenants that it will promptly notify Buyer of any material adverse
change in its business operations and/or financial condition.
(b) Seller shall provide Buyer with copies of such documentation as Buyer may
reasonably request evidencing the truthfulness of the representations set forth
in Section 10 and in Section 2 of the Guarantor Agreement, including but not
limited to resolutions evidencing the approval of this Agreement by the board of
trustees of Seller and/or Guarantor, and the Transactions contemplated hereby.
(c) Seller shall, at Buyer's request, take all action necessary to ensure that
Buyer will have a first priority security interest in the Purchased Student
Loans as and to the extent set forth in Section 6 and the Repurchase Trust
Agreement, including, among other things, filing such UCC financing statements
or other instruments as Buyer may reasonably request.
(d) Seller covenants that it will not create, incur or permit to exist any lien,
encumbrance or security interest in or on any of the Purchased Student Loans or
its beneficial interest therein (other than the security interest described in
Section 6) without the prior express written consent of Buyer. Seller shall
notify Buyer no later than one (1) Business Day after obtaining actual knowledge
thereof, if any event has occurred that constitutes an Event of Default with
respect to Seller or any event that with the giving of notice or lapse of time,
or both, would become an Event of Default with respect to Seller.
(e) Seller covenants to provide Buyer on or before the 15th day of each month
with respect to Purchased Student Loans, either by direct modem electronic
transmission, a computer diskette or any other format agreed to by Buyer, the
Computer Tape with respect to all Purchased Student Loans then subject to
Transactions.
(f) Seller covenants to provide Buyer with the following financial and reporting
information:
(i) within 90 days after the last day of its fiscal year, each of
Guarantor's and Seller's audited consolidated and consolidating
statements of income and statements of changes in cash flow for such
year and balance sheets as of the end of such year in each case
presented fairly in accordance with GAAP, and accompanied, in all
cases, by an unqualified report of a firm of "Big Six" independent
certified public accountants or any other nationally recognized
independent certified public accounting firm consented to by Buyer
(which consent shall not be unreasonably withheld);
(ii) within 60 days after the last day of the first three fiscal
quarters in any fiscal year, each of Guarantor's and Seller's
consolidated and consolidating statements of income and statements of
changes in cash flow for such quarter and balance sheets as of the end
of such quarter presented fairly in accordance with GAAP;
(iii) within 30 days after the last day of each calendar month, an
officer's certificate from the chief financial officer or treasurer of
the Seller addressed to Buyer certifying that, as of such calendar
month, (x) Seller is in compliance with all of the terms, conditions
and requirements of this Agreement, and (y) no Event of Default exists;
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(iv) within 30 days after the last day of each calendar month, notice
of all DOE audits of or any other actions of a material nature by the
DOE with respect to, Seller or any Affiliate thereof or, to the extent
it has knowledge thereof, of any Servicer or guarantor (including but
not limited to TERI) under any Guaranty Agreement, and, in each case,
notice of the results thereof (including, with respect to guarantors of
the Purchased Federal Student Loans, but not limited to, the rate of
reimbursement by the DOE for the guarantor under a Guaranty Agreement,
to the extent that such rate is below the maximum permitted under the
Higher Education Act (i.e., 98% with respect to Student Loans disbursed
on or after October 1, 1993 and 100% for loans disbursed prior
thereto));
(v) as promptly as practicable, copies of all reports or written
comments (including, without limitation, audit reports, management
letters and any other reports or communications with respect to the
internal control structure) relating to Seller or the Guarantor
submitted by its independent accountants;
(vi) not later than 11:00 a.m., New York City time, on the Business Day
after Seller becomes aware thereof, a report setting forth any material
changes or developments in the business of Seller, including, without
limitation, any material changes, developments or defaults under any
agreements;
(vii) as promptly as practicable (but in any event not later than three
(3) Business Days after filing), copies of all materials filed with
respect to the Guarantor with the Securities and Exchange Commission;
and
(viii) such other information as, from time to time, may reasonably be
requested by the Buyer.
(g) Seller and Guarantor shall each do all things necessary to remain duly
formed or incorporated, validly existing and in good standing as a partnership
or corporation, respectively, in its jurisdiction and maintain all requisite
authority to conduct its business in each jurisdiction in which it conducts
business; provided, that, Seller may merge, consolidate or otherwise reorganize
with or into an Affiliate for the purpose of converting to corporate form, so
long as Seller as constituted in such form shall have equity and a market value
of at least that of the Seller as a partnership immediately prior to such
conversion, and as a corporation, Seller shall continue otherwise to comply with
this subparagraph.
(h) Seller and Guarantor shall each comply with the requirements of all
applicable laws, statutes, rules, regulations and orders of, and all applicable
restrictions imposed by, all governmental authorities having jurisdiction over
its operations in respect of the conduct of its business and the ownership of
its property, except in the case of Guarantor where failure to do so would not
have a material adverse effect on its business or operations or on its ability
to perform its obligations under the Guarantor Agreement; provided, however,
that it shall not be required by reason of this Section 12(h) to comply
therewith at any time while it shall be contesting its obligation to do so in
good faith by appropriate proceedings, and if it shall have set aside such
reserves, if any, with respect thereto as are required by GAAP.
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(i) Seller shall not permit the Purchased Student Loans to contain (i) any
Federal Student Loan which is more than 120 days delinquent, (ii) any Private
Student Loan which is more than 90 days delinquent, (iii) more than 5% by
aggregate Purchase Price of Student Loans that are more than 30 days delinquent,
(iv) more than 2.5% by aggregate Purchase Price of Student Loans that are more
than 60 days delinquent, (v) any Federal Student Loan as to which the applicable
federal guarantor's obligation to make guaranty payments or the federal
reinsurance with respect thereto has for any reason been forfeited or qualified,
or (vi) any Private Student Loan as to which the obligation of TERI to make
guaranty payments under the TERI Guaranty Agreement has for any reason been
forfeited or qualified. Seller will deliver Additional Student Loans or
Substitute Student Loans as may be necessary to comply with this paragraph.
(j) Seller shall take all actions necessary to ensure that each Federal Student
Loan is subject to a Guaranty Agreement and that each Private Student Loan is
subject to a TERI Guaranty Agreement.
13. EVENTS OF DEFAULT
(a) If any of the following events (each an "Event of Default") occur, Buyer
shall have the rights set forth in Section 14, as applicable:
(i) Seller or Guarantor fails to satisfy or perform any material
obligation or covenant under this Agreement;
(ii) An Act of Insolvency occurs with respect to Seller or Guarantor;
(iii) Any representation made by Seller or Guarantor shall have been
incorrect or untrue in any material respect when made or repeated or
deemed to have been made or repeated;
(iv) Seller or Guarantor shall admit its inability to, or its intention
not to, perform any of its obligations hereunder;
(v) Any governmental, regulatory, or self-regulatory authority takes
any action to remove, limit, restrict, suspend or terminate the rights,
privileges, or operations of the Seller or Guarantor, which suspension
has a material adverse effect on the ordinary business operations of
Seller or Guarantor and which continues for more than five Business
Days;
(vi) Seller or Guarantor dissolves, merges or consolidates with another
entity (unless (A) it is the surviving party, (B) the entity into which
it merges has equity and a market value of at least that of the Seller
or Guarantor, respectively, immediately prior to such merger and such
entity expressly assumes the obligations, as applicable, of the Seller
hereunder or of the Guarantor under the Guarantor Agreement, as at the
time of such merger or (C) in the case of Seller as provided for in
Section 12(g)), or sells, transfers, or otherwise disposes of a
material portion of its business or assets, provided that a sale of
assets in connection with any securitization or similar type of
financing by Seller shall not constitute an Event of Default under this
subparagraph;
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(vii) Buyer, in its good faith judgment, believes that there has been a
material adverse change in the business, operations, corporate
structure or financial condition of Seller or Guarantor or that Seller
or Guarantor will not meet any of the Seller's obligations under any
Transaction pursuant to this Agreement, or any other agreement between
the parties;
(viii) Seller or Guarantor is in default under any material agreement
to which it is a party, provided, however, such a default shall not
constitute an Event of Default if the exercise of such remedies as are
available, as applicable, to Seller's or Guarantor's counterparty with
respect to such default would not result in a material adverse change
in the business operations or financial condition of the Seller or
Guarantor;
(ix) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $10,000,000
is rendered against the Seller or Guarantor, and the same remains
undischarged or unpaid for a period of sixty (60) days during which
execution of such judgment is not effectively stayed;
(x) This Agreement (together, in the case of the Federal Purchased
Student Loans, with the Repurchase Trust Agreement) shall for any
reason cease to create a valid, first priority perfected security
interest in any of the Purchased Student Loans purported to be covered
hereby;
(xi) A Collateral Deficit occurs with respect to Seller, and is not
eliminated within the time period specified in Section 4(b);
(xii) The Guarantor shall terminate, revoke, rescind, disaffirm or fail
to honor any of its obligations or covenants under the Guarantor
Agreement or notice is received by Buyer from Guarantor of its
intention to take any of the aforementioned actions; or
(xiii) TERI's long term credit rating shall not be investment grade or
better as published by any one of Moody's Investors Service, Inc.,
Fitch IBCA, Inc. and Standard & Poor's (provided, that no Event of
Default shall occur under this subparagraph for so long as (x) two of
the three aforementioned rating agencies continue to rate TERI's long
term credit rating investment grade or (y) no Private Student Loans are
included in the Purchased Student Loans).
(b) In making a determination as to whether an Event of Default has occurred,
the Buyer shall be entitled to rely on reports published or broadcast by media
sources believed by such party to be generally reliable and on information
provided to it by any other sources believed by it to be generally reliable,
provided that such party reasonably and in good faith believes such information
to be accurate and has taken such steps as may be reasonable in the
circumstances to attempt to verify such information.
14. REMEDIES
(a) If an Event of Default occurs with respect to Seller, the following rights
and remedies are available to Buyer:
15
<PAGE> 16
(i) At the option of Buyer, exercised by written notice to Seller
(which option shall be deemed to have been exercised, even if no notice
is given, immediately upon the occurrence of an Act of Insolvency), the
Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur.
(ii) If Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(i) of this Section,
(A) Seller's obligations hereunder to repurchase all Purchased
Student Loans in such Transactions shall thereupon become
immediately due and payable,
(B) to the extent permitted by applicable law, the Repurchase
Price with respect to each such Transaction shall be increased
by the aggregate amount obtained by daily application of, on a
360 day per year basis for the actual number of days during
the period from and including the date of the exercise or
deemed exercise of such option to but excluding the date of
payment of the Repurchase Price as so increased, (x) the
greater of the Prime Rate or the Pricing Rate for each such
Transaction to (y) the Repurchase Price for such Transaction
as of the Repurchase Date as determined pursuant to subsection
(a)(i) of this Section (decreased as of any day by (I) any
amounts actually in the possession of Buyer pursuant to clause
(C) of this subsection, (II) any proceeds from the sale of
Purchased Student Loans applied to the Repurchase Price
pursuant to subsection (a)(xiii) of this Section, and (III)
any amounts applied to the Repurchase Price pursuant to
subsection (a)(iii) of this Section), and
(C) all Income on the Purchased Student Loans actually
received in the Collection Account pursuant to Section 5 shall
be applied to the aggregate unpaid Repurchase Price owed by
Seller.
(iii) After one Business Day's notice to Seller (which notice need not
be given if an Act of Insolvency with respect to Seller or Guarantor
shall have occurred, and which may be the notice given under subsection
(a)(i) of this Section), Buyer, to the extent permitted by the Higher
Education Act, may instruct the Eligible Lender Trustee to (A)
immediately sell, without notice or demand of any kind, at a public or
private sale and at such price or prices Buyer may reasonably deem
satisfactory any or all Purchased Student Loans subject to a
Transaction hereunder (including with respect to any Federal Student
Loans legal title thereto, and all rights therein held by the EFG
Trustee, in accordance with the Higher Education Act) or (B) in its
sole discretion elect, in lieu of selling all or a portion of such
Purchased Student Loans, to give Seller credit for such Purchased
Student Loans in an amount equal to the Market Value of the Purchased
Student Loans against the aggregate unpaid Repurchase Price and any
other amounts owing by Seller hereunder. The proceeds of any
disposition of Purchased Student Loans shall be applied first to the
costs and expenses incurred by Buyer in connection with the Event of
Default; second to consequential damages, including but not limited to
costs of cover and/or related hedging transactions; third to the
Repurchase Price; and fourth to any other outstanding obligation of
Seller or Guarantor or any Affiliate thereof to Buyer hereunder or
under any other agreement between Buyer and such parties or otherwise.
16
<PAGE> 17
(iv) The parties recognize that it may not be possible to purchase or
sell all of the Purchased Student Loans on a particular Business Day,
or in a transaction with the same purchaser, or in the same manner
because the market for such Purchased Student Loans may not be liquid.
In view of the nature of the Purchased Student Loans, the parties agree
that liquidation of a Transaction or the underlying Purchased Student
Loans does not require a public purchase or sale and that a good faith
private purchase or sale shall be deemed to have been made in a
commercially reasonable manner. Accordingly, Buyer may elect, in its
sole discretion, the time and manner of liquidating any Purchased
Student Loan and nothing contained herein shall (A) obligate Buyer to
liquidate any Purchased Student Loan on the occurrence of an Event of
Default or to liquidate all Purchased Student Loans in the same manner
or on the same Business Day or (B) constitute a waiver of any right or
remedy of Buyer. However, in recognition of the parties' agreement that
the Transactions hereunder have been entered into in consideration of
and in reliance upon the fact that all Transactions hereunder
constitute a single business and contractual relationship and that each
Transaction has been entered into in consideration of the other
Transactions, the parties further agree that Buyer shall use its best
efforts to liquidate all Transactions hereunder upon the occurrence of
an Event of Default as quickly as is prudently possible in the
reasonable judgment of Buyer.
(v) Buyer shall, without regard to the adequacy of the security for the
Seller's obligations under this Agreement, be entitled to the
appointment of a receiver by any court having jurisdiction, without
notice, to (or cause the Eligible Lender Trustee to) take possession of
and protect, collect, manage, liquidate, and sell the Purchased Student
Loans or any portion thereof, and collect the payments due with respect
to the Purchased Student Loans or any portion thereof. Seller shall pay
all costs and expenses incurred by Buyer in connection with the
appointment and activities of such receiver.
(vi) Seller agrees that Buyer may obtain an injunction or an order of
specific performance to compel Seller to fulfill its obligations as set
forth in Section 25, if Seller fails or refuses to perform its
obligations as set forth therein.
(vii) Seller shall be liable to Buyer for the amount of all expenses,
reasonably incurred by Buyer in connection with or as a consequence of
an Event of Default, including, without limitation, reasonable legal
fees and expenses and reasonable costs incurred in connection with
hedging or covering transactions, and Seller shall be liable for all
fees and charges of the Eligible Lender Trustee and the Servicers
whether incurred before or after an Event of Default.
(viii) Buyer shall have all the rights and remedies provided herein,
provided by applicable federal, state, foreign, and local laws
(including, without limitation, the rights and remedies of a secured
party under the UCC of the Commonwealth of Massachusetts, to the extent
that the UCC is applicable, and the right to offset any mutual debt and
claim), in equity, and under any other agreement between Buyer and
Seller or Guarantor.
(ix) Buyer may exercise one or more of the remedies available to Buyer
immediately upon the occurrence of an Event of Default and, except to
the extent provided in subsection (a)(iii) of this Section, at any time
thereafter without notice to Seller or
17
<PAGE> 18
Guarantor. All rights and remedies arising under this Agreement as
amended from time to time hereunder are cumulative and not exclusive
of any other rights or remedies which Buyer may have.
(x) In addition to its rights hereunder, Buyer shall have the right to
proceed against any assets of Seller which may be in the possession of
Buyer or its designee including the right to liquidate such assets and
to set off the proceeds against monies owed by Seller to Buyer pursuant
to this Agreement. Buyer may set off cash, the proceeds of the
liquidation of the Purchased Student Loans, and all other sums or
obligations owed by Seller to Buyer against all of Seller's obligations
to Buyer, whether under this Agreement, under a Transaction, or under
any other agreement between the parties, whether or not such
obligations are then due, without prejudice to Buyer's right to recover
any deficiency. Any cash, proceeds, or property in excess of any
amounts due, or which Buyer reasonably believes may become due, to it
from Seller shall be returned to Seller after satisfaction of all
obligations of Seller to Buyer.
(xi) Buyer may enforce its rights and remedies hereunder without prior
judicial process or hearing, and Seller hereby expressly waives any
defenses Seller might otherwise have to require Buyer to enforce its
rights by judicial process. Seller also waives any defense Seller might
otherwise have arising from the use of nonjudicial process, enforcement
and sale of all or any portion of the Purchased Student Loans in a
commercially reasonable manner as set forth in this Agreement, or from
any other election of remedies. Seller recognizes that nonjudicial
remedies are consistent with the usages of the trade, are responsive to
commercial necessity and are the result of a bargain at arm's length.
(xii) Buyer and Seller hereby agree that sales of the Purchased Student
Loans shall be deemed to include and permit the sales of Purchased
Student Loans pursuant to a securities offering.
(xiii) Notwithstanding the foregoing remedies, if the Event of Default
(other than an Event of Default under Section 13(a)(x)) arises from a
breach of any representation or warranty set forth in Exhibit III
attached hereto with respect to a Purchased Student Loan, then Seller
may elect, subject to Buyer's written consent (which consent shall not
be unreasonably withheld or delayed), to cure such default by
repurchasing such Student Loan or substituting for such Student Loan
within two (2) Business Days of such Event of Default, provided,
however, that Seller shall not have the right to make the foregoing
election if such breach causes a default with respect to Student Loans
that in the aggregate represent ten percent (10%) or more of the
aggregate Purchase Price of all Purchased Student Loans subject to then
outstanding Transactions. The repurchase price for any such repurchase
shall be the outstanding Repurchase Price allocable to such Student
Loan. Any such substitution shall be performed in accordance with
Section 9 of this Agreement.
18
<PAGE> 19
15. ADDITIONAL CONDITIONS
Seller shall, on the date of the initial Transaction hereunder and,
upon the request of Buyer, on the date of any subsequent Transaction, cause to
be delivered to Buyer, with reliance thereon permitted as to any Person that
purchases the Purchased Student Loans from Buyer in a repurchase transaction, a
favorable opinion or opinions of counsel with respect to the matters set forth
in Exhibit II attached hereto relating to the Transactions described herein. In
addition, Buyer shall have received the structuring fee and any evidence of
corporate authority of Seller as reasonably requested.
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereunto and will enter into
each Transaction hereunder in consideration of and in reliance upon the fact
that, all Transactions hereunder constitute a single business and contractual
relationship and that each has been entered into in consideration of the other
Transactions. Accordingly, each of Buyer and Seller agrees (i) to perform all of
its obligations in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a default by it in
respect of all Transactions hereunder, (ii) that each of them shall be entitled
to set off claims and apply property held by them in respect of any Transaction
against obligations owing to them in respect of any other Transactions hereunder
and (iii) that payments, deliveries and other transfers made by either of them
in respect of any Transaction shall be deemed to have been made in consideration
of payments, deliveries, and other transfers in respect of any other
Transactions hereunder, and the obligations to make any such payments,
deliveries, and other transfers may be applied against each other and netted;
provided, however, that the parties hereto acknowledge and agree that each
Purchased Student Loan is identified and unique and nothing in this Agreement
should limit or reduce Buyer's obligation to deliver the Purchased Student Loans
to Seller or Seller's obligation to sell the Purchased Student Loans to Buyer,
in each case as and when provided herein.
17. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective party to whom
any written notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in the Confirmation.
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation and the Repurchase
Trust Agreement constitutes the entire understanding between Buyer and Seller
with respect to the subject matter it covers and shall supersede any existing
agreements between the parties containing general terms and conditions for
repurchase transactions involving Purchased Student Loans. By acceptance of this
Agreement, Buyer and Seller acknowledge that they have not made, and are not
relying upon, any statements, representations, promises or undertakings not
contained in this Agreement or the Repurchase Trust Agreement (or to the extent
relevant, the EFG Trust Agreement). Each provision and agreement herein shall be
treated as separate and independent from any other provision or agreement herein
and shall be enforceable notwithstanding the unenforceability of any such other
provision or agreement.
19
<PAGE> 20
19. NON-ASSIGNABILITY
The rights and obligations of the Seller under this Agreement and under any
Transaction shall not be assigned by it without the prior written consent of
Buyer. Nothing herein shall restrict Buyer's ability to participate its
interests in this Agreement, to the extent permitted by law. Subject to the
foregoing, this Agreement and any Transactions shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
Nothing in this Agreement express or implied, shall give to any person, other
than the parties to this Agreement and their successors hereunder, any benefit
or any legal or equitable right, power, remedy or claim under this Agreement.
20. TERMINABILITY
This Agreement shall terminate in 365 days unless the Buyer and Seller agree to
extend this Agreement for a period of 365 days therefrom, but will remain
applicable to any Transactions then outstanding until payment of the Repurchase
Price with respect thereto or any other amounts due hereunder.
21. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
22. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of the
United States District Court for the Southern District of New York, the parties
irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, sitting in New York County, the
parties irrevocably waiving any objection thereto. Notwithstanding the foregoing
two sentences, at either party's sole option exercisable at any time not later
than thirty (30) days after an action or proceeding has been commenced, the
parties agree that the matter may be submitted to binding arbitration in
accordance with the commercial rules of the American Arbitration Association
then in effect in the State of New York and judgment upon any award rendered by
the arbitrator may be entered in any court having jurisdiction thereof within
the City, County and State of New York; provided, however, that the arbitrator
shall not amend, supplement, or reform in any regard this Agreement or the terms
of any Confirmation, the rights or obligations of any party hereunder or
thereunder, or the enforceability of any of the terms hereof or thereof. Any
arbitration shall be conducted before a single arbitrator who shall be
reasonably familiar with repurchase transactions and the student loan industry
and secondary student loan market.
23. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any
20
<PAGE> 21
provision of this Agreement and no consent by any party to a departure here from
shall be effective unless and until such shall be in writing and duly executed
by both of the parties hereto. Any such waiver or modification shall be
effective only in the specific instance and for the specific purpose for which
it was given.
24. INTENT
The parties understand and intend that, to the maximum extent permitted by law,
this Agreement and each Transaction hereunder constitute a "repurchase
agreement" and a "securities contract" as those terms are defined under the
relevant provisions of Title 11 of the United States Code, as amended.
25. SERVICING
(a) Notwithstanding the purchase and sale of the Purchased Student Loans hereby,
Seller shall cause each Servicer to service the related Purchased Student Loans
for the benefit of Buyer and, if Buyer shall exercise its rights to pledge or
hypothecate the Purchased Student Loan prior to the related Repurchase Date
pursuant to Section 8, Buyer's assigns; provided, however, that the obligations
of Seller to service the Purchased Student Loans shall cease upon the payment by
Seller to Buyer of the Repurchase Price therefor. Seller shall cause each
Servicer to service the related Purchased Student Loans in accordance with the
servicing agreements and in compliance with all applicable federal and state
laws, including, in the case of Purchased Federal Student Loans, the Higher
Education Act and in the case of the Purchased Private Student Loans the
servicing guidelines of TERI.
(b) Upon the occurrence and continuance of an Event of Default, Buyer may, in
its sole discretion, sell the Purchased Student Loans to the extent of its
interest therein, subject to the servicing agreements relating to such Purchased
Student Loans and, in the case of Purchased Federal Student Loans, as permitted
by the Higher Education Act.
(c) Seller agrees that Buyer is the owner of all Servicing Records with respect
to the Purchased Student Loans. Seller covenants to safeguard such Servicing
Records and to deliver them promptly to Buyer or its designee at Buyer's
request.
(d) Seller shall cause each Servicer hereunder to execute a letter agreement
with Buyer acknowledging Buyer's security interest and agreeing that, upon
notice from Buyer that an Event of Default has occurred and is continuing
hereunder, it shall deposit all Income with respect to the Purchased Student
Loans in the account specified in Section 5(a).
26. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and all
references to a time shall mean New York time in effect on the date of the
action unless otherwise expressly stated in this Agreement.
(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing or orally by telephone or otherwise by an officer of the Seller or any
other person authorized in writing by the Seller to act
21
<PAGE> 22
on behalf of the Seller, and the Seller shall indemnify Buyer and defend and
hold Buyer harmless from and against any and all liabilities, losses, damages,
costs, and expenses of any nature arising out of or in connection with any
action taken by Buyer in response to such instructions received or reasonably
believed to have been received from the Seller. Seller shall further indemnify
Buyer and defend and hold Buyer harmless for any and all amounts due to the
Eligible Lender Trustee under Section 10 of the Repurchase Trust Agreement or
otherwise pursuant to such agreement, and the Eligible Lender Trustee agrees to
look directly and exclusively to Seller for any and all such amounts. Seller
shall, in addition, prepare all quarterly reports that are required to be
delivered to the Eligible Lender Trustee pursuant to Section 15 of the
Repurchase Trust Agreement, and the Eligible Lender Trustee agrees to look
exclusively to Seller and not to Buyer for the production of such reports. Buyer
shall indemnify Seller and defend and hold Seller harmless against any and all
liabilities, losses, damages, costs, and expenses caused by Buyer's failure to
make a timely delivery of the Purchased Student Loans as required hereunder.
(c) If there is any conflict between the terms of a Confirmation or a corrected
Confirmation issued by the Buyer and this Agreement, the Confirmation or the
corrected Confirmation shall prevail, as applicable.
(d) This Agreement may be executed in counterparts, each of which so executed
shall be deemed to be an original, but all of such counterparts shall together
constitute but one and the same instrument.
(e) Seller agrees to reimburse Buyer for all reasonable costs and expenses of
Buyer in connection with this Agreement including, without limitation, (i) the
fees, expenses and disbursement of counsel to Buyer (up to $40,000), (ii) due
diligence expenses and (iii) on-going auditing fees (which shall be limited to
$10,000 annually absent a default under this Agreement).
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(f) The headings in this Agreement are for convenience of reference only and
shall not affect the interpretation or construction of this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth above.
LEHMAN COMMERCIAL PAPER INC.,
Buyer
By:
----------------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
EDUCATIONAL FINANCE GROUP, LIMITED,
Seller
By:
----------------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
Acknowledged and agreed to:
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity
but solely as Eligible Lender
Trustee and, with respect to
Sections 1, 6 and 7, as EFG
Trustee
By:
----------------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
<PAGE> 1
EXHIBIT 10.2
================================================================================
LOAN AGREEMENT
among
UICI,
the banks named herein
NationsBank, N.A.,
doing business as
[BANK OF AMERICA LOGO]
as administrative agent
and
THE FIRST NATIONAL BANK OF CHICAGO,
as documentation agent
and
FLEET NATIONAL BANK
as co-agent
as of
17 May 1999
================================================================================
NATIONSBANC MONTGOMERY SECURITIES LLC,
as sole lead arranger and
sole book manager
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
Definitions..............................................................................................1
Section 1.1 Definitions.................................................................................1
Section 1.2 Other Definitional Provisions..............................................................10
Section 1.3 Accounting Terms and Determinations........................................................10
ARTICLE 2
Loans...................................................................................................10
Section 2.1 Commitments................................................................................10
Section 2.2 Notes......................................................................................11
Section 2.3 Repayment of Loans.........................................................................11
Section 2.4 Interest...................................................................................11
Section 2.5 Borrowing Procedure........................................................................15
Section 2.6 Prepayments, Conversions, and Continuations of Loans.......................................15
Section 2.7 Minimum Amounts............................................................................16
Section 2.8 Certain Notices............................................................................16
Section 2.9 Use of Proceeds............................................................................17
Section 2.10 Facility Fee..............................................................................17
Section 2.11 Computations..............................................................................17
Section 2.12 Reduction, Termination or Increase of Commitments.........................................17
ARTICLE 3
Payments................................................................................................18
Section 3.1 Method of Payment..........................................................................18
Section 3.2 Pro Rata Treatment.........................................................................18
Section 3.3 Sharing of Payments, Etc...................................................................19
Section 3.4 Non-Receipt of Funds by the Agent..........................................................19
ARTICLE 4
Yield Protection and Illegality.........................................................................19
Section 4.1 Increased Cost and Reduced Return..........................................................19
Section 4.2 Limitation on Types of Loans...............................................................20
Section 4.3 Illegality.................................................................................21
Section 4.4 Treatment of Affected Loans................................................................21
Section 4.5 Compensation...............................................................................21
Section 4.6 Taxes......................................................................................22
ARTICLE 5
Conditions Precedent....................................................................................23
Section 5.1 Initial Loan...............................................................................23
Section 5.2 All Loans..................................................................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 6
Representations and Warranties..........................................................................25
Section 6.1 Corporate Existence........................................................................25
Section 6.2 Financial Statements.......................................................................25
Section 6.3 Corporate Action; No Breach................................................................25
Section 6.4 Operation of Business......................................................................26
Section 6.5 Litigation and Judgments...................................................................26
Section 6.6 Rights in Properties; Liens................................................................26
Section 6.7 Enforceability.............................................................................26
Section 6.8 Approvals..................................................................................26
Section 6.9 Debt.......................................................................................26
Section 6.10 Taxes.....................................................................................26
Section 6.11 Margin Securities.........................................................................27
Section 6.12 ERISA.....................................................................................27
Section 6.13 Disclosure................................................................................27
Section 6.14 Subsidiaries..............................................................................27
Section 6.15 Agreements................................................................................27
Section 6.16 Compliance with Laws......................................................................27
Section 6.17 Investment Company Act....................................................................28
Section 6.18 Public Utility Holding Company Act........................................................28
Section 6.19 Environmental Matters.....................................................................28
Section 6.20 Labor Disputes and Acts of God............................................................28
Section 6.21 Year 2000 Compliance......................................................................28
ARTICLE 7
Positive Covenants......................................................................................28
Section 7.1 Reporting Requirements.....................................................................29
Section 7.2 Maintenance of Existence; Conduct of Business..............................................30
Section 7.3 Maintenance of Properties..................................................................30
Section 7.4 Taxes and Claims...........................................................................30
Section 7.5 Insurance..................................................................................31
Section 7.6 Inspection Rights..........................................................................31
Section 7.7 Keeping Books and Records..................................................................31
Section 7.8 Compliance with Laws.......................................................................31
Section 7.9 Compliance with Agreements.................................................................31
Section 7.10 Further Assurances........................................................................31
Section 7.11 ERISA.....................................................................................31
Section 7.12 Year 2000 Compliance......................................................................31
ARTICLE 8
Negative Covenants......................................................................................32
Section 8.1 Debt.......................................................................................32
Section 8.2 Limitation on Liens........................................................................33
Section 8.3 Mergers, Etc...............................................................................35
Section 8.4 Restricted Payments........................................................................36
Section 8.5 Investments................................................................................36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.6 Transactions With Affiliates. ............................................................38
Section 8.7 Disposition of Property....................................................................38
Section 8.8 Prepayment of Debt.........................................................................39
Section 8.9 Lines of Business..........................................................................39
Section 8.10 Environmental Protection..................................................................39
ARTICLE 9
Financial Covenants.....................................................................................40
Section 9.1 Consolidated Net Worth.....................................................................40
Section 9.2 Consolidated Debt to Total Capitalization Ratio............................................40
Section 9.3 Interest Coverage..........................................................................40
Section 9.4 Risk-Based Capital.........................................................................41
ARTICLE 10
Default.................................................................................................42
Section 10.1 Events of Default.........................................................................42
Section 10.2 Remedies..................................................................................44
Section 10.3 Performance by the Agent..................................................................44
Section 10.4 Continuance of Default. ..................................................................44
Section 10.5 Setoff....................................................................................44
ARTICLE 11
The Agent...............................................................................................45
Section 11.1 Appointment, Powers and Immunities........................................................45
Section 11.2 Reliance by Agent.........................................................................45
Section 11.3 Defaults..................................................................................46
Section 11.4 Rights as Bank............................................................................46
Section 11.5 INDEMNIFICATION...........................................................................46
Section 11.6 Non-Reliance on Agent and Other Banks.....................................................46
Section 11.7 Resignation of Agent......................................................................47
Section 11.8 Several Commitments.......................................................................47
Section 11.9 Agent Fee.................................................................................47
Section 11.10 Documentation Agent and Co-Agent.........................................................47
ARTICLE 12
Miscellaneous...........................................................................................47
Section 12.1 Expenses..................................................................................47
Section 12.2 INDEMNIFICATION...........................................................................48
Section 12.3 Limitation of Liability...................................................................48
Section 12.4 No Duty...................................................................................48
Section 12.5 No Fiduciary Relationship.................................................................49
Section 12.6 Equitable Relief..........................................................................49
Section 12.7 No Waiver; Cumulative Remedies............................................................49
Section 12.8 Successors and Assigns....................................................................49
Section 12.9 Survival..................................................................................50
Section 12.10 ENTIRE AGREEMENT.........................................................................51
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 12.11 Amendments...............................................................................51
Section 12.12 Maximum Interest Rate....................................................................51
Section 12.13 Notices..................................................................................52
Section 12.14 Governing Law; Submission to Jurisdiction................................................52
Section 12.15 Counterparts.............................................................................52
Section 12.16 Severability.............................................................................52
Section 12.17 Headings.................................................................................53
Section 12.18 Construction.............................................................................53
Section 12.19 Independence of Covenants................................................................53
Section 12.20 WAIVER OF JURY TRIAL.....................................................................53
Section 12.21 Confidentiality..........................................................................53
</TABLE>
iv
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Section
- ------- ---------------------- -------
<S> <C> <C>
"A" Form of Note 2.2
"B" Matters to be Addressed by Opinion of Counsel 5.1(r)
"C" Form of Assignment and Acceptance 12.8
"D" Borrowing Request 2.5
"E" Compliance Certificate 7.1(c)
"F" Increase Commitment Supplement 2.12(b)
</TABLE>
INDEX TO SCHEDULES
Schedule Description of Schedule
6.9 Existing Debt
6.14 Subsidiaries
6.14A Organizational Chart
8.1 Summary of Proposed Terms for $60,000,000 Senior Notes
8.2 Existing Liens; Restrictions on Subsidiaries
v
<PAGE> 7
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), dated as of May 17, 1999, is
among UICI, a corporation duly organized and validly existing under the laws of
the State of Delaware ("Borrower"), each of the banks or other lending
institutions which is or which may from time to time become a signatory hereto
or any successor or assignee thereof (individually, a "Bank" and, collectively,
the "Banks"), THE FIRST NATIONAL BANK OF CHICAGO, as documentation agent, FLEET
NATIONAL BANK, as co-agent and NationsBank, N.A., doing business as BANK OF
AMERICA, NATIONAL ASSOCIATION, a national banking association, as administrative
agent for itself and the other Banks (in such capacity, together with its
successors in such capacity, the "Agent").
R E C I T A L S:
The Borrower has requested that the Banks make a revolving credit loan
to the Borrower. The Banks are willing to make such loan to the Borrower upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
have the following meanings:
"1999 Senior Note Agreement" means the Note Purchase Agreement dated in
1999 pursuant to which up to Seventy-Five Million Dollars ($75,000,000) of the
Borrower's senior notes have been or will be issued, as the same may be amended
or otherwise modified from time to time.
"8.75% Senior Note Agreement" means that certain Note Purchase
Agreement dated as of June 1, 1994 among the Borrower and the purchasers party
thereto relating to the Borrower's 8.75% Senior Notes due 2004, as the same may
be amended or otherwise modified from time to time.
"Adjusted Libor Rate" means, for any Libor Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the quotient obtained by
dividing (a) the Libor Rate for such Libor Loan for such Interest Period by (b)
1 minus the Reserve Requirement for such Libor Loan for such Interest Period.
"Affected Loan" has the meaning specified in Section 4.4.
"Affected Type" has the meaning specified in Section 4.4.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of the voting stock of such
Person; or (c) ten percent (10%) or more of the voting stock of which is
directly or indirectly beneficially owned or held by the Person in question. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause
LOAN AGREEMENT - PAGE 1
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direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however, in
no event shall the Agent or any Bank be deemed an Affiliate of the Borrower or
any of the Subsidiaries.
"Aegon Facility" means the revolving credit arrangement provided to the
Borrower by Money Services, Inc.
"Applicable Lending Office" means for each Bank and each Type of Loan,
the Lending Office of such Bank (or of an Affiliate of such Bank) designated for
such Type of Loan below its name on the signature pages hereof or such other
office of such Bank (or of an Affiliate of such Bank) as such Bank may from time
to time specify to the Borrower and the Agent as the office by which its Loans
of such Type are to be made and maintained.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and its Assignee and accepted by the Agent pursuant to Section
12.8, in substantially the form of Exhibit "C" hereto.
"Assignee" has the meaning specified in Section 12.8.
"Assigning Bank" has the meaning specified in Section 12.8.
"Attributable Net Income" has the meaning specified in Section 9.3.
"Available Domestic Insurance Subsidiary Earnings" has the meaning
specified in Section 9.3.
"Base Margin" has the meaning specified in Section 2.4 (b).
"Base Rate" means, for any day, the rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus one-half of one percent (0.50%)
and (b) the Prime Rate for such day. Any change in the Base Rate due to a change
in the Prime Rate or the Federal Funds Rate shall be effective on the effective
date of such change in the Prime Rate or Federal Funds Rate.
"Base Rate Loans" means the portions of the principal amounts
outstanding hereunder that bear interest at rates based upon the Base Rate.
"Borrowing Request" means a request for a Loan in substantially the
form of Exhibit "D" properly completed and duly executed by a financial officer
of the Borrower authorized to deliver such request under certified resolutions
of Borrower delivered to the Agent.
"Business Day" means (a) any day on which commercial banks are not
authorized or required to close in Dallas, Texas; (b) with respect to all
borrowings, payments, Conversions, Continuations, Interest Periods, and notices
in connection with Libor Loans, any day which is a Business Day described in
clause (a) above and which is also a day on which dealings in Dollar deposits
are carried out in the London interbank market; and (c) with respect to the
determination of the Federal Funds Rate, any day which is a Business Day
described in clause (a) above and which is also a day on which such rate is
published by the Federal Reserve Bank of New York.
"Capital Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person
LOAN AGREEMENT - PAGE 2
<PAGE> 9
under GAAP. For purposes of this Agreement, the amount of such Capital Lease
Obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"Capital Stock" means any capital stock or other ownership interests of
any Person and any interests therein or relating thereto, including without
limitation, any options, warrants or other rights to acquire any interest
therein or thereto.
"Cash Flow" has the meaning specified in Section 9.3.
"Closing Date" means May 17, 1999.
"CMO Derivative Investment" has the meaning specified in Section 8.5.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Commitment" means, as to each Bank, the obligation of such Bank to
make Loans hereunder in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount set forth opposite the name of
such Bank on the signature pages hereto under the heading "Commitment" or if
such Bank is a party to an Assignment and Acceptance, the amount set forth in
the most recent Assignment and Acceptance of such Bank, as the same may be
reduced or terminated pursuant to Section 2.12(a) or 10.2 or increased pursuant
to Section 2.12(b). The aggregate amount of all Commitments on the Closing Date
equals One Hundred Million Dollars ($100,000,000)
"Compliance Certificate" means a certificate in substantially the form
of Exhibit "E" properly completed and duly executed by a financial officer of
the Borrower authorized to deliver such certificate under certified resolutions
of Borrower delivered to Agent.
"Consolidated Debt" means, at any particular time, the sum of the
following calculated for the Borrower and the Subsidiaries on a consolidated
basis and without duplication: (a) all obligations for borrowed money (excluding
time deposits); plus (b) all obligations evidenced by bonds, notes, debentures
or other similar instruments; plus (c) all obligations to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business; plus (d) all Capital Lease Obligations; minus
(e) to the extent included in clauses (a) through (d) above, the sum of (i)
unfunded commitments to make student loans and credit card loans plus (ii) any
other outstanding Debt incurred in the ordinary course of the Borrower's and the
Subsidiaries' credit card and student loan businesses if such Debt is secured by
credit card receivables or student loans.
"Consolidated Net Worth" means the consolidated stockholders' equity of
the Borrower determined in accordance with GAAP.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Libor Loan from one Interest Period to
the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into another Type of
Loan.
"Credit Subsidiaries" means any Subsidiary engaged in the credit card
or student loan businesses or any Subsidiary owning such a Subsidiary.
LOAN AGREEMENT - PAGE 3
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"Debt" means as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable of such Person arising in the ordinary
course of business that are not past due by more than ninety (90) days; (d) all
Capital Lease Obligations of such Person; (e) all Debt or other obligations of
others Guaranteed by such Person; (f) all obligations secured by a Lien existing
on property owned by such Person, whether or not the obligations secured thereby
have been assumed by such Person or are non-recourse to the credit of such
Person; (g) all reimbursement obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers' acceptances, surety or
other bonds and similar instruments; (h) all obligations of such Person to
redeem or retire shares of Capital Stock of such Person except any obligations
to repurchase common Capital Stock of the Borrower issued to officers, employees
and agents of the Borrower or the Subsidiaries pursuant to a stock option plan,
stock purchase plan, other compensation plan or other compensation arrangement
authorized by the Board of Directors of Borrower; (i) all obligations and
liabilities of such Person under Interest Rate Protection Agreements; (j) all
liabilities of such Person in respect of unfunded vested benefits under any
Plan; (k) all obligations of such Person, contingent or otherwise, for the
payment of money under any noncompete, consulting or similar agreement or any
other similar arrangements providing for the deferred payment of the purchase
price for an acquisition; and (l) all other amounts required to be reflected as
a liability on a consolidated balance sheet of such Person in accordance with
GAAP other than accruals, taxes, time deposits, policy liabilities and unfunded
commitment to make student loans and credit card loans.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means a rate per annum during the period commencing on
the due date until such amount is paid in full equal to the sum of two percent
(2.0%) plus the Base Rate as in effect from time to time plus the Base Margin
(provided, that if such amount in default is principal of a Libor Loan and the
due date is a day other than the last day of an Interest Period therefor, the
"Default Rate" for such principal shall be, for the period from and including
the due date and to but excluding the last day of the Interest Period therefor,
two percent (2.0%) plus the Libor Rate applicable to such Interest Period plus
the Libor Margin, and, thereafter, the rate provided for above in this
definition).
"Dollars" and "$" mean lawful money of the United States of America.
"Domestic Insurance Subsidiary" means an Insurance Subsidiary organized
under the laws of a jurisdiction located within the United States of America.
"D&P" has the meaning specified in Section 2.4 (b).
"Eligible Assignee" means (i) a Bank; (ii) an Affiliate of a Bank; and
(iii) any other Person approved by the Agent and, if no Default exists, the
Borrower, which approval, in either case, shall not be unreasonably withheld;
provided, however, that neither the Borrower nor an Affiliate of the Borrower
shall qualify as an Eligible Assignee.
"Environmental Laws" means any and all federal, state, and local laws,
regulations, and requirements pertaining to health, safety, or the environment,
as such laws, regulations, and requirements may be amended or otherwise modified
from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
LOAN AGREEMENT - PAGE 4
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"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Event of Default" has the meaning specified in Section 10.1.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to the Agent (in its
individual capacity) on such day on such transactions as determined by the
Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing the payment or
performance of any Debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect the obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Increased Commitment Supplement" means a supplement to this Loan
Agreement substantially in the form attached hereto as Exhibit "F", executed and
delivered by the Borrower, the Agent and one or more of the Banks and/or any New
Banks (as defined in Section 2.12(b)), which sets forth the increase in the
Commitment of each Bank party thereto, and to the extent that there are New
Banks, the agreement of each such New Bank to become a Bank party to and bound
by this Agreement and the other Loan Documents.
"Interest Expense" has the meaning specified in Section 9.3.
"Hazardous Material" means any material which is or becomes listed,
regulated, or addressed under any Environmental Law.
LOAN AGREEMENT - PAGE 5
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"Insurance Regulatory Authority" shall mean, with respect to any
Domestic Insurance Subsidiary, the Governmental Authority of such Domestic
Insurance Subsidiary's state of domicile with whom such Domestic Insurance
Subsidiary is required to file its annual financial statement prepared in
accordance with SAP.
"Insurance Subsidiary" shall mean any Subsidiary that is authorized or
admitted to carry on or transact one or more aspects of the business of selling,
issuing or underwriting insurance or reinsurance.
"Interest Period" means, with respect to a Libor Loan, each period
commencing on the date such Libor Loan is made or Converted from a Base Rate
Loan or the last day of the next preceding Interest Period with respect to such
Libor Loan, and ending on the numerically corresponding day in the first,
second, third, sixth or twelfth calendar month thereafter, as the Borrower may
select as provided in Section 2.8 hereof or ending on any other day offered by
the Banks, except that each such Interest Period which commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next succeeding
Business Day (or if such succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (b) any Interest Period
which would otherwise extend beyond the Termination Date shall end on the
Termination Date; (c) no more than three (3) Interest Periods shall be in effect
at the same time; and (d) unless offered by the Banks, no Interest Period shall
have a duration of less than one (1) month and, if the Interest Period would
otherwise be a shorter period, such Libor Loans shall not be available
hereunder.
"Interest Rate Protection Agreements" means, with respect to any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specified
contingencies.
"Investments" has the meaning specified in Section 8.5.
"Jensen Family" has the meaning specified in Section 10.1(l).
"Leverage Ratio" has the meaning specified in Section 2.4 (b).
"Libor Loans" means the portions of the principal amounts outstanding
hereunder that bear interest at rates based upon the Adjusted Libor Rate.
"Libor Rate" means, for any Libor Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "Libor Rate" shall mean, for any Libor Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates (rounded upwards, if necessary, to the
nearest 1/100 of 1%).
"Lien" means any lien, mortgage, security interest, tax lien, financing
statement, pledge, charge, hypothecation, assignment, preference, priority, or
other encumbrance of any kind or nature whatsoever
LOAN AGREEMENT - PAGE 6
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(including, without limitation, any conditional sale or title retention
agreement), whether arising by contract, operation of law, or otherwise.
"Loans" has the meaning specified in Section 2.1.
"Loan Documents" means this Agreement and all promissory notes,
assignments, guaranties, and other agreements executed and delivered pursuant to
or in connection with this Agreement and all Interest Rate Protection Agreements
entered into by the Borrower or any Subsidiary with any Bank, as such agreements
may be amended or otherwise modified from time to time.
"Material Adverse Effect" means the occurrence of any event or the
existence of any condition that reasonably could be expected to have a material
adverse effect on (a) the properties, prospects, business, operations, condition
(financial or otherwise), liabilities, or capitalization of the Borrower and the
Subsidiaries, taken as a whole, (b) the ability of the Borrower to pay and
perform the Obligations when due, or (c) the validity or enforceability of any
of the Loan Documents or the rights and remedies of the Banks or the Agent
thereunder. In determining whether any individual event could reasonably be
expected to result in a Material Adverse Effect, notwithstanding that such event
does not itself have such effect, a Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other then existing
events could reasonably be expected to result in a Material Adverse Effect.
"Maximum Rate" with respect to any Bank, the maximum non-usurious
interest rate, if any, that any time or from time to time may be contracted for,
taken, reserved, charged, or received with respect to the Notes or on other
amounts, if any, payable to such Bank pursuant to this Agreement or any other
Loan Document, under laws applicable to such Bank which are presently in effect,
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum non-usurious interest rate than
applicable laws now allow. The Maximum Rate shall be calculated in a manner that
takes into account any and all fees, payments, and other charges in respect of
the Loan Documents that constitute interest under applicable law. Each change in
any interest rate provided for herein based upon the Maximum Rate resulting from
a change in the Maximum Rate shall take effect without notice to the Borrower at
the time of such change in the Maximum Rate. For purposes of determining the
Maximum Rate under Texas law, the applicable rate ceiling shall be the weekly
ceiling described in, and computed in accordance with the Texas Finance Code;
provided, however, that to the extent permitted by applicable law, the Agent
shall have the right to change the applicable rate ceiling from time to time in
accordance with applicable law.
"Moody's" has the meaning specified in Section 2.4 (b).
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance Commissioners,
or any successor organization.
"NationsBank" means NationsBank, N.A., doing business as Bank of
America, National Association.
"New Bank" has the meaning specified in Section 2.12(b).
"Net Income" has the meaning specified in Section 9.3.
LOAN AGREEMENT - PAGE 7
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"Notes" means the promissory notes provided for by Section 2.2 hereof,
and all extensions, renewals, and modifications thereof and all substitutions
therefor (including promissory notes issued by the Borrower pursuant to Section
12.8 and Section 2.12 (b)).
"Obligated Party" means any Person (exclusive of the Borrower) who is
or hereafter becomes party to any agreement that guarantees or secures payment
and performance of the Obligations or any part thereof.
"Obligations" means all obligations, indebtedness, and liabilities of
the Borrower to the Agent and the Banks, or any of them, arising pursuant to any
of the Loan Documents, now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several, including, without limitation, the
obligation of the Borrower to repay the Loans, interest on the Loans, and all
fees, costs, and expenses (including reasonable attorney's fees) provided for in
the Loan Documents.
"Other Taxes" has the meaning specified in Section 4.6.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental Authority, or
other entity.
"Plan" means any employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and which is covered by Title
IV of ERISA.
"Pricing Level" has the meaning specified in Section 2.4 (b).
"Prime Rate" means the per annum rate of interest established from time
to time by NationsBank as its prime rate, which rate may not be the lowest rate
of interest charged by NationsBank to its customers.
"Principal Office" means the principal office of the Agent, presently
located at 901 Main Street, 66th Floor, Dallas, Texas 75202.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Quarterly Payment Date" means the last day of each March, June,
September, and December of each year, the first of which shall be June 30, 1999.
"Rating Date" has the meaning specified in Section 2.4(b).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, or requests applying to a class of banks
including such Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
LOAN AGREEMENT - PAGE 8
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"Required Banks" means at any time while no Loans are outstanding,
Banks having at least fifty-one percent (51%) of the aggregate amount of the
Commitments and, at any time while Loans are outstanding, Banks holding at least
fifty-one percent (51%) of the outstanding aggregate principal amount of the
Loans.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks with respect to (i) any category
of liabilities which includes deposits by reference to which the Adjusted Libor
Rate is to be determined, or (ii) any category of extensions of credit or other
assets which include Libor Loans. The Adjusted Libor Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement.
"Risk-Based Capital" has the meaning specified in Section 9.4.
"SAP" means, with respect to any Domestic Insurance Subsidiary,
statutory accounting practices prescribed or permitted by the insurance laws or
regulations or the Insurance Regulatory Authority in the jurisdiction of the
domicile of such Domestic Insurance Subsidiary for the preparation of financial
statements and other financial reports by insurance companies of the same type
as such Domestic Insurance Subsidiary. Statutory accounting practices are
applied on a "consistent basis" when the practices applied in a current period
are comparable in all material respects to those practices applied in a
preceding period.
"Senior Note Agreements" means the 8.75% Senior Note Agreement and the
1999 Senior Note Agreement.
"Significant Subsidiary" means The MEGA Life and Health Insurance
Company, Mid-West National Life Insurance Company of Tennessee, The Chesapeake
Life Insurance Company, United Credit National Bank, Specialized Card Services,
Inc., United Membership Marketing Group, L.L.C., Educational Finance Group,
Inc., National Motor Club of America, Inc., Insurdata Incorporated, UICI
Insurance Administrators, Incorporated, AMLI Realty Co. and any other Subsidiary
whose consolidated stockholder's equity (determined in accordance with GAAP)
equals or exceeds ten percent (10%) of the Consolidated Net Worth.
"S&P" has the meaning specified in Section 2.4(b).
"Subsidiary" means any corporation or other entity of which at least a
majority of the outstanding shares of stock or other ownership interests having
by the terms thereof ordinary voting power to elect a majority of the board of
directors (or Persons performing similar functions) of such corporation or
entity (irrespective of whether or not at the time, in the case of a
corporation, stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned or controlled by the Borrower or one or
more of the Subsidiaries or by the Borrower and one or more of the Subsidiaries.
"Taxes" has the meaning specified in Section 4.6.
"Termination Date" means May 17, 2002 or such earlier date on which the
Commitments terminate as provided in this Agreement.
LOAN AGREEMENT - PAGE 9
<PAGE> 16
"Total Capitalization" means the sum of (i) Consolidated Debt plus (ii)
Consolidated Net Worth.
"Transaction Documents" means the Loan Documents, the 1999 Senior Note
Agreement and all notes and other documentation executed and delivered pursuant
to or in connection with the 1999 Senior Note Agreement as the same may be
amended or otherwise modified from time to time.
"Type" means any type of Loan (i.e., Base Rate Loan or Libor Loans).
"Unlock Date" has the meaning specified in Section 2.4(b).
"Year 2000 Ready" has the meaning specified in Section 6.21.
"Year 2000 Problem" has the meaning specified in Section 6.21.
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. Terms
used herein that are defined in the UCC, unless otherwise defined herein, shall
have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations. Except as otherwise
expressly provided herein with respect to clause (l) of Section 8.5, Section 9.3
(to the extent applicable to the Domestic Insurance Subsidiaries), Section 9.4
and the separate financial statements of the Domestic Insurance Subsidiaries,
all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Agent and the Banks hereunder shall be prepared, in accordance
with GAAP, on a basis consistent with those used in the preparation of the
financial statements referred to in Section 6.2 hereof. All calculations made
for the purposes of determining compliance with the provisions of this Agreement
(except the provisions of clause (l) of Section 8.5, Section 9.3 (to the extent
applicable to the Domestic Insurance Subsidiaries) and Section 9.4) shall be
made by application of GAAP, on a basis consistent with those used in the
preparation of the financial statements referred to in Section 6.2 hereof. The
calculations made for the purposes of determining compliance with clause (l) of
Section 8.5, Section 9.3 (to the extent applicable to the Domestic Insurance
Subsidiaries) and Section 9.4 shall be made by application of SAP, on a basis
consistent with those used in the preparation of the Domestic Insurance
Subsidiary financial statements referred to in Section 6.2. All separate
financial statements of the Domestic Insurance Subsidiaries delivered under
Section 7.1 shall be prepared in accordance with SAP, on a basis consistent with
those used in the preparation of the Domestic Insurance Subsidiary financial
statements referred to in Section 6.2. To enable the ready and consistent
determination of compliance by the Borrower with its obligations under this
Agreement, the Borrower will not change the last day of its fiscal year from
December 31, or the last days of the first three fiscal quarters of the Borrower
in each of its fiscal years from March 31, June 30, and September 30,
respectively.
ARTICLE 2
Loans
Section 2.1 Commitments. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make one or more loans ("Loans") to the
Borrower from time to time from and including the date hereof
LOAN AGREEMENT - PAGE 10
<PAGE> 17
to but excluding the Termination Date in an aggregate principal amount at any
time outstanding up to but not exceeding the amount of such Bank's Commitment as
then in effect. Subject to the foregoing limitations, and the other terms and
provisions of this Agreement, the Borrower may borrow, prepay, and reborrow
hereunder the amount of the Commitments by means of Base Rate Loans and Libor
Loans and, until the Termination Date, the Borrower may Continue Libor Loans or
Convert Loans of one Type into Loans of another Type. Loans of each Type made by
each Bank shall be made and maintained at such Bank's Applicable Lending Office
for Loans of such Type.
Section 2.2 Notes. The Loans made by each Bank shall be evidenced by a
single promissory note of the Borrower in substantially the form of Exhibit "A"
hereto, payable to the order of such Bank in a principal amount equal to its
Commitment as originally in effect and otherwise duly completed.
Section 2.3 Repayment of Loans. The Borrower agrees to pay to the order
of the Agent for the account of the Banks the outstanding principal amount of
all of the Loans on the Termination Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Agent for the account
of each Bank interest on the unpaid principal amount outstanding hereunder, at
the following rates per annum:
(i) with respect to each Base Rate Loan, the Base Rate plus
the Base Margin; and
(ii) with respect to each Libor Loan, the Adjusted Libor Rate
plus the Libor Margin.
(b) Applicable Margins and Facility Fee. The margins identified in
Section 2.4 (a) and the fees payable under Section 2.10 hereof shall be defined
and determined as follows:
(i) "Base Margin" shall mean:
(A) zero percent (0%) per annum during the period
commencing on and including the Closing Date and ending on but
excluding the earlier of (1) May 17, 2000 or (2) the first
Business Day after the Borrower has notified the Agent that
the Borrower's senior unsecured long-term debt securities have
been rated for the first time by two of the following: Duff &
Phelps Credit Rating Agency (herein "D&P"), Moody's Investors
Service, Inc. (herein "Moody's") or Standard & Poor's Ratings
Group (herein "S&P" and the Business Day referred to in this
clause (2) herein the "Rating Date" and the earlier of the
Rating Date or May 17, 2000, herein the "Unlock Date") and
(B) at all times on and after the Unlock Date:
(1) if the Rating Date has not occurred
prior to the start of the applicable Calculation
Period (as defined below) or if the Borrower's senior
unsecured long-term debt securities are not rated by
any two of D&P, Moody's or S&P at the start of the
applicable Calculation Period, then during each
applicable Calculation Period, the percent per annum
set forth in the Leverage Table below in this Section
2.4 (b) under the heading "Base Margin" and opposite
the Leverage Ratio which
LOAN AGREEMENT - PAGE 11
<PAGE> 18
corresponds with the actual Leverage Ratio calculated
as of the end of the most recently completed fiscal
quarter prior to the start of the applicable
Calculation Period or
(2) if the Rating Date has occurred and as
long as the Borrower's senior unsecured long-term
debt securities are rated by any two of D&P, Moody's
or S&P, then during each applicable Calculation
Period, the percent per annum set forth in the Rating
Table below in this Section 2.4 (b) under the heading
"Base Margin" and opposite the "Pricing Level" in
existence as of the first day of the applicable
Calculation Period.
(ii) "Facility Fee Rate" shall mean (A) during the period
commencing on and including the Closing Date and ending on but
excluding the Unlock Date, one quarter of one percent (.25%) per annum
and, (B) at all times on and after the Unlock Date (1) if the Rating
Date has not occurred prior to the start of the applicable Calculation
Period or if the Borrower's senior unsecured long-term debt securities
are not rated by any two of D&P, Moody's or S&P at the start of the
applicable Calculation Period, then during each applicable Calculation
Period, the percent per annum set forth in the Leverage Table below in
this Section 2.4 (b) under the heading "Facility Fee Rate" and opposite
the Leverage Ratio which corresponds with the actual Leverage Ratio
calculated as of the end of the most recently completed fiscal quarter
prior to the start of the applicable Calculation Period or (2) if the
Rating Date has occurred and as long as the Borrower's senior unsecured
long-term debt securities are rated by any two of D&P, Moody's or S&P,
then during each Calculation Period, the percent per annum set forth in
the Rating Table below in this Section 2.4 (b) under the heading
"Facility Fee Rate" and opposite the "Pricing Level" in existence as of
the first day of the applicable Calculation Period.
(iii) "Libor Margin" shall mean (A) during the period
commencing on and including the Closing Date and ending on but
excluding the Unlock Date, three quarters of one percent (.75%) per
annum and, (B) at all times on and after the Unlock Date (1) if the
Rating Date has not occurred prior to the start of the applicable
Calculation Period or if the Borrower's senior unsecured long-term debt
securities are not rated by any two of D&P, Moody's or S&P at the start
of the applicable Calculation Period, then during each applicable
Calculation Period, the percent per annum set forth in the Leverage
Table below in this Section 2.4 (b) under the heading "Libor Margin"
and opposite the Leverage Ratio which corresponds with the actual
Leverage Ratio calculated as of the end of the most recently completed
fiscal quarter prior to the start of the applicable Calculation Period
or (2) if the Rating Date has occurred and as long as the Borrower's
senior unsecured long-term debt securities are rated by any two of D&P,
Moody's or S&P, then during each applicable Calculation Period, the
percent per annum set forth in the Rating Table below in this Section
2.4 (b) under the heading "Libor Margin" and opposite the "Pricing
Level" in existence as of the first day of the applicable Calculation
Period.
LOAN AGREEMENT - PAGE 12
<PAGE> 19
The following is the Leverage Table referred to in clauses (i), (ii)
and (iii) of this Section 2.4:
LEVERAGE TABLE
<TABLE>
<CAPTION>
=======================================================================
Facility
Leverage Ratio Base Margin Libor Margin Fee Rate
- -------------- ----------- ------------ --------
<S> <C> <C> <C>
<=1.00:1 0.000% 0.550% 0.200%
>1.00:1 <= 1.50:1 0.000% 0.750% 0.250%
>1.50:1 <= 2.00:1 0.000% 0.875% 0.375%
>2.00:1 <= 2.75:1 0.125% 1.125% 0.375%
>2.75:1 0.475% 1.475% 0.400%
=======================================================================
</TABLE>
The Leverage Table is the applicable table to determine the margins and
fees hereunder on and after the Unlock Date when the Borrower's senior unsecured
long-term debt securities are not rated by any two of D&P, Moody's or S&P and
the Agent shall not have provided written notice to Borrower that the rates to
be in existence when an Event of Default has occurred are in effect. When the
Leverage Table is the applicable table to determine the margins and fees
hereunder as determined above and upon delivery of the Compliance Certificate
pursuant to subsection 7.1(c) hereof in connection with the financial statements
of Borrower and the Subsidiaries required to be delivered pursuant to subsection
7.1(b) hereof (commencing, if applicable, with such Compliance Certificate
delivered at the end of the fiscal quarter ending on March 31, 2000), the Base
Margin, the Libor Margin (for Interest Periods commencing after the applicable
Adjustment Date, as defined below) and the Facility Fee Rate shall automatically
be adjusted in accordance with the Leverage Ratio set forth therein and the
Leverage Table set forth above, such automatic adjustment to take effect as of
the first Business Day after the receipt by the Agent of the related Compliance
Certificate pursuant to subsection 7.1(c) hereof or, with respect to the
Compliance Certificate delivered at the end of the fiscal quarter ending on
March 31, 2000, such automatic adjustment to take effect on the earlier of May
17, 2000 or the first Business Day after the receipt by the Agent of the related
Compliance Certificate pursuant to subsection 7.1(c) hereof. If the Borrower
fails to deliver a Compliance Certificate which sets forth the Leverage Ratio
within the period of time required by subsection 7.1(c) hereof when the Leverage
Table is the applicable table to determine the margins and fees hereunder or if
any Event of Default occurs and the Agent provides Borrower written notice: (i)
the Base Margin shall automatically be adjusted to one and one quarter percent
(1.25%) per annum; (ii) the Libor Margin (for Interest Periods commencing after
the applicable Adjustment Date) shall automatically be adjusted to one and one
hundred twenty-five hundredths percent (1.125%) per annum; and (iii) the
Facility Fee Rate shall automatically be adjusted to three hundred seventy-five
hundredths percent (0.375%), such automatic adjustments (a) to take effect as of
the first Business Day after the last day on which Borrower was required to
deliver the applicable Compliance Certificate in accordance with subsection
7.1(c) hereof or in the case of an Event of Default, on the date the written
notice is given to Borrower and (b) to remain in effect until subsequently
adjusted in accordance herewith upon the delivery of such Compliance Certificate
or, in the case of an Event of Default, when such Event of Default has been
cured to the satisfaction of the Agent or waived by the Required Banks.
LOAN AGREEMENT - PAGE 13
<PAGE> 20
The following is the Rating Table referred to in clauses (i), (ii) and
(iii) of this Section 2.4:
RATING TABLE
<TABLE>
<CAPTION>
===================================================================================
Facility
Pricing Level Base Margin Libor Margin Fee Rate
- ------------- ----------- ------------ --------
<S> <C> <C> <C>
A- or higher by S&P or D&P
A3 or higher by Moody's 0.000% 0.350% 0.125%
BBB+ by S&P or D&P
Baa1 by Moody's 0.000% 0.475% 0.150%
BBB by S&P or D&P
Baa2 by Moody's 0.000% 0.550% 0.200%
BBB- by S&P or D&P
Baa3 by Moody's 0.000% 0.750% 0.250%
less than BBB- by S&P or D&P less
than Baa3 by Moody's. 0.125% 1.125% 0.375%
===================================================================================
</TABLE>
The Rating Table is the applicable table to determine the margins and
fees hereunder on and after the Unlock Date when the Borrower's senior unsecured
long-term debt securities are rated by any two of D&P, Moody's or S&P and the
Agent shall not have provided written notice to Borrower that the rates to be in
existence when an Event of Default has occurred are in effect. When the Rating
Table is the applicable table to determine the margins and fees hereunder as
determined above, the Base Margin, the Libor Margin (for Interest Periods
commencing after the applicable Adjustment Date, as defined below) and the
Facility Fee Rate shall automatically be adjusted in accordance with the Pricing
Level then established and the Rating Table set forth above, such automatic
adjustment (a) to take effect as of the first Business Day after the Borrower
has notified the Agent of the effective date of the establishment of, or an
upgrade in the rating of the Borrower's senior unsecured long-term debt
securities or (b) in the case of a downgrade in the applicable ratings,
effective as of the first Business Day after the effective date of the
downgrade. The rating in effect at any date is that in effect at the close of
business on such date. The applicable "Pricing Level" for purposes of this
Section 2.4 (b) shall be the Pricing Level set forth above which corresponds
with the credit ratings assigned to the senior unsecured long-term debt
securities of the Borrower without third-party credit enhancement by S&P,
Moody's and D&P, and any rating assigned to any other debt security of the
Borrower shall be disregarded. In the event the ratings assigned by any of S&P,
Moody's or D&P fall in different Pricing Levels, the Pricing Level to be used
shall be the Pricing Level containing the lowest rating; provided that if the
difference is more than one full rating category (with changes in the +, - or
numerical modifiers associated with the ratings being considered one full rating
category for purposes of this proviso), the Pricing Level to be used shall be
the Pricing Level containing the rating which is one above the lowest rating
assigned. If the rating system of S&P, Moody's or D&P shall change, the parties
hereto shall negotiate in good faith to amend the references to specific ratings
in this definition (including by way of substituting another rating agency
mutually acceptable to the Borrower and the Agent for the rating agency with
respect to which the rating system has changed) to reflect such changed rating
system, and pending agreement on such amendment, the rating in effect
immediately prior to such change will be used in determining the Pricing Level
hereunder. If on any date after the Rating Date the Borrower's senior unsecured
long-term debt securities are no longer rated by any two of D&P, S&P or Moodys,
then on the effective date of the withdrawal of the rating which causes such
securities to be rated by less then two of such rating agencies, the Base
Margin, Libor Margin and Facility Fee Rate shall be determined by use of the
Leverage Table set forth above with the initial margins and fees determined
based on the most recent Compliance Certificate delivered as of such effective
date and the Leverage Ratio set forth, or required to be set forth therein.
LOAN AGREEMENT - PAGE 14
<PAGE> 21
As used in this Section 2.4 (b), the following terms have the following
meanings:
"Adjustment Date" shall mean each Business Day when the
margins or fees hereunder change pursuant to this Section 2.4 (b). For
purposes of the definition of the term Adjustment Date, the margin and
fees are subject to change as provided above in this Section 2.4(b): on
the Unlock Date; when a Compliance Certificate is delivered under
Section 7.1 (c) and the Leverage Table is the applicable table to
determine the margins and fees; upon the occurrence of an Event of
Default; on the Rating Date; and when the ratings for Borrower's senior
unsecured long-term debt securities are changed or withdrawn.
"Calculation Period" means the period from and including one
Adjustment Date to but excluding the next Adjustment Date.
"Leverage Ratio" means, as of the last day of each fiscal
quarter, the ratio of Consolidated Debt outstanding as of such day to
Cash Flow calculated for the completed four (4) fiscal quarters then
ended.
(c) Payment Dates. Accrued interest on the Loans shall be due and
payable as follows:
(i) in the case of accrued interest on Base Rate Loans, on
each Quarterly Payment Date;
(ii) in the case of accrued interest on each Libor Loan, on
the last day of the Interest Period with respect thereto and, in the
case of an Interest Period greater than three months, at three-month
intervals after the first day of such Interest Period;
(iii) in the case of the accrued interest on the principal
amount of any Libor Loan being prepaid, upon such prepayment of
principal; and
(iv) on the Termination Date.
(d) Default Interest. Notwithstanding the foregoing, the Borrower will
pay to the Agent for the account of each Bank interest at the applicable Default
Rate on any principal of any Loan made by such Bank, and (to the fullest extent
permitted by law) on any other amount payable by the Borrower under this
Agreement or any other Loan Document to or for the account of Agent or any such
Bank which is not paid in full when due (whether at stated maturity, by
acceleration, or otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable at
the Default Rate shall be payable from time to time on demand.
Section 2.5 Borrowing Procedure. The Borrower shall give the Agent
notice of each borrowing hereunder in accordance with Section 2.8 pursuant to
the delivery of a Borrowing Request. Not later than 11:00 a.m. Dallas, Texas
time on the date specified for each borrowing hereunder, each Bank will make
available the amount of the Loan to be made by it on such date to the Agent, at
the Principal Office, in immediately available funds, for the account of the
Borrower. The amount so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by depositing
the same, in immediately available funds, in an account of the Borrower
(designated by the Borrower) maintained with the Agent at the Principal Office.
Section 2.6 Prepayments, Conversions, and Continuations of Loans.
(a) Mandatory Prepayments. If at any time the outstanding Loans exceed
the aggregate Commitments, the Borrower shall, within one (1) Business Day after
the occurrence thereof, prepay the
LOAN AGREEMENT - PAGE 15
<PAGE> 22
outstanding Loans by the amount of the excess or immediately pledge to the Agent
cash or cash equivalents in an amount equal to the excess as security for the
Obligations.
(b) Optional Prepayments; Conversions and Continuations. Subject to
Section 2.7, the Borrower shall have the right from time to time to prepay the
Loans, or to Convert all or part of a Loan of one Type into a Loan of another
Type or to Continue Libor Loans as Libor Loans, provided that: (a) the Borrower
shall give the Agent notice of each such prepayment, Conversion, or Continuation
as provided in Section 2.8, (b) Libor Loans may only be Converted on the last
day of the Interest Period, and (c) except for Conversions into Base Rate Loans,
no Conversions or Continuations shall be made while a Default exists.
Section 2.7 Minimum Amounts. Except for Conversions and prepayments
pursuant to Article 4 and Conversions into Libor Loans, each borrowing, each
Conversion and each optional prepayment of principal of the Loans shall be in an
amount at least equal to One Million Dollars ($1,000,000) (borrowings,
prepayments or Conversions of or into Loans of different Types or, in the case
of Libor Loans, having different Interest Periods at the same time hereunder to
be deemed separate borrowings, Conversions and prepayments for purposes of the
foregoing, one for each Type or Interest Period). Anything in this Agreement to
the contrary notwithstanding, the aggregate principal amount of Libor Loans
having the same Interest Period shall be at least equal to Five Million Dollars
($5,000,000) .
Section 2.8 Certain Notices. Notices by the Borrower to the Agent of
terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the Agent not
later than 11:00 a.m. Dallas, Texas, time on the Business Day of the borrowing,
Conversion to or prepayment of a Base Rate Loan and on the Business Day prior to
the date of the relevant other termination, reduction, borrowing, Conversion,
Continuation or prepayment specified below:
<TABLE>
<CAPTION>
================================================================================
Notice Number of Business Days Prior
- ------------------------------------------ ------------------------------------
<S> <C>
Termination or reduction of 1
Commitments
Borrowing or Prepayment of,
Conversions into, Continuations as, 3
Libor Loans
================================================================================
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation, or prepayment shall specify the Loans to be borrowed,
Converted, Continued, or prepaid and the amount (subject to Section 2.7 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation, or prepayment (which shall be a
Business Day). Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Agent shall
promptly notify the Banks of the contents of each such notice. In the event the
Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any Libor Loan, within the time period and otherwise as provided in
this Section 2.8, such Loan (if outstanding as a Libor Loan) will be
automatically Converted into a Base Rate Loan on the last day of the preceding
Interest Period for such Loan or (if outstanding as a Base Rate Loan) will
remain as, or (if not then outstanding) will be made as, a Base Rate Loan. The
Borrower may not borrow any Libor Loans, Convert any Loans into Libor Loans, or
Continue any Loans as Libor Loans if the interest rate for such Libor Loan would
exceed the Maximum Rate or if a Default exists.
LOAN AGREEMENT - PAGE 16
<PAGE> 23
Section 2.9 Use of Proceeds. The proceeds of Loans shall be used by the
Borrower (i) to repay the Debt outstanding in connection with the Aegon Facility
and that certain Loan Agreement dated December 17, 1998 among Borrower, the
lenders named therein and NationsBank, as agent and (ii) for other general
corporate purposes, including acquisitions and general working capital; provided
that no proceeds of any Loan shall be used to make any advance, loan, extension
of credit or capital contribution to, or investment in: (i) United Credit
National Bank in excess of Twenty Million Dollars ($20,000,000.00) in the
aggregate or (ii) Educational Finance Group, Inc. or the Subsidiaries owned by
Educational Finance Group, Inc. in excess of an aggregate amount equal to Twenty
Million Dollars ($20,000,000.00).
Section 2.10 Facility Fee. The Borrower agrees to pay to the Agent for
the account of each Bank a facility fee on the daily average amount of such
Bank's Commitment for the period from and including the date of this Agreement
to and including the Termination Date, at the Facility Fee Rate per annum.
Accrued facility fee shall be payable in arrears on each Quarterly Payment Date
and on the Termination Date.
Section 2.11 Computations. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents shall be computed as follows: (i)
with respect to Libor Loans on the basis of a year of 360 days and the actual
number of days elapsed (including the first day but excluding the last day)
occurring in the period for which payable unless such calculation would result
in a usurious rate, in which case interest shall be calculated on the basis of a
year of 365 or 366 days, as the case may be; (ii) with respect to Base Rate
Loans and Loans accruing interest at the Default Rate, on the basis of a year of
365 or 366 days and the actual number of days elapsed (including the first day
but excluding the last day) occurring in the period for which payable; and (iii)
with respect to the facility fees payable hereunder and any other interest
payable hereunder, on the basis of a year of 360 days and the actual number of
days elapsed (including the first day but excluding the last day) occurring in
the period for which payable unless such calculation would result in a usurious
rate, in which case such fees shall be calculated on the basis of a year of 365
or 366 days, as the case may be.
Section 2.12 Reduction, Termination or Increase of Commitments.
(a) Reduction or Termination in Commitment. The Borrower shall
have the right to terminate or reduce in part the unused portion of the
Commitments at any time and from time to time, provided that: (a) the
Borrower shall give notice of each such termination or reduction as
provided in Section 2.8 and (b) each partial reduction shall be in an
aggregate amount at least equal to Five Million Dollars ($5,000,000).
The Commitments may not be reinstated after they have been terminated
or reduced.
(b) Increase in Commitment. By written notice sent to the
Banks, the Borrower may request an increase of the aggregate amount of
the Commitments by an aggregate amount: (i) equal to any integral
multiple of One Million Dollars ($1,000,000) and not less than Ten
Million Dollars ($10,000,000) and (ii) not to exceed Fifty Million
Dollars ($50,000,000); provided, that (i) no Default shall have
occurred and be continuing, (ii) the aggregate amount of the
Commitments shall not have been reduced, nor shall the Borrower have
given notice of any such reduction, under Section 2.12(a), except with
the prior written consent of the Required Banks; and (iii) the
aggregate amount of the Commitments shall not previously have been
increased pursuant to this Section 2.12(b) on more than one occasion.
Within thirty (30) days after such request has been given (as
determined in accordance with Section 12.13), each Bank shall notify
the Agent, whether or not, in the exercise of its sole discretion, it
is willing to increase its Commitment by an amount equal to its pro
rata share (calculated based on its Commitment then in existence) of
the requested increase (each Bank having no obligation to do so). The
Agent shall promptly notify the Borrower and each other Bank of each
Bank's decision. Any Bank that does not so notify the Agent within such
period shall be deemed to have decided not to be willing to increase
its Commitment. If one or more of the Banks is not willing to so
increase its Commitment, then
LOAN AGREEMENT - PAGE 17
<PAGE> 24
within sixty (60) days after the Borrower's original request has been
given (as determined in accordance with Section 12.13), with notice
thereof to the other Banks, another one or more financial institutions
meeting the definition of an Eligible Assignee (each a "New Bank") may
commit to provide an amount equal to the aggregate amount of the
requested increase that will not be provided by the existing Banks;
provided, that the Commitment of each New Bank shall be at least Five
Million ($5,000,000) and the maximum number of New Banks shall be two.
Upon receipt of notice from the Agent to the Banks and the Borrower
that the Banks, or sufficient Banks and New Banks, have agreed to
commit to an aggregate amount equal to the increase requested by the
Borrower (or such lesser amount as the Borrower shall agree, which
shall be at least Ten Million Dollars ($10,000,000) and an integral
multiple of One Million Dollars ($1,000,000) in excess thereof), then:
provided that no Default exists at such time or after giving effect to
the requested increase, (i) the Borrower the Agent and the Banks
willing to increase their respective Commitments and the New Banks (if
any) shall execute and deliver an Increased Commitment Supplement, and
the Borrower shall execute and deliver a new Note, as provided in the
Increased Commitment Supplement, to each Bank. Upon the effective date
of the Increased Commitment Supplement, if all existing Banks shall not
have provided their pro rata portion of the requested increase, the
Borrower shall request a borrowing hereunder which shall be made only
by the Banks who have increased their Commitment and, if applicable,
the New Banks, the proceeds of such borrowing shall be utilized by
Borrower to repay the Banks who did not agree to increase their
Commitments, such borrowing and repayments to be in amounts sufficient
so that after giving effect thereto, the Loans shall be held by the
Banks pro rata according to the respective Commitments.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest, and
other amounts to be made by the Borrower under this Agreement and the other Loan
Documents shall be made to the Agent at the Principal Office for the account of
each Bank's Applicable Lending Office in Dollars and in immediately available
funds, without setoff, deduction, or counterclaim, not later than 11:00 a.m.,
Dallas, Texas time on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day). The Borrower shall, at the time of making
each such payment, specify to the Agent the sums payable by the Borrower under
this Agreement and the other Loan Documents to which such payment is to be
applied (and in the event that the Borrower fails to so specify, or if an Event
of Default exists, the Agent may apply such payment to the Obligations in such
order and manner as it may elect in its sole discretion, subject to Section 3.2
hereof). Each payment received by the Agent under this Agreement or any other
Loan Document for the account of a Bank shall be paid promptly to such Bank, in
immediately available funds, for the account of such Bank's Applicable Lending
Office. Whenever any payment under this Agreement or any other Loan Document
shall be stated to be due on a day that is not a Business Day, such payment may
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of the payment of interest and
commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each Loan shall be made by the Banks under Section 2.1, each payment
of the facility fee under Section 2.10 shall be made for the account of the
Banks, and each termination or reduction of the Commitments under Section 2.12
shall be applied to the Commitments of the Banks, pro rata according to the
respective unused Commitments; (b) the making, Conversion, and Continuation of
Loans of a particular Type (other than Conversions provided for by Section 4.4)
shall be made pro rata among the Banks holding Loans of such Type according to
the amounts of their respective Commitments; (c) each payment and prepayment of
principal of or interest on Loans by the Borrower of a particular Type shall be
made to the Agent for the account of the Banks holding Loans of such
LOAN AGREEMENT - PAGE 18
<PAGE> 25
Type pro rata in accordance with the respective unpaid principal amounts of such
Loans held by such Banks; and (d) Interest Periods for Loans of a particular
Type shall be allocated among the Banks holding Loans of such Type pro rata
according to the respective principal amounts held by such Banks.
Section 3.3 Sharing of Payments, Etc. If a Bank shall obtain payment of
any principal of or interest on any of the Obligations due to such Bank
hereunder through the exercise of any right of set-off, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Banks participations in the Obligations held by the other Banks in such
amounts, and make such adjustments from time to time as shall be equitable to
the end that all the Banks shall share pro rata in accordance with the unpaid
principal of the Obligations then due to each of them. To such end, all of the
Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if all or any portion of such excess payment
is thereafter rescinded or must otherwise be restored. The Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any Bank
so purchasing a participation in the Obligations by the other Banks may exercise
all rights of set-off, banker's lien, counterclaim, or similar rights with
respect to such participation as fully as if such Bank were a direct holder of
Obligations to the Borrower in the amount of such participation. Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of exercising,
any such right with respect to any other indebtedness or obligation of the
Borrower.
Section 3.4 Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or the Borrower (the "Payor") prior to the date on
which such Bank is to make payment to the Agent of the proceeds of a Loan to be
made by it hereunder or the Borrower is to make a payment to the Agent for the
account of one or more of the Banks, as the case may be (such payment being
herein called the "Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall, on demand, pay to the Agent the amount made available to it
together with interest thereon in respect of the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to the Federal Funds Rate for such period.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or regulation,
or any change in the interpretation or administration thereof by any
Governmental Authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such Governmental Authority, central bank, or
comparable agency:
(i) shall subject such Bank (or its Applicable Lending Office)
to any tax, duty, or other charge with respect to any Libor Loans, its
Note, or its obligation to make Libor Loans, or change the basis of
taxation of any amounts payable to such Bank (or its Applicable Lending
Office) under this Agreement or its Note in respect of any Libor Loans
(other than taxes imposed on the overall net income of such Bank by the
jurisdiction in which such Bank has its principal office or such
Applicable Lending Office);
LOAN AGREEMENT - PAGE 19
<PAGE> 26
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, compulsory loan, or similar requirement
(other than the Reserve Requirement utilized in the determination of
the Adjusted Libor Rate) relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or commitments of,
such Bank (or its Applicable Lending Office), including the Commitment
of such Bank hereunder; or
(iii) shall impose on such Bank (or its Applicable Lending
Office) or on the London interbank market any other condition affecting
this Agreement or its Note or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Libor Loans or its commitment to make Libor Loans or to reduce
any sum received or receivable by such Bank (or its Applicable Lending Office)
under this Agreement or its Note with respect to any Libor Loans or its
commitment to make Libor Loans, then the Borrower shall pay to such Bank on
demand such amount or amounts as will compensate such Bank for such increased
cost or reduction. If any Bank requests compensation by the Borrower under this
Section 4.1(a), the Borrower may, by notice to such Bank (with a copy to the
Agent), suspend the obligation of such Bank to make or Continue Libor Loans or
to Convert Base Rate Loans into Libor Loans, until the event or condition giving
rise to such request ceases to be in effect (in which case the provisions of
Section 4.4 shall be applicable); provided that such suspension shall not affect
the right of such Bank to receive the compensation so requested as to any Libor
Loans that remain outstanding as the date of such request.
(b) If, after the date hereof, any Bank shall have determined that the
adoption of any applicable law, rule, or regulation regarding capital adequacy
or any change therein or in the interpretation or administration thereof by any
Governmental Authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank, or comparable agency, has or would have
the effect of reducing the rate of return on the capital of such Bank or any
corporation controlling such Bank as a consequence of such Bank's obligations
hereunder to a level below that which such Bank or such corporation could have
achieved but for such adoption, change, request, or directive (taking into
consideration its policies with respect to capital adequacy), then from time to
time upon demand the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
(c) Each Bank shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to it. Any Bank claiming compensation under
this Section shall furnish to the Borrower and the Agent a statement setting
forth the additional amount or amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. In determining such amount, such
Bank shall use reasonable averaging and attribution methods.
Section 4.2 Limitation on Types of Loans. If on or prior to the first
day of any Interest Period for any Libor Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Libor Rate for such Interest Period; or
LOAN AGREEMENT - PAGE 20
<PAGE> 27
(b) the Required Banks determine (which determination shall be
conclusive) and notify the Agent that the Adjusted Libor Rate will not
adequately and fairly reflect the cost to the Banks of funding Libor
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof and so long as such
condition remains in effect, the Banks shall be under no obligation to make
additional Libor Loans, Continue Libor Loans, or to Convert Loans of any other
Type into Libor Loans and the Borrower shall, on the last day(s) of the then
current Interest Period(s) for the outstanding Libor Loans, either prepay such
Loans or Convert such Loans into another Type of Loan in accordance with the
terms of this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to make, maintain, or fund Libor Loans hereunder, then such Bank
shall promptly notify the Borrower thereof and such Bank's obligation to make or
Continue Libor Loans and to Convert other Types of Loans into Libor Loans shall
be suspended until such time as such Bank may again make, maintain, and fund
Libor Loans (in which case the provisions of Section 4.4 shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any Bank
to make a Libor Loan or to Continue, or to Convert Loans of any other Type into,
Libor Loans shall be suspended pursuant to Section 4.1 or 4.3 hereof (Loans of
such Type being herein called "Affected Loans" and such Type being herein called
the "Affected Type"), such Bank's Affected Loans shall be automatically
Converted into Base Rate Loans on the last day(s) of the then current Interest
Period(s) for Affected Loans (or, in the case of a Conversion required by
Section 4.3 hereof, on such earlier date as such Bank may be required to effect
a Conversion and specifies to the Borrower with a copy to the Agent) and, unless
and until such Bank gives notice as provided below that the circumstances
specified in Section 4.1 or 4.3 hereof that gave rise to such Conversion no
longer exist:
(a) to the extent that such Bank's Affected Loans have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Bank's Affected Loans shall be applied instead to its Base Rate
Loans; and
(b) all Loans that would otherwise be made or Continued by such Bank as
Libor Loans shall be made or Continued instead as Base Rate Loans, and all Loans
of such Bank that would otherwise be Converted into Libor Loans shall be
Converted instead into (or shall remain as) Base Rate Loans.
If such Bank gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 4.1 or 4.3 hereof that gave rise to the
Conversion of such Bank's Affected Loans pursuant to this Section 4.4 no longer
exist (which such Bank agrees to do promptly upon such circumstances ceasing to
exist) at a time when Libor Loans made by other Banks are outstanding, such
Bank's Base Rate Loans shall be automatically Converted, on the first day(s) of
the next succeeding Interest Period(s) for such outstanding Libor Loans, to the
extent necessary so that, after giving effect thereto, all Loans held by the
Banks holding Libor Loans and by such Bank are held pro rata (as to principal
amounts, Types, and Interest Periods) in accordance with their respective
Commitments.
Section 4.5 Compensation. Upon the request of any Bank, the Borrower
shall pay to such Bank such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost, or expense
(including loss of anticipated profits) incurred by it as a result of:
LOAN AGREEMENT - PAGE 21
<PAGE> 28
(a) any payment, prepayment, or Conversion of a Libor Loan for any
reason (including, without limitation, the acceleration of the Loans pursuant to
Section 10.2 or the repayment of Loans pursuant to Section 2.12(b)) on a date
other than the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Article 5 to be
satisfied) to borrow, Convert, Continue, or prepay a Libor Loan on the date for
such borrowing, Conversion, Continuation, or prepayment specified in the
relevant notice of borrowing, prepayment, Continuation, or Conversion under this
Agreement.
Section 4.6 Taxes. (a) Any and all payments by the Borrower to or for
the account of any Bank or the Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Bank and
the Agent, taxes imposed on its overall income, gross receipts, capital or gains
and franchise or similar taxes, in each case, imposed on it by the jurisdiction
under the laws of which such Bank (or its Applicable Lending Office) or the
Agent (as the case may be) is organized or any political subdivision thereof
(all such non-excluded taxes, duties, levies, imposts, deductions, charges,
withholdings, and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable under this Agreement or any other Loan Document to any Bank or the
Agent, (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 4.6) such Bank or the Agent receives an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law, and (iv) the Borrower shall furnish to the Agent
the original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agreement
or any other Loan Document or from the execution or delivery of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 4.6) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower or the
Agent (but only so long as such Bank remains lawfully able to do so), shall
provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001
or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Bank is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the rate
of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States, (ii) Internal Revenue Service Form
W-8 or W-9, as appropriate, or any successor form prescribed by the Internal
Revenue Service, and (iii) any other form or certificate required by any taxing
authority (including any certificate required by Sections 871(h) and 881(c) of
the Internal Revenue Code), certifying that such Bank is entitled to an
exemption from or a reduced rate of tax on payments pursuant to this Agreement
or any of the other Loan Documents.
LOAN AGREEMENT - PAGE 22
<PAGE> 29
(e) For any period with respect to which a Bank has failed to provide
the Borrower and the Agent with the appropriate form pursuant to this Section
4.6 (unless such failure is due to a change in applicable treaty, law, or
regulation occurring subsequent to the date on which a form originally was
required to be provided in which case such Bank will comply with Section 4.6 (d)
promptly after such change), such Bank shall not be entitled to indemnification
under Section 4.6(a) or 4.6(b) with respect to Taxes imposed by the United
States; provided, however, that should a Bank, which is otherwise exempt from or
subject to a reduced rate of withholding tax, become subject to Taxes because of
its failure to deliver a form required hereunder, the Borrower shall take such
steps as such Bank shall reasonably request to assist such Bank to recover such
Taxes and such Bank shall pay all of the Borrower's reasonable fees and expenses
incurred in connection therewith.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 4.6, then such Bank will agree to
use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change, in the judgment of such Bank, is not otherwise
disadvantageous to such Bank.
(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 4.6 shall survive the termination of the Commitments and the
payment in full of the Notes.
(i) If a Bank shall become aware that it is entitled to claim a refund
from, or to a tax credit on any tax return filed by such Bank with, a
Governmental Authority in respect of Taxes or Other Taxes as to which it has
been indemnified by Borrower, or with respect to which Borrower has paid
additional amounts, pursuant to this Section 4.6, it shall promptly notify
Borrower of the availability of such refund claim or right to a tax credit and
shall, within thirty (30) days after receipt of a request by Borrower, make a
claim to such Governmental Authority for such refund, or claim such credit on
the next such tax return filed by it, in each case, at Borrower's expense. If a
Bank receives a refund (including pursuant to a claim for refund made pursuant
to the preceding sentence) in respect of any Taxes or Other Taxes as to which it
has been indemnified by Borrower or with respect to which Borrower had paid
additional amounts pursuant to this Section 4.6 or receives benefit from such
tax credit, it shall within thirty (30) days from the date of the receipt of
such refund or such benefit pay over such refund or an amount equal to such
benefit to Borrower (but only to the extent of indemnity payments made, or
additional amounts paid, by Borrower under this Section 4.6 with respect to the
Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Bank and without interest (other than interest paid by the
relevant Governmental Authority with respect to such refund); provided, however,
that Borrower, upon the request of such Bank, agrees to repay the amount paid
over to Borrower (plus penalties, interest or other charges) to such Bank in the
event such Bank is required to repay such refund to such Governmental Authority.
ARTICLE 5
Conditions Precedent
Section 5.1 Initial Loan. The obligation of each Bank to make its
initial Loan is subject to the condition precedent that the Agent shall have
received on or before the day of such Loan all of the following, each dated
(unless otherwise indicated) the date hereof, in form and substance satisfactory
to the Agent:
LOAN AGREEMENT - PAGE 23
<PAGE> 30
(a) Resolutions. Resolutions of the Board of Directors of the Borrower
certified by its Secretary or an Assistant Secretary which authorize the
execution, delivery, and performance by the Borrower of this Agreement and the
other Loan Documents to which the Borrower is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary of the Borrower certifying the name of
each officer of the Borrower (i) who is authorized to sign this Agreement and
each of the other Loan Documents to which the Borrower is or is to be a party
(including the certificates contemplated herein) together with specimen
signatures of each such officer and (ii) who will, until replaced by other
officers duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other communications in
connection with this Agreement and the transactions contemplated hereby;
(c) Certificate of Incorporation. The certificate of incorporation of
the Borrower certified by the Secretary of State of the state of incorporation
of the Borrower and dated a current date;
(d) Bylaws. The bylaws of the Borrower certified by the Secretary or an
Assistant Secretary of the Borrower;
(e) Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation of the Borrower as to the
existence and good standing of the Borrower, each dated a current date;
(f) Notes. The Notes executed by the Borrower;
(g) Fees. Evidence that all fees payable to the Agent, the Banks and
NationsBanc Montgomery Securities LLC on the Closing Date have been paid in
full;
(h) Termination of Commitments. Evidence that the commitments arising
in connection with the Aegon Facility and that certain Loan Agreement dated
December 17, 1998 among Borrower, the lenders named therein and NationsBank, as
agent shall have been terminated (Borrower and NationsBank hereby agreeing that
on the Closing Date the commitments of NationsBank set forth in such Loan
Agreement are terminated);
(i) Opinion of Counsel. A favorable opinion of legal counsel to the
Borrower, as to the matters set forth in Exhibit "B" hereto, and such other
matters as the Agent may reasonably request; and
(j) Attorneys' Fees and Expenses. Evidence that the costs and expenses
(including reasonable attorney's fees) referred to in Section 12.1, to the
extent incurred, shall have been paid in full by the Borrower.
Section 5.2 All Loans. The obligation of each Bank to make any Loan
(including the initial Loan) is subject to the following additional conditions
precedent:
(a) No Default. No Default shall have occurred and be continuing or
would result from such Loan;
(b) Representations and Warranties. All of the representations and
warranties contained in Article 6 hereof and in the other Loan Documents shall
be true, correct and complete in all material respects on and as of the date of
such Loan with the same force and effect as if such representations and
warranties had been made on and as of such date except for any representation or
warranty limited by its terms to a specific date;
(c) No Material Adverse Effect. No event has occurred that has a
Material Adverse Effect; and
LOAN AGREEMENT - PAGE 24
<PAGE> 31
(d) Additional Documentation. The Agent shall have received such
additional approvals, opinions, or documents as the Agent or its legal counsel,
Jenkens & Gilchrist, a Professional Corporation, may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in Sections 5.2(a) and (b) have been satisfied (both as of the date of
such notice and, unless the Borrower otherwise notifies the Agent prior to the
date of such borrowing, as of the date of such borrowing).
ARTICLE 6
Representations and Warranties
To induce the Agent and the Banks to enter into this Agreement, the
Borrower represents and warrants to the Agent and the Banks that:
Section 6.1 Corporate Existence. The Borrower and each Subsidiary (a)
is a corporation (or other entity as specified on Schedule 6.14) duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation or organization; (b) has all requisite power and authority to own
its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business in all jurisdictions in which the
nature of its business makes such qualification necessary and where failure to
so qualify would have a Material Adverse Effect. The Borrower has the corporate
power and authority and legal right to execute, deliver, and perform its
obligations under this Agreement and the other Loan Documents to which it is or
may become a party.
Section 6.2 Financial Statements.
(a) GAAP. The Borrower has delivered to the Agent and the Banks audited
consolidated financial statements of the Borrower and the Subsidiaries as at and
for the fiscal year ended December 31, 1998. Such financial statements are
complete and correct, have been prepared in accordance with GAAP, and fairly and
accurately present, on a consolidated basis, the financial condition of the
Borrower and the Subsidiaries as of the respective dates indicated therein and
the results of operations for the respective periods indicated therein. Neither
the Borrower nor any of the Subsidiaries has any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments, or
unrealized or anticipated losses from any unfavorable commitments except as
referred to or reflected in such financial statements. There has been no
material adverse change in the business, condition (financial or otherwise),
operations, prospects, or properties of the Borrower or any of the Subsidiaries
since the effective date of the financial statements referred to in this clause
(a).
(b) SAP. The Borrower has delivered to the Agent and the Banks
financial statements for each Domestic Insurance Subsidiary as at and for the
fiscal year ended December 31, 1998. Such financial statements are complete and
correct, have been prepared in accordance with SAP, and fairly and accurately
present the financial condition of the applicable Domestic Insurance Subsidiary
as of the respective dates indicated therein and the results of operations for
the respective periods indicated therein subject to normal year end audit
adjustments.
Section 6.3 Corporate Action; No Breach. The execution, delivery, and
performance by the Borrower of this Agreement and the other Transaction
Documents to which the Borrower is or may become a party and compliance with the
terms and provisions hereof and thereof have been duly authorized by all
requisite corporate action on the part of the Borrower and do not and will not
(a) violate or conflict with, or result in a breach of, or
LOAN AGREEMENT - PAGE 25
<PAGE> 32
require any consent under (i) the certificate of incorporation or bylaws of the
Borrower or any of the Subsidiaries, (ii) any applicable law, rule, or
regulation or any order, writ, injunction, or decree of any Governmental
Authority or arbitrator, or (iii) any agreement or instrument to which the
Borrower or any of the Subsidiaries is a party or by which any of them or any of
their property is bound or subject (except for such agreements and instruments
which if so violated or breached could not reasonably be expected to have a
Material Adverse Effect and such consents thereunder which if not obtained could
not reasonably be expected to have a Material Adverse Effect), or (b) constitute
a default under any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the property of the Borrower or any
Subsidiary. Without limiting the generality of the foregoing, all Debt
outstanding hereunder, after giving effect to any request for a borrowing
hereunder, is permitted to be incurred by the Borrower pursuant to Section 8.4
of the 8.75% Senior Note Agreement and pursuant to the 1999 Senior Note
Agreement.
Section 6.4 Operation of Business. The Borrower and each of the
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as currently proposed
to be conducted without Material Adverse Effect and the Borrower and each of the
Subsidiaries are not in violation in any material respect of any valid rights of
others with respect to any of the foregoing.
Section 6.5 Litigation and Judgments. As of the date hereof, there is
no action, suit, investigation, or proceeding before or by any Governmental
Authority or arbitrator pending, or to the knowledge of the Borrower, threatened
against or affecting the Borrower or any Subsidiary which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
There are no unstayed or undischarged judgments against the Borrower or any
Subsidiary which would constitute an Event of Default under Section 10.1 (h).
Section 6.6 Rights in Properties; Liens. The Borrower and each
Subsidiary have good and indefeasible title to or valid leasehold interests in
their respective properties, real and personal, including the properties and
leasehold interests reflected in the financial statements described in Section
6.2, and none of the properties or leasehold interests of the Borrower or any
Subsidiary is subject to any Lien, except as permitted by Section 8.2.
Section 6.7 Enforceability. This Agreement constitutes, and the other
Transaction Documents to which the Borrower is party, when executed and
delivered, shall constitute the legal, valid, and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, except as limited by bankruptcy, insolvency, or other laws of general
application relating to the enforcement of creditors' rights and general
principles of equity.
Section 6.8 Approvals. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by the Borrower of
this Agreement and the other Transaction Documents to which the Borrower is or
may become a party or for the validity or enforceability thereof.
Section 6.9 Debt. The Borrower and the Subsidiaries have no Debt,
except as permitted by Section 8.1 and except, as of and prior to the Closing
Date only, Debt required to be repaid on the Closing Date.
Section 6.10 Taxes. The Borrower and each Subsidiary have filed all tax
returns (federal, state, and local) required to be filed, including all income,
franchise, employment, property, and sales tax returns, and have paid all of
their respective liabilities for taxes, assessments, governmental charges, and
other levies that are due and payable except for those liabilities whose amount,
applicability, or validity is being contested in good faith by appropriate
proceedings being diligently pursued, and for which adequate reserves have been
established.. The Borrower knows of no pending investigation of the Borrower or
any Subsidiary by any taxing authority or
LOAN AGREEMENT - PAGE 26
<PAGE> 33
of any pending but unassessed material tax liability of the Borrower or any
Subsidiary. The federal income tax liability of certain of the Subsidiaries has
been reviewed and/or examined by the Internal Revenue Service from time to time.
The federal income tax liability of Borrower and the Subsidiaries for all
taxable years up to and including the taxable year ended December 31, 1994 has
been finally determined and satisfied.
Section 6.11 Margin Securities. Neither the Borrower nor any Subsidiary
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations T, U, or X of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 6.12 ERISA. The Borrower and each Subsidiary are in compliance
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which constitute
grounds entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings.
Neither the Borrower nor any ERISA Affiliate has completely or partially
withdrawn from a Multiemployer Plan. The Borrower and each ERISA Affiliate have
met their minimum funding requirements under ERISA with respect to all of their
Plans, and the present value of all vested benefits under each Plan do not
exceed the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any liability
to the PBGC under ERISA.
Section 6.13 Disclosure. No statement, information, report,
representation, or warranty made by the Borrower in this Agreement or in any
other Transaction Document or furnished to the Agent or any Bank in connection
with this Agreement or any transaction contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading in light of the
circumstances under which such statement, information, report, representation or
warranty was provided. There is no fact known to the Borrower which has had a
Material Adverse Effect, or which could reasonably be expected to have a
Material Adverse Effect in the future that has not been disclosed to the Agent
and the Banks.
Section 6.14 Subsidiaries. As of the date hereof, the Borrower has no
Subsidiaries other than those listed on Schedule 6.14, and Schedule 6.14 sets
forth the type of entity and the jurisdiction of incorporation or organization
of each Subsidiary and the Borrower's or the Subsidiaries' percentage interest
of the ownership of each Subsidiary listed thereon.
Section 6.15 Agreements. Neither the Borrower nor any Subsidiary is a
party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate restriction that
could reasonably be expected to have a Material Adverse Effect in absence of a
default thereunder. Neither the Borrower nor any Subsidiary is in default in any
material respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or instrument
material to its business to which it is a party.
Section 6.16 Compliance with Laws. Neither the Borrower nor any
Subsidiary is in violation in any material respect of any applicable law, rule,
regulation, order, or decree of any Governmental Authority or arbitrator,
including, without limitation, any Environmental Law.
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Section 6.17 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 6.18 Public Utility Holding Company Act. Neither the Borrower
nor any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 6.19 Environmental Matters. Except for instances of
noncompliance with or exceptions to the following that should not have,
individually or in the aggregate, a Material Adverse Effect: (i) no Hazardous
Materials exist on, about, or within or have been used, generated, stored,
transported, disposed of on, or released from any of the properties of the
Borrower or any Subsidiary except in compliance with applicable Environmental
Laws and (ii) the use which the Borrower and the Subsidiaries make and intend to
make of their respective properties will not result in the use, generation,
storage, transportation, accumulation, disposal, or release of any Hazardous
Material on, in, or from any of their properties except in compliance with
applicable Environmental Laws.
Section 6.20 Labor Disputes and Acts of God. Neither the business nor
the properties of the Borrower or any Subsidiary are affected by any fire,
explosion, accident, strike, lockout, or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy, or other casualty
(whether or not covered by insurance) that is having or could have a Material
Adverse Effect.
Section 6.21 Year 2000 Compliance.
(a) The Borrower has (i) undertaken a detailed review and assessment of
all areas within the business and operations of it and the Subsidiaries that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Borrower or the Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a detailed plan
and time line for addressing the Year 2000 Problem on a timely basis, and (iii)
to date, implemented that plan in accordance with that timetable in all material
respects. The Borrower reasonably anticipates that all computer applications
that are material to the business and operations of it and the Subsidiaries will
on a timely basis be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 (that is, be "Year 2000 Ready").
(b) The Borrower is in the process of making inquiry of each of its and
the Subsidiaries' key suppliers, vendors and customers as to whether such
Persons will on a timely basis be Year 2000 Ready in all material respects. The
Borrower has not received any indication that leads it to believe that any such
key supplier, vendor or customer will fail to be Year 2000 Ready in a manner
that will result in a Material Adverse Effect. For purposes hereof, "key
suppliers, vendors and customers" refers to those suppliers, vendors and
customers of the Borrower and the Subsidiaries the business failure of which
would with reasonable probability be expected to have a Material Adverse Effect.
ARTICLE 7
Positive Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following positive covenants unless the
Required Banks otherwise agree:
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Section 7.1 Reporting Requirements. The Borrower will furnish to the
Agent and each Bank:
(a) Annual Financial Statements. As soon as available, and in any
event:
(i) within one hundred fifteen (115) days after the end of
each fiscal year of the Borrower, beginning with the fiscal year ending
December 31, 1998, a copy of the annual audit report of the Borrower
and the Subsidiaries for such fiscal year containing, on a consolidated
basis, balance sheets and statements of income, stockholders' equity,
and cash flow as at the end of such fiscal year and for the twelve
(12)-month period then ended, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by Ernst & Young, LLP or other
independent certified public accountants of recognized standing
acceptable to the Agent, to the effect that such report has been
prepared in accordance with GAAP;
(ii) within ninety (90) days after the end of each year,
beginning with the year ending December 31, 1998, a copy of the annual
financial statements of each Domestic Insurance Subsidiary for such
year prepared in accordance with SAP as filed with the applicable
Insurance Regulatory Authority;
(b) Quarterly Financial Statements. As soon as available, and in any
event within fifty-five (55) days after the end of each of the quarters of each
fiscal year of the Borrower, (i) a copy of an unaudited financial report of the
Borrower and the Subsidiaries as of the end of such fiscal quarter and for the
portion of the fiscal year then ended containing, on a consolidated,
consolidating and business segment basis, balance sheets and statements of
income, stockholders' equity, and cash flow, in each case setting forth in
comparative form the figures for the corresponding period of the preceding
fiscal year, all in reasonable detail certified by the chief financial officer
of the Borrower to have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the financial
condition and results of operations of the Borrower and the Subsidiaries, on a
consolidated, consolidating and business segment basis, at the date and for the
periods indicated therein and (ii) a copy of an unaudited financial report of
each Domestic Insurance Subsidiary as of the end of such fiscal quarter and for
the portion of the fiscal year then ended in the same form as the financial
statements delivered under clause (ii) of Section 7.1(a) and certified by the
chief financial officer of the Borrower to have been prepared in accordance with
SAP and to fairly and accurately present (subject to year-end audit adjustments)
the financial condition and results of operations of the Domestic Insurance
Subsidiary the subject thereof, at the date and for the periods indicated
therein;
(c) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in subsections 7.1(a) and 7.1(b), a
Compliance Certificate;
(d) Annual Management Discussion. Promptly after the preparation
thereof, copies of all management discussions and analyses or similar reports
(howsoever designated or described) which are prepared by or for any Insurance
Subsidiary and filed with any Insurance Regulatory Authority;
(e) Management Letters. Promptly upon receipt thereof, a copy of any
management letter or written report submitted to the Borrower or any Subsidiary
by independent certified public accountants with respect to the business,
condition (financial or otherwise), operations, prospects, or properties of the
Borrower or any Subsidiary;
LOAN AGREEMENT - PAGE 29
<PAGE> 36
(f) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any Governmental Authority
or arbitrator affecting the Borrower or any Subsidiary which, if determined
adversely to the Borrower or such Subsidiary, could have a Material Adverse
Effect;
(g) Notice of Default. As soon as possible and in any event within five
(5) days after the Borrower becomes aware of any Default, a written notice
setting forth the details of such Default and the action that the Borrower has
taken and proposes to take with respect thereto;
(h) ERISA Reports. Promptly after the filing or receipt thereof, copies
of all reports, including annual reports, and notices which the Borrower or any
Subsidiary files with or receives from the PBGC or the U.S. Department of Labor
under ERISA; and as soon as possible and in any event within five (5) days after
the Borrower has determined that any Reportable Event or Prohibited Transaction
has occurred with respect to any Plan or that the PBGC or within five (5) days
after the Borrower or any Subsidiary has instituted or will institute
proceedings under Title IV of ERISA to terminate any Plan, a certificate of the
chief financial officer of the Borrower setting forth the details as to such
Reportable Event or Prohibited Transaction or Plan termination and the action
that the Borrower proposes to take with respect thereto;
(i) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report furnished by the Borrower or any Subsidiary to
any other party pursuant to the terms of any indenture, loan, or credit or
similar agreement and not otherwise required to be furnished to the Agent and
the Banks pursuant to any other clause of this Section;
(j) Notice of Material Adverse Change. As soon as possible and in any
event within five (5) days after the Borrower becomes aware of occurrence
thereof, written notice of any matter that could have a Material Adverse Effect;
(k) Proxy Statements, Etc. As soon as available, one copy of each
financial statement, report, notice or proxy statement sent by the Borrower or
any Subsidiary to its security holders generally and one copy of each regular,
periodic or special report, registration statement, or prospectus filed by the
Borrower or any Subsidiary with any securities exchange or the Securities and
Exchange Commission or any successor agency; and
(l) General Information. Promptly, such other information concerning
the Borrower or any Subsidiary as the Agent or any Bank may from time to time
reasonably request.
Section 7.2 Maintenance of Existence; Conduct of Business. Except as
permitted by Section 8.3, the Borrower will, and will cause each Subsidiary to,
preserve and maintain its corporate existence and all of its leases, privileges,
licenses, permits, franchises, qualifications, and rights that are necessary or
desirable in the ordinary conduct of its business. The Borrower will, and will
cause each Subsidiary to, conduct its business in an orderly and efficient
manner in accordance with good business practices.
Section 7.3 Maintenance of Properties. The Borrower will, and will
cause each Subsidiary to, maintain, keep, and preserve all of its properties
necessary or useful in the proper conduct of its business in good repair,
working order, and condition and make all necessary repairs, renewals,
replacements, betterments, and improvements thereof.
Section 7.4 Taxes and Claims. The Borrower will, and will cause each
Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property, and (b) all lawful claims
for labor, material, and supplies, which, if unpaid, might become a Lien upon
any of its property; provided, however, that neither the
LOAN AGREEMENT - PAGE 30
<PAGE> 37
Borrower nor any Subsidiary shall be required to pay or discharge any tax, levy,
assessment, or governmental charge or claim for labor, material, or supplies
whose amount, applicability, or validity is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate reserves
have been established.
Section 7.5 Insurance. The Borrower will, and will cause each
Subsidiary to, keep insured by financially sound and reputable insurers all
property of a character usually insured by Persons engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such Persons and carry such other
insurance as is usually carried by such Persons.
Section 7.6 Inspection Rights. When no Event of Default exists and
subject to all confidentiality agreements entered into by the Borrower or any
Subsidiary in the ordinary course of its business (including those entered into
in connection with equity and asset acquisitions and the acquisition and use of
intellectual property) and the limitations on disclosure imposed therein, the
Borrower will, and will cause each Subsidiary to, permit representatives of the
Agent and each Bank, during normal business hours and upon no less than two (2)
Business Days prior notice, to examine, copy, and make extracts from its books
and records, to visit and inspect its properties, and to discuss its business,
operations, and financial condition with its officers, employees, and
independent certified public accountants. If an Event of Default exists, the
Borrower will, and will cause each Subsidiary to, permit representatives of the
Agent and each Bank, during normal business hours but without prior notice, to
examine, copy, and make extracts from its books and records, to visit and
inspect its properties, and to discuss its business, operations, and financial
condition with its officers, employees, and independent certified public
accountants.
Section 7.7 Keeping Books and Records. The Borrower will, and will
cause each Subsidiary to, maintain proper books of record and account in which
full, true, and correct entries in conformity with GAAP (and with respect to the
Domestic Insurance Subsidiaries, SAP) shall be made of all dealings and
transactions in relation to its business and activities.
Section 7.8 Compliance with Laws. The Borrower will, and will cause
each Subsidiary to, comply in all material respects with all applicable laws,
rules, regulations, orders, and decrees of any Governmental Authority or
arbitrator.
Section 7.9 Compliance with Agreements. The Borrower will, and will
cause each Subsidiary to, comply in all material respects with all agreements,
contracts, and instruments binding on it or affecting its properties or
business.
Section 7.10 Further Assurances. The Borrower will, and will cause each
Subsidiary to, execute and deliver such further documents and take such further
action as may be requested by the Agent to carry out the provisions and purposes
of this Agreement and the other Transaction Documents.
Section 7.11 ERISA. The Borrower will, and will cause each Subsidiary
to, comply with all minimum funding requirements and all other material
requirements of ERISA, if applicable, so as not to give rise to any liability
under ERISA or any Plan.
Section 7.12 Year 2000 Compliance. The Borrower will promptly notify
the Agent in the event the Borrower discovers or determines that any computer
application (including those of its key suppliers, vendors and customers) will
not be Year 2000 Ready on a timely basis and a Material Adverse Effect will
occur as a result thereof.
LOAN AGREEMENT - PAGE 31
<PAGE> 38
ARTICLE 8
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following negative covenants unless the
Required Banks otherwise agree:
Section 8.1 Debt. The Borrower will not, and will not permit any
Subsidiary to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Banks pursuant to the Loan Documents and Debt arising
under the 1999 Senior Note Agreement, provided that the 1999 Senior Note
Agreement is entered into on terms which, taken as a whole, are not materially
less favorable to the Borrower than the terms set forth in the draft Summary of
Proposed Terms attached as Schedule 8.1 hereto;
(b) Debt in the amount disclosed on Schedule 6.9 (including any
advances made on or after the Closing Date pursuant to the commitments to lend
disclosed on Schedule 6.9) hereto and any extensions, renewals or refinancings
of such existing Debt so long as (i) the principal amount of such Debt after
such renewal, extension or refinancing shall not exceed the principal amount of
such Debt which was outstanding immediately prior to such renewal, extension or
refinancing, and (ii) such Debt shall not be secured by any assets other than
assets securing such Debt, if any, prior to such renewal, extension or
refinancing;
(c) Debt of the Borrower to any Subsidiary or of any Subsidiary to the
Borrower or another Subsidiary; provided a Credit Subsidiary may not incur,
create, assume, or permit to exist any Debt owed by that Credit Subsidiary to an
Insurance Subsidiary except any such Debt existing on the Closing Date which is
disclosed on Schedule 6.9 hereto and other Debt of the type permitted by Section
8.5(l)(i);
(d) Debt (i) under Interest Rate Protection Agreements having an
aggregate notional amount at any one time outstanding not to exceed Sixty-Five
Million Dollars ($65,000,000.00) or (ii) under Interest Rate Protection
Agreements entered into to mitigate the interest rate risk of Debt incurred by
the Credit Subsidiaries and otherwise permitted by clause (e) below; provided
that, in each case, each counterparty shall be rated in one of the three highest
rating categories of S&P or Moody's;
(e) Debt of a Credit Subsidiary incurred in the ordinary course of its
credit card or student loan operations, provided that such Debt (i) is secured
by credit card receivables and/or student loans or (ii) represents unfunded
commitments to provide credit card or student loans;
(f) Guaranties given in the ordinary course of business with respect to
surety and appeal bonds, performance and return-of-money bonds and other similar
obligations;
(g) Debt constituting obligations to reimburse worker's compensation
insurance companies for claims paid by such companies on the Borrower's or a
Subsidiary's behalf in accordance with the policies issued to the Borrower and
the Subsidiaries;
(h) Debt (i) assumed by the Borrower or a Subsidiary in connection with
an acquisition permitted hereby; and (ii) Debt of a Person which becomes a
Subsidiary after the date hereof in an acquisition permitted hereby which Debt
was in existence at the time such Person became a Subsidiary; provided that no
Default exists or would result therefrom and no such Debt shall have been
created or incurred in connection with or in
LOAN AGREEMENT - PAGE 32
<PAGE> 39
anticipation of the acquisition in question (provided that this clause (h) shall
not prohibit Debt otherwise permitted to be incurred, created or assumed under
the other provisions of this Section 8.1);
(i) Guarantees by the Borrower or any Subsidiary of Debt of a
Subsidiary permitted hereby or of operating leases of a Subsidiary entered into
in the ordinary course of business; provided that no Insurance Subsidiary may
guarantee Debts or any operating lease of a Credit Subsidiary;
(j) In addition to the Debt described in clauses (a) through (i) above,
the following:
(i) Unsecured Debt of the Borrower and the Subsidiaries;
and
(ii) Debt secured by purchase money Liens permitted by
Section 8.2 (g);
provided that (x) the aggregate principal amount of all Debt at any time
outstanding under the permissions of items (i) and (ii) of this clause (j) shall
never exceed Twenty-Five Million Dollars ($25,000,000); (y) at the time of the
incurrence, creation, or assumption of any of such Debt, no Default shall have
occurred and be continuing; and (z) such Debt shall be permitted by the Senior
Note Agreements; provided that a Credit Subsidiary may not rely on the
permissions given by this clause (j) to incur, create, assume or permit to exist
any Debt owing by it to any Insurance Subsidiary; and
(k) In addition to the Debt described in clauses (a) through (j) above,
unsecured Debt of the Borrower or a Subsidiary which is subordinated to the
Obligations on terms acceptable to the Required Banks and which is otherwise
provided on terms acceptable to the Required Banks; provided that at the time of
the incurrence, creation, or assumption of any of such Debt, no Default shall
have occurred and be continuing; such Debt shall be permitted by the Senior Note
Agreements; and such Debt, if owed by a Credit Subsidiary, shall not be owed to
an Insurance Subsidiary unless such Debt is of the type permitted by Section 8.5
(l)(i).
Section 8.2 Limitation on Liens. The Borrower will not, and will not
permit any Subsidiary to, incur, create, assume, or permit to exist any Lien
upon any of its property, whether now owned or hereafter acquired, except the
following, none of which (other than as disclosed on Schedule 8.2) shall attach
to or otherwise encumber the Capital Stock of any Subsidiary:
(a) Liens disclosed on Schedule 8.2 hereto, and Liens created
and existing in connection with any extensions, renewals or
refinancings of the Debt secured by such Liens as permitted under
Section 8.1(b) provided that (i) no such Lien is expanded to cover any
additional property (other than after acquired title in or on such
property and proceeds of the existing collateral and other than
property having no greater fair market value than the existing
collateral for which such property is being substituted as new
collateral) after the date hereof; and (ii) no such Lien is spread to
secure any additional Debt after the date hereof;
(b) Liens in favor of the Agent for the benefit of itself and
the Banks pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, zoning restrictions,
or other restrictions on the use of real property that do not
(individually or in the aggregate) materially affect the value of the
property encumbered thereby or materially impair the ability of the
Borrower or the Subsidiaries to use such property in their respective
businesses, and none of which is violated in any material respect by
existing or proposed structures or land use;
LOAN AGREEMENT - PAGE 33
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(d) Liens (other than Liens relating to liabilities resulting
from the violation of Environmental Laws or ERISA) for taxes,
assessments, or other governmental charges that are not delinquent or
which are being contested in good faith and for which adequate reserves
have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
or other similar statutory Liens securing obligations that are not yet
due and are incurred in the ordinary course of business or which are
being contested in good faith and for which adequate reserves have been
established;
(f) Liens resulting from good faith deposits to (i) secure
payments of workmen's compensation or other social security programs,
(ii) secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, contracts (other than for payment of Debt), or
leases made in the ordinary course of business, (iii) satisfy escrow
obligations under reinsurance agreements and (iv) satisfy statutory
obligations imposed by applicable Insurance Regulatory Authorities;
(g) Purchase-money Liens on any property hereafter acquired or
a Lien incurred in connection with any conditional sale or other title
retention agreement or Capital Lease Obligation; provided that:
(i) any property subject to the foregoing is acquired
by the Borrower or any Subsidiary in the ordinary course of
its business and the Lien on the property attaches
concurrently or within sixty (60) days after the acquisition
thereof;
(ii) the Debt secured by any Lien so created, assumed,
or existing shall not exceed the lesser of the cost or fair
market value at the time of acquisition of the property
covered thereby;
(iii) each such Lien shall attach only to the
property so acquired; and
(iv) the Debt incurred is permitted by Section
8.1(j);
(h) Any extension, renewal or replacement of any of the Liens
described in clauses (c) through (g), provided that Liens permitted
thereby shall not be spread to cover any additional Debt or property
(other than after acquired title in or on such property and proceeds of
the existing collateral and other than property having no greater fair
market value than the existing collateral for which such property is
being substituted as collateral);
(i) Any attachment or judgment Lien not constituting an Event
of Default;
(j) Any interest or title of a licensor, lessor or sublessor
under any license or lease incurred in the ordinary course of business;
(k) Liens on assets of a Subsidiary existing prior to the time
such assets were acquired by the Subsidiary or prior to the time such
Person became a Subsidiary and not incurred as a result of, in
connection with or in anticipation of such acquisition or such Person
becoming a Subsidiary; provided (i) such Liens do not extend to or
cover any assets other than the assets encumbered prior to any such
acquisition or prior to such Person becoming a Subsidiary (other than
after acquired title in or on such property and proceeds of the
existing collateral and other than property having no greater fair
market value than the existing collateral for which such property is
being substituted as new collateral) and (ii) such Liens only secure
Debt permitted by Section 8.1(h);
LOAN AGREEMENT - PAGE 34
<PAGE> 41
(l) Liens against equipment arising from precautionary UCC
financing statement filings regarding operating leases entered into by
the Borrower and the Subsidiaries in the ordinary course of business;
(m) Liens on credit card receivables and student loans
securing Debt permitted by clause (e) of Section 8.1;
(n) Liens granted in favor of Borrower or a Subsidiary
securing Debt permitted by clause (c) of Section 8.1; and
(o) Liens other than those listed in clauses (a) through (n)
of this Section 8.2 if at the time such Lien attaches, such Lien is
permitted by the Senior Note Agreements and no Default exists; provided
that the principal amount of the Debt or other obligations secured by
the Liens permitted by this clause (o) shall never exceed Twenty
Million Dollars ($20,000,000) at any time in the aggregate and any such
Debt shall otherwise be permitted by Section 8.1 and the Senior Note
Agreements.
Neither the Borrower nor any Subsidiary shall enter into or assume any agreement
(other than the Loan Documents and the Senior Note Agreements) prohibiting the
creation or assumption of any Lien upon its properties, whether now owned or
hereafter acquired unless such agreement permits the granting of Liens to secure
the Obligations; provided that, in connection with any Debt permitted to be
incurred under Section 8.1 which is used to finance the acquisition of an asset
and any Lien securing the payment thereof permitted by this Section 8.2, the
Borrower or the Subsidiary may agree that it will not permit any other Liens to
encumber the asset so acquired. Except as provided herein, as disclosed in
Schedule 8.2 and as may be imposed by any applicable laws and regulations, the
Borrower will not and will not permit any Subsidiaries directly or indirectly to
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to: (1)
pay dividends or make any other distribution on any of such Subsidiary's Capital
Stock owned by the Borrower or any other Subsidiary; (2) subject to
subordination provisions, pay any Debt owed to the Borrower or any other
Subsidiary; (3) make loans or advances to any Subsidiary; or (4) transfer any of
its property or assets to any Subsidiary.
Section 8.3 Mergers, Etc. The Borrower will not, and will not permit
any Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all of the properties of any Person or purchase or acquire
properties of a Person with a book value in excess of ten percent (10%) of the
book value of all properties of such Person (as determined as of the date of
acquisition) or any shares or other evidence of beneficial ownership of any
Person, or wind-up, dissolve, or liquidate itself; provided that as long as no
Default exists or would result therefrom and provided the Borrower gives the
Agent and the Banks prior written notice:
(i) The Subsidiaries may acquire shares, equity securities or
other evidence of beneficial ownership of a Person (including a
Subsidiary) or property of a Person (including a Subsidiary) in
accordance with the restrictions set forth in Section 8.5 and, with
respect to a Subsidiary, Section 8.7(f); provided no Insurance
Subsidiary may acquire shares, equity securities or other evidence of
beneficial ownership in any Credit Subsidiary or any property of any
Credit Subsidiary except for the shares, equity securities or other
evidence of beneficial ownership permitted by Section 8.5(l)(i) and
(ii);
(ii) In connection with acquisitions permitted by Section 8.5,
the Borrower may merge or consolidate with any other Person provided
the Borrower is the surviving Person;
(iii) A Subsidiary may wind-up, dissolve or liquidate if its
assets are transferred to the Borrower or a Subsidiary or disposed of
pursuant to Section 8.7; and
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(iv) Any Subsidiary may merge or consolidate with the Borrower
(provided the Borrower is the surviving entity) or with any other
Subsidiary or, in connection with acquisitions permitted hereby, any
other Person that, in each case, is or becomes a Subsidiary; provided
no Insurance Subsidiary may merge or consolidate with any Credit
Subsidiary.
Section 8.4 Restricted Payments. The Borrower will not declare or pay
any dividends or make any other payment or distribution (whether in cash,
property, or obligations) on account of its Capital Stock, or redeem, purchase,
retire, or otherwise acquire any of its Capital Stock, or permit any of the
Subsidiaries to purchase or otherwise acquire any Capital Stock of the Borrower,
or set apart any money for a sinking or other analogous fund for any dividend or
other distribution on its Capital Stock or for any redemption, purchase,
retirement, or other acquisition of any of its Capital Stock; provided, however,
that if no Default exists or would result therefrom, the Borrower may (i)
purchase common Capital Stock of the Borrower from directors, officers,
employees or agents of Borrower and the Subsidiaries no longer employed by or
associated with the Borrower or a Subsidiary, provided that the Capital Stock so
purchased was acquired by such directors, officers, employees or agents pursuant
to a stock ownership or purchase plan or compensation plan of the Borrower
approved by the Board of Directors of the Borrower; (ii) purchase its common
Capital Stock in the open market in accordance with past practices to fulfill
the requirements of the stock ownership or purchase plans or compensation plans
provided to directors, officers, employees and agents of the Borrower and the
Subsidiaries which plans are approved by the Board of Directors of the Borrower;
and (iii) declare or pay dividends or other distributions on account of its
Capital Stock, or redeem, purchase, retire or otherwise acquire its Capital
Stock (in addition to the purchases permitted by clauses (i) and (ii) of this
Section 8.4) so long as the aggregate amount paid, distributed or otherwise
given under the permissions of this clause (iii) does not exceed Thirty-Five
Million Dollars ($35,000,000) in the aggregate for the entire term of this
Agreement.
Section 8.5 Investments. The Borrower will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any advance, loan, extension
of credit, or capital contribution to or investment in any Person, or purchase
or own any stock, bonds, notes, debentures, or other securities of any Person,
or be or become a joint venturer with or partner of any Person or purchase all
the properties of a Person or purchase properties of a Person with a book value
in excess of ten percent (10%) of the book value of all properties of such
Person determined as of the date of acquisition (all such transactions being
herein called "Investments"), except:
(a) The Borrower and any Subsidiary may make Investments in readily
marketable direct obligations of the United States of America or any agency
thereof or readily marketable direct obligations guaranteed or insured as to
principal and interest by the United States of America or any agency thereof;
(b) The Borrower and any Subsidiary may make Investments in (i) fully
insured certificates of deposit; and (ii) other certificates of deposit issued
by any commercial bank operating in the United States of America having capital
and surplus in excess of $500,000,000 and rated in one of the four highest
unsecured long-term debt ratings of S&P or Moody's;
(c) The Borrower and any Subsidiary may make Investments in commercial
paper of a domestic issuer if at the time of purchase such paper is rated in one
of the two highest ratings of S&P or Moody's;
(d) The Borrower and any Subsidiary may acquire and own:
(i) all the shares, other equity securities or other
evidence of beneficial ownership of a Person;
LOAN AGREEMENT - PAGE 36
<PAGE> 43
(ii) a majority of the shares, other equity
securities or other evidence of beneficial ownership of a
Person; or
(iii) such number of such shares, securities or
beneficial ownership that represents a controlling interest in
such Person;
if, with respect to each such acquisition, no Default exists or would result
therefrom, the Borrower shall provide prompt notice to Agent of such acquisition
and, with respect to any Insurance Subsidiary, any such Investment is made in
accordance with applicable insurance laws and regulations; provided that
Borrower's or a Subsidiary's acquisition and ownership of shares, other equity
securities or other evidence of beneficial ownership of existing and newly
created Subsidiaries is not governed by this clause (d) but is governed by
clause (f) of this Section 8.5;
(e) The Borrower and any Subsidiary may acquire and own:
(i) all of a Person's (including a Subsidiary's)
property; or
(ii) properties of a Person (including a Subsidiary)
with a book value in excess of ten percent (10%) of the book
value of all properties of such Person determined as of the
date of acquisition
if, with respect to each such acquisition, no Default exists or would result
therefrom; the Borrower shall provide prompt notice to Agent of such
acquisition; with respect to any Insurance Subsidiary, any such Investment is
made in accordance with applicable insurance laws and regulations; no Insurance
Subsidiary may acquire properties of any Credit Subsidiary; and if the
acquisition is made from a Subsidiary, the assets disposition is consummated in
compliance with Section 8.7;
(f) The Borrower and any Subsidiary may own stock of the Subsidiaries
existing on the date hereof, the Borrower and any Subsidiary may make loans to
the Borrower or other Subsidiaries and enter into Guarantees, in each case, as
permitted by Section 8.1 and, if no Default exists, the Borrower and any
Subsidiary may make capital contributions to or investments in, or purchase any
stocks or other equity securities of a Subsidiary or a newly created Person
organized by the Borrower or a Subsidiary that, immediately after such
investment or purchase, will be a Subsidiary; provided no Insurance Subsidiary
shall make any capital contributions to or investments in, or purchase any stock
or other equity securities of a Credit Subsidiary except for the Investments
permitted by clauses (l)(i) and (l)(ii) of this Section 8.5;
(g) The Borrower and any Subsidiaries may in the ordinary course of
business (i) make advances to agents, officers, directors and employees for
business expenses incurred in the ordinary course of business; (ii) make
advances to agents against future commissions in accordance with past practices
or standard industry practice; and (iii) make loans to officers, directors,
agents and employees the proceeds of which are used to purchase common stock of
the Borrower provided that the aggregate amount of the loans made pursuant to
this clause (iii) shall never exceed Fifteen Million Dollars ($15,000,000) in
the aggregate at any time and each such loan shall be secured by the common
stock so purchased;
(h) The Borrower and any Subsidiary may hold Investments received in
connection with the bankruptcy or reorganization of vendors, suppliers and
customers and in connection with the settlement of delinquent obligations of,
and disputes with, vendors, customers and suppliers arising in the ordinary
course of business;
LOAN AGREEMENT - PAGE 37
<PAGE> 44
(i) The Borrower and any Subsidiary may make extensions of trade credit
in the ordinary course of business;
(j) The Borrower and any Subsidiary involved in the credit card
business may make extensions of credit to its customers under credit card
agreements in the ordinary course of business;
(k) The Borrower and any Subsidiary involved in the student loan
business may extend credit in the form of student loans; and
(l) Any Insurance Subsidiary may make Investments in the following:
(i) Debt securities (excluding CMO Derivative Investments, as
defined below) rated BBB- or better by S& P, Baa3 or better by Moody's
or NAIC-2 or better by the NAIC; provided that any such Investment
which, at any time after which it is made ceases to meet such rating
requirements, shall not be prohibited until a period of ninety (90)
days after the date on which such rating requirement is no longer met;
(ii) preferred stock by issuers whose debt instruments meet
the rating requirements specified in clause (l)(i) above; provided that
the aggregate book value of the Investments made pursuant to the
permissions of this clause (l)(ii) by an Insurance Subsidiary shall not
exceed twenty percent (20%) of the statutory surplus of such Subsidiary
determined in accordance with SAP;
(iii) insurance policy loans made to insureds in the ordinary
course of business;
(iv) Investments other than those identified in this Section
8.5 of an Insurance Subsidiary which are of a type and quality
acceptable to the Insurance Regulatory Authority regulating such
Insurance Subsidiary; provided that (x) the aggregate book value of
such other Investments, when aggregated with the book value of all
Investments of such Subsidiary outstanding pursuant to clause (l)(ii)
above do not exceed, at any one time twenty percent (20%) of the
aggregate book value of the Investments of such Insurance Subsidiary;
(y) no Insurance Subsidiary may make investments under the permissions
of this clause (iv) in any Credit Subsidiary; and (z) CMO Derivative
Investments of an Insurance Subsidiary shall not exceed, in the
aggregate five percent (5%) of the statutory surplus of such Subsidiary
determined in accordance with SAP.
As used herein, the term "CMO Derivative Investments" means any interest in a
volatile tranche of a collateralized mortgage obligation, including without
limitation, such interests typically classified as z bonds, inverse floaters,
PAC II, PAC III, Ioettes, support bonds, interest-only investments,
principal-only investments, residuals, inverse IO's and super floaters.
Section 8.6 Transactions With Affiliates. The Borrower will not, and
will not permit any Subsidiary to, enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the rendering
of any service, with any Affiliate of the Borrower or such Subsidiary, except in
the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arms-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
Section 8.7 Disposition of Property. The Borrower will not, and will
not permit any Subsidiary to, sell, lease, assign, transfer, or otherwise
dispose of any of its property, except (a) dispositions of inventory, credit
card receivables and student loans in the ordinary course of business, including
any sale or other transfer pursuant to
LOAN AGREEMENT - PAGE 38
<PAGE> 45
a securitization; (b) dispositions of assets reasonably and in good faith
determined by the Borrower or such Subsidiary to be obsolete or no longer
necessary to its business if no Default exists or would result therefrom; (c)
any sale, lease, assignment, transfer or other disposition of assets of a
Subsidiary as a result of a transaction permitted by Section 8.3, (d) licenses,
sublicenses, leases and subleases of intellectual property, general intangibles,
or other property (other than Capital Stock), in each case in the ordinary
course of business, that do not materially interfere with the business of the
Borrower and the Subsidiaries; (e) the sale of overdue accounts receivable
arising in the ordinary course of business, but only in connection with the
compromise or settlement thereof; (f) the sale, lease, assignment, transfer or
other disposition of assets of a Subsidiary to the Borrower or any Subsidiary;
provided that no Credit Subsidiary may sell, lease, assign, transfer or
otherwise convey any of its assets to an Insurance Subsidiary and no Insurance
Subsidiary may sell, lease, assign, transfer or otherwise convey any of its
assets to a Credit Subsidiary (other than the sale, redemption or other
disposition of a Debt instrument of, or an Investment in, a Credit Subsidiary in
accordance with its specific terms to that Credit Subsidiary); (g) the
disposition of property by an Insurance Subsidiary in connection with
reinsurance treaties or agreements entered into in the ordinary course of
business; (h) the disposition of Investments by an Insurance Subsidiary in the
ordinary course of business in connection with the management of its investment
portfolio provided the proceeds thereof are utilized to satisfy policy
liabilities and expenses incurred in the ordinary course of business, are
reinvested in accordance with Section 8.5 or are held as cash; (i) the
assignment, transfer or other disposition by Borrower of its direct interests in
the Credit Subsidiaries to a wholly-owned Subsidiary of Borrower which is not an
Insurance Subsidiary; and (j) the disposition of assets, in addition to those
set forth in clauses (a) through (i) above, provided that (i) no Default exists
or would result therefrom, (ii) the consideration received is at least equal to
the fair market value of such assets; (iii) the aggregate net book value of the
assets disposed of during any fiscal year of the Borrower does not exceed
fifteen percent (15%) of the Total Capitalization in effect as of the date of
determination; and (iv) no Credit Subsidiary may sell, lease, assign, transfer
or otherwise convey any of its assets to an Insurance Subsidiary under the
permissions of this clause (j) and no Insurance Subsidiary may sell, lease,
assign, transfer or otherwise convey any of its assets to a Credit Subsidiary
under the permissions of this clause (j) .
Section 8.8 Prepayment of Debt. The Borrower will not prepay the Debt
outstanding pursuant to the Senior Note Agreements except (i) for prepayments
resulting from a refinancing permitted pursuant to Section 8.1(b); (ii)
Borrower may prepay such Debt if the Consolidated Net Worth immediately prior to
such prepayment is Six Hundred Fifty Million Dollars ($650,000,000) or more; and
(iii) Borrower may make mandatory prepayments pursuant to Section 5.1 of the
8.75% Senior Note Agreement.
Section 8.9 Lines of Business. The Borrower will not, and will not
permit any Subsidiary to, engage in any line or lines of business activity other
than the insurance, financial services and information technology businesses,
other businesses in which they are engaged on the date hereof, any businesses
reasonably related thereto and the sale of products or services utilizing the
existing channels of distribution currently utilized by the Borrower and the
Subsidiaries.
Section 8.10 Environmental Protection. The Borrower will not, and will
not permit any Subsidiary to, (a) use (or permit any tenant to use) any of its
properties for the handling, processing, storage, transportation, or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a release
or threatened release of any Hazardous Material in violation of any
Environmental Law, or (d) otherwise conduct any activity or use any of its
properties in any manner that is likely to violate any Environmental Law or
create any liabilities with respect thereto for which the Borrower or any of the
Subsidiaries would be responsible, except for circumstances or events described
in clauses (a) through (d) of this Section that could not have a Material
Adverse Effect.
LOAN AGREEMENT - PAGE 39
<PAGE> 46
Section 8.11 Modifications to Senior Note Agreements. Borrower will not
change or amend the terms of the Senior Note Agreements, if the effect of such
amendment is to: (a) shorten the time of payments of principal or interest due
under either Senior Note Agreement; (b) change any event of default or any
covenant to a materially more onerous or restrictive provision; or (c) change or
amend any other term of either Senior Note Agreement in a manner materially
adverse to Agent or any Bank as creditors or the interests of the Banks under
this Agreement or any other Loan Document in any respect.
ARTICLE 9
Financial Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following financial covenants unless the
Required Banks otherwise agree:
Section 9.1 Consolidated Net Worth. The Borrower will at all times
maintain Consolidated Net Worth in an amount not less than the sum of (a) Five
Hundred Million Dollars ($500,000,000) plus (b) twenty-five percent (25%) of the
positive Consolidated Net Income for each completed fiscal year ending after
December 31, 1998. The term "Consolidated Net Income" means, for any period, the
sum of the following, calculated without duplication: (a) Net Income (as defined
in Section 9.3) plus (b) the income (or loss) of all Insurance Subsidiaries and
Credit Subsidiaries.
Section 9.2 Consolidated Debt to Total Capitalization Ratio. The
Borrower will not at any time permit the ratio of Consolidated Debt to Total
Capitalization to be greater than 0.30 to 1.0.
Section 9.3 Interest Coverage. Borrower shall not permit the ratio of
Cash Flow to Interest Expense, all as calculated for the four (4) fiscal quarter
period ending on the last day of each fiscal quarter of Borrower to be less than
(i) 3.10 to 1.00 as of each fiscal quarter end prior to the date when all Debt
outstanding under the 8.75% Senior Note Agreement is paid and satisfied in full;
and (ii) 2.50 to 1.00 as of each fiscal quarter end thereafter. As used in this
Section 9.3, the following terms have the following meanings:
"Cash Flow" means, for any period, the total of the following
each calculated without duplication:
(i) the total of the following for Borrower and all
Subsidiaries (other than the Insurance Subsidiaries, United
Credit National Bank, Educational Finance Group, Inc. and the
Subsidiaries owned by Educational Finance Group, Inc. but
otherwise on a consolidated basis in accordance with GAAP) for
such period: (a) Net Income; plus (b) any provision for (or
less any benefit from) income or franchise taxes included in
determining Net Income; plus (c) interest expense deducted in
determining Net Income; plus (d) amortization and depreciation
expense deducted in determining Net Income; plus (e) other
noncash charges deducted in determining Net Income and not
already deducted in accordance with clauses (b), (c) and (d)
of the definition of Net Income; plus
(ii) the sum of:
(a) the total of the Available Domestic Insurance
Subsidiary Earnings of all Domestic Insurance Subsidiaries for
LOAN AGREEMENT - PAGE 40
<PAGE> 47
such period, with the "Available Domestic Insurance
Subsidiary Earnings" determined separately for each
Domestic Insurance Subsidiary and equal for each
Domestic Insurance Subsidiary to the product of the
following (1) lesser of (A) the total of the ordinary
dividend capacity of such Domestic Insurance
Subsidiary for such period determined in accordance
with SAP or (B) the net income of such Domestic
Insurance Subsidiary for such period determined in
accordance with SAP multiplied by (2) the percentage
equal to the percentage of Borrower's direct or
indirect ownership of all the Capital Stock of such
Subsidiary entitled to share in the receipt of
ordinary dividends or other ordinary distributions of
earnings; plus
(b) the total of the Attributable Net Income
of all Insurance Subsidiaries organized under the
laws of a jurisdiction located outside the United
States of America for such period, with the
"Attributable Net Income" determined separately for
each such Insurance Subsidiary and equal for each
such Insurance Subsidiary to the product of (1) the
net income of such Insurance Subsidiaries for such
period determined in accordance with GAAP multiplied
by (2) the percentage equal to the percentage of
Borrower's direct or indirect ownership of all the
Capital Stock of such Insurance Subsidiary entitled
to share in the receipt of ordinary distributions of
earnings.
"Interest Expense"means, for any period, the sum of (i) the
consolidated cash interest expense of Borrower and all Subsidiaries;
minus (ii) the cash interest expense of the Insurance Subsidiaries;
minus (iii) the cash interest expense attributable to any Debt incurred
in the ordinary course of the Borrower's and the Subsidiaries' credit
card and student loan businesses if such Debt is secured by credit card
receivables or student loans.
"Net Income" means, for any period, the Borrower's
consolidated net income (or loss) from operations, but excluding, to
the extent not already excluded: (a) the income of any other Person
(other than a Subsidiaries) in which Borrower or any of the
Subsidiaries has an ownership interest, unless received by Borrower or
a Subsidiary in a cash distribution; (b) any after-tax gains or losses
attributable to asset disposition; (c) to the extent not included in
clauses (a) and (b) above, any after-tax extraordinary, non-cash or
nonrecurring gains or losses; (d) non-cash or nonrecurring charges due
to changes in accounting principles required by GAAP; and (e) the
income (or loss) of all Insurance Subsidiaries and Credit Subsidiaries.
Section 9.4 Risk-Based Capital. As of the end of each calendar year,
the Borrower will not permit the Risk-Based Capital of any Domestic Insurance
Subsidiary to fall below 200% of the company action level (as defined by the
NAIC or by the applicable Insurance Regulatory Authority of the state of such
Insurance Subsidiaries' domicile) for such Subsidiary. The term "Risk-Based
Capital" means the risk-based capital of a Domestic Insurance Subsidiary
calculated in accordance with the formula adopted from time to time by the NAIC
or by the applicable Insurance Regulatory Authority of the state of such
Insurance Subsidiaries' domicile. In the event that there is a conflict between
the risk-based capital formulas or company action levels by the NAIC and the
applicable Insurance Regulatory Authority of the State of such Insurance
Subsidiaries' domicile, the calculations adopted by the applicable Insurance
Regulatory Authority shall control.
LOAN AGREEMENT - PAGE 41
<PAGE> 48
ARTICLE 10
Default
Section 10.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) The Borrower shall fail to pay (i) when due any principal payable
under any Loan Document or any part thereof; (ii) within three (3) Business Days
of the date due any interest or fees payable under the Loan Documents or any
part thereof; and (iii) within five (5) Business Days after the date the
Borrower receives written notice of the failure to pay when due any other
Obligation or any part thereof.
(b) Any representation, warranty or certification made or deemed made
by the Borrower or any Obligated Party (or any of their respective officers) in
any Loan Document or in any certificate, report, notice, or financial statement
furnished at any time in connection with this Agreement shall be false,
misleading, or erroneous in any material respect when made or deemed to have
been made.
(c) The Borrower shall fail to perform, observe, or comply with any
covenant, agreement, or term contained in clauses (a), (b), (c), (f), (g) and
(j) of Section 7.1, Article 8, or Article 9 of this Agreement. The Borrower or
any Obligated Party shall fail to perform, observe, or comply with any other
covenant, agreement, or term contained in this Agreement or any other Loan
Document (other than covenants to pay the Obligations) and such failure shall
continue for a period of ten (10) days after the earlier of (i) the date the
Agent or any Bank provides the Borrower with notice thereof or (ii) the date the
Borrower should have notified the Agent thereof in accordance with Section
7.1(g) hereof.
(d) The Borrower, any Significant Subsidiary, or any Obligated Party
shall admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due.
(e) The Borrower, any Significant Subsidiary, or any Obligated Party
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, rehabilitator, conservator, custodian, trustee,
liquidator or the like of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect, the "Bankruptcy Code"), (iv) institute any proceeding or
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or under any other such law, or
(vi) take any corporate or other action for the purpose of effecting any of the
foregoing.
(f) A proceeding or case shall be commenced, without the application,
approval or consent of the Borrower, any Significant Subsidiary, or any
Obligated Party, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a receiver,
rehabilitator, conservator, custodian, trustee, liquidator or the like of the
Borrower or such Significant Subsidiary or Obligated Party or of all or any
substantial part of its property, or (iii) similar relief in respect of the
Borrower or such Significant Subsidiary or Obligated Party under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of sixty (60) or
more days; or an order for relief against the Borrower, any Significant
Subsidiary, or any Obligated Party shall be entered in an involuntary case under
the Bankruptcy Code.
LOAN AGREEMENT - PAGE 42
<PAGE> 49
(g) The Borrower, any Significant Subsidiary, or any Obligated Party
shall fail to discharge within a period of thirty (30) days after the
commencement thereof any unstayed attachment, sequestration, forfeiture, or
similar proceeding or proceedings involving an aggregate amount in excess of Ten
Million Dollars ($10,000,000) against any of its properties.
(h) A final judgment or judgments for the payment of money in excess of
Ten Million Dollars ($10,000,000) in the aggregate shall be rendered by a court
or courts against the Borrower, any of the Significant Subsidiaries, or any
Obligated Party and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be procured,
within thirty (30) days from the date of entry thereof and the Borrower or the
relevant Significant Subsidiary or Obligated Party shall not, within said period
of thirty (30) days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) The Borrower, any Significant Subsidiary, or any Obligated Party
shall fail to pay when due any principal of or interest on any Debt (other than
the Obligations) in excess of Five Million Dollars ($5,000,000), or the maturity
of any such Debt shall have been accelerated, or any such Debt shall have been
required to be prepaid in full prior to the stated maturity thereof, or any
event shall have occurred that permits (or, with the giving of notice or lapse
of time or both, would permit) any holder or holders of such Debt or any Person
acting on behalf of such holder or holders to accelerate the maturity thereof or
require any such prepayment.
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by the Borrower, any
Subsidiary, any Obligated Party or any of their respective shareholders, or the
Borrower or any Obligated Party shall deny that it has any further liability or
obligation under any of the Loan Documents.
(k) Any of the following events shall occur or exist with respect to
the Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event with respect to any Plan; (iii) the filing
under Section 4041 of ERISA of a notice of intent to terminate any Plan or the
termination of any Plan; (iv) any event or circumstance that might constitute
grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA
for the termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; or (v) complete or
partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan
or the reorganization, insolvency, or termination of any Multiemployer Plan; and
in each case above, such event or condition, together with all other events or
conditions, if any, have subjected or could in the reasonable opinion of
Required Banks subject the Borrower to any tax, penalty, or other liability to a
Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination thereof)
which in the aggregate exceed or could reasonably be expected to exceed Ten
Million Dollars ($10,000,000).
(l) Any Person or group (as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended) other than the Jensen Family or
the employees and agents of the Borrower and the Subsidiaries shall become the
direct or indirect beneficial owner (as defined in Rule 13(d)(3) under the
Securities Exchange Act of 1934, as amended) of more than ten percent (10%) of
the total voting power of all the classes of Capital Stock then outstanding of
the Borrower entitled (without regard to the occurrence of any contingency) to
vote in the election of directors of the Borrower. The term "Jensen Family"
means Mr. Ronald L. Jensen, his spouse, his adult children, any trusts
controlled by any such persons or of which such persons (individually or
together with any persons) are beneficiaries and any foundations controlled by
any such persons. Harvard Management Company, Inc. shall become the direct or
indirect beneficial owner (as defined in the first sentence of this clause (l))
of more than fifteen percent (15%) of the total voting power of all the classes
of Capital Stock
LOAN AGREEMENT - PAGE 43
<PAGE> 50
then outstanding of the Borrower entitled (without regard to the occurrence of
any contingency) to vote in the election of directors of the Borrower.
Section 10.2 Remedies. If any Event of Default exists, the Agent may
(and if directed by Required Banks, shall) do any one or more of the following:
(a) Acceleration. By notice to the Borrower, declare all outstanding
principal of and accrued and unpaid interest on the Notes and all other amounts
payable by the Borrower under the Loan Documents immediately due and payable,
and the same shall thereupon become immediately due and payable, without any
other notice, demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, protest, or other formalities of any kind, all
of which are hereby expressly waived by the Borrower.
(b) Termination of Commitments. Terminate the Commitments without
notice to the Borrower.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
Agent for the benefit of itself and the Banks to secure payment and performance
of the Obligations in accordance with the terms of the Loan Documents.
(e) Rights. Exercise any and all rights and remedies afforded by the
laws of the State of Texas or any other jurisdiction, by any of the Loan
Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under Section
10.1(d), (e) or (f), the Commitments of all of the Banks shall automatically
terminate, and the outstanding principal of and accrued and unpaid interest on
the Notes and all other amounts payable by the Borrower under the Loan Documents
shall thereupon become immediately due and payable without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of intent to
accelerate, protest, or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
Section 10.3 Performance by the Agent. If the Borrower shall fail to
perform any covenant or agreement in accordance with the terms of the Loan
Documents, the Agent may, at the direction of Required Banks, perform or attempt
to perform such covenant or agreement on behalf of the Borrower. In such event,
the Borrower shall, at the request of the Agent, promptly pay any amount
expended by the Agent or the Banks in connection with such performance or
attempted performance to the Agent at the Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent nor
any Bank shall have any liability or responsibility for the performance of any
obligation of the Borrower under this Agreement or any of the other Loan
Documents.
Section 10.4 Continuance of Default. For purposes of all Loan
Documents, (a) a Default which is capable of being remedied shall be deemed to
exist until the Agent shall have actually received evidence reasonably
satisfactory to Agent that such Default shall have been remedied and (b) a
Default not capable of being remedied shall be deemed to exist until waived in
accordance with the Loan Document.
Section 10.5 Setoff. If an Event of Default shall have occurred and be
continuing, each Bank is hereby authorized at any time and from time to time,
without notice to the Borrower (any such notice being hereby expressly waived by
the Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Bank to or for the credit
LOAN AGREEMENT - PAGE 44
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or the account of the Borrower against any and all of the Obligations,
irrespective of whether or not the Agent or such Bank shall have made any demand
under any Loan Document and although such Obligations may be unmatured. Each
Bank agrees promptly to notify the Borrower (with a copy to the Agent) after any
such setoff and application, provided that the failure to give such notice shall
not affect the validity of such setoff and application. The rights and remedies
of each Bank hereunder are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which such Bank may have.
ARTICLE 11
The Agent
Section 11.1 Appointment, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent under this
Agreement and the other Loan Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 11.5 and
the first sentence of Section 11.6 hereof shall include its Affiliates and its
own and its Affiliates' officers, directors, employees, and agents): (a) shall
not have any duties or responsibilities except those expressly set forth in this
Agreement and shall not be a trustee or fiduciary for any Bank; (b) shall not be
responsible to the Banks for any recital, statement, representation, or warranty
(whether written or oral) made in or in connection with any Loan Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Loan Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Loan Document, or any other
document referred to or provided for therein or for any failure by Borrower or
any Obligated Party or any other Person to perform any of its obligations
thereunder; (c) shall not be responsible for or have any duty to ascertain,
inquire into, or verify the performance or observance of any covenants or
agreements by Borrower or any Obligated Party or the satisfaction of any
condition or to inspect the property (including the books and records) of
Borrower or any Obligated Party or any of the Subsidiaries or Affiliates of
Borrower; (d) shall not be required to initiate or conduct any litigation or
collection proceedings under any Loan Document; and (e) shall not be responsible
for any action taken or omitted to be taken by it under or in connection with
any Loan Document, except for its own gross negligence or willful misconduct.
The Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care.
Section 11.2 Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice, instrument, writing, or other communication
(including, without limitation, any thereof by telephone or telecopy) believed
by it to be genuine and correct and to have been signed, sent or made by or on
behalf of the proper Person or Persons, and upon advice and statements of legal
counsel (including counsel for the Borrower or any Obligated Party), independent
accountants, and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the holder thereof for all purposes hereof unless
and until the Agent receives and accepts an Assignment and Acceptance executed
in accordance with Section 12.8 hereof. As to any matters not expressly provided
for by this Agreement, the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Banks, and such instructions shall be
binding on all of the Banks; provided, however, that the Agent shall not be
required to take any action that exposes the Agent to personal liability or that
is contrary to any Loan Document or applicable law or unless it shall first be
indemnified to its satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking any such action.
LOAN AGREEMENT - PAGE 45
<PAGE> 52
Section 11.3 Defaults. The Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default or Event of Default unless the Agent
has received written notice from a Bank or the Borrower specifying such Default
or Event of Default and stating that such notice is a "Notice of Default". In
the event that the Agent receives such a notice of the occurrence of a Default
or Event of Default, the Agent shall give prompt notice thereof to the Banks.
The Agent shall (subject to Section 11.2 hereof) take such action with respect
to such Default or Event of Default as shall reasonably be directed by the
Required Banks, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks.
Section 11.4 Rights as Bank. With respect to its Commitment and the
Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as the
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. NationsBank (and any
successor acting as Agent) and its Affiliates may (without having to account
therefor to any Bank) accept deposits from, lend money to, make investments in,
provide services to, and generally engage in any kind of lending, trust, or
other business with Borrower or any Obligated Party or any of the Subsidiaries
or Affiliates of Borrower as if it were not acting as Agent, and NationsBank
(and any successor acting as Agent) and its Affiliates may accept fees and other
consideration from Borrower or any Obligated Party or any of the Subsidiaries or
Affiliates of Borrower for services in connection with this Agreement or
otherwise without having to account for the same to the Banks.
Section 11.5 INDEMNIFICATION. THE BANKS AGREE TO INDEMNIFY THE AGENT
(TO THE EXTENT NOT REIMBURSED UNDER SECTION 12.1 OR 12.2 HEREOF, BUT WITHOUT
LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SUCH SECTIONS) RATABLY IN
ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), OR DISBURSEMENTS OF ANY KIND
AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST
THE AGENT (INCLUDING BY ANY BANK) IN ANY WAY RELATING TO OR ARISING OUT OF ANY
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR
OMITTED BY THE AGENT UNDER ANY LOAN DOCUMENT; PROVIDED THAT NO BANK SHALL BE
LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT
LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE
OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. WITHOUT LIMITATION OF THE FOREGOING,
EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE
SHARE OF ANY COSTS OR EXPENSES PAYABLE BY THE BORROWER UNDER SECTION 12.1, TO
THE EXTENT THAT THE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES
BY THE BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT
IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT.
Section 11.6 Non-Reliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed
LOAN AGREEMENT - PAGE 46
<PAGE> 53
appropriate, made its own credit analysis of the Borrower, the Obligated Parties
and the Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under the Loan Documents. Except for notices, reports, and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition, or business of the Borrower or any Obligated Party or any of the
Subsidiaries or Affiliates of Borrower that may come into the possession of the
Agent or any of its Affiliates.
Section 11.7 Resignation of Agent. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent which shall be a commercial bank
organized under the laws of the United States of America having combined capital
and surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
Section 11.8 Several Commitments. The Commitments and other obligations
of the Banks under any Loan Document are several. The default by any Bank in
making a Loan in accordance with its Commitment shall not relieve the other
Banks of their obligations under any Loan Document. In the event of any default
by any Bank in making any Loan, each nondefaulting Bank shall be obligated to
make its Loan but shall not be obligated to advance the amount which the
defaulting Bank was required to advance hereunder. No Bank shall be responsible
for any act or omission of any other Bank.
Section 11.9 Agent Fee. Borrower agrees to pay to the Agent on the
Closing Date and on each anniversary of the Closing Date until the Commitments
are terminated and all Obligations paid and satisfied in full, the annual
administrative agency fee Borrower has agreed to pay the Agent pursuant to that
certain letter dated March 1, 1999 between Borrower, NationsBank and NationsBanc
Montgomery Securities LLC.
Section 11.10 Documentation Agent and Co-Agent. The First National Bank
of Chicago has been designated as documentation agent hereunder and Fleet
National Bank has been designated as co-agent hereunder for no reason other than
in recognition of the timing and level of their respective Commitments, neither
such Bank is therefore an agent for the Banks and neither such Bank shall have
any obligations under the Loan Documents other than those arising in its
capacity as a Bank.
ARTICLE 12
Miscellaneous
Section 12.1 Expenses. The Borrower hereby agrees to pay on demand: (a)
all out-of-pocket costs and expenses of the Agent in connection with the
preparation, negotiation, execution, and delivery of this Agreement and the
other Transaction Documents and any and all amendments, modifications, renewals,
extensions, and supplements thereof and thereto, including, without limitation,
the reasonable fees and expenses of legal counsel for the Agent, (b) all
out-of-pocket costs and expenses of the Agent and the Banks in connection with
any Default
LOAN AGREEMENT - PAGE 47
<PAGE> 54
and the enforcement of this Agreement or any other Loan Document, including,
without limitation, the reasonable fees and expenses of legal counsel for the
Agent and the Banks, (c) all transfer, stamp, documentary, or other similar
taxes, assessments, or charges levied by any Governmental Authority in respect
of this Agreement or any of the other Transaction Documents, and (d) all other
out-of-pocket costs and expenses incurred by the Agent in connection with this
Agreement or any other Transaction Document.
Section 12.2 INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT
AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS
AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) TO
WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR
RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION,
OR ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS, (C) ANY BREACH BY THE BORROWER OF ANY
REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE
LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OF THE BORROWER OR ANY SUBSIDIARY, OR (E) ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF
THE FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER
LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH
PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL (i) BE INDEMNIFIED FROM AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON AND (ii) SHALL NOT BE INDEMNIFIED OR HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEY FEES) ARISING
OUT OF OR RESULTING FROM THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF SUCH
PERSON.
Section 12.3 Limitation of Liability. None of the Agent, any Bank, or
any Affiliate, officer, director, employee, attorney, or agent thereof shall
have any liability with respect to, and the Borrower hereby waives, releases,
and agrees not to sue any of them upon, any claim for any special, indirect,
incidental, consequential, exemplary or punitive damages suffered or incurred by
the Borrower in connection with, arising out of, or in any way related to, this
Agreement or any of the other Transaction Documents, or any of the transactions
contemplated by this Agreement or any of the other Transaction Documents. None
of the Borrower, any Obligated Party nor any Affiliate, officer, director,
employee, attorney, or agent thereof shall have any liability with respect to,
and the Agent and each Bank hereby waives, releases, and agrees not to sue any
of them upon, any claim for any special, indirect, incidental, consequential,
exemplary or punitive damages suffered or incurred by any of them in connection
with, arising out of, or in any way related to, this Agreement or any of the
other Transaction Documents, or any of the transactions contemplated by this
Agreement or any of the other Transaction Documents.
Section 12.4 No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by the Agent and the Banks shall
have the right to act exclusively in the interest of the Agent
LOAN AGREEMENT - PAGE 48
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and the Banks and shall have no duty of disclosure, duty of loyalty, duty of
care, or other duty or obligation of any type or nature whatsoever to the
Borrower or any of the Borrower's shareholders or any other Person.
Section 12.5 No Fiduciary Relationship. The relationship between the
Borrower and each Bank is solely that of debtor and creditor, and neither the
Agent nor any Bank has any fiduciary or other special relationship with the
Borrower, and no term or condition of any of the Transaction Documents shall be
construed so as to deem the relationship between the Borrower and any Bank to be
other than that of debtor and creditor. No joint venture or partnership is
created by this Agreement among the Banks or among the Borrower and the Banks.
Section 12.6 Equitable Relief. The Borrower recognizes that in the
event the Borrower fails to pay, perform, observe, or discharge any or all of
the Obligations, any remedy at law may prove to be inadequate relief to the
Agent and the Banks. The Borrower therefore agrees that the Agent and the Banks,
if the Agent or the Banks so request, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
Section 12.7 No Waiver; Cumulative Remedies. No failure on the part of
the Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power, or privilege under this Agreement or
any other Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
Section 12.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Borrower may
not assign or transfer any of its rights or obligations hereunder without the
prior written consent of the Agent and the Banks. Each Bank may assign to one or
more Eligible Assignees all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its Loans,
its Note, and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Bank or an
assignment of all of a Bank's rights and obligations under this
Agreement, any such partial assignment shall be in an amount at least
equal to Five Million Dollars ($5,000,000);
(iii) each such assignment by a Bank shall be of a constant,
and not varying, percentage of all of its rights and obligations under
this Agreement and the Note held by it;
(iv) the parties to such assignment shall execute and deliver
to the Agent for its acceptance an Assignment and Acceptance in the
form of Exhibit "C" hereto, together with any Note subject to such
assignment and a processing fee of $3,500; and
(v) as long as no Default exists, NationsBank agrees to
maintain a Commitment hereunder in an amount no less than the
Commitment of any other Bank.
Upon execution, delivery, and acceptance of such Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Bank hereunder
LOAN AGREEMENT - PAGE 49
<PAGE> 56
and the assigning Bank shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section, the assignor, the Agent
and the Borrower shall make appropriate arrangements so that, if required, new
Notes are issued to the assignor, if it does not assign all of its interests in
the Loans then outstanding and all of its Commitment, and the assignee. If the
assignee is not incorporated under the laws of the United States of America or a
state thereof, it shall deliver to the Borrower and the Agent certification as
to exemption from deduction or withholding of Taxes in accordance with Section
4.6.
(b) The Agent shall maintain at its address referred to in Section
12.13 a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Banks and
the Commitment of, and principal amount of the Loans owing to, each Bank from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Banks may treat each Person whose name is recorded in the Register as a
Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Bank at any reasonable time and
from time to time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto and otherwise made in accordance herewith, together with any
Note subject to such assignment and payment of the processing fee, the Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit "C" hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the parties thereto.
(d) Each Bank may sell participations to one or more Persons in all or
a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and its Loans); provided, however, that (i) such
Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) the participant shall be entitled to the benefit of
the yield protection provisions contained in Article 4 and the right of set-off
contained in Section 10.5, and (iv) the Borrower shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, and such Bank shall retain the sole right to
enforce the obligations of the Borrower relating to its Loans and its Note and
to approve any amendment, modification, or waiver of any provision of this
Agreement (other than amendments, modifications, or waivers decreasing the
amount of principal of or the rate at which interest is payable on such Loans or
Note, extending any scheduled principal payment date or date fixed for the
payment of interest on such Loans or Note, or extending its Commitment).
(e) Notwithstanding any other provision set forth in this Agreement,
any Bank may at any time assign and pledge all or any portion of its Loans and
its Note to any Federal Reserve Bank as collateral security. No such assignment
and pledge shall release the assigning Bank from its obligations hereunder.
(f) Any Bank may furnish any information concerning the Borrower, any
Obligated Party or any of the Subsidiaries in the possession of such Bank from
time to time to assignees and participants (including prospective assignees and
participants).
Section 12.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement, or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans, and no investigation by the Agent or any
Bank or any closing shall affect the representations and warranties or the right
of the Agent or any Bank to rely upon them. Without prejudice to the survival of
any
LOAN AGREEMENT - PAGE 50
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other obligation of the Borrower hereunder, the obligations of the Borrower
under Article 4 and Sections 12.1 and 12.2 shall survive repayment of the Notes
and termination of the Commitments.
Section 12.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG
THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
THERETO.
Section 12.11 Amendments. No amendment or waiver of any provision of
this Agreement, the Notes, or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by Required
Banks and the Borrower, and each such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
that no amendment, waiver, or consent shall, unless in writing and signed by all
of the Banks and the Borrower, do any of the following: (a) increase Commitments
of the Banks or subject the Banks to any additional obligations; provided, that,
notwithstanding anything herein to the contrary, the aggregate amount of the
Commitments may be increased in accordance with Section 2.12(b) and pursuant to
an Increased Commitment Supplement agreed to by Borrower, Agent, the Banks party
thereto that have agreed to increase their Commitment and any New Banks party
thereto and without the consent or approval of the Required Banks or any other
Banks; (b) reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder; (c) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder; (d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes or the number of Banks which shall be
required for the Banks or any of them to take any action under this Agreement;
or (e) change any provision contained in this Section 12.11. Notwithstanding
anything to the contrary contained in this Section, no amendment, waiver, or
consent shall be made with respect to Article 11 hereof without the prior
written consent of the Agent.
Section 12.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions of this
Agreement or the other Loan Documents shall ever be construed to create a
contract or obligation to pay interest at a rate in excess of the Maximum Rate;
and neither the Agent nor any Bank shall ever charge, receive, take, collect,
reserve or apply, as interest on the Obligations, any amount in excess of the
Maximum Rate. The parties hereto agree that any interest, charge, fee, expense
or other obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable law shall be, ipso facto
and under any and all circumstances, limited or reduced to an amount equal to
the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 12.12(b), or
(ii) an amount, which when added to all other interest payable under this
LOAN AGREEMENT - PAGE 51
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Agreement or the other Loan Documents, equals the Maximum Rate. If,
notwithstanding the foregoing, the Agent or any Bank ever contracts for,
charges, receives, takes, collects, reserves or applies as interest any amount
in excess of the Maximum Rate, such amount which would be deemed excessive
interest shall be deemed a partial payment or prepayment of principal of the
Obligations and treated hereunder as such; and if the Obligations, or applicable
portions thereof, are paid in full, any remaining excess shall promptly be paid
to the Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Agent, and the
Banks shall, to the maximum extent permitted by applicable law, (i) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread in equivalent unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations, or
applicable portions thereof, so that the interest rate does not exceed the
Maximum Rate at any time during the term of the Obligations; provided that, if
the unpaid principal balance is paid and performed in full prior to the end of
the full contemplated term thereof, and if the interest received for the actual
period of existence thereof exceeds the Maximum Rate, the Agent and/or the
Banks, as appropriate, shall refund to the Borrower the amount of such excess
and, in such event, the Agent and the Banks shall not be subject to any
penalties provided by any laws for contracting for, charging, receiving, taking,
collecting, reserving or applying interest in excess of the Maximum Rate.
(c) The provisions of Chapter 346 of the Finance Code of Texas are
specifically declared by the parties hereto not to be applicable to any Loan
Documents or to the transactions contemplated thereby.
Section 12.13 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which the Borrower is a
party shall be given or made in writing and telecopied, mailed by certified mail
return receipt requested, or delivered to the intended recipient at the "Address
for Notices" specified below its name on the signature pages hereof; or, as to
any party, at such other address as shall be designated by such party in a
notice to each other party given in accordance with this Section. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telecopy, subject to telephone
confirmation of receipt, or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
Section 12.14 Governing Law; Submission to Jurisdiction. This Agreement
and the Notes shall be governed by, and construed in accordance with, the laws
of the State of Texas and applicable laws of the United States of America. THE
BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS AND OF ANY TEXAS STATE COURT
SITTING IN DALLAS, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORM.
Section 12.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 12.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
LOAN AGREEMENT - PAGE 52
<PAGE> 59
Section 12.17 Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 12.18 Construction. The Borrower, the Agent, and each Bank
acknowledges that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 12.19 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 12.20 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
Section 12.21 Confidentiality. The Agent and each Bank (each a "Lending
Party") agrees to keep any Designated Information (as defined below) delivered
or made available by the Borrower to it confidential from anyone other than
Persons employed or retained by such Lending Party who are, or are expected to
be, engaged in evaluating, approving, structuring or administering the credit
facility provided herein; provided that nothing herein shall prevent any Lending
Party from disclosing such Designated Information: (a) to any other Lending
Party, (b) upon the order of any court or administrative agency, (c) upon the
request or demand of any regulatory agency or authority with which the Lending
Party is required to comply, (d) which had been publicly disclosed other than as
a result of a disclosure by any Lending Party prohibited by this Agreement, (e)
in connection with any litigation to which such Lending Party or any of its
Affiliates may be a party, (f) to the extent necessary in connection with the
exercise of any remedy hereunder, (g) to such Lending Party's legal counsel and
independent auditors, (h) to any Affiliate of such Lending Party, solely in
connection with this Agreement, and (i) subject to provisions substantially
similar to those contained in this Section, to any actual or proposed
participant or assignee of any of its rights and obligations under the Loan
Documents in accordance with the terms hereof. The term "Designated Information"
means any information which has been designated by the Borrower in writing as
confidential. If a Lending Party or any Person to whom a Lending Party gives
Designated Information is to disclose any Designated Information pursuant to
clause (b) or (e), such Person shall notify the Borrower of the proposed
disclosure promptly after determining it must make such disclosure so that the
Borrower or a Subsidiary may seek a protective order as necessary to protect the
unnecessary disclosures of Designated Information.
LOAN AGREEMENT - PAGE 53
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
UICI,
a Delaware Corporation
By:
---------------------------------------
Warren B. Idsal
Vice President of Strategic Planning
and Mergers and Acquisitions
Address for Notices:
4001 McEwen Drive, Suite 200
Dallas, Texas 75244
Telephone No.: 972-392-6733
Telecopy No.: 972-392-6721
Attention: Chief Financial Officer
LOAN AGREEMENT - PAGE 54
<PAGE> 61
NationsBank, N.A., doing business as BANK
OF AMERICA, NATIONAL ASSOCIATION,
as Agent and as a Bank
Commitment:
$40,000,000
By:
---------------------------------------
Jim V. Miller
Senior Vice President
Address for Notices:
901 Main Street, 66th Floor
Dallas, Texas 75202
Telephone No.: 214-209-0559
Telecopy No.: 214-209-3742
Attention: Jim V. Miller
Lending Office for Base Rate Loans and
Libor Loans
901 Main Street, 66th Floor
Dallas, Texas 75202
LOAN AGREEMENT - PAGE 55
<PAGE> 62
Commitment: THE FIRST NATIONAL BANK OF CHICAGO
$35,000,000
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address for Notices:
One First National Plaza, Suite IL1-0085
Chicago, Illinois 60670
Telephone: 312-732-3881
Telecopy No.: 312-732-4033
Attention: Tom Doddridge
Lending Office for Base Rate Loans and
Libor Loans:
One First National Plaza
Chicago, Illinois 60670
LOAN AGREEMENT - PAGE 56
<PAGE> 63
Commitment: FLEET NATIONAL BANK
$25,000,000
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address for Notices:
Insurance Industry Group
CT-MO-0250
777 Main Street, 25th Floor
Hartford, CT 06115
Lending Office for Base Rate Loans and
Libor Loans:
777 Main Street, 25th Floor
Hartford, CT
LOAN AGREEMENT - PAGE 57
<PAGE> 64
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "Amendment") dated as of
May 17, 1999 is among UICI, a corporation duly organized and validly existing
under the laws of the State of Delaware ("Borrower"), each of the banks or other
lending institutions which is a signatory hereto (individually, a "Bank" and,
collectively, the "Banks"), THE FIRST NATIONAL BANK OF CHICAGO, as documentation
agent, FLEET NATIONAL BANK, as co-agent and NationsBank, N.A., doing business as
BANK OF AMERICA, NATIONAL ASSOCIATION, a national banking association, as
administrative agent for itself and the other Banks (in such capacity, together
with its successors in such capacity, the "Agent").
RECITALS:
Borrower, the Agent, and the Banks have entered into that certain Loan
Agreement dated as of May 17, 1999 (as the same may hereafter be amended or
otherwise modified, the "Agreement"). Borrower, the Agent and the Banks desire
to amend the Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows, effective as of the
date hereof unless otherwise indicated:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 1.1. Section 1.1 of the Agreement is
amended as follows:
(i) The following terms are added to Section 1.1 in
alphabetical order to read in their respective entireties as follows:
"Assurance Agreement" means that certain Liquidity
and Capital Assurance Agreement dated effective as of the 15th
day of May 1998 between Borrower and UCNB without giving
effect to any amendment or other modification thereto unless
modified with the consent of the Required Banks provided that
such agreement may be terminated without the consent of any
Bank or the Agent.
"Bank Investment" means any of the following by
Borrower or Subsidiary consummated when Borrower is required
to comply with the Assurance Agreement after the date hereof
or consummated in order for Borrower to comply with the
requirements of the Assurance Agreement after the date hereof:
(a) any advance, loan, extension of credit, or capital
contribution to or investment in UCNB; or (b) the acquisition
of any stock, bonds, notes, debentures, or other securities of
UCNB; or (c) the acquisition of
FIRST AMENDMENT TO LOAN AGREEMENT - Page 1
<PAGE> 65
any certificates of deposit issued by UCNB; or (d) the
purchase of all or substantially all the properties of UCNB.
"UCNB" means United Credit National Bank.
(ii) The term "Guarantee" in Section 1.1 is amended to read in
its entirety as follows:
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or indirectly
guaranteeing the payment or performance of any Debt or other
obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising
by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions
or otherwise); and (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect the obligee
against loss in respect thereof (in whole or in part and
including without limitation, any agreement binding a Person
to make Investments in or otherwise transfer funds to or for
the benefit of another Person for purposes of assuring such
other Person's financial liquidity, assuring such other
Person's compliance with the capital adequacy requirements
imposed by agreement or applicable law or otherwise assuring
such other Person's compliance with financial covenants or
other financial statement conditions); provided that the term
Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
Section 2.2 Amendment to Subsection 2.12(a) Subsection 2.12(a) of the
Agreement is amended to add the following sentences before the last sentence
thereto:
The aggregate amount of the Commitments shall also be automatically and
mandatorily reduced by the Dollar amount of each Bank Investment for
all purposes other than determining the amount of the Commitments under
Section 2.10; provided that when the principal or original amount of a
Bank Investment shall have been repaid or returned to, or recovered by
the Borrower or the applicable Subsidiary, the aggregate amount of the
Commitments shall be reinstated by an amount equal to the principal or
original amount so repaid, returned or recovered. However, the forgoing
reinstatement shall not have the effect of increasing the aggregate
amount of the Commitments to an amount in excess of the aggregate
amount of the Commitments in effect without giving effect to any
reductions occurring as a result of Bank Investments. The facility fee
paid under Section 2.10 shall be calculated without giving effect to
the reduction of the Commitments under this Section 2.12 (a) as a
result of a Bank Investment.
Section 2.3 Amendment to Section 9.3 The definition of the term "Cash
Flow" in Section 9.3 is amended to read in its entirety as follows:
"Cash Flow" means, for any period, the total of the following
each calculated without duplication:
FIRST AMENDMENT TO LOAN AGREEMENT - Page 2
<PAGE> 66
(i) the total of the following for Borrower and all
Subsidiaries (other than the Insurance Subsidiaries, United
Credit National Bank, Educational Finance Group, Inc. and the
Subsidiaries owned by Educational Finance Group, Inc. but
otherwise on a consolidated basis in accordance with GAAP) for
such period: (a) Net Income; plus (b) any provision for (or
less any benefit from) income or franchise taxes included in
determining Net Income; plus (c) interest expense deducted in
determining Net Income; plus (d) amortization and depreciation
expense deducted in determining Net Income; plus (e) other
noncash charges deducted in determining Net Income and not
already deducted in accordance with clauses (b), (c) and (d)
of the definition of Net Income; plus
(ii) the sum of:
(a) the total of the Available Domestic
Insurance Subsidiary Earnings of all Domestic
Insurance Subsidiaries for such period, with the
"Available Domestic Insurance Subsidiary Earnings"
determined separately for each Domestic Insurance
Subsidiary and equal for each Domestic Insurance
Subsidiary to the product of the following (1) lesser
of (A) the total of the ordinary dividend capacity of
such Domestic Insurance Subsidiary for such period
determined in accordance with SAP or (B) the net
income of such Domestic Insurance Subsidiary for such
period determined in accordance with SAP multiplied
by (2) the percentage equal to the percentage of
Borrower's direct or indirect ownership of all the
Capital Stock of such Subsidiary entitled to share in
the receipt of ordinary dividends or other ordinary
distributions of earnings; plus
(b) the total of the Attributable Net Income
of all Insurance Subsidiaries organized under the
laws of a jurisdiction located outside the United
States of America for such period, with the
"Attributable Net Income" determined separately for
each such Insurance Subsidiary and equal for each
such Insurance Subsidiary to the product of (1) the
net income of such Insurance Subsidiaries for such
period determined in accordance with GAAP multiplied
by (2) the percentage equal to the percentage of
Borrower's direct or indirect ownership of all the
Capital Stock of such Insurance Subsidiary entitled
to share in the receipt of ordinary distributions of
earnings; minus
(iii) the sum of all Bank Investments made during
such period.
Section 2.4 Amendment to Section 10.1 Section 10.1 is amended to add a
new clause (m) thereto to read in its entirety as follows:
(m) The aggregate original or principal amount of the
Bank Investments which have not been repaid, returned or
otherwise recovered shall equal or exceed Ten Million Dollars
($10,000,000) for sixty (60) consecutive days.
FIRST AMENDMENT TO LOAN AGREEMENT - Page 3
<PAGE> 67
Section 2.5 Amendment to Schedule 6.9. Schedule 6.9 to the Agreement is
amended to add the Assurance Agreement thereto.
ARTICLE 3
Miscellaneous
Section 3.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower, the Agent, and the Banks party hereto agree that the Agreement
as amended hereby and the other Loan Documents shall continue to be legal,
valid, binding and enforceable in accordance with their respective terms.
Section 3.2 Representations and Warranties. Borrower hereby represents
and warrants to Agent and the Banks as follows: (a) after giving effect to this
Amendment, no Default nor Event of Default has occurred and is continuing; (b)
the representations and warranties set forth in the Loan Documents are true and
correct in all material respects on and as of the date hereof with the same
effect as though made on and as of such date except with respect to any
representations and warranties are limited by their terms to a specific date;
and (c) in accordance with GAAP, the contingent liability arising under the
terms of the Assurance Agreement is not material.
Section 3.3 Survival of Representations and Warranties. All
representations and warranties made in this Amendment shall survive the
execution and delivery of this Amendment, and no investigation by Agent or any
Bank or any closing shall affect the representations and warranties or the right
of Agent and the Banks to rely upon them.
Section 3.4 Reference to Agreement. Each of the Loan Documents,
including the Agreement, are hereby amended so that any reference in such Loan
Documents to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 3.5 Expenses of Agent. Borrower agrees to pay on demand all
costs and expenses incurred by Agent in connection with the preparation,
negotiation, and execution of this Amendment, including without limitation, the
costs and fees of Agent's legal counsel.
Section 3.6 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 3.7 Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and the applicable
laws of the United States of America.
Section 3.8 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Agent, each Bank and Borrower and their respective
successors and assigns, except Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of the Banks.
Section 3.9 Counterparts. This Amendment may be executed in one or more
counterparts and on telecopy counterparts, each of which when so executed shall
be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.
FIRST AMENDMENT TO LOAN AGREEMENT - Page 4
<PAGE> 68
Section 3.10 Effect of Waiver. No consent or waiver, express or
implied, by Agent or any Bank to or for any breach of or deviation from any
covenant, condition or duty by Borrower shall be deemed a consent or waiver to
or of any other breach of the same or any other covenant, condition or duty.
Section 3.11 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 3.12 ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
UICI,
a Delaware Corporation
By:
--------------------------------------
Warren B. Idsal
Vice President Strategic Planning
and Mergers and Acquisitions
NationsBank, N.A. doing business as BANK
OF AMERICA, NATIONAL ASSOCIATION,
as the Agent and as a Bank
By:
--------------------------------------
Jim V. Miller
Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
FLEET NATIONAL BANK
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
FIRST AMENDMENT TO LOAN AGREEMENT - Page 5
<PAGE> 69
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (the "Amendment") dated as of
July 19, 1999, is among UICI, a corporation duly organized and validly existing
under the laws of the State of Delaware ("Borrower"), each of the banks or other
lending institutions which is a signatory hereto (individually, a "Bank" and,
collectively, the "Banks"), THE FIRST NATIONAL BANK OF CHICAGO, as documentation
agent, FLEET NATIONAL BANK, as co-agent and BANK OF AMERICA, NATIONAL
ASSOCIATION, a national banking association formerly known as NationsBank, N.A.,
as administrative agent for itself and the other Banks (in such capacity,
together with its successors in such capacity, the "Agent").
RECITALS:
Borrower, the Agent and the Banks have entered into that certain Loan
Agreement, dated as of May 17, 1999 (as amended by that certain First Amendment
to Loan Agreement, dated as of May 17, 1999, among the Borrower, the Agent and
the Banks and as the same may hereafter be amended or otherwise modified, the
"Agreement"). Borrower, the Agent and the Banks desire to amend the Agreement as
herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows, effective on the date
hereof unless otherwise indicated:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 8.1. Clause (j) of Section 8.1 of the
Agreement is amended in its entirety to read as follows:
(j) In addition to the Debt described in clauses (a) through
(i) above, the following:
(i) Unsecured Debt of the Borrower and the
Subsidiaries; and
SECOND AMENDMENT TO LOAN AGREEMENT, Page 1
<PAGE> 70
(ii) Debt secured by purchase money Liens permitted
by Section 8.2 (g);
provided that (x) the aggregate principal amount of all Debt at any
time outstanding under the permissions of items (i) and (ii) of this
clause (j) shall never exceed Thirty-Five Million Dollars
($35,000,000); (y) at the time of the incurrence, creation, or
assumption of any of such Debt, no Default shall have occurred and be
continuing; and (z) such Debt shall be permitted by the Senior Note
Agreements; provided that a Credit Subsidiary may not rely on the
permissions given by this clause (j) to incur, create, assume or permit
to exist any Debt owing by it to any Insurance Subsidiary; and
Section 2.1 Amendment to Schedule 8.2. The text in the section of
Schedule 8.2 of the Agreement entitled "B. Restrictions on Subsidiaries" is
amended in its entirety to read as follows:
"1. That certain Loan Agreement between Educational Finance
Group, Inc., the banks named therein and Bank of America, N.A. as agent
dated July 19, 1999 imposes restrictions on the ability of Educational
Finance Group, Inc. and its subsidiaries to (a) pay dividends or make
other distributions on their Capital Stock, (b) make loans and advances
to any Subsidiary and (c) transfer any of their property or assets to
other subsidiaries.
ARTICLE 3
Miscellaneous
Section 3.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
amendment the terms and provisions of the Agreement and the other Loan Documents
are ratified and confirmed and shall continue in full force and effect.
Borrower, the Agent and the Banks party hereto agree that the Agreement as
amended hereby and the other Loan Documents shall continue to be legal, valid,
binding and enforceable in accordance with their respective terms.
Section 3.2. Representations and Warranties. Borrower hereby represents
and warrants to Agent and the Banks as follows: (a) after giving effect to this
Amendment, no Default nor Event of Default has occurred and is continuing; and
(b) the representations and warranties set forth in the Loan Documents are true
and correct in all material respects on and as of the date hereof with the same
affect as though made on and as of such date except with respect to any
representations and warranties that are limited by their terms to a specific
date.
Section 3.3. Survival of Representations and Warranties. All
representations and warranties made in this Amendment shall survive the
execution and delivery of this Amendment, and no investigation by Agent or any
Bank or any closing shall affect the representations and warranties or the right
of Agent and the Banks to rely upon them.
SECOND AMENDMENT TO LOAN AGREEMENT, Page 2
<PAGE> 71
Section 3.4. Reference to Agreement. Each of the Loan Documents,
including the Agreement, are hereby amended so that any reference in such Loan
Documents to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 3.5. Expenses of Agent. Borrower agrees to pay on demand all
costs and expenses incurred by Agent in connection with the preparation,
negotiation and execution of this Amendment, including without limitation, the
costs and fees of Agent's legal counsel.
Section 3.6. Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 3.7. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and the applicable
laws of the United States of America.
Section 3.8. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Agent, each Bank and Borrower and their respective
successors and assigns, except Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of the Banks.
Section 3.9. Counterparts. This Amendment may be executed in one or
more counterparts and on telecopy counterparts, each of which when so executed
shall be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.
Section 3.10. Headings. The headings, captions and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 3.11. ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
SECOND AMENDMENT TO LOAN AGREEMENT, Page 3
<PAGE> 72
Executed as of the date first written above.
UICI,
a Delaware Corporation
By:
--------------------------------------
Warren B. Idsal
Vice President Strategic Planning
and Mergers and Acquisitions
Bank of America, National Association,
formerly NationsBank, N.A., as the Agent
and as a Bank
By:
--------------------------------------
Jim V. Miller, Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
FLEET NATIONAL BANK
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SECOND AMENDMENT TO LOAN AGREEMENT - Page 4
<PAGE> 1
EXHIBIT 10.3
================================================================================
INDENTURE
Dated as of August 5, 1999
between
EFG-III, LP,
as Issuer,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee and Eligible Lender Trustee
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I. THE CLASS A NOTES.................................................................2
SECTION 1.01. Form of Class A Notes....................................................2
SECTION 1.02. Execution, Authentication and Delivery...................................3
SECTION 1.03. Registration; Registration of Transfer and Exchange......................3
SECTION 1.04. Mutilated, Destroyed, Lost or Stolen Class A Notes.......................4
SECTION 1.05. Persons Deemed Owner.....................................................5
SECTION 1.06. Certain Issuance and Transfer Restrictions...............................5
SECTION 1.07. Legending of Class A Notes...............................................8
SECTION 1.08. Provision of Information to Prospective Purchasers of the
Class A Note; Rule 144A Matters.........................................10
SECTION 1.09. Cancellation............................................................11
SECTION 1.10. Grant of Security Interest..............................................11
SECTION 1.11. Interest on the Class A Notes...........................................11
SECTION 1.12. Principal on the Class A Notes..........................................12
SECTION 1.13. Payment of Principal and Interest.......................................13
Article II. ADVANCES AND THE COLLATERAL......................................................13
SECTION 2.01. Advances; Limits on Advances............................................13
SECTION 2.02. Advance Procedures......................................................14
SECTION 2.03. Collateral Deficiency...................................................14
SECTION 2.04. Addition, Substitution and Removal of Financed Student Loans;
Release of Collateral...................................................14
SECTION 2.05. Effect of Release.......................................................16
SECTION 2.06. Limited Recourse........................................................16
SECTION 2.07. Revolving Period........................................................16
Article III. SETTLEMENTS......................................................................17
SECTION 3.01. Accounts; Investments by Indenture Trustee..............................17
SECTION 3.02. Collection of Moneys....................................................18
SECTION 3.03. Collection Account......................................................19
SECTION 3.04. Reserve Account.........................................................28
SECTION 3.05. Net Cap Rate Reserve Account............................................29
SECTION 3.06. Payments and Computations, etc.; Monthly Advances.......................29
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 3.07. Claims on the Policy....................................................30
SECTION 3.08. Rights in Respect of Insolvency Proceedings.............................31
SECTION 3.09. Effect of Payments by the Insurer; Subrogation..........................32
Article IV. CONDITIONS OF ADVANCES...........................................................32
SECTION 4.01. Conditions Precedent to Initial Advance.................................32
SECTION 4.02. Conditions Precedent to All Advances....................................36
Article V. REPRESENTATIONS AND WARRANTIES...................................................37
SECTION 5.01. Representations and Warranties of the Issuer............................37
SECTION 5.02. Reassignment upon Breach................................................40
SECTION 5.03. Representations and Warranties of General Partner.......................41
SECTION 5.04. Representations and Warranties of Indenture Trustee.....................42
SECTION 5.05. Representations and Warranties of Eligible Lender Trustee...............42
Article VI. GENERAL COVENANTS OF THE ISSUER..................................................43
SECTION 6.01. Affirmative Covenants of the Issuer.....................................43
SECTION 6.02. Reporting Requirements of the Issuer....................................45
SECTION 6.03. Servicing Covenants.....................................................47
SECTION 6.04. Negative Covenants of the Issuer........................................48
Article VII. EARLY AMORTIZATION EVENTS; EVENTS OF DEFAULT.....................................49
SECTION 7.01. Early Amortization Events...............................................49
SECTION 7.02. Events of Default.......................................................51
SECTION 7.03. Remedies................................................................52
SECTION 7.04. Sale of Collateral......................................................53
Article VIII. INDENTURE TRUSTEE................................................................53
SECTION 8.01. Acceptance of the Trusts................................................53
SECTION 8.02. Fees, Charges and Expenses of Indenture Trustee.........................55
SECTION 8.03. Notice if Default Occurs................................................55
SECTION 8.04. Intervention by Indenture Trustee.......................................55
SECTION 8.05. Successors..............................................................55
SECTION 8.06. Resignation.............................................................56
SECTION 8.07. Removal.................................................................56
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 8.08. Appointment of Successor................................................56
SECTION 8.09. Concerning Any Successor................................................56
SECTION 8.10. Appointment of Co-Trustee...............................................57
SECTION 8.11. Successor Indenture Trustee as Trustee of Funds.........................57
SECTION 8.12. Indemnification.........................................................58
SECTION 8.13. Eligibility Requirements for Indenture Trustee..........................58
SECTION 8.14. Tax Information.........................................................58
Article IX. MISCELLANEOUS....................................................................59
SECTION 9.01. Amendments, Etc.........................................................59
SECTION 9.02. Notices, Etc............................................................59
SECTION 9.03. No Waiver; Remedies.....................................................59
SECTION 9.04. Binding Effect; Survival................................................59
SECTION 9.05. Costs, Expenses and Taxes...............................................60
SECTION 9.06. No Proceedings..........................................................60
SECTION 9.07. Captions and Cross References...........................................60
SECTION 9.08. Integration.............................................................60
SECTION 9.09. Governing Law...........................................................61
SECTION 9.10. Waiver of Jury Trial....................................................61
SECTION 9.11. Execution in Counterparts...............................................61
SECTION 9.12. Usury...................................................................61
SECTION 9.13. Certain Matters Regarding the Insurer and The Policy....................61
SECTION 9.14. Amendment to Liquidity Facility.........................................63
</TABLE>
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<PAGE> 5
INDENTURE
Dated as of August 5, 1999
This INDENTURE, among EFG-III, LP, a Delaware limited partnership,
("Issuer") and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association ("First Chicago"), as indenture trustee hereunder (in such capacity,
and together with any successor thereto in such capacity, the "Indenture
Trustee"), and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association, as eligible lender trustee (in such capacity, and together with any
successor thereto in such capacity, the "Eligible Lender Trustee"). Unless
otherwise indicated, capitalized terms used in this Indenture are defined in
Appendix A.
BACKGROUND
(a) The Issuer is a limited partnership with Educational Finance Group,
Inc., a Delaware corporation ("EFG") as its limited partner and EFG-II SPC-I,
Inc., a Delaware corporation, as its general partner (the "General Partner").
(b) Pursuant to the Purchase and Contribution Agreement, EFG has sold
and contributed as capital, and from time to time shall sell and contribute as
capital, Private Student Loans to the Issuer, and the Eligible Lender Trustee,
has purchased, and from time to time shall purchase, at the direction of and on
behalf of the Issuer, from First Chicago, in its capacity as eligible lender
trustee for EFG, Federal Student Loans. The legal title of the Private Student
Loans is held or shall be held by the Issuer and the legal title of the Federal
Student Loans is held or will be held by the Eligible Lender Trustee on behalf
of the Issuer.
(c) The Issuer intends to finance the purchase of the Student Loans by
issuing one Class A Note to the initial Class A Noteholder and requesting that
such holder make Advances to the Issuer from time to time during the term of the
Revolving Period under this Indenture, subject to the terms and conditions
contained in this Indenture. The principal of and interest on the Class A Notes
will be secured by the Financed Student Loans and other Collateral.
(d) First Chicago has been requested, and is willing, to act as the
Indenture Trustee.
(e) MBIA Insurance Corporation, a stock insurance company organized and
created under the laws of the State of New York, has been requested and will
issue for the benefit of the Class A Noteholder, its Insurance Policy with
respect to the Class A Note.
(f) The initial Class A Noteholder will be the CP Vehicle and will fund
Advances by issuing its Commercial Paper.
<PAGE> 6
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I.
THE CLASS A NOTES
SECTION 1.01. Form of Class A Notes.
The Class A Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit 1.01, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
Authorized Officer of the Issuer executing such Class A Note on behalf of the
Issuer, as evidenced by such Authorized Officer's execution of such Class A
Note. A single Class A Note shall be issued on the Closing Date as a variable
funding note with a maximum principal amount equal to the Class A Maximum
Principal Amount of, and, until the occurrence of the Amortization Period
Commencement Date, only one Class A Note shall be issued and outstanding under
this Indenture which Class A Note will be held by the CP Vehicle and will not be
transferable prior to the Amortization Period Commencement Date. Following the
occurrence of the Amortization Period Commencement Date, for so long as no Event
of Default shall have occurred and be continuing, new Class A Notes may be
issued in connection with any transfer, exchange or replacement of any
previously issued Class A Note pursuant to Section 1.03(c) or 1.04(a) of this
Indenture, in minimum denominations of $100,000 and integral multiples of
$100,000 thereof, except that one Class A Note issued after the Amortization
Period Commencement Date may be in another amount that is less than $100,000.
The Indenture Trustee shall record in its records the date and amount of each
Advance made under the Class A Note, the interest rate with respect thereto,
each repayment thereof, and the other information provided for thereon. The
Class A Note Principal Amount so recorded shall be rebuttable presumptive
evidence of the Class A Note Principal Amount owing and unpaid on the Class A
Note. The failure so to record any such information or any error in so recording
any such information shall not, however, limit or otherwise affect the actual
obligations of the Issuer hereunder or under the Class A Note to repay the
principal amount of all Advances, together with all interest accruing thereon,
as set forth in this Indenture. The Class A Notes shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders), all as determined by the Authorized Officer
of the Issuer executing each such Class A Note on behalf of the Issuer, as
evidenced by such Authorized Officer's execution of such Class A Note. Each
Class A Note shall be dated the date of its authentication, and the terms of the
Class A Notes set forth in Exhibit 1.01 are part of the terms of this Indenture.
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<PAGE> 7
SECTION 1.02. Execution, Authentication and Delivery.
(a) Execution of the Class A Notes. The Class A Notes shall be executed
on behalf of the Issuer by the Authorized Officer of the Issuer. The signature
of any such Authorized Officer on any Class A Note may be original or facsimile.
Any Class A Note bearing the original or facsimile signature of individuals who
has at any time been an Authorized Officer of the Issuer shall bind the Issuer,
notwithstanding that such individual has ceased to hold such office prior to the
authentication and delivery of such Class A Note or did not hold such office at
the date of such Class A Note.
(b) Authentication of the Class A Notes. The Indenture Trustee shall
upon receipt of the Issuer Order, authenticate and deliver Class A Notes for
original issue in an amount up to the Class A Maximum Principal Amount. Each of
the Class A Notes shall be dated its date of authentication. The Class A Notes
shall not be entitled to any benefit under this Indenture or be valid or
obligatory for any purpose, unless there appears attached to any such Class A
Note a certificate of authentication substantially in the form provided for
herein executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate attached to any such Class A Note
any shall be conclusive evidence, and the only evidence, that such Class A Note
has been duly authenticated and delivered hereunder.
SECTION 1.03. Registration; Registration of Transfer and Exchange.
(a) Class A Note Register; Class A Note Registrar. The Issuer shall
cause to be kept a register (the "Class A Note Register") in which, subject to
such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of the Class A Note and the registration of transfers of the
Class A Note. The Indenture Trustee is hereby appointed the "Class A Note
Registrar" for the purpose of registering Class A Notes and transfers of the
Class A Notes, as herein provided. Upon any resignation of any Class A Note
Registrar, the Issuer shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Class A Note Registrar and comply
with Section 1.03(b) hereof.
(b) Appointment of Class A Note Registrar. If a Person other than the
Indenture Trustee is appointed by the Issuer as Class A Note Registrar, the
Issuer will give the Indenture Trustee prompt written notice of the appointment
of such Class A Note Registrar and of the location, and any change in the
location, of the Class A Note Register, and the Indenture Trustee shall have the
right to inspect the Class A Note Register at all reasonable times and to obtain
copies thereof. The Indenture Trustee shall have the right to rely upon a
certificate executed on behalf of the Class A Note Registrar by an Executive
Officer thereof as to the names and addresses of the Class A Noteholders and the
Class A Note Principal Amount and numbers of such Class A Notes.
(c) Transfer of the Class A Notes. Upon surrender for registration or
transfer of any Class A Note at the office or agency of the Issuer to be
maintained as provided in Section 1.03(e), the Issuer shall execute and cause
the Indenture Trustee to authenticate a
3
<PAGE> 8
new Class A Note, in any authorized denominations of like aggregate principal
amount, provided, however, that until the occurrence of the Amortization Period
Commencement Date, only one Class A Note shall be issued and outstanding at any
given time under this Indenture and such Class A Note shall be held by the CP
Vehicle. The Class A Note issued upon any registration of transfer thereof shall
be the valid obligation of the Issuer, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Class A Note surrendered upon
such registration of transfer. Every Class A Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed by, or be
accompanied by a written instrument of transfer in form satisfactory to the
Class A Note Registrar duly executed by, the Class A Noteholder or the Class A
Noteholder's attorney duly authorized in writing, with such signature guaranteed
by an "eligible guarantor institution" meeting the requirements of the Class A
Note Registrar, which requirements include membership or participation in
Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Class A Note Registrar in
addition to, or in substitution for, STAMP.
(d) No Service Charge. No service charge shall be made to a Class A
Noteholder for any registration of transfer or exchange of a Class A Note, but
the Class A Note Registrar may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of a Class A Note.
(e) Maintenance of Office or Agency. The Issuer will maintain in New
York, New York, an office or agency where the Class A Notes may be surrendered
for registration of transfer thereof, and where notices and demands to or upon
the Issuer in respect of the Class A Notes and this Indenture may be served. The
Issuer hereby initially appoints the Class A Note Registrar to serve as its
agent for the foregoing purposes. The Issuer will give prompt written notice to
the Indenture Trustee of the location, and of any change in the location, of any
such office or agency. If at any time the Issuer shall fail to maintain any such
office or agency or shall fail to furnish the Indenture Trustee with the address
thereof, such surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as
its agent to receive all such surrenders, notices and demands.
SECTION 1.04. Mutilated, Destroyed, Lost or Stolen Class A Notes.
(a) Replacement of Class A Notes. If (i) any mutilated Class A Note is
surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence
to its satisfaction of the destruction, loss or theft of a Class A Note, and
(ii) there is delivered to the Indenture Trustee and the Issuer such security or
indemnity as may be required by them to hold the Issuer and the Indenture
Trustee harmless, then, in the absence of notice to the Issuer, the Class A Note
Registrar or the Indenture Trustee that such Class A Note has been acquired by a
bona fide purchaser the Issuer shall execute and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen, a replacement Class A Note; provided,
however, that if any such destroyed, lost or stolen Class A Note, but not a
mutilated Class A Note, shall
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<PAGE> 9
have become or within seven days shall be due and payable, the Issuer may,
instead of issuing a replacement Class A Note, direct the Indenture Trustee, in
writing, to pay such destroyed, lost or stolen Class A Note when so due or
payable without surrender thereof. If, after the delivery of a replacement Class
A Note or payment of a destroyed, lost or stolen Class A Note or pursuant to the
proviso to the preceding sentence, a bona fide purchaser of the original Class A
Note in lieu of which such replacement Class A Note was issued presents such
original Class A Note for payment, the Issuer and the Indenture Trustee shall be
entitled to recover such replacement Class A Note (or such payment) from the
Person to whom it was delivered or any Person taking such replacement Class A
Note from such Person to whom such replacement Class A Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in
connection therewith.
(b) Payment of Tax. Upon the issuance of any replacement Class A Note
under this Section 1.04, the Issuer or the Indenture Trustee may require the
payment by the related Class A Noteholder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and any
other reasonable expenses (including the fees and expenses of the Indenture
Trustee or the Class A Note Registrar) connected therewith.
(c) Enforcement of Replacement Class A Notes. Every replacement Class A
Note issued pursuant to this Section 1.04 in replacement of any mutilated,
destroyed, lost or stolen Class A Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the mutilated, destroyed,
lost or stolen Class A Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Class A Notes duly issued hereunder.
(d) Exclusiveness of Section. The provisions of this Section are
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Class A Notes.
SECTION 1.05. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Class A Note, the Issuer, the Indenture Trustee
and any agent of the Issuer and the Indenture Trustee may treat the Person in
whose name any such Class A Note is registered (as of the Record Date) as the
owner of such Class A Note for the purpose of receiving payments of principal of
and interest, if any on such Class A Note, and for all other purposes
whatsoever, whether or not such Class A Note be overdue, and none of the Issuer,
the Indenture Trustee nor any agent of the Issuer or the Indenture Trustee shall
be affected by notice to the contrary.
SECTION 1.06. Certain Issuance and Transfer Restrictions.
Issuance and Transfer of the Class A Notes. Except as provided
in the Security Agreement, the initial Class A Note may not be sold,
transferred, assigned, participated, pledged or otherwise disposed of prior to
the Amortization Period
5
<PAGE> 10
Commencement Date. On or subsequent to the Amortization Period Commencement
Date, the Class A Notes may not be sold, transferred, assigned, participated,
pledged or otherwise disposed of unless such sale or transfer is pursuant to an
exemption from the registration requirements of the Securities Act, and, in each
case, in compliance with any applicable state securities or "Blue Sky" laws. The
Class A Note Registrar shall not register any transfer of the Class A Note prior
to the delivery to the Class A Note Registrar of a transferee letter in which
the prospective holder or purchaser of such Class A Note shall have represented
and agreed in a certificate (made for the benefit of the Issuer and the
Indenture Trustee), substantially in the form of Exhibit 1.06, delivered to the
Issuer, the Indenture Trustee and the Class A Note Registrar as follows:
(A) It (x) is a qualified institutional buyer as defined in
Rule 144A promulgated under the Securities Act ("Rule 144A") and is
acquiring such Class A Note for its own institutional account or for
the account of a qualified institutional buyer or (y) an institutional
accredited investor as described in Rule 501(a)(1), (2), (3), or (7) of
Regulation D promulgated under the Securities Act (an "Institutional
Accredited Investor").
(B) It understands that the Issuer has not been registered
under the Investment Company Act and that such Class A Note is being
offered in a transaction not involving any public offering in the
United States within the meaning of the Securities Act, that such Class
A Note has not been registered under the Securities Act and that (1)
such Class A Note may be offered, resold, pledged or otherwise
transferred only (i) to a person who the seller reasonably believes is
a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A under the Securities Act, (ii) to an
Institutional Accredited Investor, (iii) the Issuer or (iv) pursuant to
an effective registration statement, and in each case, in accordance
with any applicable laws of any State of the United States or any other
applicable jurisdiction, (2) no transfer of such Class A Note may be
made if such transfer would require registration of either or both of
the Issuer or the pool of Collateral as an "investment company" under
the Investment Company Act, and (3) the purchaser will, and each
subsequent holder is required to, notify any subsequent purchaser from
it of the resale restrictions set forth in (1) and (2) above.
(C) It understands that such Class A Note will bear a legend
substantially as set forth in Section 1.07.
(D) It is not acquiring such Class A Note with plan assets of
any "employee benefit plan" subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any
"plan" subject to Section 4975 of the Code.
(E) It acknowledges that it has had the opportunity to ask
questions and receive answers concerning the terms and conditions of
the transaction contemplated by the Indenture and to obtain additional
information necessary to
6
<PAGE> 11
verify the accuracy and completeness of any information furnished to it
or to which it has had access.
(F) It is a "United States person" within the meaning of
section 7701(a)(30) of the Code.
(G) It represents, warrants and covenants that it (i) is
properly classified as a corporation as described in Code section
7701(a)(3), and will not become, an S corporation as described in Code
section 1361 or (ii) if it is properly classified as a grantor trust, a
partnership or an S corporation for federal income tax purposes (a
"flow-through entity"), no more than 50% of the value of the interest
of any beneficial owner of such flow-through entity owned directly or
through another flow-through entity is or will be attributable to an
interest in the Issuer (including any interest in a Class A Note), or
(iii) is an S corporation, limited liability company or a grantor trust
with one beneficial owner that is described in clause (i) or (ii). In
the event of any breach of the foregoing representation, warranty and
covenant of a prospective holder, such holder shall notify the Issuer
promptly upon such holder's become aware of such breach, and thereupon
the Issuer and such holder hereby agree to use reasonable efforts to
procure a replacement investor reasonably acceptable to the Issuer. Any
purported transfer in violation of this covenant shall be void ab
initio and without effect.
(H) It will not sell, transfer, assign, participate, pledge,
or otherwise dispose of such Class A Note (or any interest in such
Class A Note) other than by unconditional sale of the entire right,
title and interest of the purchaser or transferee in and to a principal
amount of such Class A Note not less than minimum denominations to a
transferee that delivers a transferee letter to the Class A Note
Registrar substantially in the form of Exhibit 1.06 hereto.
(I) It has not acquired nor will it sell, transfer, assign,
participate, pledge, or otherwise dispose of such Class A Note (or any
interest in such Class A Note), or cause any Class A Note (or interest
in such Class A Note) to be marketed, on or through an "established
securities market" within the meaning of section 7704(b)(1) of the Code
or the U.S. Treasury regulations thereunder, including, without
limitation, an over-the-counter market or an interdealer quotation
system that regularly disseminates firm buy or sell quotations.
(J) It is acquiring such Class A Note for its own account, for
investment purposes only and not with a view to a distribution, and is
the sole beneficial owner of such Class A Note, recognizing that the
disposition of its property shall at all times be and remain within its
control.
(K) It acknowledges that the Indenture Trustee and the Issuer,
and their affiliates, and others will rely upon the truth and accuracy
of the foregoing acknowledgments, representations and agreements. If it
is acquiring such Class A
7
<PAGE> 12
Note for the account of a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act, it represents that it is an
Institutional Accredited Investor and has sole investment discretion
with respect to each such account and that it has full power to make
the foregoing acknowledgments, representations and agreements on behalf
of each such account. In addition, such prospective purchaser shall be
responsible for providing additional information or certification, as
shall be reasonably requested by the Indenture Trustee or the Issuer,
to support the truth and accuracy of the foregoing acknowledgments,
representations and agreements, it being understood that such
additional information is not intended to create additional
restrictions on the transfer of such Class A Note. Neither the Issuer
nor the Indenture Trustee is obligated to register the Class A Note
under the Securities Act or any state securities laws.
In determining compliance with the transfer restrictions
contained in this Section 1.06, the Indenture Trustee may rely upon a written
opinion of counsel, the cost of obtaining which shall be an expense of the Class
A Noteholder transferring such Class A Note. If (i) any Class A Note is issued,
sold, transferred, assigned, participated, pledged or otherwise disposed of in
contravention of the provisions of this Section 1.06, (ii) at any time the
foregoing representations of such purchaser or transferee are not true, or (iii)
the purchaser or transferee breaches the foregoing agreements, then the purchase
or transfer of such Class A Note shall be void ab initio and of no effect.
SECTION 1.07. Legending of Class A Notes. The Class A Note shall bear a
legend in substantially the following form:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER
THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1) INSIDE THE UNITED STATES TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE
SECURITIES ACT, (2) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A INSTITUTIONAL
8
<PAGE> 13
ACCREDITED INVESTOR AS DESCRIBED IN RULE 501(A)(1), (2), (3),
OR (7) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT,
(3) TO THE ISSUER OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAW OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY TO THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
THE ISSUER HAS NOT BEEN REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT
COMPANY ACT"). NO TRANSFER OF THIS CLASS A NOTE MAY BE MADE IF
SUCH TRANSFER WOULD REQUIRE REGISTRATION OF EITHER OR BOTH OF
THE ISSUER OR THE POOL OF COLLATERAL AS AN "INVESTMENT
COMPANY" UNDER THE INVESTMENT COMPANY ACT.
IN NO EVENT SHALL THIS SECURITY BE TRANSFERRED TO AN
EMPLOYEE BENEFIT PLAN, TRUST, ANNUITY OR ACCOUNT SUBJECT TO
ERISA OR A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (ANY SUCH PLAN,
TRUST, ANNUITY OR ACCOUNT BEING REFERRED TO AS AN "EMPLOYEE
PLAN"), A TRUSTEE OF ANY EMPLOYEE PLAN, OR AN ENTITY, ACCOUNT
OR OTHER POOLED INVESTMENT FUND THE UNDERLYING ASSETS OF WHICH
INCLUDE OR ARE DEEMED TO INCLUDE EMPLOYEE PLAN ASSETS BY
REASON OF AN EMPLOYEE PLAN'S INVESTMENT IN THE ENTITY, ACCOUNT
OR OTHER POOLED INVESTMENT FUND.
THIS SECURITY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PARTICIPATED, PLEDGED, OR OTHERWISE DISPOSED OF PRIOR TO THE
DELIVERY TO THE CLASS A NOTE REGISTRAR OF A TRANSFEREE LETTER
FROM THE PROPOSED TRANSFEREE, AS REQUIRED BY THE INDENTURE.
THE HOLDER OF THIS SECURITY EVIDENCED HEREBY FURTHER
AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) IT IS A "UNITED
STATES PERSON" WITHIN THE MEANING OF SECTION 7701(A)(30) OF
THE CODE, (B) IT (I) IS PROPERLY CLASSIFIED AS, AND WILL
REMAIN CLASSIFIED AS, A CORPORATION AS DESCRIBED IN CODE
SECTION 7701(A)(3) AND IS NOT, AND WILL NOT BECOME, AN S
CORPORATION UNDER CODE SECTION 1361, OR (II) IS PROPERLY
CLASSIFIED
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AS A GRANTOR TRUST, A PARTNERSHIP OR AN S CORPORATION FOR
FEDERAL INCOME TAX PURPOSES (A "FLOW-THROUGH ENTITY") AND NO
MORE THAN 50% OF THE VALUE OF THE INTEREST OF ANY BENEFICIAL
OWNER OF SUCH FLOW-THROUGH ENTITY OWNED DIRECTLY OR THROUGH
ANOTHER FLOW-THROUGH ENTITY IS OR WILL BE ATTRIBUTABLE TO AN
INTEREST IN THE ISSUER (INCLUDING ANY INTEREST IN A CLASS A
NOTE), OR (III) IS AN S CORPORATION, LIMITED LIABILITY COMPANY
OR A GRANTOR TRUST WITH ONE BENEFICIAL OWNER THAT IS DESCRIBED
IN CLAUSE (I) OR (II), AND (C) IT HAS NOT ACQUIRED NOR WILL IT
SELL, TRANSFER, ASSIGN, PARTICIPATE, PLEDGE, OR OTHERWISE
DISPOSE OF THIS SECURITY (OR ANY INTEREST IN), OR CAUSE THIS
SECURITY (OR INTEREST IN THIS SECURITY) TO BE MARKETED, ON OR
THROUGH AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING
OF SECTION 7704(B)(1) OF THE CODE OR THE U.S. TREASURY
REGULATIONS THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN
OVER-THE-COUNTER MARKET OR AN INTERDEALER QUOTATION SYSTEM
THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS. ANY
PURPORTED TRANSFER IN VIOLATION OF THIS COVENANT SHALL BE VOID
AB INITIO AND WITHOUT EFFECT.
IN THE EVENT OF ANY BREACH OF THE FOREGOING
REPRESENTATION, WARRANTY AND COVENANT OF A PROSPECTIVE HOLDER,
SUCH HOLDER SHALL NOTIFY THE ISSUER PROMPTLY UPON SUCH HOLDER
BECOMING AWARE OF SUCH BREACH, AND THEREUPON THE ISSUER AND
SUCH HOLDER HEREBY AGREE TO USE REASONABLE EFFORTS TO PROCURE
A REPLACEMENT INVESTOR REASONABLY ACCEPTABLE TO THE ISSUER.
ANY PURPORTED TRANSFER IN VIOLATION OF THIS COVENANT SHALL BE
VOID AB INITIO AND WITHOUT EFFECT.
THIS SECURITY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PARTICIPATED, PLEDGED, OR OTHERWISE DISPOSED OF PRIOR TO THE
AMORTIZATION PERIOD COMMENCEMENT DATE.
SECTION 1.08. Provision of Information to Prospective Purchasers of the
Class A Note; Rule 144A Matters. For so long as any of the Class A Notes remain
outstanding and are a "restricted security" within the meaning of Rule 144(a)(3)
under the Securities Act, any Class A Noteholder may request that the Indenture
Trustee forward to the Issuer a request that the Issuer provide the information
specified in, and meeting the requirements of, Rule 144A(d)(4) under the
Securities Act. Upon receipt of such request,
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the Indenture Trustee shall forward such request promptly to the Issuer. The
Issuer shall provide such requested information promptly to the Indenture
Trustee, who shall forward such requested information promptly to the requesting
Class A Noteholder.
SECTION 1.09. Cancellation. All Class A Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Class A Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Class A Notes so delivered shall be
promptly canceled by the Indenture Trustee. No Class A Notes shall be
authenticated in lieu of or in exchange for any Class A Notes canceled as
provided in this Section, except as expressly permitted by this Indenture. All
canceled Class A Notes may be held or disposed of by the Indenture Trustee in
accordance with its standard retention or disposal policy as in effect at the
time unless the Issuer shall direct by an Issuer Order that they be destroyed or
returned to it; provided that such Issuer Order is timely and the Class A Notes
have not been previously disposed of by the Indenture Trustee.
SECTION 1.10. Grant of Security Interest. The Issuer (and the Eligible
Lender Trustee, in its capacity as legal title holder to the Federal Student
Loans on behalf of the Issuer that are a part of the Collateral) hereby grant to
the Indenture Trustee, for the benefit of the Class A Noteholders and the
Insurer, as their respective interests appear under this Indenture, a first
priority, continuing lien and security interest in all right, title and interest
of the Issuer (and the Eligible Lender Trustee) in, to and under the Collateral,
whether now owned or hereafter acquired or existing. Such lien and security
interest shall secure all of the Issuer's obligations (monetary or otherwise)
hereunder. The Indenture Trustee hereby accepts the foregoing grant of a
security interest in the Collateral, and agrees to hold such security interest
in trust for the benefit of the Class A Noteholders and the Insurer pursuant to
the terms of this Indenture. The Indenture shall constitute a security agreement
for all purposes.
SECTION 1.11. Interest on the Class A Notes.
(a) Each Class A Note shall accrue interest on its then outstanding
Class A Note Principal Amount in the following manner. No later than 4:00 p.m.
on each Business Day during each Collection Period, the Administrator shall
report to the Issuer and the Indenture Trustee the Class A Note Rate in effect
for such day, which report shall describe the computation of such Class A Note
Rate. No later than 11:00 a.m., New York City time on the Determination Date,
the Indenture Trustee shall determine the Class A Note Interest for the related
Payment Date and shall inform the Issuer and the Insurer of such amount. If the
Administrator fails to report the Class A Note Rate (a "Class A Note Rate
Reporting Failure"), the Class A Note Rate for such day will be deemed to be a
rate equal to the Class A Note Rate for the immediately preceding day.
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At such time as the Administrator delivers to the Indenture
Trustee and the Issuer the actual Class A Note Rate for any day in respect of
which a Class A Note Rate Reporting Failure has occurred, the Indenture Trustee
will recalculate Class A Note Interest for the related Collection Period. If
such recalculation results in an amount owing to the Class A Noteholder, the
Indenture Trustee shall allocate such amount to the Class A Base Interest
Payment Amount and/or Class A Additional Interest Payment Amount, as applicable
and such amounts shall be paid in accordance with the priorities set forth in
Section 3.03(b). If such recalculation results in an overpayment to the Class A
Noteholder for the related Collection Period, such amount will be deducted from
the Class A Base Interest Payment Amount and/or the Class A Additional Interest
Amount, as applicable, due with respect to the Payment Date relating to the
following Collection Period.
(b) Interest accrued on the Class A Notes shall be paid, without
limitation but subject to the priorities set forth in Section 3.03(b):
(i) on each Payment Date; and
(ii) on the date of any prepayment, in whole or in part, of
the outstanding principal of such Class A Notes pursuant to Section
1.12 to the extent of the amount being prepaid.
(c) Method of Computation. All computations of interest payable by the
Issuer to the Class A Noteholders in connection with Advances hereunder shall be
calculated as required by Section 3.06(b).
SECTION 1.12. Principal on the Class A Notes.
(a) Class A Note Principal Due on and after Amortization Period
Commencement Date. On and after the Amortization Period Commencement Date, the
Issuer shall repay the unpaid Class A Note Principal Amount on each Payment Date
pursuant to the priority set forth in Section 3.03(b)(ii); provided, however,
that the Issuer shall pay in full all of the unpaid Class A Note Principal
Amount on or before the Final Scheduled Payment Date; provided further, however,
that from and after an Event of Default that remains uncured or that has not
been waived in writing, all unpaid Class A Note Principal Amount shall be
declared immediately due and payable by the Indenture Trustee or the Class A
Noteholder with the prior consent of the Insurer or at the direction of the
Insurer, in the manner provided in Section 7.03 hereof; provided further,
however that during the existence and continuation of an Insurer Default, the
Indenture Trustee shall not require the prior consent or direction of the
Insurer.
(b) Prepayments. Prior to the occurrence of an Event of Default that
remains uncured and that has not been waived in writing and prior to the Final
Scheduled Payment Date, the Issuer may, or pursuant to Section 3.03(b) shall,
from time to time on any Payment Date, make a prepayment, in whole or in part,
of the outstanding Class A Note Principal Amount; provided, however, that all
such voluntary prepayments shall
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require at least five days' prior written notice to the Indenture Trustee and
the Insurer. At any time prior to such fifth day following the delivery of a
notice of prepayment as set forth in the preceding sentence, the Issuer may
withdraw such notice without penalty. The prepayment price for any such
voluntary prepayment shall equal the sum of (a) the principal amount of the
Class A Note to be prepaid on such Payment Date plus (b) (i) with respect to the
portion of such principal amount of the Class A Notes that was funded with
Commercial Paper, all accrued and unpaid discount on such Commercial Paper from
the issuance date(s) thereof to the date of prepayment and the aggregate
discount to accrue on such Commercial Paper from the date of prepayment to the
maturity date of such Commercial Paper, or (ii) with respect to the portion of
such principal amount of the Class A Notes that was funded other than with
Commercial Paper, the sum of (x) all accrued and unpaid interest on such
principal amount through the date of purchase and (y) the breakage costs, if
any, to be incurred under the Liquidity Facility in respect of such prepayment,
plus (z) any other amounts then due and payable to the Class A Noteholder
pursuant hereto in connection with such prepayment.
SECTION 1.13. Payment of Principal and Interest. Any installment of
interest or principal, if any, payable on the Class A Notes pursuant to Sections
1.11 and 1.12 on any Payment Date shall be paid to the Person in whose name such
Class A Note, is registered on the Record Date, by check mailed first-class,
postage prepaid, to such Person's address as it appears on the Class A Note
Register on such Record Date, or by wire transfer of immediately available funds
to the account specified by such Person on the Class A Note Register.
Notwithstanding the foregoing, the final payment of principal and interest in
respect of the Class A Notes (whether on the Final Scheduled Payment Date or
otherwise) shall be payable only upon presentation and surrender of the Class A
Notes at the office or agency maintained for that purpose by the Issuer or its
agent pursuant to Section 1.03(e) hereof. Upon written notice from the Issuer,
the Indenture Trustee shall notify the Persons in whose names the Class A Notes
are registered at the close of business on the 15th day preceding the Payment
Date on which the Issuer expects that the final installment of principal of and
interest on the Class A Notes will be paid. Such notice shall be mailed or
transmitted by facsimile prior to such final Payment Date and shall specify that
such final installment will be payable only upon presentation and surrender of
the Class A Notes, and shall specify the place where the Class A Notes may be
presented and surrendered for payment of such installment.
ARTICLE II.
ADVANCES AND THE COLLATERAL
SECTION 2.01. Advances; Limits on Advances. Upon the terms and subject
to the conditions of this Indenture and the Note Purchase Agreement, from time
to time prior to the Amortization Period Commencement Date, the Issuer may
request that the Class A Noteholder make advances of funds to the Issuer under
the Class A Note secured by the Collateral (each such funding, an "Advance"). No
Advance shall be made by the Class A Noteholder if, after giving effect thereto,
any of the following shall occur: (i) the
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Class A Note Principal Amount shall exceed the Facility Limit, or (ii) a
Collateral Deficiency shall occur as a result thereof. The amount of any such
Advance shall not exceed the Permitted Advance Amount on the related Advance
Date.
SECTION 2.02. Advance Procedures.
(a) Notice of Advances. The Issuer may request that an Advance be made
by delivering its irrevocable written notice, substantially in the form of
Exhibit 2.02 (an "Advance Notice"), to (i) the Class A Noteholder at the address
for each applicable Class A Noteholder set forth in the Class A Note Register,
and (ii) the Indenture Trustee, in each case, in accordance with Section 10.02.
Such notice must be received by the Class A Noteholder prior to 11:00 a.m., New
York City time not less than one Business Day prior to the requested Advance
Date, which notice shall specify (A) the amount requested to be borrowed by the
Issuer from the Class A Noteholder (which amount shall be at least $500,000) and
(B) the date of such Advance (which shall be a Business Day).
(b) Funding of Advances. Upon receipt of an Advance Notice, and upon
satisfaction of the applicable conditions set forth in Article IV, the Class A
Noteholder shall make an Advance (as set forth in the related Advance Notice)
available to the Issuer in same day funds by depositing such funds as directed
on the Advance Notice on or before 5:00 p.m., New York City time on the Advance
Date.
SECTION 2.03. Collateral Deficiency. If on any Business Day, the
Collateral Amount on such Business Day is less than the Class A Note Principal
Amount, then a "Collateral Deficiency" shall be deemed to exist on such Business
Day. The Issuer shall cure such Collateral Deficiency by completing one or some
combination of both of the following within 10 Business Days of obtaining actual
knowledge of such Collateral Deficiency: (a) delivering or substituting
additional Eligible Financed Student Loans to the Indenture Trustee for
inclusion in the Collateral pursuant to Section 2.04(a) or delivering other
collateral acceptable to the Class A Noteholder and the Insurer to the Indenture
Trustee for the benefit of the Class A Noteholders, and/or (b) paying to the
Indenture Trustee cash for deposit into the Collection Account for prepayment of
the Class A Note Principal Amount on the next Payment Date in an amount
sufficient to reduce the Collateral Deficiency to zero.
SECTION 2.04. Addition, Substitution and Removal of Financed Student
Loans; Release of Collateral.
(a) Release, Addition and Substitution. The Issuer may from time to
time remove Financed Student Loans from the Collateral in connection with a
prepayment of the Class A Notes pursuant to Section 1.12, for the purpose of
securitizing such Financed Student Loans, removing a Defaulted Financed Student
Loan from the Collateral or otherwise, in each case upon delivery of the
Purchase Price therefor to the Indenture Trustee; provided that such removal
will not result in the occurrence of a Collateral Deficiency. The Issuer shall
notify the Indenture Trustee of its intention to effect any such release by
delivering to the Indenture Trustee both a notice (a "Notice of Release"),
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substantially in the form of Exhibit 2.04(a)-1 of such release and a new Student
Loan Schedule and Computer Tape giving effect to such release five days prior to
the Business Day on which it shall desire such release to occur. The Indenture
Trustee shall forward promptly such Notice of Release to the Insurer. The Issuer
may also add, or in the case of Federal Student Loans, cause the Eligible Lender
Trustee to add, Financed Student Loans to the Collateral or substitute Eligible
Student Loans for Financed Student Loans then included in the Collateral,
including (i) as part of any reinvestment in additional Financed Student Loans
permitted by Sections 3.03(b)(i)sixth, 3.03(b)(i)tenth and 4.02 on any Payment
Date, (ii) for the purpose of removing any Defaulted Financed Student Loan from
the Collateral, (iii) in connection with any securitization of Financed Student
Loans, or (iv) cure any Collateral Deficiency, provided that in the case of any
such substitution a Collateral Deficiency shall not result therefrom. The Issuer
shall notify the Indenture Trustee of its intention to effect any such addition
or substitution by delivering to the Indenture Trustee a notice (a "Notice of
Addition or Substitution"), substantially in the form of Exhibit 2.04(a)-2 or
2.04(a)-3, as the case may be, and a new Student Loan Schedule and Computer Tape
giving effect to such addition and/or substitution five days prior to the
Business Day on which it shall desire such addition or substitution to occur.
The Indenture Trustee shall forward promptly such Notice of Addition or
Substitution to the Insurer. The aggregate Principal Balance of all Eligible
Student Loans being substituted for any Financed Student Loans included in the
Collateral shall equal or exceed the aggregate unpaid Principal Balance of the
Financed Student Loans being removed from the Collateral as a result of such
substitution. No substitution of an Eligible Student Loan for any Financed
Student Loan shall be permitted if, as a result of such substitution, any Early
Amortization Event or Event of Default shall occur, or any such substitution
shall cause any Financed Student Loan included in the Collateral to cease to be
an Eligible Student Loan. Any release of a Financed Student Loan from the
Collateral hereunder shall occur pursuant to Section 2.04(b). In connection with
the addition or substitution of any Financed Student Loans hereunder that are
Private Student Loans, the Issuer shall deliver or cause to be delivered to the
applicable bailee under the applicable Subservicing Agreement, if not already in
the possession of such bailee, or to such other third party bailee as provided
in the Master Servicing Agreement, the original Student Loan Notes for the new
Financed Student Loans to be included in the Collateral.
(b) Release. Any release of any Financed Student Loan from the
Collateral shall be subject to the following conditions precedent:
(i) before and after giving effect to such release,
(A) there shall not exist any Early Amortization Event, Event
of Default or Unmatured Event of Default, provided that an Early
Amortization Event or Unmatured Event of Default may exist prior to any
such release if such release is intended to effect a cure thereof;
(B) no Collateral Deficiency shall exist, provided that a
Collateral Deficiency may exist prior to any such release if such
release is intended to effect a cure thereof;
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(C) the Class A Noteholders and the Insurer are not materially
and adversely affected by the selection made by the Issuer of the
Financed Student Loans to be released; and
(D) after giving effect to such release, each Financed Student
Loan remaining a part of the Collateral shall continue to be an
Eligible Student Loan.
(ii) on or prior to such release, the Issuer shall certify in
the related Notice of Release that the foregoing conditions described
in clause (i) above shall have been satisfied in connection therewith,
and shall also deliver a new Student Loan Schedule and Computer Tape
giving effect to such release. The Indenture Trustee shall forward a
copy of such certificate to the Class A Noteholder upon request.
SECTION 2.05. Effect of Release. Upon the satisfaction of the foregoing
conditions in accordance with Section 2.04, all right, title and interest of the
Indenture Trustee in, to and under the Financed Student Loans released from the
Collateral pursuant thereto shall terminate and revert to the Issuer or Eligible
Lender Trustee, as the case may be, their respective successors and assigns, and
the right, title and interest of the Indenture Trustee in such Financed Student
Loans shall thereupon cease, terminate and become void; and, upon the request of
the Issuer, its successors or assigns, and at the cost and expense of the
Issuer, the Indenture Trustee shall execute such UCC-3 financing statements and
releases as are necessary or reasonably requested by the Issuer or Eligible
Lender Trustee to terminate and remove of record any documents constituting
public notice of the security interest in such Financed Student Loans granted
hereunder being released. The Class A Noteholders and the Indenture Trustee
agree and acknowledge that no releases of financing statements or other recorded
evidence of the right, title and interest of the Indenture Trustee shall be
necessary to effect the release thereof. Any Person who purchases any of such
Financed Student Loans following the release thereof shall be entitled to rely
on this provision.
SECTION 2.06. Limited Recourse. Notwithstanding any other provision of
this Indenture to the contrary, the obligations of the Issuer incurred under
this Indenture and the Class A Notes are limited obligations of the Issuer
payable solely from the Collateral and are secured by a pledge and security
interest in the Collateral in favor of the Indenture Trustee, and neither the
Issuer (except as otherwise provided in this Section 2.06) nor any of its
officers, directors, employees, partners or Affiliates shall be individually or
personally liable under this Indenture for such obligations.
SECTION 2.07. Revolving Period. On the Amortization Period Commencement
Date, the Revolving Period shall terminate and the Amortization Period shall
commence. On or after the Amortization Period Commencement Date no further
Advances or reinvestments in Eligible Student Loans shall be permitted under the
Indenture and all further payments on the Class A Notes hereunder shall occur
pursuant to Sections 3.03(b)(ii) or 3.03(b)(iii), as applicable.
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ARTICLE III.
SETTLEMENTS
SECTION 3.01. Accounts; Investments by Indenture Trustee.
(a) Accounts. On or before the first Advance Date, the Indenture
Trustee shall establish, for the benefit of the Class A Noteholders, to the
extent of their interests therein as provided herein, the Collection Account,
the Reserve Account and the Net Cap Rate Reserve Account. All accounts shall be
maintained as Eligible Deposit Accounts. Subject to the further provisions of
this Section 3.01, the Indenture Trustee shall, upon receipt deposit into such
Accounts all amounts received by it which are required to be deposited therein
in accordance with the provisions hereof. All such amounts and all investments
made with such amounts, including all income and other gain from such
investments, shall be held by the Indenture Trustee in such Accounts as part of
the Collateral as herein provided, subject to withdrawal by the Indenture
Trustee in accordance with, and for the purposes specified in the provisions of,
this Indenture.
(b) Administration of Payments. The Indenture Trustee shall assume that
any amount remitted to it by the Master Servicer, any Sub-Servicer or the Issuer
is to be deposited into the Collection Account pursuant to Section 3.03. The
Indenture Trustee may establish from time to time such deadline or deadlines as
it shall determine are reasonable or necessary in the administration hereof
after which all amounts received or collected by the Indenture Trustee on any
day shall not be deemed to have been received or collected until the next
succeeding Business Day.
(c) No Set-Off. None of the Eligible Lender Trustee or the Indenture
Trustee shall have any right of set-off against Collections, Accounts, or any
investment therein, whether or not commingled to satisfy any other obligations,
and each of the Eligible Lender Trustee and the Indenture Trustee hereby
irrevocably waives any and all such rights.
(d) Investments. Amounts in the Reserve Account, the Net Cap Reserve
Account and the Collection Account shall be invested and reinvested by the
Indenture Trustee in Eligible Investments. Subject to the restrictions on the
maturity of investments set forth in Section 3.01(f), an Issuer Order may
authorize the Indenture Trustee to make the specific Eligible Investments set
forth therein, to make Eligible Investments from time to time consistent with
the general instructions set forth therein, or to make specific Eligible
Investments pursuant to instructions received in writing or by facsimile
transmission from the employees or agents of the Issuer identified therein, in
each case in such amounts as such Issuer Order shall specify. The Issuer agrees
to report as income for financial reporting and tax purposes (to the extent
reportable) all investment earnings on amounts in the Accounts.
(e) Investments in the Absence of an Issuer Order; Notice of Uninvested
Cash. In the event that either (i) the Issuer shall have failed to give
investment directions
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to the Indenture Trustee by 11:00 a.m., New York City time, on any Business Day
on which there may be uninvested cash deposited in the Accounts or (ii) an Event
of Default or Unmatured Event of Default shall have occurred and be continuing,
then the Indenture Trustee shall invest such funds in Eligible Investments set
forth in subparagraph (iv) of the definition thereof. All Eligible Investments
made by the Indenture Trustee shall mature no later than the maturity date
therefor permitted by Section 3.01(f).
(f) Maturity of Eligible Investments. All Eligible Investments shall
mature (or, with respect to mutual fund investments shall be redeemable without
premium or penalty) no later than the Business Day prior to each Payment Date.
All income or other gains from the investment of moneys deposited in the
Accounts shall be deposited by the Indenture Trustee in the Collection Account
upon receipt and shall be deemed to constitute a portion of the Available Funds
for the related Payment Date.
(g) Form of Investment. Any investment of any funds in the Accounts
shall be made under the following terms and conditions:
(i) each such investment shall be made in the name of the
Indenture Trustee, for the benefit of the Issuer and the Class A
Noteholders (to the extent of their respective interests therein), or
in the name of a nominee of the Indenture Trustee; and
(ii) any certificate or other instrument evidencing such
investment shall be delivered directly to the Indenture Trustee, and
the Indenture Trustee shall have sole possession of such instrument,
and all income on such investment.
(h) Indenture Trustee Not Liable. The Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in the Accounts resulting
from losses on investments made in accordance with the provisions of this
Section 3.01 (but the institution serving as Indenture Trustee shall at all
times remain liable for its own debt obligations, if any, constituting part of
such investments) except for gross negligence or intentional misconduct. The
Indenture Trustee shall not be liable for any investment made by it in
accordance with this Section 3.01 on the grounds that it could have made a more
favorable investment.
SECTION 3.02. Collection of Moneys. If at any time the Issuer shall
receive any Collections on or in respect of any Financed Student Loan (including
any Student Loan Guaranty Payment or Subsidy Payment), it shall hold such
Collections for the benefit of the Indenture Trustee (for the benefit of the
Class A Noteholders and the Insurer), shall segregate such payment from the
other property of the Issuer immediately and shall deliver such payment in the
form received (endorsed as necessary for transfer) to the Indenture Trustee for
deposit in the Collection Account in accordance with Section 3.03.
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SECTION 3.03. Collection Account.
(a) Deposits. The Issuer shall remit all Collections to the Collection
Account no later than the close of business on the second Business Day after
receipt thereof, and the Master Servicer and any Subservicer shall be instructed
to remit all Collections received by it within two Business Days in accordance
with the Master Servicing Agreement and any Subservicing Agreement to the
Collection Account for deposit therein. The Issuer may, in its sole discretion,
deposit into the Collection Account the amount of any Monthly Advances
determined to be made by the Issuer pursuant to Section 3.06(c) no later than
the related Transfer Date. In addition, the Issuer shall deposit to the
Collection Account no later than the close of business on each Transfer Date the
aggregate Purchase Amount payable by the Issuer pursuant to Section 5.02. The
Indenture Trustee shall deposit into the Collection Account on the date of
receipt thereof any amounts delivered to it to reduce a Collateral Deficiency
pursuant to Section 2.04, to effect a prepayment of the Class A Notes pursuant
to Section 1.12, or to effect the removal of a Financed Student Loan from the
Collateral pursuant to Section 2.04(a). If the Issuer shall receive any written
statement from the Master Servicer stating that any amount previously paid by
the Master Servicer to the Indenture Trustee or Issuer and deposited into the
Collection Account was so paid and deposited into the Collection Account in
error, the Issuer, if it shall concur as to the truth of such statement, shall
forward to the Indenture Trustee in writing, together with such security or
indemnity as may be required by it to hold the Indenture Trustee harmless, a
copy of such written statement from the Master Servicer, along with an
instruction to the Indenture Trustee to withdraw such amount from the Collection
Account and pay such amount to the Master Servicer. Following receipt from the
Issuer of the Master Servicer's statement and the written instructions set forth
in the preceding sentence, so long as no Event of Default shall have occurred
and be continuing, the Indenture Trustee shall withdraw such amount from the
Collection Account and pay such amount to such Master Servicer.
(b) Payment Date Procedures. Amounts on deposit on any Payment Date in
the Collection Account representing Collections and other Available Funds
received during or with respect to the related Collection Period (net of any
amounts reimbursable to the Issuer in respect of Monthly Advance Amounts
pursuant to Section 3.06(c), which shall be paid to the Issuer) and, as
applicable, amounts on deposit in the Reserve Account and the Net Cap Rate
Reserve Account, shall be withdrawn from the Collection Account and, as
applicable, the Reserve Account and the Net Cap Rate Reserve Account, on such
Payment Date no later than 11:00 a.m. (New York City time), in the amounts
required, and applied in the following order of priority set forth below, in
each case to the extent of Available Funds remaining after application of each
clause representing a higher priority and, as applicable, amounts withdrawn from
the Reserve Account and the Net Cap Rate Reserve Account, in accordance with
Section 3.04 and Section 3.05, respectively.
(i) Payment Dates Prior to the Amortization Period
Commencement Date. On each Payment Date that shall occur prior to the
Amortization Period Commencement Date, Available Funds in the
Collection Account and, if
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applicable, amounts on deposit in the Reserve Account and the Net Cap
Rate Reserve Account, shall be paid as follows:
first, an amount equal to the Policy Premium then
due, if any, pursuant to the Insurance Agreement together with
any overdue Policy Premiums, if any, shall be set aside in the
Collection Account and paid to the Insurer on such Payment
Date; provided, that amounts payable pursuant to this clause
first on any Payment Date shall be paid first from Interest
Collections, and second to the extent such Interest
Collections on deposit in the Collection Account are
insufficient to make such payments, from Principal
Collections;
second, an amount equal to the lesser of (x) the
Available Funds remaining on deposit in the Collection Account
for the related Collection Period and (y) the sum of (i) the
Servicing Fee Amount due with respect to the related
Collection Period, plus any overdue Servicing Fee Amounts,
(ii) the Eligible Lender Trustee Fee with respect to the
related Collection Period, plus any overdue Eligible Lender
Trustee Fees, (iii) the Indenture Trustee's Fees with respect
to such Collection Period plus any overdue Indenture Trustee's
Fees, (iv) the Liquidity Commitment Fee with respect to such
Collection Period plus any overdue Liquidity Commitment Fee,
and (v) the Capped CP Program Payment Amount, which amounts
set forth in clauses (i) through (v) above shall in each case
be set aside in the Collection Account and paid to the Master
Servicer (in the case of the Servicing Fee Amount), the
Eligible Lender Trustee (in the case of the Eligible Lender
Trustee Fee), the Indenture Trustee (in the case of the
Indenture Trustee's Fee), the Liquidity Agent (in the case of
the Liquidity Commitment Fee) and the Collateral Agent (in the
case of the Capped CP Program Payment Amount), pari passu, on
such Payment Date; provided, however, that amounts payable
pursuant to this clause second on any Payment Date shall be
paid first from Interest Collections and second, to the extent
such Interest Collections are insufficient to make such
payments, from Principal Collections;
third, an amount equal to the Class A Base Interest
Payment Amount payable with respect to the Class A Notes for
such Collection Period, shall be set aside in the Collection
Account and paid to the Class A Noteholder on such Payment
Date pursuant to Section 1.13; provided, however, that amounts
payable pursuant to this clause third on any Payment Date
shall be paid first from Interest Collections remaining on
deposit in the Collection Account, second, to the extent such
Interest Collections are insufficient to make such payments,
from Principal Collections remaining on deposit therein and,
third to the extent that Interest Collections and Principal
Collections are insufficient to make such payments, from
amounts withdrawn from the Reserve Account.
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fourth, if after application to the amounts described
in clauses first through third above, the amount on deposit in
the Reserve Account is less than the Specified Reserve Account
Balance, the lesser of (i) the amount of such deficiency and
(ii) the Available Funds remaining on deposit in the
Collection Account for the related Collection Period after
giving effect to the payments set forth in clauses first
through third above, shall be deposited into the Reserve
Account; provided, however, that amounts payable pursuant to
this clause fourth on any Payment Date shall be paid first
from Interest Collections remaining on deposit in the
Collection Account and second, to the extent such Interest
Collections are insufficient to make such payments, from
Principal Collections remaining on deposit therein;
fifth, an amount equal to the lesser of (i) the
Revolving Period Principal Payment Amount and (ii) the
Available Funds remaining on deposit in the Collection Account
for the related Collection Period after giving effect to the
payments set forth in clauses first through fourth above,
shall be paid to the Class A Noteholder to the prepayment of
the Class A Notes to cure any Collateral Deficiency in
accordance with Section 1.12 and 1.13; provided, however, that
amounts payable pursuant to this clause fifth on any Payment
Date shall be paid first from Interest Collections remaining
on deposit in the Collection Account, and second, to the
extent such Interest Collections are insufficient to make such
payments, from Principal Collections remaining on deposit
therein.
sixth, the Available Funds remaining on deposit in
the Collection Account after application to the amounts
described in clauses first through fifth above shall be
applied to one or more of the following until any Note Balance
Equalization Amount has been reduced to zero: (a) to the Class
A Noteholder to the prepayment of the Class A Notes in
accordance with Section 1.12; and (b) subject to Sections
2.04(a) and 4.02, to the Issuer to purchase and otherwise
provide additional Financed Student Loans as Collateral;
provided, however, that amounts payable pursuant to this
clause sixth on any Payment Date shall be paid first from
Interest Collections remaining on deposit in the Collection
Account and second, to the extent such Interest Collections
are insufficient to make such payments, from Principal
Collections remaining on deposit therein;
seventh, an amount equal to the lesser of (i) the
Available Funds remaining on deposit in the Collection Account
for the related Collection Period after giving effect to the
payments set forth in clauses first through sixth above and
(ii) all due and unpaid Insurer Reimbursement Amounts, to the
Insurer for all due and unpaid Insurer Reimbursement Amounts;
provided, however, that amounts payable pursuant to this
clause seventh on any Payment Date shall be paid first from
Interest Collections remaining on deposit in the Collection
Account, and second, to the extent
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that such Interest Collections are insufficient to make such
payments, from Principal Collections remaining on deposit
therein;
eighth, an amount equal to the lesser of (i) the
Available Funds remaining on deposit in the Collection Account
for the related Collection Period after giving effect to the
payments set forth in clauses first through seventh above and
amounts, if any, withdrawn from the Net Cap Rate Reserve
Account pursuant to Section 3.05(b), and (ii) the Class A
Additional Interest Payment Amount payable with respect to the
Class A Notes for such Collection Period, shall be set aside
in the Collection Account and paid to the Class A Noteholder
on such Payment Date pursuant to Section 1.13; provided,
however, that amounts payable pursuant to this clause eighth
on any Payment Date shall be paid first from Interest
Collections remaining on deposit in the Collection Account,
second, to the extent such Interest Collections are
insufficient to make such payment, from Principal Collections
remaining on deposit therein; and third to the extent that
Interest Collections and Principal Collections are
insufficient to make such payments, from amounts withdrawn
from the Net Cap Rate Reserve Account.
ninth, an amount equal to the lesser of (i) the
Available Funds remaining on deposit in the Collection Account
after giving effect to the payments set forth in clauses first
through eighth above and (ii) fees and expenses payable
pursuant to Section 5.03(iv) of the Security Agreement in
excess of the Capped CP Program Payment Amount shall be set
aside in the Collection Account and paid to the Collateral
Agent on such Payment Date; provided, however, that amounts
payable pursuant to this clause ninth on any Payment Date
shall be paid first from Interest Collections remaining on
deposit in the Collection Account, and second, to the extent
such Interest Collections are insufficient to make such
payments, from Principal Collections remaining on deposit
therein.
tenth, if a Net Cap Rate Reserve Account Funding
Event shall have occurred as of such Payment Date, the lesser
of (i) amount necessary to increase the amount on deposit in
the Net Cap Rate Reserve Account to the Net Cap Rate Reserve
Account Maximum Requirement with respect to such Payment Date
and (ii) Available Funds remaining on deposit in the
Collection Account for the related Collection Period after
giving effect to the payments set forth in clauses first
through ninth above, shall be deposited in the Net Cap Rate
Reserve Account;
eleventh, the Available Funds remaining on deposit in
the Collection Account after application to the amounts
described in clauses first through tenth above shall be
applied, subject to Sections 2.04(a) and 4.02, at the option
of the Issuer to add additional Financed Student Loans as
Collateral; and
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twelfth, after giving effect to the application of
the amounts described in clauses first through eleventh, any
remaining Available Funds on deposit in the Collection Account
shall be transferred to the Issuer on such Payment Date.
(ii) Payment Dates On or After Amortization Period
Commencement Date. On the Amortization Period Commencement Date and on
each Payment Date that shall occur during the Amortization Period and
prior to the occurrence of the Final Scheduled Payment Date, Available
Funds in the Collection Account and, if applicable, amounts on deposit
in the Reserve Account and the Net Cap Rate Reserve Account shall be
withdrawn from the Collection Account and, as applicable, the Reserve
Account and the Net Cap Rate Reserve Account, on such Payment Date no
later than 11:00 a.m. (New York City time), in the amount required, and
applied in the following order of priority set forth below, in each
case to the extent of Available Funds remaining after application of
each clause representing a higher priority and, as applicable, amounts
withdrawn from the Reserve Account and Net Cap Rate Reserve Account, in
accordance with Section 3.04 and Section 3.05, respectively:
first, an amount equal to the Policy Premium then due
if any, pursuant to the Insurance Agreement together with any
overdue Policy Premiums, if any, shall be set aside in the
Collection Account and paid to the Insurer on such Payment
Date; provided, however, that amounts payable pursuant to this
clause first on any Payment Date shall be paid first from
Interest Collections and second, to the extent that Interest
Collections on deposit in the Collection Account are
insufficient to make such payments, from Principal
Collections;
second, an amount equal to the lesser of (x) the
Available Funds remaining on deposit in the Collection Account
for the related Collection Period and (y) the sum of (i) the
Servicing Fee Amount with respect to the related Collection
Period, plus any overdue Servicing Fee Amounts, (ii) the
Eligible Lender Trustee Fee with respect to the related
Collection Period, plus any overdue Eligible Lender Trustee
Fees, (iii) the Indenture Trustee's Fees with respect to the
related Collection Period, plus any overdue Indenture
Trustee's Fees, (iv) the Liquidity Commitment Fee with respect
to the related Collection Period plus any overdue Liquidity
Commitment Fees and (v) the Capped CP Program Payment Amount,
which amounts set forth in clauses (i) through (v) above shall
in each case be set aside in the Collection Account and paid
to the Master Servicer (in the case of the Servicing Fee
Amount), the Eligible Lender Trustee (in the case of the
Eligible Lender Trustee Fee), the Indenture Trustee (in the
case of the Indenture Trustee's Fee) the Liquidity Agent (in
the case of the Liquidity Commitment Fee) and the Collateral
Agent (in the case of the Capped CP Program Payment Amount),
pari passu on such Payment Date; provided, however, that
amounts payable pursuant to this clause
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second on any Payment Date shall be paid first from Interest
Collections and second, to the extent that Interest
Collections on deposit in the Collection Account are
insufficient to make such payments, from Principal Collections
remaining on deposit therein;
third, an amount equal to the Class A Base Interest
Payment Amount payable with respect to the Class A Notes for
such Collection Period shall be set aside in the Collection
Account and paid to the Class A Noteholder on such Payment
Date pursuant to Section 1.13; provided, however, that amounts
payable pursuant to this clause third on any Payment Date
shall be paid first from Interest Collections remaining on
deposit in the Collection Account, second, to the extent such
Interest Collections are insufficient to make such payments,
from Principal Collections remaining on deposit therein; and
third to the extent that Interest Collections and Principal
Collections are insufficient to make such payments, from
amounts withdrawn from the Reserve Account.
fourth, if after application to the amounts described
in clauses first through third above, the amount on deposit in
the Reserve Account is less than the Specified Reserve Account
Balance, the lesser of (i) the amount of such deficiency and
(ii) the Available Funds remaining on deposit in the
Collection Account after giving effect to the payments set
forth in clauses first through third above, shall be deposited
into the Reserve Account; provided, however, that amounts
payable pursuant to this clause fourth on any Payment Date
shall be paid first from Interest Collections and second, to
the extent that Interest Collections on deposit in the
Collection Account are insufficient to make such payments,
from Principal Collections remaining on deposit therein;
fifth, an amount equal to the least of the amount of
(a) Available Funds remaining in the Collection Account after
giving effect to the payments set forth in clauses first
through fourth above , (b) the Amortization Period Principal
Payment Amount and (c) the Class A Note Principal Amount
outstanding, shall be set aside in the Collection Account and
paid to the Class A Noteholder on such Payment Date pursuant
to Section 1.13 until the Class A Note Principal Amount shall
be reduced to zero; provided, however, that amounts payable
pursuant to this clause fifth on any Payment Date shall be
paid first from Principal Collections remaining on deposit in
the Collection Account, and second, to the extent such
Principal Collections are insufficient to make such payments,
from Interest Collections remaining on deposit therein.
sixth, the Available Funds remaining on deposit in
the Collection Account after application to the amounts
described in clauses first through fifth above shall be paid
to the Class A Noteholders for the prepayment of the Class A
Notes until the Note Balance Equalization Amount has been
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reduced to zero; provided, however, that amounts payable
pursuant to this clause sixth on any Payment Date shall be
paid first from Interest Collections, and second, to the
extent such Interest Collections are insufficient to make such
payments, from Principal Collections;
seventh, an amount equal to the lesser of (i) the
amount of Available Funds remaining on deposit in the
Collection Account after giving effect to the payments set
forth in clauses first through sixth above and (ii) all due
and unpaid Insurer Reimbursement Amounts, to the Insurer for
all due and unpaid Insurer Reimbursement Amounts; provided,
however, that amounts payable pursuant to this clause seventh
on any Payment Date shall be paid first from Interest
Collections remaining on deposit in the Collection Account,
and second, to the extent that such Interest Collections are
insufficient to make such payments, from Principal Collections
remaining on deposit therein;
eighth, an amount equal to the lesser of (i) the
amount of Available Funds remaining on deposit in the
Collection Account after giving effect to the payments set
forth in clauses first through seventh above and amounts, if
any, withdrawn from the Net Cap Rate Reserve Account pursuant
to Section 3.05(b) and (ii) the Class A Additional Interest
Payment Amount payable with respect to the Class A Notes for
such Collection Period, shall be set aside in the Collection
Account and paid to the Class A Noteholder on such Payment
Date pursuant to Section 1.13; provided, however, that amounts
payable pursuant to this clause eighth on any Payment Date
shall be paid first from Interest Collections remaining on
deposit in the Collection Account, second, to the extent such
Interest Collections are insufficient to make such payments,
from Principal Collections remaining on deposit therein; and
third to the extent that Interest Collections and Principal
Collections are insufficient to make such payments, from
amounts withdrawn from the Net Cap Rate Reserve Account.
ninth, an amount equal to the lesser of (i) the
Available Funds remaining on deposit in the Collection Account
after giving effect to the payments set forth in clauses first
through eighth above and (ii) fees and expenses payable
pursuant to Section 5.03(iv) of the Security Agreement in
excess of the Capped CP Program Payment Amount shall be set
aside in the Collection Account and paid to the Collateral
Agent on such Payment Date; provided, however, that amounts
payable pursuant to this clause ninth on any Payment Date
shall be paid first from Interest Collections remaining on
deposit in the Collection Account, and second, to the extent
such Interest Collections are insufficient to make such
payments, from Principal Collections remaining on deposit
therein.
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tenth, if a Net Cap Rate Reserve Account Funding
Event shall have occurred as of such Payment Date, the lesser
of (i) amount necessary to increase the amount on deposit in
the Net Cap Rate Reserve Account to the Net Cap Rate Reserve
Account Maximum Requirement with respect to such Payment Date
and (ii) Available Funds remaining on deposit in the
Collection Account for the related Collection Period after
giving effect to the payments set forth in clause first
through ninth above, shall be deposited in the Net Cap Rate
Reserve Account; and
eleventh, after giving effect to the application of
the amounts described in clauses first through tenth, any
remaining Available Funds on deposit in the Collection Account
shall be transferred to the Issuer on such Payment Date.
(iii) Payment Dates On or After the Final Scheduled Payment
Date; Following Event of Default. On each Payment Date that shall occur
on or after the Final Scheduled Payment Date, or if an Event of Default
shall have occurred and (i) the Class A Notes have been accelerated
pursuant to Section 7.03(a) or (ii) the Collateral shall have been sold
pursuant to Section 7.04, Available Funds in the Collection Account
and, as applicable, amounts on deposit in the Reserve Account and the
Net Cap Rate Reserve Account shall be withdrawn from the Collection
Account and, as applicable, the Reserve Account and the Net Cap Rate
Reserve Account on such Payment Date no later than 11:00 a.m. (New York
City time), in the amount required, and applied in the following order
of priority set forth below, in each case to the extent of Available
Funds remaining after application of each clause representing a higher
priority and, as applicable, amounts withdrawn from the Reserve Account
and the Net Cap Rate Reserve Account, in accordance with Section 3.04
and Section 3.05, respectively:
first, an amount equal to the Policy Premium then
due; pursuant to the Insurance Agreement, together with any
overdue Policy Premiums, if any, shall be set aside in the
Collection Account and paid to the Insurer on such Payment
Date;
second, an amount equal to (i) the Servicing Fee
Amount due with respect to the related Collection Period, plus
any overdue Servicing Fee Amounts, (ii) the Eligible Lender
Trustee Fees with respect to the related Collection Period,
plus any overdue Eligible Lender Trustee Fees, (iii) the
Indenture Trustee's Fees with respect to the related
Collection Period, plus any overdue Indenture Trustee's Fees
not paid, (iv) the Liquidity Commitment Fee with respect to
the related Collection Period plus any overdue Liquidity
Commitment Fees and (v) the Capped CP Program Payment Amount,
which amounts set forth in clauses (i) through (v) above shall
in each case be set aside in the Collection Account and paid
to the Master Servicer (in the case of the Servicing Fee
Amount), the Eligible Lender Trustee (in the case of the
Eligible Lender Trustee Fee), the
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<PAGE> 31
Indenture Trustee (in the case of the Indenture Trustee's Fee)
the Liquidity Agent (in the case of the Liquidity Commitment
Fee and the Collateral Agent (in the case of the Capped CP
Program Payment Amount), pari passu, on such Payment Date;
third, an amount equal to the Class A Base Interest
Payment Amount payable with respect to the Class A Notes for
such Collection Period, shall be set aside in the Collection
Account and paid to the Class A Noteholder on such Payment
Date pursuant to Section 1.13; first from the amount of
Available Funds remaining in the Collection Account after
giving effect to the payments in clauses first and second
above, and second from amounts on deposit in the Reserve Fund;
fourth, an amount equal to the lesser of (i) the
amount of Available Funds remaining in the Collection Account
after giving effect to the payments set forth in clauses first
through third above and amounts, if any, withdrawn from the
Reserve Account and (ii) the Class A Note Principal Amount
outstanding, shall be set aside in the Collection Account and
paid to the Class A Noteholder on such Payment Date pursuant
to Section 1.13 until the Class A Note Principal Amount is
reduced to zero;
fifth, an amount equal to the lesser of (i) the
amount of Available Funds remaining in the Collection Account
after giving effect to the payments set forth in clauses first
through fourth above and amounts, if any, withdrawn from the
Reserve Account and (ii) all due and unpaid Insurer
Reimbursement Amounts, shall be set aside in the Collection
Account and paid to the Insurer for all due and unpaid Insurer
Reimbursement Amounts;
sixth, an amount equal to the lesser of (i) the
amount of Available Funds remaining in the Collection Account
after giving effect to the payments set forth in clauses first
through fifth above and amounts, if any, withdrawn from the
Net Cap Rate Reserve Account pursuant to Section 3.05(b), and
(ii)the Class A Additional Interest Payment Amount payable
with respect to the Class A Notes for such Collection Period,
shall be set aside in the Collection Account and paid to the
Class A Noteholder pursuant to Section 1.13.
seventh, an amount equal to the lesser of (i) the
Available Funds remaining on deposit in the Collection Account
after giving effect to the payments set forth in clauses first
through sixth above and (ii) fees and expenses payable
pursuant to Section 5.03(iv) of the Security Agreement in
excess of the Capped CP Program Payment Amount, shall be set
aside in the Collection Account and paid to the Collateral
Agent on such Payment Date; provided, however, that amounts
payable pursuant to this clause seventh shall be paid first
from Interest Collections remaining on
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deposit in the Collection Account, and second, to the extent
such Interest Collections are insufficient to make such
payments, from Principal Collections remaining on deposit
therein.
eighth, after giving effect to the application of the
amounts described in clauses first through seventh, any
remaining Available Funds on deposit in the Collection Account
shall be transferred to the Issuer.
SECTION 3.04. Reserve Account.
(a) On or prior to the initial Advance Date, the Issuer shall deposit
an amount equal to the Initial Specified Reserve Account Balance into the
Reserve Account. On or prior to any subsequent Advance Date, the Issuer shall
deposit into the Reserve Account any amount required to be deposited therein in
order to satisfy the condition precedent to such Advance set forth in Section
4.02(i).
(b) If on any Payment Date during the Revolving Period (after giving
effect to all deposits or withdrawals required to be made from the Collection
Account and the Reserve Account on such Payment Date) the balance on deposit in
the Reserve Account is greater than the Specified Reserve Account Balance on
such Payment Date, the Issuer shall instruct the Indenture Trustee to withdraw
from the Reserve Account an amount equal to the difference between amount on
deposit in the Reserve Account and the Specified Reserve Account Balance and pay
such amount first, to the Insurer to pay any Insurer Reimbursement Amounts,
second, to the Class A Noteholder, until any Class A Additional Interest Payment
Amount remaining unpaid has been reduced to zero, and third, to the Issuer.
(c) In the event that on any Payment Date there are not sufficient
Available Funds on deposit in the Collection Account for application to the
payment of amounts described in clause third of Section 3.03(b)(i), (ii), or
(iii) as applicable (in each case such insufficiency is to be calculated without
giving effect to any withdrawals from the Reserve Account pursuant to this
Section 3.04(c)) the Indenture Trustee shall withdraw from the Reserve Account
the lesser of such deficiency and the amount on deposit in the Reserve Account
and shall apply such withdrawn amount to the payment of amounts described in
such clause third of Section 3.03(b)(i), (ii) or (iii), as applicable, in the
order of priority set forth therein.
(d) In the event that on any Payment Date on or after the Amortization
Period Commencement Date and prior to the Final Scheduled Payment Date, after
giving effect to the withdrawals from the Reserve Account required by Section
3.04(c), the amount on deposit in the Reserve Account exceeds the Class A Note
Principal Amount (after giving effect to principal payments with respect to the
Class A Notes to be made on such Payment Date), the Indenture Trustee shall
withdraw from the Reserve Account the amount on deposit in the Reserve Account
and shall pay such amount as principal on the Class A Notes, until the Class A
Note Principal Amount is reduced to zero and then to the Insurer for all amounts
that remain owing to the Insurer under the Insurance Agreement.
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<PAGE> 33
(e) On or after the Final Scheduled Payment Date, in the event that,
after giving effect to the payments required by clauses first through third of
Section 3.03(b)(iii) and after giving effect to the withdrawals from the Reserve
Account required by Section 3.04(c), in the event that any Class A Note
Principal Amount remains outstanding, the Indenture Trustee shall withdraw all
such amounts remaining on deposit in the Reserve Account and shall pay such
amount to the Class A Noteholders, until the Class A Note Principal Amount is
reduced to zero and then to the Insurer for all amounts that remain owing to the
Insurer under the Insurance Agreement.
(f) Final Payout Date. Any funds remaining in the Collection Account,
the Reserve Account and the Net Cap Rate Reserve Account after the Final Payout
Date shall be paid to the Issuer.
SECTION 3.05. Net Cap Rate Reserve Account.
(a) On or prior to each Determination Date, the Indenture Trustee shall
calculate the Excess Spread Amount with respect to the Collection Period
preceding the Collection Period during which such Determination Date occurs.
(b) In the event that on any Payment Date there are insufficient
Available Funds on deposit in the Collection Account for application to the
payment of amounts described in clause eighth of Section 3.03(b)(i), clause
eighth of Section 3.03(b)(ii) or clause sixth of Section 3.03(b)(iii), as
applicable (in each case such insufficiency is to be calculated without giving
effect to any withdrawals from the Net Cap Rate Reserve Account pursuant to this
Section 3.05(b)), the Indenture Trustee shall withdraw from the Net Cap Rate
Reserve Account the lesser of any such insufficiency and the amount on deposit
in the Net Cap Rate Reserve Account and shall apply such withdrawals to the
payment of amounts described in clause eighth of Section 3.03(b)(i), clause
eighth of Section 3.03 (b) (ii) or clause sixth of Section 3.03(b)(iii), as
applicable.
(c) If on any Payment Date (after giving effect to all deposits or
withdrawals required to be made from the Collection Account, the Reserve Account
and the Net Cap Rate Reserve Account on such Payment Date) the balance on
deposit in the Net Cap Rate Reserve Account is greater than the Net Cap Rate
Reserve Account Maximum Requirement on such Payment Date, the Issuer shall
instruct the Indenture Trustee to withdraw from the Net Cap Rate Reserve Account
an amount equal to the difference between the amount on deposit in the Net Cap
Rate Reserve Account and the Net Cap Rate Reserve Account Maximum Requirement
and pay such amount to the Issuer.
SECTION 3.06. Payments and Computations, etc.; Monthly Advances.
(a) Payments. All amounts to be paid or deposited by the Indenture
Trustee or the Issuer to the Class A Noteholders, or any other Person hereunder
shall be paid or deposited in accordance with the terms hereof no later than
11:00 a.m. (New York City time) on the day when due in lawful money of the
United States of America in same day
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<PAGE> 34
funds, in the case of amounts to be paid or deposited in respect of accrued and
unpaid interest on, or in reduction of principal of, the Class A Notes.
(b) Method of Computation. All computations of interest and any other
fees payable by the Issuer to the Class A Noteholders in connection with
Advances hereunder shall be calculated by the Indenture Trustee on the basis of
a year of 360 days for actual days elapsed.
(c) Monthly Advances. If the Issuer or the Eligible Lender Trustee (or
the Master Servicer or applicable Sub-Servicer on its behalf) has applied for a
Student Loan Guaranty Payment from a Student Loan Guarantor or a Subsidy Payment
from the DOE, and the Issuer, the Eligible Lender Trustee, the Master Servicer
or the applicable Sub-Servicer, as the case may be, has not received the related
payment prior to the end of the Collection Period immediately preceding the
current Payment Date, the Issuer may, no later than the related Transfer Date,
in its sole discretion, deposit into the Collection Account an amount up to the
amount of such payments applied but not received (such deposits by the Issuer
are referred to therein as "Monthly Advances"). The Issuer shall have no
obligation, legal or otherwise, to make any Monthly Advance, and the making of
or decision to make a particular Monthly Advance shall not create any obligation
on the Issuer, legal or otherwise, to make any future Monthly Advances. If after
making a Monthly Advance, the Issuer (or the Eligible Lender Trustee, the Master
Servicer or the applicable Sub-Servicer on its behalf) receives the Student Loan
Guaranty Payment or Subsidy Payment for which such Monthly Advance was made,
then notwithstanding the order set forth in Section 3.03(b) hereof, the Issuer
shall be reimbursed immediately from such Student Loan Guaranty Payment or
Subsidy Payment, as the case may be, on deposit in the Collection Account up to
the amount of the related Monthly Advance.
SECTION 3.07. Claims on the Policy.
(a) If an Insured Payment is necessary for any Collection Period, then
the Indenture Trustee shall give notice to the Insurer and the Fiscal Agent (as
defined in the Insurance Policy), if any, by telephone or telecopy of the amount
of the required Insured Payment. Such notice shall be confirmed in writing by
the Indenture Trustee in the form set forth as Exhibit A to the Insurance
Policy, to the Insurer and the Fiscal Agent, if any, so that such notice is
received by the Insurer and the Fiscal Agent no later than 12:00 noon, New York
City time, on the Deficiency Claim Date (as defined in the Insurance Policy).
Following receipt by the Insurer of such notice in such form, the Insurer or the
Fiscal Agent shall pay the Indenture Trustee any amount payable under the
Insurance Policy, on the later to occur (i) 12:00 noon, New York City, time, on
the third Business Day following such receipt, and (ii) 12:00 noon, New York
City time, on the Payment Date to which such deficiency relates, as provided in
the Insurance Policy.
(b) The Indenture Trustee shall deposit any Insured Payment made under
the Insurance Policy in the Collection Account and distribute such amount only
to pay the Class A Noteholder in accordance with the terms of the Insurance
Policy, and such amount may not be applied in any other manner. Amounts paid
under the Policy shall
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remain uninvested and shall be disbursed by the Indenture Trustee to the Class A
Noteholder in accordance with Section 3.03(b) hereof, the Insurance Policy and
this Indenture. However, the amount of any payment of principal of or interest
on the Class A Notes to be paid from amounts in the Collection Account in
respect of payments on the Insurance Policy shall be noted as provided in
paragraph (c) below in the Class A Note Register, and in the Monthly Report.
(c) The Indenture Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of the Class A Notes from
moneys received under the Insurance Policy. The Insurer shall have the right to
inspect such records at reasonable times during normal business hours upon three
Business Days' prior notice to the Indenture Trustee at the expense of the
Insurer.
SECTION 3.08. Rights in Respect of Insolvency Proceedings.
(a) In the event that the Indenture Trustee has received a certified
copy of a final, nonappealable order of the appropriate court that any
distribution to any Class A Noteholder has been voided in whole or in part as a
preference payment under applicable bankruptcy or insolvency law, the Indenture
Trustee shall comply with the terms of the Insurance Policy relating to
Preference Amounts (as defined in the Insurance Policy).
(b) The Indenture Trustee shall promptly notify the Insurer of either
of the following as to which an applicable Responsible Officer of the Indenture
Trustee has actual knowledge: (i) the commencement of any proceeding by or
against the Issuer commenced under the United States Bankruptcy Code or any
other applicable United States federal or state bankruptcy, insolvency,
receivership, rehabilitation, or similar law (an "Insolvency Proceeding") or
(ii) the making of any claim in connection with any Insolvency Proceeding
seeking the avoidance as a preferential transfer (a "Preference Claim") of any
payment of principal of or interest on the Class A Notes. Each Class A
Noteholder, by its purchase of the Class A Notes, and the Indenture Trustee
hereby agree that, so long as an Insurer Default shall not have occurred and be
continuing, the Insurer may at any time during the continuation of an Insolvency
Proceeding direct all matters relating to such Insolvency Proceeding, including
(i) all matters relating to any Preference Claim, (ii) the direction of any
appeal of any order relating to any Preference Claim and (iii) the posting of
any surety, supersedes or performance bond pending any such appeal. In addition,
and without limitation of the foregoing, as set forth in Section 3.09, the
Insurer shall be subrogated to, and each of the Class A Noteholders and the
Indenture Trustee hereby delegate and assign, to the fullest extent permitted by
law, the rights of the Indenture Trustee and such Class A Noteholder in the
conduct of any Insolvency Proceeding, including all rights of any part to any
adversary proceeding action with respect to any court order issued in connection
with any such Insolvency Proceeding.
(c) Upon the occurrence of any of the events described in (a) or (b)
above, the Indenture Trustee shall furnish to the Insurer its records evidencing
the distributions of principal of and interest on the Class A Notes that have
been made and subsequently
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recovered from the Class A Noteholders and the dates on which such payments were
made.
SECTION 3.09. Effect of Payments by the Insurer; Subrogation.
(a) Anything herein to the contrary notwithstanding, any distribution
of principal of or interest on the Class A Notes that is made with moneys
received pursuant to the terms of the Insurance Policy shall not be considered
payment of the Class A Notes by the Issuer and shall not discharge the Issuer in
respect of such distribution. The Indenture Trustee acknowledges that, without
the need for any further action on the part of the Insurer, the Indenture
Trustee or the Class A Note Registrar, (i) to the extent the Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Class A Note to the Class A Noteholder thereof, the Insurer will be fully
subrogated to the rights of such Class A Noteholder to receive such principal
and interest from distributions of the assets of the Issuer and will be deemed
to the extent of the payments so made to be a Class A Noteholder and (ii) the
Insurer shall be paid principal and interest in its capacity as a Class A
Noteholder until all such payments by the Insurer have been fully reimbursed,
but only from the sources and in the manner provided herein for the distribution
of such principal and interest and in each case only after the Class A
Noteholder have received all payments of principal and interest due to them
under this Indenture on the related Payment Date.
(b) Without limiting the rights or interests of the Class A Noteholders
as otherwise set forth herein, so long as no Insurer Default exists or is not
continuing, the Indenture Trustee shall cooperate in all respects with any
reasonable request by the Insurer for action to preserve or enforce the
Insurer's rights or interests under this Indenture, including, upon the
occurrence of an Event of Default, a request to take any one or more of the
following actions:
(i) institute proceedings for the collection of all amounts
then payable on the Class A Notes or under this Indenture, enforce any
judgment obtained and collect moneys adjudged due; and
(ii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Insurer hereunder.
ARTICLE IV.
CONDITIONS OF ADVANCES
SECTION 4.01. Conditions Precedent to Initial Advance. The initial
Advance is subject to the condition precedent that the Indenture Trustee shall
have received, on or before the date of such Advance the following, each (unless
otherwise indicated) dated such date and in form and substance satisfactory to
such Indenture Trustee and the Insurer:
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(a) A certificate of the Secretary or Assistant Secretary of General
Partner (i) certifying that the limited partnership agreement of the Issuer
attached thereto is the current version of such document then in full force and
effect, (ii) attaching the certificate of limited partnership of the Issuer,
certified by the Delaware Secretary of State, (iii) certifying that the
resolutions of the board of directors of the General Partner of the Issuer
authorizing the transactions contemplated by the Transaction Documents remain in
full force and effect, and (iv) certifying as to the names and true signatures
of the officers of the General Partner authorized on the Issuer's behalf to sign
the Transaction Documents to be delivered by it (on which certificate the
Indenture Trustee may conclusively rely until such time as the Indenture Trustee
shall receive from General Partner of the Issuer a revised certificate meeting
the requirements of this subsection (a));
(b) A certificate of the Secretary or Assistant Secretary of the
General Partner of the Issuer (i) attaching the certificate of incorporation of
the General Partner, certified by the Delaware Secretary of State, (ii)
certifying that the by-laws of the General Partner attached thereto is the
current version of such document then in full force and effect, (iii) certifying
that the resolutions of the board of directors of the General Partner attached
thereto authorizing the transactions contemplated by the Transaction Documents
remain in full force and effect, and (iv) certifying as to the names and true
signatures of the officers authorized on its behalf to sign the Transaction
Documents to be delivered by it (on which certificate the Indenture Trustee may
conclusively rely until such time as the Indenture Trustee shall receive from
General Partner a revised certificate meeting the requirements of this
subsection (b));
(c) A certificate of the Secretary or Assistant Secretary of EFG (i)
attaching the certificate of incorporation of EFG, certified by the Delaware
Secretary of State, (ii) certifying that the by-laws of EFG attached thereto is
the current version of such document then in full force and effect, (iii)
certifying that the resolutions of the board of directors of EFG attached
thereto authorizing the transactions contemplated by the Transaction Documents
remain in full force and effect, and (iv) certifying as to the names and true
signatures of the officers authorized on its behalf to sign the Transaction
Documents to be delivered by it (on which certificate the Indenture Trustee may
conclusively rely until such time as the Indenture Trustee shall receive from
EFG a revised certificate meeting the requirements of this subsection (c));
(d) A certificate of the Secretary or Assistant Secretary of the Master
Servicer (i) attaching the certificate of incorporation of the Master Servicer,
certified by the Delaware Secretary of State, (ii) certifying that the by-laws
of the Master Servicer attached thereto is the current version of such document
then in full force and effect, (iii) certifying that the resolutions of the
board of directors of the Master Servicer attached thereto authorizing the
transactions contemplated by the Transaction Documents remain in full force and
effect, and (iv) certifying as to the names and true signatures of the officers
authorized on its behalf to sign the Transaction Documents to be delivered by it
(on which certificate the Indenture Trustee may conclusively rely until such
time as the Indenture Trustee shall receive from the Master Servicer a revised
certificate meeting the requirements of this subsection (d));
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(e) Executed financing statements on Form UCC-1 naming (i) the Issuer
as the debtor, and the Indenture Trustee, for the benefit of the Class A
Noteholders and the Insurer, as the secured party, with respect to the Private
Student Loans in proper form for filing in the offices of the Secretary of State
of Massachusetts, and (ii) the Eligible Lender Trustee as the debtor, and the
Indenture Trustee, for the benefit of the Class A Noteholders and the Insurer,
as the secured party, with respect to the Federal Student Loans in proper form
for filing in the offices of the Secretary of State of Illinois, and in each
case such other offices, if any, in which filings are necessary under the UCC or
any comparable law of all appropriate jurisdictions to perfect the Indenture
Trustee's security interest in the Collateral, for the benefit of the Class A
Noteholders and the Insurer;
(f) A search report as of a recent date acceptable to the Indenture
Trustee and the Insurer provided in writing to the Initial Class A Noteholder
and the Insurer by the Issuer, in a form acceptable to the Initial Class A
Noteholder and the Insurer, listing all effective financing statements that name
the Issuer, General Partner or EFG as debtor and that are filed in the
jurisdictions in which filings were made pursuant to subsection (e) above and in
such other jurisdictions that the Indenture Trustee and the Insurer shall
reasonably request, together with copies of such financing statements (none of
which shall cover any Collateral or if so covered, the Indenture Trustee and the
Insurer shall have received duly executed termination statements with respect
thereto);
(g) Executed copies of the following opinions of Weil, Gotshal &
Manges, LLP special New York counsel to the Issuer, Potter Anderson & Corroon
LLP, special Delaware counsel to the Issuer, and Burns & Levinson, LLP, special
Massachusetts counsel to the Issuer, severally as to the following in aggregate
(which shall be in form and substance satisfactory to the Insurer)
(i) due formation, organization and qualification of the
Issuer, EFG, and the General Partner, and authorization, execution,
delivery and enforceability of Transaction Documents and other general
corporate or organizational matters related thereto;
(ii) validity/perfection/priority of security interest of
Indenture Trustee in the Federal Student Loans included in the Financed
Student Loans;
(iii) validity/perfection of security interest of Indenture
Trustee in the Private Student Loans included in the Financed Student
Loans; and
(iv) the opinion under federal securities law that the Class A
Notes do not need to be registered under the Securities Act;
(h) Executed copies of the following opinions of Weil, Gotshal &
Manges, LLP as follows (which shall be in form and substance satisfactory to the
Insurer):
(i) treatment of the Class A Notes as debt for federal income
tax purposes;
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(ii) true conveyance opinion regarding conveyance of Student
Loans by EFG and First Chicago, in its capacity as eligible lender
trustee for EFG, to the Issuer and the Eligible Lender Trustee under
the Purchase and Contribution Agreement; and
(iii) substantive consolidation opinion to the effect that
neither the Issuer nor the General Partner would be consolidated with
EFG upon a bankruptcy of EFG.
(i) Opinion of Dean, Blakey & Moskowitz as to compliance of transaction
with requirements of Higher Education Act;
(j) Opinion of Dean, Blakey & Moskowitz as to whether First Chicago is
an eligible lender trustee under the requirements of Higher Education Act;
(k) Letters from each of the Rating Agencies stating that the
Commercial Paper shall be rated at least "A-1" by S&P and "P-1" by Moody's, and
that the Class A Note shall be rated "AAA" by S&P and "Aaa" by Moody's;
(l) The Class A Note duly executed by the Issuer;
(m) The Insurance Policy, duly executed by the Insurer and in full
force and effect;
(n) Copies of the Master Servicing Agreement and each Subservicing
Agreement (including all amendments thereto), duly executed by the Master
Servicer or the applicable Sub-Servicer and the Issuer and certified by the
Issuer as being a true and correct copy thereof;
(o) Copies of the Custodial Services Agreements, duly executed by the
Seller, the Purchaser, the Master Servicer, each applicable Sub-Servicer, and
Indenture Trustee;
(p) Copies of each Student Loan Guaranty Agreement with respect to the
Federal Student Loans (including all amendments thereto), duly executed by the
applicable Student Loan Guarantor and First Chicago, together with the
applicable Letter to Guarantor, if any, from EFG, certified by the Issuer as
being a true and correct copy thereof;
(q) Copies of each Student Loan Guaranty Agreement with respect to the
Private Student Loans (including all amendments thereto), duly executed by the
applicable Student Loan Guarantor and the Issuer together with the applicable
Letter to Guarantor, if any, from EFG, certified by the Issuer as being a true
and correct copy thereof;
(r) A copy of the Trust Agreement, duly executed by EFG-I, LP and First
Chicago and amended by the First Amendment, and a copy of the written notice
provided thereunder to First Chicago;
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(s) A copy of the Purchase and Contribution Agreement, duly executed by
EFG and the Issuer;
(t) A copy of the Computer Tape and Monthly Report showing the initial
pool of Student Loans securing the initial Advances of the Class A Noteholder
hereunder;
(u) Copy of the Insurance Agreement, duly executed by the Insurer, the
Issuer, the General Partner, EFG, the Master Servicer, the Indenture Trustee and
the Eligible Lender Trustee;
(v) Copy of the Guaranty Agreement duly executed by the Seller;
(w) Copy of the Bank One Custody Agreement, duly executed by the
Seller, the Issuer, the Master Servicer, the Indenture Trustee and Bank One
Trust Company, NA, as custodian.
(x) such other opinions, documents and certificates reasonably required
by the Rating Agencies and the Insurer.
SECTION 4.02. Conditions Precedent to All Advances. Each Advance
(including the initial Advance) and each withdrawal from the Collection Account
pursuant to clause sixth (b) and tenth of Section 3.03(b)(i) to fund the
inclusion of additional Financed Student Loans in the Collateral shall be
subject to the further conditions precedent that on the date of such Advance or
withdrawal the following statements shall be true:
(a) the representations and warranties contained in Section 5.01 are
correct in all material respects on and as of such day as though made on and as
of such day and shall be deemed to have been made (and to be correct in all
material respects) on such day (and the Issuer by accepting the amount of such
Advances or withdrawal shall be deemed to have certified to such effect);
(b) no event has occurred and is continuing, or would result from such
Advance or withdrawal that constitutes an Event of Default or Unmatured Event of
Default (and the Issuer by accepting the amount of such Advance or withdrawal
shall be deemed to have certified to such effect);
(c) the Indenture Trustee shall have received an updated Student Loan
Schedule and Computer Tape reflecting the addition to the Collateral of the
Student Loans to be included as Financed Student Loans in connection with such
Advance or withdrawal, and such Advance or withdrawal shall not result in a
Collateral Deficiency;
(d) the Amortization Period Commencement Date shall not have occurred
(and the Issuer by accepting the amount of such Advance or withdrawal shall be
deemed to have certified to such effect);
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(e) the applicable bailee under the applicable Subservicing Agreement,
Custodial Services Agreement or Bank One Custody Agreement, or, if applicable,
pursuant to the Master Servicing Agreement, for the Indenture Trustee for the
benefit of the Class A Noteholders and the Insurer, shall have received the
original Student Loan Notes with respect to the Private Student Loans that will
be acquired or otherwise financed with the proceeds of such Advance or
withdrawal;
(f) all conditions precedent to the Issuer's acquisition of the Student
Loans to be acquired or otherwise funded with the proceeds of such Advance or
withdrawal (other than the payment of the Purchase Price therefor) shall have
been satisfied;
(g) the Indenture Trustee shall have received releases or termination
statements on Form UCC-3 and any other documents necessary to evidence or
release any security interest (other than that of the Indenture Trustee) in the
Student Loans to be acquired or otherwise funded with the proceeds of such
Advance or withdrawal, to the extent required for any such prior security
interest to be terminated; and if such Advance or withdrawal, will result in the
inclusion of any additional Financed Student Loans in the Collateral that are
not included in the Form UCC-1 financing statements filed pursuant to Section
4.01(e), executed financing statements on Form UCC-1 meeting the requirements of
Section 4.01(e) shall have been filed in respect of such additional Financed
Student Loans;
(h) the applicable Student Loan Guaranty Agreements shall be in full
force and effect with respect to all Student Loans to be financed as Eligible
Student Loans as part of such Advance;
(i) the amount on deposit in the Reserve Account equals the Initial
Specified Reserve Account Balance (in the case of the initial Advance) or the
Specified Reserve Account Balance (in the case of any other Advance) after
giving effect to such Advance;
(j) the Insurance Policy shall be in full force and effect and the
Insurer shall not be in default of any of its obligations thereunder; and
(k) the Class A Notes shall be rated at least AA, by S&P, Aa2 by
Moody's and AA by Fitch.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of the Issuer. The Issuer
represents and warrants as follows:
(a) Organization, Powers. The Issuer is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all necessary power as a limited partnership to carry on its
present business, is duly licensed
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or qualified in all jurisdictions where the nature of its activities require
such licensing or qualifying and where its failure to be so licensed or
qualified would not have a Material Adverse Effect on the Issuer; and has full
power, right and authority to enter into this Indenture, the other Transaction
Documents to which it is, or will be, a party and the transactions contemplated
hereby and thereby, to issue the Class A Notes and to perform each and all of
the matters and things herein and therein provided for. The Issuer has not been
known by any name other than "EFG-III, LP" and has not had any office other than
its office at 495 Station Avenue, South Yarmouth, Massachusetts 02664, and that
office is its chief executive office and principal place of business.
(b) Issuer Authority, etc. The execution, delivery and performance by
the Issuer of this Indenture, the Class A Notes and the other Transaction
Documents to which it is, or will be, a party and the transactions contemplated
hereby and thereby have been duly authorized by all necessary limited
partnership action and this Indenture, the Class A Notes, and such Transaction
Documents constitute the legal, valid and binding obligations of the Issuer
enforceable against the Issuer in accordance with their terms, except to the
extent that enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally and general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or law.
(c) Compliance with Laws and Contracts. The execution, delivery and
performance by the Issuer of this Indenture, the Class A Notes, and the other
Transaction Documents to which the Issuer is a party do not and will not (i)
violate, in any material respect, any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award to which the
Issuer or its property is subject, or of the limited partnership agreement and
certificate of limited partnership of the Issuer; (ii) result in a material
breach of or constitute a material default under the provisions of any
indenture, loan or credit agreement or any other material agreement, lease or
instrument to which the Issuer may be or is subject or by which it, or its
property, is bound; or (iii) result in, or require, the creation or imposition
of any Lien on or with respect of any of the material properties of the Issuer
other than the Lien in favor of the Indenture Trustee provided herein; and the
Issuer is not in violation of, or in default under, any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any such indenture, agreement, lease or instrument except for violations or
defaults that singly or in the aggregate have not had nor would not have a
Material Adverse Effect on the Issuer.
(d) Governmental Approvals. The Issuer has obtained all authorizations,
consents, approvals, exemptions of or filings or registrations with all
governmental commissions, regulatory bodies, boards, bureaus, agencies and
instrumentalities, domestic or foreign, necessary to the conduct of its business
and with respect to which the failure to obtain would not have a Material
Adverse Effect on the Issuer, or necessary to the valid execution, delivery and
performance by the Issuer of this Indenture, the Class A Notes, and the other
Transaction Documents to which the Issuer is, or will be, a party (the
"Approvals"), and such Approvals remain in full force and effect.
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(e) Litigation. There is no action, suit, proceeding, inquiry or
investigation at law or in equity or before or by any court, public board or
body pending or, to the knowledge of the Issuer, overtly threatened in writing
against or affecting the Issuer wherein an unfavorable decision, ruling or
finding would have a Material Adverse Effect on the Issuer or which affects, or
purports to affect, the validity or enforceability against the Issuer of any
Transaction Document.
(f) Employee Benefit Plans. All "employee benefit plans" (as such term
is defined in ERISA) of the Issuer and each of its ERISA Affiliates (as defined
in ERISA) (individually, a "Plan" and collectively the "Plans") are in
compliance in all material respects with any applicable provisions of ERISA and
the regulations and published interpretations thereunder, except for compliance
amendments which may be required due to changes in such laws and regulations and
which were not addressed by the latest determination letters and for which the
retroactive amendment period has not expired. No Plan is insolvent or in
reorganization. No proceedings have been instituted to terminate any Plan, and
no conditions exist which would permit the institution of proceedings to
terminate any such Plan.
(g) Perfected Interest. Each Financed Student Loan, including the
related Student Loan Note, is owned by the Issuer or by the Eligible Lender
Trustee, on behalf of the Issuer, free and clear of any Lien other than the Lien
created hereby. Except for the filing of the financing statements referred to in
Section 4.01 and Section 4.02 and the execution and delivery of the Subservicing
Agreements, and, in the case of Financed Student Loans as to which there is no
Subservicer, the establishment of a custodial arrangement with a third party
bailee pursuant to the Master Servicing Agreement, no further action, including
any filing or recording of any document, is necessary in order to establish,
protect and perfect the first priority security interest of the Indenture
Trustee, for the benefit of the Class A Noteholders and the Insurer, in the
Collateral as against any third party in any applicable jurisdiction, including,
without limitation, any purchaser from, or creditor of, the Issuer. No financing
statement or other instrument similar in effect covering any of the Collateral
or any interest therein is on file in any recording office except such as may be
filed (i) in connection with any Lien arising solely as the result of any action
taken by the Indenture Trustee, (ii) in favor of the Indenture Trustee or (iii)
for which UCC termination statements have been filed or with respect to Liens
which by their terms do not require that a release be filed for the security
interest of the Indenture Trustee to be of first priority.
(h) Accuracy of Information. All information (including each Monthly
Report, Student Loan Schedule and Computer Tape) supplied by, or on behalf of,
the Issuer in writing to the Indenture Trustee in connection with this Indenture
or the transactions contemplated hereby is true and accurate in all material
respects as of the date thereof stated or certified.
(i) Defaults. No Event of Default or Unmatured Event of Default exists.
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(j) Margin Regulations. The use of all funds obtained by the Issuer
under this Indenture will not conflict with or contravene any of Regulations G,
T, U and X promulgated by the Board of Governors of the Federal Reserve System
from time to time.
(k) Offices. The chief place of business and chief executive office of
the Issuer are located at the address of the Issuer referred to in Section 9.02,
and the offices where the Issuer keeps all its books, records and documents
evidencing the Financed Student Loans are located at the addresses specified in
Schedule 5.01(k) (or at such other locations, notified to the Indenture Trustee
in accordance with Section 6.01(e), in jurisdictions where all action necessary
to maintain the Indenture Trustee's first priority perfected interest, for the
benefit of the Class A Noteholders and the Insurer, in the Collateral has been
taken and completed).
(l) Eligible Student Loans. Each Student Loan, as of the date of its
inclusion in the Collateral, is an Eligible Student Loan.
(m) The Issuer Not an Investment Company. The Issuer is not required to
register as an "investment company" within the meaning of the Investment Company
Act.
SECTION 5.02. Reassignment upon Breach. The Issuer or the Indenture
Trustee, as the case may be, shall inform the other parties to this Indenture,
the Class A Noteholders and the Insurer promptly, in writing, upon the discovery
of any breach in any material respects of the representations and warranties
made by the Issuer pursuant to Sections 5.01(g) or (l) or any breach in any
material respects of the covenants of the Issuer made pursuant to Section 6.03;
provided that a material breach of such representations, warranties and
covenants shall be deemed to have occurred only if the related Student Loan
Guaranty Agreements (or, in the case of TuitionGard, the TuitionGard Policies)
are affected. Unless any such breach shall have been cured within 30 days (or in
the sole discretion of the Insurer, 60 days) following the discovery thereof by
the Issuer or receipt by the Issuer of written notice from the Indenture Trustee
of such breach, the Financed Student Loan as to which such representation and
warranty or covenant relates shall be released from the Collateral and
reassigned to the Eligible Lender Trustee (a "Reassignment"), as of the first
Transfer Date succeeding the end of such 30-day or 60-day period, respectively.
In consideration of and simultaneously with the reassignment of such Financed
Student Loan, the Issuer shall deposit to the Collection Account on such
Transfer Date immediately available funds equal to the Purchase Amount.
Notwithstanding the foregoing, so long as no Event of Default shall have
occurred and be continuing, during the Revolving Period, the Issuer may, at its
option in lieu of depositing such Purchase Amount to the Collection Account on
such date, may pledge, or in the case of Federal Student Loans, cause the
Eligible Lender Trustee to pledge, to the Indenture Trustee on such date for
inclusion in the Collateral a new Eligible Student Loan in substitution for such
Financed Student Loan having a Principal Balance plus accrued and unpaid
interest at least equal to the Substitution Amount of the Financed Student Loan
being substituted, by delivering an updated Student Loan
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Schedule to the Indenture Trustee reflecting such substitution (a
"Substitution") and, if such new Eligible Student Loan is a Private Student
Loan, by delivering to the applicable bailee for the Indenture Trustee under the
applicable Subservicing Agreement and the related Custodial Services Agreement
or the Bank One Custody Agreement, as applicable, or, if applicable, pursuant to
the Master Servicing Agreement if not already in its possession, the original
Student Loan Note for the such new Eligible Student Loan. The Indenture Trustee
shall execute such documents reasonably requested by the Issuer or the Insurer
in order to effect such reassignment and to release the Indenture Trustee's Lien
thereunder. The sole remedy of the Indenture Trustee, the Insurer or the Class A
Noteholders with respect to a breach of representations and warranties pursuant
to Sections 5.01(g) and (l) and the covenants contained in Section 6.03 shall be
to require the Issuer to deposit the Purchase Amount or substitute Financed
Student Loans as provided above.
SECTION 5.03. Representations and Warranties of General Partner. The
General Partner hereby represents and warrants as follows:
(a) Organization, Corporate Powers. The General Partner is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all necessary corporate power to carry on its
present business, is duly licensed or qualified in all jurisdictions where the
nature of its activities require such licensing or qualifying and where its
failure to be so licensed or qualified would not have a Material Adverse Effect
on the Issuer.
(b) Issuer Authority, etc. The execution, delivery and performance by
the General Partner of the limited partnership agreement of the Issuer and the
transactions contemplated thereby have been duly authorized by all necessary
corporate action and the limited partnership agreement constitutes the legal,
valid and binding obligation of the General Partner enforceable against the
General Partner in accordance with its terms.
(c) Compliance with Laws and Contracts. The execution, delivery and
performance by the General Partner of its duties under the limited partnership
agreement of the Issuer will not (i) violate, in any material respect, any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award to which the General Partner or its property is
subject, or of the certificate of incorporation or bylaws of the General
Partner; (ii) result in a material breach of or constitute a material default
under the provisions of any indenture, loan or credit agreement or any other
material agreement, lease or instrument to which the General Partner may be or
is subject or by which it, or its property, is bound; or (iii) result in, or
require, the creation or imposition of any Lien on or with respect of any of the
material properties of the General Partner, which in any case would have a
Material Adverse Effect on the General Partner ,and the General Partner is not
in violation of, or in default under, any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument except for violations or defaults that
singly or in the aggregate have not had nor would not have a Material Adverse
Effect on the General Partner.
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(d) Governmental Approvals. The General Partner has obtained all
authorizations, consents, approvals, exemptions of or filings or registrations
with all governmental commissions, regulatory bodies, boards, bureaus, agencies
and instrumentalities, domestic or foreign, necessary to the conduct of its
business and with respect to which the failure to obtain would not have a
Material Adverse Effect on the General Partner.
(e) Litigation. There is no action, suit, proceeding, inquiry or
investigation at law or in equity or before or by any court, public board or
body pending or, to the knowledge of the General Partner, overtly threatened in
writing against or affecting the General Partner wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect on the General
Partner or which affects, or purports to affect, the validity or enforceability
against the General Partner of the limited partnership agreement of the Issuer.
SECTION 5.04. Representations and Warranties of Indenture Trustee. The
Indenture Trustee hereby represents and warrants as follows:
(a) Due Organization. It is a national banking association duly
organized and validly existing in good standing under the laws of the United
States. It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Indenture.
(b) Authorization. It has taken all corporate action necessary to
authorize the execution and delivery by it of this Indenture, and this Indenture
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Indenture on its behalf.
(c) Eligible Lender. It is an "eligible lender" as such term is defined
in Section 435(d) of the Higher Education Act, for purposes of being pledgee of
the Financed Student Loans as contemplated by this Indenture.
(d) Binding Obligation. This Indenture constitutes, and each other
Transaction Document to be executed by the Indenture Trustee when duly executed
and delivered, will constitute, a legal, valid and binding obligation of the
Indenture Trustee, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
SECTION 5.05. Representations and Warranties of Eligible Lender
Trustee. The Eligible Lender Trustee hereby represents and warrants as follows:
(a) Due Organization. It is a national banking association duly
organized and validly existing in good standing under the laws of the United
States. It has all requisite corporate power and authority to execute and
deliver this Indenture.
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(b) Authorization. It has taken all corporate action necessary to
authorize the execution and delivery by it of this Indenture, and this Indenture
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Indenture on its behalf.
(c) Eligible Lender. It is an "eligible lender" as such term is defined
in Section 435(d) of the Higher Education Act.
(d) Binding Obligation. This Indenture constitutes, and each other
Transaction Document to be executed by the Eligible Lender Trustee when duly
executed and delivered, will constitute, a legal, valid and binding obligation
of the Eligible Lender Trustee, enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
ARTICLE VI.
GENERAL COVENANTS OF THE ISSUER
SECTION 6.01. Affirmative Covenants of the Issuer. From the date hereof
until the Final Payout Date, the Issuer shall:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders, including those with respect to
the Financed Student Loans, except to the extent that failure to comply with
such laws, rules, regulations and orders would not have a Material Adverse
Effect on the Issuer.
(b) Preservation of Existence. Preserve and maintain its existence as a
limited partnership, and its rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified in good standing
as a foreign limited partnership company in each jurisdiction where the failure
to preserve and maintain such existence, rights, franchises, privileges and
qualification would not have a Material Adverse Effect on the Issuer. The Issuer
will maintain its status as a pass-through entity for federal income tax
purposes.
(c) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records identifying and evidencing the Financed Student
Loans and each Sub-Servicer servicing each Financed Student Loan in the event of
the destruction of the originals thereof), and keep and maintain, or cause to be
kept and maintained, all documents, books, records and other information
reasonably necessary or advisable for the collection of all the Financed Student
Loans (including, without limitation, records adequate to permit the daily
identification of each new Financed Student Loan included in the Collateral from
time to time and all Collections of and adjustments to each existing Financed
Student Loan).
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(d) Performance and Compliance with Student Loans. At its expense,
timely and fully perform and comply, and cause the Eligible Lender Trustee to
perform and comply, with all material provisions, covenants and other promises
required to be observed by each of them under the Higher Education Act, Student
Loan Notes, the Student Loan Guaranty Agreements (or in the case of TuitionGard,
the TuitionGard Policies), the Master Servicing Agreement, the Subservicing
Agreements, and other agreements to which the Issuer is a party related to the
Collateral.
(e) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps its records concerning the
Financed Student Loans and all agreements related to such Collateral (and all
original documents relating thereto, unless such documents have been delivered
to the Master Servicer, related Sub-Servicer or a bailee thereof), at the
address(es) of the Issuer referred to in Schedule 5.01(k) or, upon 30 days'
prior written notice to the Indenture Trustee, at such other locations in
jurisdictions where all action required to maintain the Indenture Trustee's
first priority perfected interest, for the benefit of the Class A Noteholders
and the Insurer, in the Financed Student Loans shall have been taken and
completed.
(f) Administration of the Program. Administer, operate and maintain, or
cause the Eligible Lender Trustee to administer, operate and maintain, its
student loan program in such manner as to ensure that such program and the
Financed Student Loans will benefit, to the extent applicable and in all
material respects, from (i) the Student Loan Guaranty Agreements (or in the case
of TuitionGard, the TuitionGard Policies) and (ii) if such Student Loan is a
Federal Student Loan, the Federal Family Education Loan Program authorized under
the Higher Education Act and the federal program of reimbursement for Federal
Student Loans pursuant to the Higher Education Act, or from any other federal
statute providing for such Federal Family Education Loan Program.
(g) Student Loan Guaranty Agreements and Servicing Agreements;
Enforcement. (i) Maintain, and cause the Eligible Lender Trustee, as applicable,
to maintain, in effect all Student Loan Guaranty Agreements (or in the case of
TuitionGard, the TuitionGard Policies), the Master Servicing Agreements, the
Subservicing Agreements, and the Custodial Services Agreement, diligently and
promptly enforce its rights thereunder and take, or use commercially reasonable
steps to cause the Master Servicer to take, all reasonable steps, actions and
proceedings necessary or appropriate for the enforcement of all material terms,
covenants and conditions of each Financed Student Loan, including the prompt
payment of all principal and interest payments and all other amounts due with
respect to such Financed Student Loan, including all Subsidy Payments if such
Financed Student Loan is a Federal Student Loan, and all Student Loan Guaranty
Payments under the applicable Student Loan Guaranty Agreement (or, in the case
of TuitionGard, under the TuitionGard Policies), except for such deferments and
forbearance permitted with respect to Federal Student Loans under the Higher
Education Act, and (ii) enter, and cause the Eligible Lender Trustee to enter,
into Student Loan Guaranty Agreements and the Master Servicing Agreement and the
Subservicing Agreements so that all Financed Student Loans are covered thereby.
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(h) Uniform Commercial Code Continuation Statements. The Issuer shall
file Uniform Commercial Code continuation statements to the Uniform Commercial
Code financing statements in favor of the Indenture Trustee originally filed at
the delivery of this Indenture or as contemplated in Section 4.02(g) prior to
every fifth year following the filing of such original financing statements or
continuation statements, as the case may be.
(i) Protection of Collateral. The Issuer shall from time to time
execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments, and shall take such other action as may be necessary or
advisable to secure the rights and remedies of the Indenture Trustee, the
Insurer and the Class A Noteholders hereunder, including, but not limited to,
actions to:
(A) maintain or preserve the lien and security interest of
this Indenture or carry out more effectively the purposes hereof;
(B) perfect, publish notice of or protect the validity of any
grant made or to be made by this Indenture;
(C) collect payments due on the Financed Student Loans; or
(D) preserve and defend title to the Collateral and the rights
of the Indenture Trustee, the Insurer and the Class A Noteholders in
such Collateral against the claims of all persons and parties. It shall
be the responsibility of the Issuer to prepare such instruments.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 6.01.
SECTION 6.02. Reporting Requirements of the Issuer. From the date
hereof until the Final Payout Date, the Issuer shall furnish to the Eligible
Lender Trustee, the Indenture Trustee, the CP Vehicle, the Liquidity Agent and
the Insurer:
(a) Quarterly Financial Statements. As soon as available and in any
event within 60 days after the end of each of the first three quarters of each
fiscal year of the Issuer, the Issuer's consolidated statement of income and
statement of changes in cash flow for such quarter and balance sheet as of the
end of such quarter presented fairly in accordance with generally accepted
accounting principles;
(b) Annual Financial Statements. As soon as available and in any event
within 120 days after the end of each fiscal year of the Issuer, the Issuer's
statement of income and statement of changes in cash flow for such year and
balance sheet as of the end of such year in each case presented fairly in
accordance with generally accepted accounting principles;
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(c) Quarterly Officer's Certificate. Within 30 days after the last day
of each calendar quarter, an officer's certificate executed by the chief
financial officer or treasurer of the General Partner, certifying that, as of
such calendar month, (i) the Issuer is in compliance with all of the terms,
conditions and requirements of the Transaction Documents, and (ii) no Event of
Default or Unmatured Event of Default under this Indenture or other event of
default as described in any other Transaction Documents exists;
(d) Monthly Report. No later than the tenth Business Day of each month,
a Monthly Report for the immediately preceding calendar month, substantially in
the form of Exhibit 6.02(d), and a Student Loan Schedule and Computer Tape as of
the final day of the preceding calendar month;
(e) DOE Audit Materials. Within 30 days after the last day of each
calendar month, notice of all DOE audits of or any other actions of a material
nature by the DOE with respect to, the Issuer or any Affiliate thereof, to the
extent that it has knowledge thereof, of the Master Servicer, or any
Sub-Servicer or any Student Loan Guarantor under any Student Loan Guaranty
Agreement, and, in each case, notice of the results thereof (including, with
respect to the Student Loan Guarantors of the Financed Student Loans that are
Federal Student Loans, but not limited to, the rate of reimbursement by the DOE
for the Student Loan Guarantors under the related Student Loan Guaranty
Agreements, to the extent that such rate is below the maximum permitted under
the Higher Education Act (i.e., 95% for Student Loans disbursed on or after
October 1, 1998, 98% with respect to Student Loans disbursed on or after
October 1, 1993, and 100% for Student Loans disbursed prior thereto);
(f) Reports of Independent Accountants. As promptly as practicable,
copies of any reports or written comments (including, without limitation, audit
reports, management letters and any other reports or communications with respect
to the internal control structure) relating to the Issuer submitted by its
independent accountants;
(g) Event of Defaults. Immediately upon becoming aware of the existence
of any Event of Default or Unmatured Event of Default, a written statement of an
Authorized Officer of the Issuer setting forth details of such event and the
action that the Issuer proposes to take with respect thereto; and immediately
upon becoming aware of any Servicer Event of Default, written notice thereof;
(h) Underwriting Guidelines. Promptly after the occurrence thereof,
written notice of material changes in the Underwriting Guidelines;
In addition, the Issuer shall promptly furnish a copy of each
Monthly Report upon delivery thereof to the Indenture Trustee and the Eligible
Lender Trustee, to (i) S&P at Standard & Poor's Ratings Group, 55 Water Street,
New York, New York 10041, Attention: ABS Surveillance Department, (ii) Moody's
at Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007,
Attention: ABS Monitoring Department Telephone, (212) 553-0300, Telecopy,
(212) 553-4600, and (iii) Fitch at
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Fitch IBCA, Inc, One State Street Plaza, 29th Floor, New York, New York 10004,
Attention: Asset-Backed Surveillance Group, Telephone (212) 908-0598, Telecopy
(212) 635-0476.
SECTION 6.03. Servicing Covenants. From the date hereof until the Final
Payout Date, the Issuer shall comply with the following covenants.
(a) Servicing. The Issuer shall cause the Master Servicer and
Subservicers to service, administer and make collections with respect to the
Financed Student Loans in accordance with the Master Servicing Agreement and
Subservicing Agreements and in all material respects with all applicable Federal
and State laws, including all applicable standards, guidelines and requirements
of the Higher Education Act and any Student Loan Guaranty Agreement (or, in the
case of TuitionGard, under the TuitionGard Policies), the failure to comply with
which would adversely affect the eligibility of one or more of the Financed
Student Loans for Subsidy Payments or Student Loan Guaranty Payments, as
applicable, or would have a Material Adverse Effect on the Issuer.
(b) Collection of Financed Student Loan Payments. The Issuer shall
cause the Master Servicer and Subservicers to make reasonable efforts (including
all efforts that may be specified under the Higher Education Act with respect to
Federal Student Loans or any Student Loan Guaranty Agreement (or, in the case of
TuitionGard, under the TuitionGard Policies)), in each case in accordance with
the terms of the Master Servicing Agreement and Subservicing Agreements, to
collect all payments called for under the terms and provisions of the Financed
Student Loans as and when the same shall become due.
(c) Collection of Student Loan Guaranty Payments. The Issuer shall (or
shall cause the Master Servicer and Subservicers to) make reasonable efforts to
claim, pursue and collect all Student Loan Guaranty Payments from the Student
Loan Guarantors pursuant to the Student Loan Guaranty Agreements (or, in the
case of TuitionGard, pursuant to the TuitionGard Policies) with respect to any
of the Financed Student Loans as and when the same shall become due and payable,
and shall comply, and shall cause the Master Servicer and Subservicers to
comply, in all material respects with all applicable laws and agreements with
respect to claiming, pursuing and collecting such payments, in each case in
accordance with the terms of the Master Servicing Agreement and Subservicing
Agreements. In connection therewith, the Master Servicer is hereby authorized
and empowered to convey to any Student Loan Guarantor the Student Loan Note and
the related Financed Student Loan file representing any Financed Student Loan in
connection with submitting a claim to such Student Loan Guarantor for a Student
Loan Guaranty Payment in accordance with the terms of the applicable Student
Loan Guaranty Agreement (or, in the case of TuitionGard, the applicable
TuitionGard Policy) whereupon the Lien of the Indenture Trustee relating to such
Financed Student Loan shall be released without any further action of any kind.
(d) Collection of Subsidy Payments. The Issuer shall make or cause to
be made reasonable efforts to claim, pursue and collect all Subsidy Payments
from the DOE
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with respect to any of the Financed Student Loans that are Federal Student Loans
as and when the same shall become due and payable, shall comply or undertake
commercially reasonable efforts to cause compliance with in all material
respects with all applicable laws and agreements with respect to claiming,
pursuing and collecting such payments. All amounts so collected by the Issuer or
otherwise shall constitute Collections for the applicable Collection Period and
shall be deposited into the Collection Account in accordance with Section 3.03
(a). In connection therewith, the Issuer, shall prepare and file or cause there
to be prepared with the DOE on a timely basis all claims, forms and other
documents and filings necessary or appropriate in connection with the claiming
of Subsidy Payments and otherwise pursuing and collecting such Subsidy Payments
from the DOE.
(e) Realization upon Financed Student Loans. The Issuer shall cause the
Master Servicer and Subservicers to use reasonable efforts consistent with
customary servicing practices and procedures and subject to the Master Servicing
Agreement and the Subservicing Agreements, including all efforts that may be
specified under any applicable Student Loan Guaranty Agreement (or, in the case
of TuitionGard, the TuitionGard Policy) and, with respect to Federal Student
Loans, the Higher Education Act, in its servicing of any delinquent Financed
Student Loans.
SECTION 6.04. Negative Covenants of the Issuer. From the date hereof
until the Final Payout Date, the Issuer shall not:
(a) Sales, Liens, Etc. Except as otherwise provided herein or in any
other Transaction Document and except for properties and assets released from
the Collateral in accordance with the terms hereof, sell, assign (by operation
of law or otherwise) or otherwise dispose of, or create or suffer to exist (or
permit the Eligible Lender Trustee to create or suffer to exist) any Lien upon
or with respect to, any Financed Student Loan or other Collateral, or any
interest therein, or any account to which any Collections of any Financed
Student Loans or other Collateral are sent, or any right to receive income or
proceeds from or in respect of any of the foregoing, unless directed to do so by
the Indenture Trustee (which direction the Indenture Trustee shall not give
without the prior written consent of the Insurer), provided that the Issuer may
(i) transfer a Financed Student Loan to a Student Loan Guarantor in order to
realize the benefits of a Student Loan Guaranty Agreement or TuitionGard Policy,
as applicable and (ii) transfer any Financed Student Loan for securitization or
consolidation purposes so long as the Issuer shall have deposited to the
Collection Account an amount equal to the product of the Premium Percentage and
the Principal Balance thereof, plus accrued and unpaid interest thereon.
(b) Extension or Amendment. Extend, terminate, waive, amend or
otherwise modify the terms of any Financed Student Loan, Student Loan Guaranty
Agreement TuitionGard Policy or Subservicing Agreement or the Master Servicing
Agreement in any manner that would have a Material Adverse Effect on the Issuer.
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(c) Change in Business. Enter into any financing arrangement with any
other Person, or make any change in the character of its business, which change
would impair the collectibility of any Financed Student Loan or otherwise
materially adversely affect the interests or remedies of the Class A Noteholder
or the Indenture Trustee under this Indenture or any other Transaction Document.
(d) Consolidation, Mergers, etc. Merge into, or consolidate with, one
or more corporations or other entities where the Issuer is not the surviving
entity, or be a party to any transaction involving the transfer of any
substantial portion of its assets, revenues or properties to or with any
corporation or other Person, except in connection with any securitization or
similar type of financing completed by EFG or any Affiliate thereof that does
not result in a Collateral Deficiency.
(e) Use of Proceeds. Use the proceeds of any Advance for any purpose
other than acquiring Student Loans and paying fees and expenses incurred in
connection with the transactions contemplated by this Indenture.
(f) Underwriting Policy. Alter, amend, modify or change in any material
way its Underwriting Guidelines with respect to the Financed Student Loans
(including the addition of, or change to, any incentive program offered to
borrowers under student loans) without (i) the consent of the Insurer, and (ii)
receiving written confirmation from the Rating Agencies that such alteration,
amendment, modification or change will not result in the reduction or withdrawal
of the ratings of the Class A Notes.
ARTICLE VII.
EARLY AMORTIZATION EVENTS; EVENTS OF DEFAULT
SECTION 7.01. Early Amortization Events. The following events shall be
"Early Amortization Events" hereunder:
(a) The Issuer shall fail to make (i) any payment or deposit to be made
by it hereunder when due (other than a payment of the Class A Note Principal
Amount or Class A Additional Interest Amount) and such failure shall continue
unremedied for three Business Days after the Issuer has knowledge or has
received notice thereof, or (ii) any payment of any Class A Additional Interest
Payment Amount, shall not be paid for three (3) consecutive Payment Dates
thereafter, in each case without giving effect to any payments made by the
Insurer under the Insurance Policy; or
(b) Any representation or warranty (other than a representation and
warranty made pursuant to Section 5.01(g) or (l) with respect to a Financed
Student Loan as to which the Issuer has complied with Section 5.02) made or
deemed to be made by the Issuer under or in connection with this Indenture shall
prove to have been false or incorrect in a material adverse respect when made
and shall not have been corrected within forty-five (45) days after notice
thereof is given to the Issuer by the Indenture Trustee; provided, however, that
if the Issuer demonstrates that it is making a good-faith
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attempt to cure such breach, such forty-five (45) day period may be extended by
the Indenture Trustee (with the prior consent of the Insurer) to ninety (90)
days; or
(c) EFG shall fail to perform or observe any other term, covenant or
agreement contained in this Indenture or any of the other Transaction Documents
on its part to be performed or observed and any such failure shall remain
unremedied for forty-five (45) days after notice thereof is given to the Issuer
by the Indenture Trustee; provided, however, that if the Issuer demonstrates
that it is making a good-faith attempt to cure such breach, such forty-five (45)
day period may be extended by the Indenture Trustee (with the prior consent of
the Insurer) to ninety (90) days; or
(d) A final judgment by any competent court in the United States of
America for the payment of money in any amount is rendered against the Issuer or
the General Partner, and the same remains undischarged or unpaid for a period of
sixty (60) days during which execution of judgment is not effectively stayed; or
(e) The Internal Revenue Service shall file notice of a lien pursuant
to Section 6323 of the Internal Revenue Code with regard to any of the assets of
the Issuer and such lien shall not have been released within twenty (20)
Business Days, or the Pension Benefit Guarantee Corporation shall, or shall
indicate its intention to, file notice of a lien pursuant to Section 4068 of the
ERISA with regard to any of the assets of the Issuer or any of its Affiliates
and such lien shall not have been released within twenty (20) Business Days
unless the imposition of any such liens would not have a Material Adverse Effect
on the Issuer; or
(f) A Servicer Event of Default shall have occurred, the Master
Servicing Agreement shall not be in full force and effect for any reason, or the
Indenture Trustee shall have received written notice from the Insurer, or a
Rating Agency that material difficulties have arisen with respect to the Master
Servicer or its performance under the Master Servicing Agreement and, in such
case, the Master Servicer or the Master Servicing Agreement, as the case may be,
shall not be replaced by a successor Master Servicer or a successor Master
Servicing Agreement, as the case may be, (i) acceptable to each of the Indenture
Trustee and the Insurer, within forty-five (45) days of such Servicer Event of
Default or other such event and (ii) with respect to which each of the Rating
Agencies has indicated in writing that the inclusion thereof will not result in
the reduction or withdrawal of the ratings on any of the Class A Notes;
provided, however, the foregoing event shall not be an "Early Amortization
Event" hereunder if such Servicer Event of Default or other such event arises
under the Master Servicing Agreement and relates to a Sub-Servicer that is not
an Affiliate of the Issuer and a replacement Sub-Servicer is not installed as
aforesaid but within forty-five (45) days of the occurrence of such Servicer
Event of Default, the Issuer notifies the Indenture Trustee and the Insurer that
all Financed Student Loans then serviced by such Subservicer will be released
from the Collateral within 15 days of delivery of such notice in accordance with
the conditions set forth in Section 2.04(b) and the Issuer makes an addition of
other Eligible Student Loans or payments in connection therewith in accordance
with Section 2.04(a); or
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(g) A Collateral Deficiency shall have occurred and shall not have been
cured within ten (10) Business Days as required by Section 2.03; or
(h) The Issuer or EFG shall admit its inability to, or its intention
not to, perform any of its obligations under the Indenture or any other
Transaction Document; or
(i) Any Governmental Authority takes any action to remove, limit,
restrict, suspend or terminate the rights, privileges, or operations of the
Issuer, which action has a Material Adverse Effect on the Issuer or the General
Partner, as the case may be, and which continues for more than thirty (30)
Business Days; or
(j) The Issuer or General Partner dissolves, merges or consolidates
with another entity unless it is the surviving party and such entity expressly
assumes the obligations, as applicable, of (1) the Issuer under the Indenture,
(2) the Issuer under the Purchase and Contribution Agreement, and (3) the
General Partner under the limited partnership agreement of the Issuer, as at the
time of such merger, or sells, transfers or otherwise disposes of a material
portion of its business or assets, provided that a sale of assets in connection
with any securitization or similar type of financing completed by EFG or any
Affiliate thereof or in connection with a prepayment of the Class A Notes or in
connection within any other action permitted hereunder that does not result in a
Collateral Deficiency shall not constitute an Early Amortization Event
hereunder; or
(k) An "Event of Default" shall occur and be continuing under the
Liquidity Facility, or the Liquidity Facility shall no longer be in full force
and effect in an amount at least equal to CP Program Amount; or
(l) The amount on deposit in the Reserve Account shall be less than the
Specified Reserve Account Balance for three consecutive Payment Dates; or
(m) An Insurer Default shall have occurred and be continuing.
Upon the occurrence of any such Early Amortization Event, the Amortization
Period Commencement Date shall occur, the Revolving Period shall cease, and on
all Payment Dates thereafter until after the Final Scheduled Payment Date,
amounts due under this Indenture on any Payment Date shall be paid in accordance
with Section 3.03(b)(ii).
SECTION 7.02. Events of Default. The following events shall be "Events
of Default" hereunder:
(a) The Issuer shall fail to make any payment on any Payment Date of
the Class A Base Interest Payment Amount due on such Payment Date and such
failure shall continue unremedied for two Business Days, without giving effect
to any payments made by the Insurer under the Insurance Policy; or
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(b) A default for five days or more in the payment of any installment
of the principal of any Class A Note when the same becomes due and payable and
when Available Funds are sufficient to make such payment; or
(c) The Issuer or the General Partner shall fail to perform or observe
any other term, covenant or agreement (other than a breach of representation or
warranty or any other term, covenant or agreement the breach of which
constitutes an Early Amortization Event) contained in this Indenture and such
failure materially and adversely affects the Class A Noteholder, and any such
failure shall remain unremedied for forty-five (45) days after (i) notice
thereof is given to the Issuer by the Indenture Trustee or (ii) any of the
Issuer or the General Partner has actual knowledge thereof; provided, however,
that if the Issuer demonstrates that it is making a good-faith attempt to cure
such breach, such forty-five (45) day period may be extended by the Indenture
Trustee (with the prior consent of the Insurer) to ninety (90) days; or
(d) An Event of Bankruptcy shall have occurred with respect to the
Issuer or the General Partner; or
(e) The Indenture Trustee shall fail to have a valid, perfected first
priority Lien on the Collateral, for the benefit of the Class A Noteholders and
the Insurer.
SECTION 7.03. Remedies.
(a) Optional Acceleration. Upon the occurrence of an Event of Default,
the Indenture Trustee may (with the prior written consent of the Insurer), or
shall, at the direction of the Insurer, declare that the unpaid Class A Note
Principal Amount to be due and payable immediately; provided, however, that
during the existence and continuation of an Insurer Default the right of consent
or direction shall instead be exercised by the Class A Noteholder, by a notice
in writing to the Issuer, and upon any such declaration, the Amortization Period
Commencement Date shall occur and such Class A Note Principal Amount shall be
immediately due and payable, together with all accrued and unpaid interest
thereon, without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Issuer.
(b) Automatic Commencement of Amortization Period Commencement Date.
Upon the occurrence of an Event of Default described in subsections (a), (b) or
(d) of Section 7.02, the Amortization Period Commencement Date shall occur
automatically.
(c) Additional Remedies. Upon any acceleration of the Class A Notes
pursuant to this Section 7.03, no Advances thereafter shall be made, and the
Class A Noteholders and the Indenture Trustee shall have, subject to the
Insurer's right to direct and control all remedies unless an Insurer Default has
occurred and is continuing, in addition to all other rights and remedies under
this Indenture or otherwise, all other rights and remedies provided under the
UCC of each applicable jurisdiction and other applicable laws to a secured
party, which rights shall be cumulative, including, without limitation, the
right to foreclose upon the Collateral and sell all or any portion thereof at
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public or private sale pursuant to Section 7.04 (and the Issuer agrees that, to
the extent that notice of such sale is required, notice 10 days prior to such
sale shall be adequate and reasonable notice for all purposes).
SECTION 7.04. Sale of Collateral. Upon the occurrence of an Event of
Default or from and after the Final Scheduled Payment Date, if any amounts
remain outstanding with respect to the Class A Notes, the Class A Noteholder
(with the prior consent of the Insurer) shall have the right to cause the Issuer
to sell the Collateral or any portion thereof, or rights or interests therein,
at one or more public or private sales called and conducted in any matter
permitted by law, in which the Class A Noteholder and the Insurer shall have the
right to participate. Proceeds from such sale of the Collateral shall be paid by
the Issuer to the Indenture Trustee, which shall deposit such proceeds into the
Collection Account for distribution in accordance with Section 3.03(b)(iii).
ARTICLE VIII.
INDENTURE TRUSTEE
SECTION 8.01. Acceptance of the Trusts. The Indenture Trustee accepts
and agrees to execute the trusts granted to it by this Indenture, but only upon
the terms and conditions set forth herein. The Indenture Trustee, prior to the
occurrence of an Event of Default and after the curing or waiving of all Events
of Default which may have occurred, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the Indenture
Trustee.
In case an Event of Default has occurred of which the
Indenture Trustee has, or is deemed to have, notice in accordance with this
Indenture and has not been cured, the Indenture Trustee agrees to act in
accordance with the instructions and orders of the Class A Noteholders, but in
any such event, only upon and subject to the following expressed terms and
conditions:
(a) The Indenture Trustee may execute any of the trusts or powers
hereof and perform any of its duties by or through attorneys, agents, receivers,
employees or co-trustees and shall not be answerable for the conduct of the same
if appointed in accordance with the standard specified above, and shall be
entitled to advice of counsel concerning all matters of trusts hereof and the
duties hereunder, and may in all cases pay such reasonable compensation to all
such attorneys, agents, receivers, and employees as may reasonably be employed
in connection with the trusts hereof. The Indenture Trustee may act upon the
opinion or advice of an attorney or accountant by it in the exercise of
reasonable care. The Indenture Trustee shall not be responsible for any loss or
damage resulting from any action or nonaction of such Person which is in good
faith and in reliance upon such opinion or advice. The Indenture Trustee shall
not be responsible for any action or inaction of any Master Servicer or any
party hereto except as provided herein or under applicable laws, rules and
regulations.
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(b) The Indenture Trustee shall not be responsible for any recital
herein, or in any Class A Notes, or for the validity of the execution by the
Issuer of this Indenture, or of any supplemental indentures or instruments of
further assurance, or for the sufficiency of the security for the Class A Notes
issued hereunder or intended to be secured hereby, or for the value or title of
the property herein conveyed or otherwise as to the maintenance of the security
hereof.
(c) The Indenture Trustee shall not be accountable for the use or
application by the Issuer of the Class A Notes or the proceeds thereof or for
the use or application of any money paid over by the Indenture Trustee in
accordance with the provisions of this Indenture or for the use and application
of other money received by the Indenture Trustee.
(d) The Indenture Trustee shall be protected in acting upon any notice,
requisition, request, consent, certificate, order, opinion, affidavit, letter,
telegram or other paper or document reasonably believed to be genuine and
correct and to have been signed or sent by the proper Person or Persons. Any
action taken by the Indenture Trustee pursuant to this Indenture upon the
request or authority or consent of any Person who at the time of making such
request or giving such authority or consent is the owner of a Class A Note shall
be conclusive and binding upon all future owners of the Class A Note and upon
any Class A Note issued in exchange therefor or in place thereof.
(e) Except as otherwise expressly provided in this Indenture, as to the
existence or nonexistence of any fact or as to the sufficiency or validity of
any instrument, paper or proceeding, the Indenture Trustee shall be entitled to
rely upon a certificate of an officer of any Class A Noteholder as sufficient
evidence of facts therein contained, and prior to the occurrence of a default of
which the Indenture Trustee has been notified as provided in subsection (g) of
this Section, or of which by said subsection it is deemed to have notice, shall
also be at liberty to accept a dealing, transaction or action as necessary or
expedient, but may at its discretion secure such further evidence deemed
necessary or advisable, but shall in no case be bound to secure the same.
(f) The permissive right of the Indenture Trustee to do things
enumerated in this Indenture shall not be construed as a duty and the Indenture
Trustee shall not be answerable for other than its negligence or willful
misconduct; provided, however, that the Indenture Trustee shall not be liable
for any error of judgment made in good faith, unless it shall be proved that
such Person was negligent in ascertaining the pertinent facts.
(g) The Indenture Trustee shall not be required to take notice or be
deemed to have notice of any default hereunder except failure by the Issuer to
cause to be made any of the payments to it for the account of the Class A
Noteholder required to be made by Section 3.03, or defaults under clause (a) of
Section 7.01, unless the Indenture Trustee shall be specifically notified in
writing of such default by the Issuer, the Class A Noteholder.
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(h) The Indenture Trustee shall not be required to give any bond or
surety in respect of the execution of the said trusts and powers or otherwise in
respect of the premises.
(i) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(j) All moneys received by the Indenture Trustee shall, until used or
applied or invested as herein provided, be held in trust for the purposes for
which they were received in the Collection Account or the Reserve Account,
except for proceeds from the Policy which shall be held uninvested.
(k) Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee shall be subject to the provisions
of this Section.
(l) NOTWITHSTANDING ANY OTHER PROVISION OF THIS INDENTURE OR THE OTHER
TRANSACTION DOCUMENTS, NOTHING IN THIS INDENTURE OR THE OTHER TRANSACTION
DOCUMENTS SHALL BE CONSTRUED TO LIMIT THE LEGAL RESPONSIBILITY OF THE INDENTURE
TRUSTEE TO THE SECRETARY OF EDUCATION OR A FEDERAL GUARANTOR FOR ANY VIOLATIONS
OF STATUTORY OR REGULATORY REQUIREMENTS THAT MAY OCCUR WITH RESPECT TO FEDERAL
STUDENT LOANS HELD BY THE INDENTURE TRUSTEE PURSUANT TO, OR TO OTHERWISE COMPLY
WITH ITS OBLIGATIONS UNDER, THE HIGHER EDUCATION ACT OR IMPLEMENTING
REGULATIONS.
SECTION 8.02. Fees, Charges and Expenses of Indenture Trustee. The
Indenture Trustee shall be entitled (i) to payment of the Indenture Trustee's
Fees for its services rendered hereunder pursuant to the priorities set forth in
Section 3.03(b)(i) and (ii), and (ii) to payment of, or reimbursement for, all
advances, reasonable counsel fees and expenses and other out-of-pocket expenses
reasonably and necessarily made or incurred by the Indenture Trustee, in
connection with such services, which shall be paid to it.
SECTION 8.03. Notice if Default Occurs. If a default occurs of which
the Indenture Trustee is by Section 8.01(g) required to take notice or if notice
of default be given as provided in said Section 8.01(g), then the Indenture
Trustee shall give written notice thereof by registered or certified mail to the
Issuer and the Class A Noteholders.
SECTION 8.04. Intervention by Indenture Trustee. In any judicial
proceeding to which the Issuer is a party, the Indenture Trustee shall intervene
if directed to do so in writing by the Class A Noteholders with the consent of
the Insurer or the Insurer.
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SECTION 8.05. Successors. Any corporation or association into which the
Indenture Trustee may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its corporate trust business
and assets as a whole or substantially as a whole, or any corporation or
association resulting from any such conversion, sale, merger, consolidation or
transfer to which it is a party, ipso facto, shall be and become successor
Indenture Trustee hereunder and vested with all of the title to the whole
property or trust estate and all the trusts, powers, discretions, immunities,
privileges and all other matters as was its predecessor, without the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
SECTION 8.06. Resignation. The Indenture Trustee may at any time resign
from the trusts hereby created by giving 90 days' written notice to the Issuer,
the Class A Noteholders, the Insurer and each of the Rating Agencies and such
resignation shall take effect at the end of such 90 days, or upon the earlier
appointment and acceptance of a successor Indenture Trustee, as provided in
Section 8.08 hereof, or removal as provided in Section 8.07 hereof.
Notwithstanding the foregoing, resignation of the Indenture Trustee shall not be
effective until a successor or temporary Indenture Trustee is appointed and has
accepted such appointment; provided, however, if an instrument of acceptance
shall not have been delivered within 120 days after giving such notice of
resignation, the resigning Indenture Trustee may petition a court of competent
jurisdiction for the appointment of a successor, and any attorneys' fees and
expenses incurred in connection with such petition shall be payable by the
Issuer.
SECTION 8.07. Removal. The Indenture Trustee may be removed by the
Insurer or the Class A Noteholder at any time with consent of the Insurer, by an
instrument in writing delivered to the Indenture Trustee. Notwithstanding the
foregoing, removal of the Indenture Trustee shall not be effective until a
successor is appointed and has accepted such appointment.
SECTION 8.08. Appointment of Successor. In case the Indenture Trustee
shall resign or be removed, or be dissolved, or shall be in course of
dissolution or liquidation, or otherwise become incapable of acting hereunder,
or in case it shall be taken under the control of any public officer or
officers, or of a receiver appointed by a court, a successor acceptable to the
Insurer and meeting the eligibility requirements of Section 8.13 may be
appointed by the Issuer by an instrument in writing signed by the Issuer. The
Issuer shall also inform the Rating Agencies promptly of any such resignation or
removal of the Indenture Trustee. If no appointment of a successor Indenture
Trustee shall have been made pursuant to the foregoing provisions of this
Section within 120 days after the Indenture Trustee shall have given written
notice as provided in Section 8.06 hereof, the Indenture Trustee, the Issuer or
the Class A Noteholder may apply to a court of competent jurisdiction to appoint
a successor Indenture Trustee. Each such successor Indenture Trustee shall agree
in writing to be bound by the provisions of Section 10.06.
SECTION 8.09. Concerning Any Successor. Every successor Indenture
Trustee appointed hereunder shall execute, acknowledge and deliver to its
predecessor and also to
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the Issuer an instrument in writing accepting such appointment hereunder, and
thereupon such successor, without any further act, deed or conveyance, shall
become fully vested with all the estates, properties, rights, powers, trusts,
duties and obligations of its predecessor; but such predecessor shall,
nevertheless, upon receipt of a request from the Issuer execute and deliver an
instrument transferring to such successor all the estates, properties, rights,
powers and trusts of such predecessor hereunder; and every predecessor shall
deliver all securities and moneys held by it as Indenture Trustee hereunder to
its successor.
SECTION 8.10. Appointment of Co-Trustee. It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
denying or restricting the right of banking corporations or associations to
transact business as the Indenture Trustee in such jurisdiction. It is
recognized that in case of litigation under this Indenture or any other
Transaction Document or any Student Loan or related agreement, and in particular
in case of the enforcement thereof on default, or in case of a conflict of
interest, or in case the Indenture Trustee deems that by reason of any present
or future law of any jurisdiction it may not exercise any of the powers, rights
or remedies herein granted to the Indenture Trustee or hold title to the
properties, in trust, as herein granted, or take any other action which may be
desirable or necessary in connection therewith, it may be necessary that the
Indenture Trustee appoint an additional institution, which must be a commercial
bank with trust powers acceptable to the Insurer, as a separate or co-Trustee.
The following provisions of this Section are intended to accomplish these ends.
In the event that the Indenture Trustee appoints an additional
individual or institution as a separate or co-Trustee, each and every remedy,
power, right, claim, demand, cause of action, immunity, estate, title, interest
and lien expressed or intended by this Indenture to be exercised by or vested in
or conveyed to the Indenture Trustee with respect thereto shall be exercisable
by and vest in such separate or co-Trustee but only to the extent necessary to
enable such separate or co-Trustee to exercise such powers, rights and remedies,
and every covenant and obligation necessary to the exercise thereof by such
separate or co-Trustee shall run to and be enforceable by either of them.
Should any instrument in writing from the Issuer be required
by the separate or co-Trustee so appointed by the Indenture Trustee for more
fully and certainly vesting in and confirming to him, her or it such properties,
rights, powers, trusts, duties and obligations, any and all such instruments in
writing shall, on request, be executed, acknowledged and delivered by the
Issuer. In case any separate or co-Trustee, or a successor to either, shall die,
become incapable of acting, resign or be removed, all the estates, properties,
rights, powers, trusts, duties and obligations of such separate or co-Trustee,
so far as permitted by law, shall vest in and be exercised by the Indenture
Trustee until the appointment of a new Indenture Trustee or a successor to such
separate or co-Trustee.
SECTION 8.11. Successor Indenture Trustee as Trustee of Funds. In the
event of a change of the Indenture Trustee the predecessor which has resigned or
been removed
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shall cease to be trustee of any funds then held by it hereunder and the
successor Indenture Trustee shall become such trustee.
SECTION 8.12. Indemnification.
(a) The Indenture Trustee shall not be under any obligation or duty to
perform any act at the request of the Class A Noteholders or the Issuer or to
institute or defend any suit in respect hereof or to exercise any remedy
hereunder unless properly indemnified to its satisfaction subject to Section
8.01(i) hereof, except making payment of principal and interest, making a draw
on the Insurance Policy, or accelerating the Class A Notes as provided for
herein. The Indenture Trustee shall not be required to take notice, or be deemed
to have knowledge, of any default of the Issuer, except as provided in Section
8.01(g).
(b) The Issuer agrees to indemnify the Indenture Trustee for, and to
hold it harmless against, any loss, liability or expense, including reasonable
attorneys' fees and expenses, incurred without negligence or bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder except as a result of negligence, bad faith or willful misconduct on
its part and except any liability to the DOE on account of the Indenture
Trustee's status as such.
SECTION 8.13. Eligibility Requirements for Indenture Trustee. The
Indenture Trustee and any successor Indenture Trustee shall at all times be (i)
an institution insured by the Federal Deposit Insurance Corporation, (ii) a
corporation or national bank or national banking association organized and doing
business under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by federal and state authority, (iii) an institution whose long-term
senior unsecured debt is rated at least "BBB-", in the case of S&P or "Ba2", in
the case of Moody's, or in the case of each Rating Agency, such lower rating as
is confirmed by such Rating Agency in writing would not adversely affect any of
the ratings then assigned to the Class A Notes, and (iv) unaffiliated with the
Issuer or EFG. If such corporation, national bank or national banking
association publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section, the combined capital and surplus of such
corporation, national bank or national banking association shall be deemed to be
its combined capital and surplus as set forth in its most recent report or
condition so published. If at any time the Indenture Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Indenture
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.06. No person shall become a successor trustee hereunder if the
succession of such Person would result in the qualification, downgrading and
withdrawal of any of the ratings then assigned by the Ratings Agencies to the
Class A Notes.
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SECTION 8.14. Tax Information. The Indenture Trustee shall deliver to
each Class A Noteholder such information as may be required to enable such
holder to prepare its federal and state income tax returns, provided that such
information shall consist only of Form 1099's or any successor forms required to
be given to Class A Noteholders pursuant to the Code.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision
of this Indenture nor consent to any departure by the Issuer therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Issuer and the Indenture Trustee, and shall have been consented to by both the
Class A Noteholder, the Insurer and the Rating Agencies shall have confirmed in
writing that such amendment or waiver shall not result in the reduction or
withdrawal of the ratings of the Class A Notes, provided, however, that if the
terms of such amendment consist solely of a pro rata increase in the Class A
Maximum Principal Amount, such confirmation from the Rating Agencies shall not
be required. Such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 9.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile communication) and shall be personally delivered or sent by
express mail or courier or by certified mail, postage prepaid, or by facsimile,
to the intended party at the address or facsimile number of such party set forth
under its name on the signature pages hereof or at such other address or
facsimile number as shall be designated by such party in a written notice to the
other parties hereto. All such notices and communications shall be effective,
(a) if personally delivered or sent by express mail or courier or if sent by
certified mail, when received, and (b) if transmitted by facsimile, when sent,
receipt confirmed by telephone or electronic means.
SECTION 9.03. No Waiver; Remedies. No failure on the part of the
Issuer, the Indenture Trustee, or any Class A Noteholder to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof
(unless waived in writing); nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9.04. Binding Effect; Survival. This Indenture shall be binding
upon and inure to the benefit of the Issuer, the Indenture Trustee, the Insurer,
the Class A Noteholder, and their respective successors and assigns. This
Indenture shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until the Final Payout Date. The rights and remedies with respect to any breach
of any representation and warranty made by the
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Issuer pursuant to Article V and the indemnification and payment provisions of
Article VIII and Section 9.05 shall be continuing and shall survive any
termination of this Indenture.
SECTION 9.05. Costs, Expenses and Taxes. The Issuer agrees to pay
within three Business Days of demand:
(a) all reasonable costs and expenses incurred by the Indenture Trustee
and its Affiliates in connection with the negotiation, preparation, execution
and delivery, the administration (including periodic auditing and monitoring
fees of the Ratings Agencies), the amendment to, or waiver of, or the
enforcement of, or any actual or claimed breach of, this Indenture and the other
Transaction Documents, including, without limitation (i) the reasonable fees and
expenses of counsel to any of such Persons incurred in connection with any of
the foregoing or in advising such Persons as to their respective rights and
remedies under any of the Transaction Documents, and (ii) all reasonable
out-of-pocket expenses (including reasonable fees and expenses of independent
accountants), incurred in connection with any review of the Issuer's, the Master
Servicer's or a Sub-Servicer's books and records either prior to the execution
and delivery hereof or pursuant to this Indenture, the Master Servicing
Agreement or a Subservicing Agreement; and
(b) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of this
Indenture or the other Transaction Documents, and agrees to indemnify the
Indenture Trustee against any liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.
SECTION 9.06. No Proceedings. Notwithstanding any provision hereof to
the contrary, the Indenture Trustee, by entering into this Indenture, and each
Class A Noteholder by accepting a Class A Note, hereby covenant and agree that
they will not at any time institute against the Issuer or the General Partner,
or join in any institution against the Issuer or the General Partner of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Class A Notes,
this Indenture or any of the Transaction Documents. The provisions of this
Section 9.06 shall survive the termination of this Indenture.
SECTION 9.07. Captions and Cross References. The various captions
(including, without limitation, the table of contents) in this Indenture are
provided solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Indenture. Unless otherwise indicated,
references in this Indenture to any Section, Appendix, Schedule or Exhibit are
to such Section of or Appendix, Schedule or Exhibit to this Indenture, as the
case may be, and references in any Section, subsection, or clause to any
subsection, clause or subclause are to such subsection, clause or subclause of
such Section, subsection or clause.
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SECTION 9.08. Integration. This Indenture and the other Transaction
Documents, contain a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings.
SECTION 9.09. GOVERNING LAW. THIS INDENTURE, INCLUDING THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE
PERFECTION OF THE INTERESTS OF CLASS A NOTEHOLDERS IN THE COLLATERAL IS GOVERNED
BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 9.10. WAIVER OF JURY TRIAL. THE ISSUER HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS INDENTURE, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY BE IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER
RELATIONSHIP EXISTING IN CONNECTION WITH THIS INDENTURE OR ANY OTHER TRANSACTION
DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT A JURY TRIAL.
SECTION 9.11. Execution in Counterparts. This Indenture may be executed
in any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
SECTION 9.12. Usury. The amount of interest payable or paid on the
Class A Notes under the terms of this Indenture shall be limited to an amount
that shall not exceed the maximum nonusurious rate of interest allowed by the
applicable laws of the State of New York or any applicable law of the United
States of America permitting a higher maximum nonusurious rate that preempts
such applicable New York laws, which could lawfully be contracted for, charged
or received (the "Highest Lawful Rate"). In the event any payment of interest on
the Class A Notes exceeds the Highest Lawful Rate, the Issuer stipulates that
such excess amount will be deemed to have been paid to the applicable Class A
Noteholder as a result of an error and the Class A Noteholder receiving such
excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Indenture Trustee on behalf of the Issuer, refund the amount of
such excess or, at the option of such Class A Noteholder, apply the excess to
the payment of principal of such Class A Note, if any, remaining unpaid. In
addition, all sums paid or agreed to be paid to the Indenture Trustee for the
benefit of the Class A Noteholder for the use, forbearance or detention of money
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such Class A Notes.
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SECTION 9.13. Certain Matters Regarding the Insurer and The Policy.
(a) Rights of the Insurer to Exercise Certain Rights of the Class A
Noteholders. By accepting its Class A Note, each Class A Noteholder agrees that
unless an Insurer Default exists, the Insurer, notwithstanding any other
provision contained herein shall have the right to exercise the rights of the
Class A Noteholders with respect to all matters, including without limitation
the following matters without consent of the Class A Noteholders, to the extent
such rights are provided for herein:
(i) the right to direct the Indenture Trustee in writing to
terminate the rights and obligations of the Master Servicer under the
Master Servicing Agreement in the event of a Servicer Event of Default;
(ii) the right to consent to or direct any waivers of defaults
by the Master Servicer;
(iii) the right to remove the Indenture Trustee pursuant to
this Indenture;
(iv) the right to control actions of the Master Servicer with
respect to modifications or waivers with respect to the Collateral; and
(v) the right to exercise all rights of consent, election,
waiver, rescission, annulment, instruction, direction or control
provided to the Class A Noteholders under this the Indenture, including
but not limited to any declaration of acceleration with respect to the
Class A Notes.
In addition, unless an Insurer Default exists, the Insurer's
consent will be required prior to, among other things, (i) the appointment of
any successor Indenture Trustee or Master Servicer or (ii) any amendment to the
Indenture or the other Transaction Documents; provided, however, in any case
that the Insurer shall not unreasonably withhold, condition or delay its
consent. The Class A Noteholders agree that, unless an Insurer Default exists,
the rights specifically set forth above may be exercised by the Class A
Noteholders only with the prior written consent of the Insurer.
(b) Issuer to Act Solely with Consent of the Insurer. Unless an Insurer
Default exists, the Issuer shall not exercise the right to appoint a co-trustee
pursuant to Section 8.10 of this Indenture or successor Indenture Trustee
pursuant to Section 8.08 of this Indenture without the prior written consent of
the Insurer which consent shall not be unreasonably withheld.
Unless an Insurer Default exists and is continuing, the Issuer
and the Indenture Trustee shall not undertake any litigation with respect to the
Collateral without the prior consent of or at the written direction of the
Insurer.
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(c) Indenture Trustee to Act Solely with Consent of the Insurer. Unless
an Insurer Default exists and is continuing, the Indenture Trustee
shall not exercise the right to:
(i) undertake any litigation pursuant to the Indenture or
incur any expenses reimbursable pursuant to 9.05 of this Indenture;
(ii) make any of the elections or exercise any of the remedies
provided under this Indenture; and
(iii) agree to any amendment to, or grant any waiver of its
rights under the Master Servicing Agreement;
in each case, without the prior written consent of the Insurer, which shall not
be unreasonably withheld, but shall do so at the direction of the Insurer;
provided, however, during the existence and continuation of an Insurer Default
the Indenture Trustee shall not require the prior written consent of the Insurer
to exercise any of the rights enumerated above.
(d) Collateral and Accounts Held for Benefit of the Insurer and the
Class A Noteholder. The Indenture Trustee shall hold the Collateral for the
benefit of the Class A Noteholders and, unless an Insurer Default exists, the
Insurer, and all references in this Indenture and in the Class A Notes to the
benefit of the Class A Noteholder shall, unless an Insurer Default exists, be
deemed to include the Insurer.
(e) Indenture Trustee to Cooperate. Unless an Insurer Default exists,
the Indenture Trustee shall cooperate in all respects with any reasonable
written request by the Insurer for action to preserve or enforce the Insurer's
rights or interests hereunder without limiting the rights or affecting the
interests of the Class A Noteholders as otherwise set forth herein. The
Indenture Trustee shall be fully protected in acting at the direction of the
Insurer as provided hereunder.
(f) Surrender and Cancellation. The Indenture Trustee shall surrender
the Policy to the Insurer for cancellation upon the expiration of the term of
the Policy as provided in the Insurance Policy.
(g) Reports to the Insurer. All notices, statements, reports,
certificates or opinions required by this Indenture to be sent to any other
party hereto or to the Class A Noteholders shall also be sent to the Insurer at
the following address: MBIA Insurance Corporation, 113 King Street, Armonk, New
York 10504, Attention: Insured Portfolio Management - Structured Finance
(IPM-SF), Telephone (914) 273-4545, Telecopy: (914) 765-3810. The Issuer and the
Indenture Trustee shall make available to the Insurer their books and records
during regular business hours for the purpose of copying at the Insurer's
expense and inspection of any information about the Class A Notes or the Class A
Noteholders.
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(h) Third Party Beneficiary. The parties hereto agree that it is
specifically intended that the Insurer shall be a third party beneficiary of
this Indenture and, so long as no Insurer Default shall have occurred and be
continuing, shall have full right, power and authority to enforce the
obligations of the Indenture Trustee under this Indenture.
SECTION 9.14. Amendment to Liquidity Facility. By acceptance of its
Class A Note, the Class A Noteholder agrees that it shall not consent to any
amendment of Sections 3.10, 3.11, 3.12, 10.03 or 12.03 of the Liquidity Facility
without the prior written consent of the Issuer.
SECTION 9.15. Rating Agency Notification. The Issuer shall notify each
of the Rating Agencies of the occurrence of any of the following events: (i) the
resignation or removal of the Indenture Trustee, the Eligible Lender Trustee or
the Master Servicer or assignment by any such party of its duties and
obligations, (ii) any changes to the definition of Eligible Student Loan
relating to interest rates or guarantees thereon resulting from amendments to
the Higher Education Act, (iii) any extension, expiration or other termination
of the Liquidity Facility, (iv) any amendments to or termination of the
Insurance Policy, (v) any acceleration of the Class A Notes, (vi) any material
changes to the fees and expenses of the Master Servicer, the Indenture Trustee,
the Eligible Lender Trustee, the Liquidity Banks and the Insurer, (vii) any
agreement of the Insurer pursuant to clause (e) of the definition of Eligible
Student Loan and (viii) any other matter, notice of which is required to be
given to the Insurer or Indenture Trustee hereunder.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have caused this Indenture to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
EFG-III, LP
By: EFG-II SPC-I, Inc.,
as General Partner
By:
--------------------------------
Name: Steven J. Galvin
Title: President
Address: 495 Station Avenue
South Yarmouth, MA 02664
Attention: Mr. Stephen J. Galvin
Telephone No.: (508) 760-2900
Facsimile No.: (508) 394-7006
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee and Eligible
Lender Trustee
By:
--------------------------------
Name: Mary Fonti
Title: Assistant Vice President
Address: One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Services
Division
Telephone No.: (212) 373-1105
Facsimile No.: (212) 373-1383
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APPENDIX A
DEFINITIONS
This is Appendix A to the Indenture, dated as of August 5,
1999, between EFG-III, LP, and The First National Bank of Chicago, as Indenture
Trustee and Eligible Lender Trustee (as amended, supplemented or otherwise
modified from time to time, the "Indenture"). Each reference in this Appendix A
to any Section, the Preamble, Appendix or Exhibit, unless otherwise stated,
refers to such Section of or Appendix, Preamble or Exhibit to the Indenture.
A. Defined Terms. As used in the Indenture, unless the context requires a
different meaning, the following terms have the meanings indicated below
(such definitions to be applicable to both the singular and plural forms of
such terms):
"Accounts" means the Collection Account, the Reserve Account
and the Net Cap Rate Reserve Account.
"Administration Agreement" means the Administration Agreement,
dated as of August 5, 1999,among the CP Vehicle, the Issuer and the
Administrator.
"Administrator" means Lord Securities Corporation and its
successors and permitted assigns.
"Advance" has the meaning set forth in Section 2.01.
"Advance Date" means each date on which an Advance by the
Class A Noteholder is consummated, which date shall be a Business Day.
"Advance Notice" has the meaning set forth in Section 2.02(a).
"Advance Rate" means 108.35%.
"Affiliate" when used with respect to a Person means any other
Person controlling, controlled by, or under common control with, such Person.
For purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Student Loan Amount" means with respect to the
Financed Student Loans on any day shall equal the aggregate unpaid Principal
Balance of and all accrued and unpaid interest due from the U.S. government and
all related borrowers with respect to, Student Loans that are Eligible Student
Loans on such day; provided, that with respect to the calculation of the
Aggregate Student Loan Amount, the unpaid Principal Balance of (i) any Federal
Student Loan that would otherwise qualify as an Eligible Student Loan but is
more than 120 days delinquent, or (ii) any Private Student Loan that
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would otherwise qualify as an Eligible Student Loan but is more than 90 days
delinquent, shall in each case be included in the definition of "Aggregate
Student Loan Amount" but shall be deemed to be equal to the portion of the
unpaid Principal Balance of such Student Loan guaranteed by DOE, TERI or
TuitionGard, as applicable; provided, further that, with respect to the
calculation of the Aggregate Student Loan Amount, the unpaid Principal Balance
of any Student Loan with respect to which there is an uncured material breach of
any representation, warranty or covenant made by the Issuer under the Indenture,
or any Student Loan that otherwise is no longer an Eligible Student Loan, shall
in each case be deemed to be zero.
"Amortization Period" means the period beginning from and
after the Amortization Period Commencement Date.
"Amortization Period Commencement Date" means the earlier of
(i) the Scheduled Amortization Period Commencement Date or (ii) the date
determined pursuant to Sections 7.01 or 7.03.
"Amortization Period Principal Payment Amount" means with
respect to any Payment Date during the Amortization Period, an amount equal to
the sum of (x) the difference between (1) the aggregate unpaid Principal Balance
of all Financed Student Loans that were included in the Collateral as of the
opening of business on the first day of the related Collection Period and (2)
the aggregate unpaid Principal Balance of such Financed Student Loans as of the
close of business on the last Business Day of such Collection Period, and (y)
any Amortization Period Principal Payment Amount due on a previous Payment Date
that remains unpaid.
"Authorized Officer" means (i) with respect to the Issuer, any
officer or agent of the General Partner, acting on behalf of the General Partner
for and on behalf of the Issuer and (ii) with respect to the Seller and the
Master Servicer, any officer of the Seller or the Master Servicer, respectively,
who is authorized to act for and on behalf of the Seller or the Master Servicer,
respectively.
"Available Funds" means (i) all Collections, (ii) all Monthly
Advance Amounts, (iii) all Purchase Amounts, (iv) all Investment Earnings, (v)
all amounts delivered by the Issuer to the Indenture Trustee to effect a
prepayment of the Class A Note pursuant to Section 1.12, (vi) all amounts
delivered by the Issuer to the Indenture Trustee to effect the removal of a
Financed Student Loan from the Collateral pursuant to Section 2.04(a) and (vii)
all amounts delivered by the Issuer to the Indenture Trustee to reduce a
Collateral Deficiency pursuant to Section 2.03.
"Bank One Custody Agreement" means the Bank One Custody
Agreement, dated as of August 5, 1999, and among the Issuer, the Master
Servicer, the Indenture Trustee and the Bank One Trust Company, NA, as
Custodian.
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"Bank Rate" means, for any day, an interest rate per annum
equal to the weighted average interest rate in effect with respect to advances
outstanding under the Liquidity Facility on such day.
"Bankruptcy Code" means Title 11 of the United States Code.
"Business Day" means a day other than (i) a Saturday or
Sunday, or (ii) a day on which the Indenture Trustee, the New York Stock
Exchange or banks located in Chicago, Illinois, New York, New York or the
Commonwealth of Massachusetts are all authorized or obligated by law or
executive order to be closed for business.
"Capped CP Program Payment Amount" means, for any Payment
Date, the fees and expenses payable pursuant to Section 5.03(iv) of the Security
Agreement, which payments in the aggregate shall not exceed $250,000 during each
calendar year.
"Class A Additional Interest Payment Amount" means on any
Payment Date, the amount equal to the sum of (a) the excess of (i) the amount of
interest accrued on the Class A Notes during the related Collection Period at
the rate determined pursuant to Section 1.11 of the Indenture over (ii) the
Class A Base Interest Payment Amount for such Payment Date, (b) any increased
costs payable as of such Payment Date pursuant to Sections 3.10, 3.11, 3.12,
10.03 and 12.03 of the Liquidity Facility to the extent not included in clause
(a)(i) above and (c) all Class A Additional Interest Payment Amounts that have
accrued on any previous Payment Dates and have remained unpaid, and to the
extent permitted by law, interest thereon.
"Class A Base Interest Payment Amount" means on any Payment
Date, the sum of (i) the lesser of (a) the amount of interest accrued on the
Class A Notes during the related Collection Period at the Net Cap Rate, and (b)
the amount of interest accrued on the Class A Note during the related Collection
Period at the interest rate or rates determined for such Collection Period
pursuant to Section 1.11 of the Indenture and (ii) all Class A Base Interest
Payment Amounts that have accrued on any previous Payment Dates and have
remained unpaid.
"Class A Maximum Principal Amount" means $650,000,000.
"Class A Note" means (i) during the Revolving Period, the
"Class A Variable Funding Note", and (ii) during the Amortization Period, such
"Class A Variable Funding Note" and any other Class A Note, in each case issued
pursuant to Section 1.01 of the Indenture, substantially in the form of Exhibit
1.01.
"Class A Noteholder" means the Person in whose name a Class A
Note is registered in the Note Register.
"Class A Note Daily Interest Amount" means, for any day during
a Collection Period, an amount equal to (a) the product of (i) the Class A Note
Rate on
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such day and (ii) the Class A Note Principal Amount outstanding on such day
(after giving effect to any Advances made on such day).
"Class A Note Interest" means, with respect to any Payment
Date, the sum of the Class A Note Daily Interest Amount for each day in the
related Collection Period.
"Class A Note Principal Amount" means the sum of all Advances
funded by the Class A Noteholder during the Revolving Period under the Class A
Note, less payments in reduction of principal on the Class A Note actually
received by the Class A Noteholder pursuant to Section 1.13.
"Class A Note Rate" means, with respect to any day (after
taking into account any Advance made on such day), (a) on which Commercial Paper
is outstanding and no amounts are outstanding under the Liquidity Facility, the
CP Rate with respect to the CP Vehicle on such day, (b) on which Commercial
Paper is outstanding and amounts are outstanding under the Liquidity Facility,
the weighted average of (i) the CP Rate with respect to the CP Vehicle on such
day and (ii) the Bank Rate on such day and (c) on which no Commercial Paper is
outstanding and amounts are outstanding under the Liquidity Facility, the Bank
Rate on such day, in each case, divided by 360; provided that if the Class A
Note is no longer held by the CP Vehicle, the Class A Note Rate shall be a rate
that shall be set forth in a supplemental indenture signed by the parties
hereto, with the consent of the Class A Noteholders and the Insurer (so long as
no Insurer Default has occurred and is continuing and such consent of the
Insurer shall not be unreasonably withheld); and provided further, that if for
any reason such supplemental indenture has not been adopted at such time as the
Class A Note is no longer held by the CP Vehicle, the Class A Note Rate for each
day during the related Collection Period until such date that such supplemental
indenture becomes effective shall be a per annum rate equal to LIBOR plus 0.75%,
which rate shall be determined by the Indenture Trustee.
"Class A Note Rate Reporting Failure" has the meaning set
forth in Section 1.11(a).
"Class A Note Registrar" has the meaning set forth in
Section 1.03(a).
"Closing Date" means August 5, 1999.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means (i) the Financed Student Loans; (ii) all of
Issuer's (and the Eligible Lender Trustee's) right, title and interest under the
Student Loan Guaranty Agreements (or, in the case of TuitionGard, the
TuitionGard Policies); (iii) all of the Issuer's (and the Eligible Lender
Trustee's) right, title and interest in all Subsidy Payments with respect to any
Financed Student Loan that is a Federal Student Loan; (iv) the Collection
Account, the Reserve Account, the Net Cap Rate Reserve Account and any other
account established in the name of the Indenture Trustee for the benefit of the
Class A Noteholders, and all investments therein and the proceeds thereof; (v)
all funds (other
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than amounts received from the Insurer under the Insurance Policy) on deposit in
the accounts described in clause (iv), together with all certificates and
instruments, if any, from time to time evidencing such accounts, and funds on
deposit and all investments made with such funds, all claims thereunder or in
connection therewith, and interest, dividends, moneys, instruments, securities
and other property from time to time received, receivable or otherwise
distributed in respect of any or all of the foregoing; (vi) all of Issuer's (and
the Eligible Lender Trustee's) right, title and interest under the Purchase and
Contribution Agreement and the Master Servicing Agreement; (vii) all Related
Securities; (viii) all books, files and records (including computer tapes and
disks) related to the foregoing; and (ix) all Collections and other proceeds of
any and all of the foregoing.
"Collateral Agent" means The First National Bank of Chicago,
in its capacity as collateral agent under the Security Agreement, and its
permitted successors and assigns.
"Collateral Amount" means at any time the sum of (a) the
product of (1) the Advance Rate and (2) the Aggregate Student Loan Amount at
such time of the Financed Student Loans, and (b) all cash and Eligible
Investments on deposit at such time in the Collection Account relating to
Principal Collections on the Financed Student Loans (or payments made in
satisfaction of Section 2.03 of the Indenture).
"Collateral Deficiency" has the meaning set forth in
Section 2.03.
"Collection Account" means an Eligible Deposit Account, in the
name of the Indenture Trustee, for the benefit of Class A Noteholders, which
account has been designated as the Collection Account, and any other account
designated as the Collection Account by the Indenture Trustee.
"Collection Period" means with respect to each Payment Date,
the immediately preceding calendar month; provided, however, that with respect
to the first Collection Period under the Indenture, the Collection Period shall
begin on August 5, 1999, and shall end on August 31, 1999.
"Collections" means (i) all funds which are received by
Issuer, the Master Servicer, any Subservicer or the Indenture Trustee from or on
behalf of the related Obligors in payment of any amounts owed (including,
without limitation, all Subsidy Payments, Student Loan Guaranty Payments,
Reimbursement Payments, finance charges, interest and all other charges) in
respect of the Financed Student Loans, or applied to such amounts owed by such
Obligors, net of accrued Consolidated Rebate Amounts and other amounts required
by the Higher Education Act to be paid to the DOE, with respect to the Financed
Student Loans for the related Collection Period, (ii) all funds received
pursuant to the Master Servicing Agreement or the Subservicing Agreements,
including all payments representing the Purchase Price of any repurchased
Financed Student Loan, and (iii) all funds, including any Purchase Amounts
received for Financed Student Loans repurchased by the Seller, received by the
Issuer, the Indenture Trustee or the Master
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Servicer pursuant to the Purchase and Contribution Agreement or from any other
source in respect of the Financed Student Loans.
"Commercial Paper" means the short-term promissory notes
issued from time to time by the CP Vehicle pursuant to the Depositary Agreement.
"Computer Tape" means, with respect to any addition,
substitution or release of any financed Student Loans to or from the Collateral,
or delivery of any Monthly Report, a list of the Financed Student Loans included
in the Collateral, containing the following information: with respect to each
Financed Student Loan in the facility: (i) the loan number, (ii) the obligor's
name, (iii) the obligor address, (iv) the current interest rate, (v) the
original balance, (vi) the current balance as of the last day of the immediately
preceding month, (vii) the principal paid to date, (viii) loan payment status
(i.e. repayment, in-school, grace, deferment, forbearance), (ix) federal
interest subsidy (Yes/No), (x) spread, (xi) the first payment date, (xii) the
maturity date, (xiii) the principal and interest payment, (xiv) index, (xv) the
Subservicer with respect to such Student Loan and (xvi) the breakdown by medical
discipline for Financed Student Loans in the medical portfolio.
"Confidential Information" means information provided by the
Master Servicer or the Seller to the Eligible Lender Trustee or the Indenture
Trustee related to the transactions effected under the Transaction Documents and
any computer software provided to the Eligible Lender Trustee or the Indenture
Trustee in connection with the transactions affected under the Transaction
Documents, in each case whether in the form of documents, reports, lists, tapes,
discs or any other form.
"Consolidated Rebate Amount" means with respect to any
Collection Period, the aggregate amount of all rebate fees payable to the DOE in
respect of any Federal Consolidation Loans that are then included in the
Collateral.
"Corporate Trust Office" means the principal office of the
Indenture Trustee at which at any particular time its corporate trust business
shall be administered, which on the Closing Date shall be the address indicated
beneath the signature of the Indenture Trustee in the Indenture, or any other
address indicated by the Indenture Trustee in a written notice furnished by the
Indenture Trustee to the Issuer.
"CP Documents" means the Liquidity Facility, the Security
Agreement, the Note Purchase Agreement, the Administration Agreement, the
Depositary Agreement, the Management Agreement and the Private Placement
Agreement.
"CP Program Amount" means $650,000,000.
"CP Rate" shall mean, with respect to the CP Vehicle and any
day, the per annum rate equivalent to the "weighted average cost" (as defined
below) related to the issuance of Commercial Paper by the CP Vehicle that is
allocated, in whole or in part, to maintain the CP Vehicle's investment in the
Class A Note; provided, however, that if any
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component of such rate is a discount rate, in calculating the CP Rate, the rate
used to calculate such component shall be a rate resulting from converting such
discount rate to an interest-bearing equivalent rate per annum. As used in this
definition, the "weighted average cost" shall consist of the actual interest
rate paid to purchasers of the Commercial Paper issued by the CP Vehicle (which
rate shall reflect and give effect to (i) the commissions of placement agents
and dealers in respect of such Commercial Paper, to the extent such commissions
are allocated, in whole or in part, to such Commercial Paper by the CP Vehicle
and (ii) any fees and expenses payable by the CP Vehicle pursuant to and in
accordance with the CP Documents).
"Concentration Percentage" means, with respect to any State,
the percentage equivalent of a fraction, the numerator of which is the aggregate
outstanding Principal Balance of Financed Student Loans to borrowers resident in
such State and the denominator of which is the aggregate outstanding Principal
Balance of all Financed Student Loans.
"Concentration State" means each State that qualifies as
having one of the five highest Concentration Percentages.
"CP Vehicle" means EFG Funding LLC, a Delaware limited
liability company.
"Custodial Services Agreements" means, collectively, (i) the
Custodial Services Agreement, by and among EFG, the Issuer, AFSA Data
Corporation and the Master Servicer, and (ii) the Custodial Services Agreement,
by among EFG, the Issuer, USA Group Loan Services, Inc. and the Master Servicer.
"Defaulted Financed Student Loan" means any Financed Student
Loan that is a Defaulted Student Loan.
"Defaulted Student Loan" means any Student Loan (i) as to
which any payment, or portion thereof, is more than 180 days past due from the
original due date therefor, unless (with respect to a Federal Student Loan) such
Student Loan is in Deferment Status or Forbearance Status, (ii) the borrower of
which is the subject of an Event of Bankruptcy or is deceased or disabled or
(iii) as to which a continuing condition that with notice or the lapse of time
or both would constitute a default, breach, violation or event permitting
acceleration under the terms of such Student Loan (other than payment defaults
continuing for a period of not more than 180 days).
"Deferment Status" means a status with respect to any Federal
Student Loan permitted by the Higher Education Act and the policies of the
applicable Student Loan Guarantor during which the related Obligor may postpone
or reduce the amount of the Obligor's scheduled payment of principal and
interest.
"Delinquent Student Loan" means any student loan as to which
any portion of a scheduled payment remains outstanding for greater than 30 days.
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"Depositary" means The First National Bank of Chicago, in its
capacity as Depositary, and its successors and permitted assigns.
"Depositary Agreement" means the Depositary Agreement, dated
as of August 5, 1999, between the Depositary and the CP Vehicle.
"Determination Date" means the fifth Business Day preceding
the Payment Date.
"DOE" means the U.S. Department of Education, and any
successor thereto.
"Dollars" means dollars in lawful money of the United States
of America.
"Early Amortization Event" has the meaning set forth in
Section 7.01.
"EFG" means Educational Finance Group, Inc.
"Eligible Borrower" means, with respect to any Federal Student
Loan, an individual who is eligible under the Higher Education Act to be the
Obligor of a Student Loan for financing a program of education at an Eligible
Institution or for consolidating two or more such Student Loans, including an
individual who is eligible under the Higher Education Act to be an Obligor of a
loan made pursuant to Section 428A, 428B, 428C or 428H of the Higher Education
Act (20 U.S.C. Sections 1078-1, 1078-2, 1078-3, or 1078-8).
"Eligible Deposit Account" means either (i) a segregated
account with a Qualified Institution or (ii) a segregated trust account with a
Qualified Institution.
"Eligible Financed Student Loan" means a Financed Student Loan
that is an Eligible Student Loan as of the date it became a Financed Student
Loan.
"Eligible Institution" means an institution that is (a) an
institution of higher education, (ii) a vocational school or (iii) any other
institution that, in all of the above cases, is an "eligible institution" as
defined in the Higher Education Act.
"Eligible Investments" means any one or more of the following
obligations or securities:
(i) direct obligations of or obligations insured or guaranteed
by the United States of America;
(ii) obligations issued or guaranteed by any instrumentality
or agency of the United States of America, whether now existing or
hereafter organized, which bear the full faith and credit of the United
States of America;
(iii) certificates of deposit of not more than $100,000 issued
by a financial institution with its principal place of business in the
United States of
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America, but only if such certificates of deposit are fully insured as
to principal by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation;
(iv) shares in mutual funds investing solely in short term
securities of the United States government where the mutual fund
custodian has taken delivery of the collateralizing securities,
provided that (i) such fund shall have the highest short-term credit
rating available from Moody's and S&P and (ii) such shares shall be
freely redeemable by the holder on a daily basis; and
(v) The First National Bank of Chicago Short Term Investment
Fund, or a successor common trust fund, provided that such fund is
rated in the highest rating category available from Moody's and S&P;
provided that any such instrument that is rated by S&P shall not have a "r"
highlighter to its rating and shall have a predetermined fixed dollar amount due
at maturity.
"Eligible Lender Trustee" has the meaning set forth in the
preamble to the Indenture.
"Eligible Lender Trustee Fee" means the fee paid to the
Eligible Lender Trustee pursuant to Section 10 of the Trust Agreement; provided,
however, that under no circumstance shall such fee (exclusive of the acceptance
fee) exceed an annual amount equal to $12,000, payable in twelve equal monthly
installments pursuant to Section 3.03(b)(i) second, 3.03(b)(ii) second, and
3.03(b)(iii) second of the Indenture, as applicable.
"Eligible Student Loan" means a Student Loan:
(b) which was originated in the United States of America, its
territories, its possessions or other areas subject to its jurisdiction
and which was made to an eligible borrower under applicable law and
agreements and was fully and properly executed by the parties thereto;
(c) was originated or acquired by EFG (or by the Eligible
Lender Trustee on its behalf) and acquired by the Issuer (or by the
Eligible Lender Trustee on its behalf) in the ordinary course of its
business;
(d) provides for payments on a periodic basis that fully
amortize the Principal Balance of such Student Loan by its maturity, as
such maturity may be modified in accordance with any applicable
deferral or forbearance periods granted in accordance with applicable
laws and restrictions or any related Student Loan Guaranty Agreement
(or, in the case of TuitionGard, the related TuitionGard Policy), and
yield interest at the rates applicable thereto;
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(e) with respect to any Federal Student Loan, was originated
by an "eligible lender" under the Higher Education Act in the ordinary
course of its business and is guaranteed by a Student Loan Guarantor
that is an eligible guarantor under the Higher Education Act, qualifies
the holder thereof to receive Subsidy Payments from the DOE and Student
Loan Guaranty Payments from the related Student Loan Guarantor,
qualifies the related Student Loan Guarantor to receive reinsurance
payments thereon from the DOE, and such Federal Student Loan qualifies
for a rate of reimbursement to the related lender equal to at least
98%;
(f) complied at the time of origination and, except as may
otherwise be agreed to by the Insurer complies, at the time of its
inclusion in the Collateral, in all material respects with all
applicable requirements of local, state, and federal laws, rules and
regulations which govern the making and servicing of such Student Loan
including the requirements of the applicable Student Loan Guaranty
Agreement and including, in the case of any Private Student Loan, the
requirements of the programs governing the TERI Loans and the
TuitionGard Loans, as applicable;
(g) all signatures with respect to which are genuine and the
Student Loan Note evidencing such Student Loan has been duly executed
and delivered and constitutes the legal, valid and binding obligation
of the related Obligors enforceable in accordance with its terms;
(h) with respect to which no right of rescission, setoff,
counterclaim, or defense has been asserted or threatened or exists with
respect to such Student Loan;
(i) if such Student Loan is a Federal Student Loan, no payment
with respect to which is more than 120 days delinquent, and if such
Student Loan is a Private Student Loan, no payment with respect to
which is more than 90 days delinquent; except as permitted in this
clause (h), no default, breach, violation or event permitting
acceleration under the terms of such Student Loan has occurred, and
except for payment defaults continuing for a period of not more than
120 days, if such Student Loan is a Federal Student Loan, or payment
defaults continuing for a period of not more than 90 days, if such
Student Loan is a Private Student Loan, no continuing condition that
with notice or the lapse of time or both that would constitute a
default, breach, violation or event permitting acceleration under terms
of such Student Loan has arisen; and with respect to such Student Loan,
none of the forgoing events has occurred and been waived by any Person;
(j) with respect to which, to the best of the Issuer's
knowledge, an Event of Bankruptcy has not occurred with respect to the
related borrower;
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(k) that has not been originated in, and is not subject to the
laws of, any jurisdiction under which the origination, sale, transfer
and assignment of such Student Loan or beneficial ownership therein, is
unlawful, void or voidable;
(l) with respect to which there is only one original executed
copy of the Student Loan Note;
(m) that constitutes, in the case of a Private Student Loan,
an "instrument" as defined in the UCC;
(n) with regard to which the warranty of the Issuer in Section
5.01(g) of the Indenture is true and correct;
(o) the sale or assignment of such Student Loan to the Issuer
pursuant to the Purchase and Contribution Agreement, if applicable, and
the granting of a security interest to the Indenture Trustee pursuant
to the Indenture does not contravene or conflict with any law or
regulation, or require the consent or approval of, or notice to, any
Person;
(p) that is the subject of a valid Subservicing Agreement and
as to which a Subservicer Event of Default has not occurred;
(q) if such Student Loan is not a Federal Student Loan, it is
a Private Student Loan that was originated in all material respects in
accordance with the Underwriting Guidelines;
(r) if such Student Loan is a Private Student Loan, if the
outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all other Private Student Loans that
are Financed Student Loans, the aggregate outstanding balance of all
Private Student Loans that are Financed Student Loans shall not exceed
7.5% of the aggregate outstanding Principal Balance of all Financed
Student Loans;
(s) if such Student Loan is a TERI Loan, if the outstanding
Principal Balance thereof is added to the aggregate outstanding
Principal Balance of all other TERI Loans that are Financed Student
Loans, the aggregate outstanding balance of all TERI Loans that are
Financed Student Loans shall not exceed 5% of the aggregate outstanding
Principal Balance of all Financed Student Loans;
(t) if such Student Loan is a TuitionGard Loan, it is entitled
to reimbursement at a rate of at least 95% under the applicable
TuitionGard Guaranty Policy, the Indenture Trustee is the insured under
such policy entitled to make claims thereunder, and, if the outstanding
Principal Balance thereof is added to the aggregate outstanding
Principal Balance of all TuitionGard Loans that are Financed Student
Loans, the aggregate outstanding balance of all TuitionGard
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Loans that are Financed Student Loans shall not exceed 7.5% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
(u) if such Student Loan is an Unsubsidized Loan to an
Eligible Borrower attending a non-proprietary institution with a
matriculation period less than four years, if the outstanding Principal
Balance thereof is added to the aggregate outstanding Principal Balance
of all Unsubsidized Loans to Eligible Borrowers attending
non-proprietary institutions with matriculation periods less than four
years that are Financed Student Loans, the aggregate outstanding
balance of all Unsubsidized Loans to Eligible Borrowers attending
non-proprietary institutions with matriculation periods less than four
years that are Financed Student Loans shall not exceed 2.5% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
(v) if such Student Loan is an Unsubsidized Loan to an
Eligible Borrower attending a proprietary institution, if the
outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all Unsubsidized Loans to Eligible
Borrowers attending proprietary institutions that are Financed Student
Loans, the aggregate outstanding balance of all Unsubsidized Loans to
Eligible Borrowers attending proprietary institutions that are Financed
Student Loans shall not exceed 1% of the aggregate outstanding
Principal Balance of all Financed Student Loans;
(w) if such Student Loan is a subsidized Stafford Loan to an
Eligible Borrower attending a non-proprietary institution with a
matriculation period less than four years, if the outstanding Principal
Balance thereof is added to the aggregate outstanding Principal Balance
of all subsidized Stafford Loans to Eligible Borrowers attending
non-proprietary institutions with matriculation periods less than four
years that are Financed Student Loans, the aggregate outstanding
balance of all subsidized Stafford Loans to Eligible Borrowers
attending non-proprietary institutions with matriculation periods less
than four years that are Financed Student Loans shall not exceed 2.5%
of the aggregate outstanding Principal Balance of all Financed Student
Loans;
(x) if such Student Loan is a subsidized Stafford Loan to an
Eligible Borrower attending a proprietary institution, if the
outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all subsidized Stafford Loans to
Eligible Borrowers attending proprietary institutions that are Financed
Student Loans, the aggregate outstanding balance of all subsidized
Stafford Loans to Eligible Borrowers attending proprietary institutions
that are Financed Student Loans shall not exceed 2% of the aggregate
outstanding Principal Balance of all Financed Student Loans;
(y) if such Student Loan is a PLUS Loan to an Eligible
Borrower attending a non-proprietary institution with a matriculation
period less than four years, if the outstanding Principal Balance
thereof is added to the aggregate
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outstanding Principal Balance of all PLUS Loans to Eligible Borrowers
attending non-proprietary institutions with matriculation periods less
than four years that are Financed Student Loans, the aggregate
outstanding balance of all PLUS Loans to Eligible Borrowers attending
non-proprietary institutions with matriculation periods less than four
years that are Financed Student Loans shall not exceed 2.5% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
(z) if such Student Loan is a PLUS Loan to an Eligible
Borrower attending a proprietary institution, if the outstanding
Principal Balance thereof is added to the aggregate outstanding
Principal Balance of all PLUS Loans to Eligible Borrowers attending
proprietary institutions that are Financed Student Loans, the aggregate
outstanding balance of all PLUS Loans to Eligible Borrowers attending
proprietary institutions that are Financed Student Loans shall not
exceed 1% of the aggregate outstanding Principal Balance of all
Financed Student Loans;
(aa) if such Student Loan is a Federal Consolidation Loan to
an Eligible Borrower attending a non-proprietary institution with a
matriculation period less than four years, if the aggregate outstanding
Principal Balance thereof is added to the outstanding Principal Balance
of all Federal Consolidation Loans to Eligible Borrowers attending
non-proprietary institutions with matriculation periods less than four
years that are Financed Student Loans, the aggregate outstanding
balance of all Federal Consolidation Loans to Eligible Borrowers
attending a non-proprietary institutions with matriculation periods
less than four years that are Financed Student Loans shall not exceed
0.5% of the aggregate outstanding Principal Balance of all Financed
Student Loans;
(bb) if such Student Loan is a Federal Consolidation Loan to
an Eligible Borrower attending a proprietary institution, if the
outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all Federal Consolidation Loans to
Eligible Borrowers attending proprietary institutions that are Financed
Student Loans, the aggregate outstanding balance of all Federal
Consolidation Loans to Eligible Borrowers attending proprietary
institutions that are Financed Student Loans shall not exceed 1% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
(cc) if such Student Loan is a Federal Consolidation Loan to
an Eligible Borrower, if the outstanding Principal Balance thereof is
added to the aggregate outstanding Principal Balance of all Federal
Consolidation Loans to Eligible Borrowers that are Financed Student
Loans, the aggregate outstanding balance of all Federal Consolidation
Loans to Eligible Borrowers that are Financed Student Loans shall not
exceed 15% of the aggregate outstanding Principal Balance of all
Financed Student Loans;
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(dd) if the outstanding Principal Balance of such Student Loan
is added to the aggregate outstanding Principal Balance of all Financed
Student Loans to borrowers that are residents of the state in which the
related borrower resides, the aggregate outstanding Principal Balance
of all Financed Student Loans the borrowers with respect to which
reside in such state shall not exceed 30% of the aggregate outstanding
Principal Balance of all Financed Student Loans;
(ee) if the outstanding Principal Balance of such Student Loan
is added to the aggregate outstanding Principal Balance of all Financed
Student Loans, the aggregate outstanding Principal Balance of all
Financed Student Loans to borrowers that are residents of Concentration
States will not exceed 60% of the aggregate outstanding Principal
Balance of all Financed Student Loans;
(ff) if the interest rate with respect to such Student Loan is
indexed off a Prime Rate determined as set forth in the related loan
documentation, if the outstanding Principal Balance of such Student
Loan is added to the aggregate outstanding Principal Balance of all
Financed Student Loans the indices with respect to which are indexed
off the Prime Rate, the aggregate outstanding balance of all Financed
Student Loans the indices with respect to which are indexed off the
Prime Rate shall not exceed 7.5% of the aggregate outstanding Principal
Balance of all Financed Student Loans;
(gg) if such Student Loan is a Delinquent Student Loan that is
in repayment status, if the outstanding Principal Balance thereof is
added to the aggregate outstanding Principal Balance of all Financed
Student Loans that are in repayment status and that are Delinquent
Student Loans, the aggregate outstanding balance of all Financed
Student Loans that are in repayment status and that are Delinquent
Student Loans shall not exceed 8% of the aggregate outstanding
Principal Balance of all Financed Student Loans;
(hh) if such Student Loan is a Student Loan in which the
related borrower is in a Deferment Status, if the outstanding Principal
Balance thereof is added to the aggregate outstanding Principal Balance
of all Financed Student Loans the borrowers with respect to which are
in Deferment Status, the aggregate outstanding balance of all Financed
Student Loans that the borrowers with respect to which are in Deferment
Status shall not exceed 10% of the aggregate outstanding Principal
Balance of all Financed Student Loans;
(ii) if such Student Loan is a Student Loan in which the
related borrower has an In School Status or is in a Grace Period, if
the outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all Financed Student Loans the
borrowers with respect to which have In School Status or are in a Grace
Period, the aggregate outstanding balance of all Financed Student Loans
the borrowers with respect to which have In School Status or are in a
Grace Period shall not exceed 80% of the aggregate outstanding
Principal Balance of all Financed Student Loans;
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(jj) if the borrower with respect to such Student Loan has an
In School Status or is in a Grace Period, if the outstanding Principal
Balance of such Student Loan is added to the aggregate outstanding
Principal Balance of all Financed Student Loans the borrowers with
respect to which have In School Status or are in a Grace Period, the
weighted average of the expected months until such Student Loans enter
repayment status (such weighted average being based on the Principal
Balance of such Student Loans) is no more than 19 months;
(kk) if such Student Loan is a Student Loan which is in
Forbearance Status, if the outstanding Principal Balance thereof is
added to the aggregate outstanding Principal Balance of all Financed
Student Loans the are in Forbearance Status, the aggregate outstanding
balance of all Financed Student Loans that are in Forbearance Status
shall not exceed 10% of the aggregate outstanding Principal Balance of
all Financed Student Loans;
(ll) if such Student Loan is an Unsubsidized Loan in which the
related Eligible Borrower is in an In School Status, if the outstanding
Principal Balance thereof is added to the aggregate outstanding
Principal Balance of all Unsubsidized Loans in which the related
Eligible Borrowers are in In School Status, the aggregate outstanding
balance of all Unsubsidized Loans in which the related Eligible
Borrowers are in In School Status that are Financed Student Loans shall
not exceed 30% of the aggregate outstanding Principal Balance of all
Financed Student Loans;
(mm) the maturity date with respect to such Student Loan does
not occur after the date which is one year prior to the Final Scheduled
Payment Date;
(nn) if such Student Loan is a Federal Student Loan, such
Student Loan is not an SLS Loan; and
(oo) if such Student Loan is a Private Student Loan guaranteed
by TERI, TERI is rated at least BBB- by S&P and Baa3 by Moody's.
"ERISA" means the U.S. Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Event of Bankruptcy" shall be deemed to have occurred with
respect to a Person if either:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up,
or composition or readjustment of debts of such Person, the appointment
of a trustee, receiver, custodian, liquidator, assignee, sequestrator
or the like for such Person or all or substantially all of its assets,
or any similar action with respect to such Person under any law
relating to bankruptcy, insolvency, reorganization, winding up or
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composition or adjustment of debts, and such case or proceeding shall
continue undismissed, or unstayed and in effect, for a period of 60
consecutive days; or an order for relief in respect of such Person
shall be entered in an involuntary case under the federal bankruptcy
laws or other similar laws now or hereafter in effect; or
(b) such Person shall commence a voluntary case or other
proceeding under any applicable bankruptcy, insolvency, reorganization,
debt arrangement, dissolution or other similar law now or hereafter in
effect, or shall consent to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) for, such Person or for any substantial part of
its property, or shall make any general assignment for the benefit of
creditors, or shall fail to, or admit in writing its inability to, pay
its debts generally as they become due, or, if a corporation or similar
entity, its board of directors shall vote to implement any of the
foregoing.
"Event of Default" has the meaning set forth in Section 7.02
of the Indenture.
"Excess Spread Amount" means, with respect to any Payment
Date, an amount equal to the excess of Expected Interest Collections with
respect to the related Collection Period over (a) during the Revolving Period,
amounts due on such Payment Date pursuant to clauses first through fifth and
clauses seventh and eighth of Section 3.03(b)(i) or (b) on and after the
Amortization Period Commencement Date, amounts due pursuant to clauses first
through fourth and clauses seventh and eighth of Section 3.03(b)(ii); provided,
that amounts due to be paid pursuant to clause seventh of Section 3.03(b)(i) and
clause seventh of Section 3.03(b)(ii) that represent payments made by the
Insurer under the Insurance Policy in respect of principal on the Class A Note
shall not be included in clause (a) or clause (b) hereof, as applicable, in
determining the Excess Spread Amount.
"Excess Spread Deficiency" means, with respect to any
Collection Period, the extent, if any, to which (a) the Excess Spread Amount
with respect to the related Payment Date is less than (b) the product of (i)
0.50% and (ii) (A) the weighted average of the Class A Note Principal Amount
outstanding during such Collection Period, multiplied by (B) the actual number
of days in such Collection Period, divided by (C) 360.
"Executive Officer" means, with respect to any corporation,
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such corporation.
"Expected Interest Collections" means, with respect to any
Collection Period, the sum of (i) the amount of interest accrued, net of any
amounts required by the Higher Education Act to be paid to DOE, with respect to
the Financed Student Loans during such Collection Period, whether or not such
interest is actually paid, (ii) all
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Subsidy Payments estimated to have accrued for such Collection Period whether or
not actually received and (iii) Investment Earnings since the preceding Payment
Date.
"Extension Notice" means written notice of the Issuer's intent
to extend the Scheduled Amortization Period Commencement Date.
"Facility Limit" shall mean $650,000,000.
"Federal Consolidation Loan" means a loan made to an Eligible
Borrower pursuant to which the Eligible Borrower consolidates two or more of its
PLUS Loans, SLS Loans or Stafford Loans in accordance with the Higher Education
Act.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any successor thereto or to the functions thereof.
"Federal Student Loan" means a student loan originated in
compliance with the Federal Student Loan Program and which is guaranteed as to
principal and interest by a Student Loan Guarantor pursuant to a Student Loan
Guaranty Agreement.
"Federal Student Loan Program" means the Federal Family
Education Loan Program authorized under the Higher Education Act.
"Final Payout Date" means the date following the Amortization
Period Commencement Date on which the principal and interest of the Class A Note
shall have been paid in full and all other amounts payable by Issuer under the
Transaction Documents shall have been paid in full.
"Final Scheduled Payment Date" means November 15, 2033.
"Financed Student Loan" means each Student Loan identified
from time to time on the Student Loan Schedule and, without duplication but by
way of inclusion and emphasis, all Student Loans acquired or funded, or
purported to be acquired or funded, with the proceeds of Advances and all
Student Loans, whether or not acquired or funded, with proceeds of Advances,
that are subject to the Lien of the Indenture.
"First Chicago" has the meaning set forth in the preamble.
"Fitch" means Fitch IBCA, Inc.
"Forbearance Status" means, with respect to any Student Loan,
the temporary period of time where the Obligor's required interest and principal
payments are postponed or reduced due to financial hardship. A forbearance must
be approved by the Master Servicer in accordance with guidelines provided by the
Issuer and in accordance with the Higher Education Act and the policies of the
applicable Student Loan Guarantor.
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"General Partner" means EFG-II SPC-I, Inc., a Delaware
corporation, in its capacity as the general partner of the Issuer under the
Issuer's limited partnership agreement.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any body or entity exercising
executive, legislative, judicial, regulatory or administrative functions or
pertaining to government, including without limitation any court, and any Person
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Grace Period" means the period of time from when the student
borrower leaves school or drops below half-time status and when the student
borrower's repayment period begins.
"Guaranty Agreement" means the Guaranty and Warranty
Agreement, dated as of the Closing Date, made by EFG in favor of the Indenture
Trustee.
"Guaranty National" means Guaranty National Insurance
Corporation, a 100% owned indirect subsidiary of Orion Capital Corporation, a
Delaware corporation.
"Higher Education Act" means the Higher Education Act of 1965,
as amended, together with any rules, regulations and interpretations thereunder
of DOE or the applicable guaranty agent.
"Indenture Trustee" has the meaning set forth in the preamble
to the Indenture.
"Indenture Trustee's Fees" means an amount equal to $10,000
per annum, payable in twelve equal monthly installments pursuant to Section
3.03(b)(i) second, Section 3.03(b)(ii) second and Section 3.03(b)(iii) second of
the Indenture, as applicable.
"Indenture Trustee's Office" means The First National Bank of
Chicago, One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126,
Attention: Corporate Trust Services Division.
"Initial Class A Noteholder" means the CP Vehicle, as initial
holder of the Class A Note on the Closing Date.
"Initial Specified Reserve Account Balance" means an amount
equal to the product of (i) the initial Class A Note Principal Amount and (ii)
7.70%.
"In School Status" means with respect to any Student Loan the
period during which (i) the student borrower is attending school at least
half-time and maintaining satisfactory academic progress and (ii) the student
borrower is eligible for additional student loans and in-school deferment of
payment of interest and principal.
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"Institutional Accredited Investor" has the meaning set forth
in Section 1.06(A).
"Insurance Agreement" means the Insurance Agreement, dated as
of August 5, 1999, among the Insurer, the Issuer, the General Partner, the
Master Servicer, the Indenture Trustee, the Eligible Lender Trustee and EFG, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Insurance Policy" means the Class A Note Insurance Policy
dated August 5, 1999, and all endorsements thereto, if any, issued by the
Insurer for the benefit of the Class A Noteholders.
"Insurer" means MBIA Insurance Corporation, a stock insurance
company organized and created under the laws of the State of New York and any
successors thereto.
"Insurer Default" means (i) the occurrence of an Event of
Bankruptcy with respect to the Insurer or (ii) the occurrence of a failure by
the Insurer to make an Insured Payment in accordance with the Insurance Policy.
"Insured Payment" has the meaning specified in the Insurance
Policy.
"Insurer Reimbursement Amount" means, as of any Payment Date,
the sum of (i) all amounts previously paid by the Insurer under the Insurance
Policy which have not previously been reimbursed and (ii) all other amounts due
to the Insurer under the Insurance Agreement, other than the Policy Premiums.
"Interest Collections" means, with respect to any Collection
Period, that portion of any Collections received during such Collection Period
attributable to interest payments on the Financed Student Loans, including, but
not limited to all Subsidy Payments and that portion of any Purchase Amounts,
Reimbursement Payments and Student Loan Guaranty Payments attributable to
interest accrued on the Financed Student Loans, plus all Investment Earnings.
"Investment Company Act" means the Investment Company Act of
1940, as amended.
"Investment Earnings" means, with respect to each Payment
Date, all investment earnings (net of losses and investment expenses) on amounts
on deposit in the Accounts realized since the preceding Payment Date.
"Issuer" has the meaning set forth in the preamble.
"Issuer Order" means a written order or request signed in the
name of the Issuer by any one of its Authorized Officers and delivered to the
Indenture Trustee.
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"LIBOR" means, with respect to any Collection Period, (i) the
rate for one-month eurodollar deposits which appears on Telerate Page 3750 as it
relates to U.S. Dollars (as defined in the International Swaps and Derivatives
Association, Inc. 1991 Interest Rate and Currency Exchange Definitions) two
LIBOR Business Days before the first day of each Collection Period or such other
pages as may replace Telerate Page 3750, as of 11:00 a.m. (London time) on such
date or (ii) if, on such date, such rate does not appear on Telerate Page 3750
as of 11:00 a.m. (London time), "LIBOR" shall mean the average (rounded upwards,
if necessary, to the next higher 1/16 of 1%) of the respective rates per annum
at which deposits in U.S. dollars are offered to each of the LIBOR Reference
Banks in the London interbank market at approximately 11:15 a.m. (London time)
on such date in an amount approximately equal to the principal amount of the
Class A Note Principal Amount for a period of one month.
"LIBOR Business Day" means any Business Day on which
commercial banks are open for international business (including dealing in U.S.
Dollar Deposits) in London, England.
"LIBOR Reference Banks" means the principal London offices of
the Bank of America, N.A. and any other two banks approved by the Issuer and the
Class A Noteholders.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including but
not limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt for a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property.
"Liquidity Agent" means Bank of America, N.A.
"Liquidity Commitment Fee" means, with respect to any
Collection Period, the "Commitment Fees" (as such term is defined in the
Liquidity Agreement) due to the Liquidity Banks under the Liquidity Facility on
the related Payment Date.
"Liquidity Banks" means the banks that are parties to the
Liquidity Facility.
"Liquidity Facility" means that certain Liquidity Agreement,
dated as of August 5, 1999 among the CP Vehicle, the Liquidity Agent and the
banks listed therein, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms.
"Management Agreement" means the Management Agreement, dated
as August 5, 1999, among EFG, the Administrator, the Issuer and the CP Vehicle.
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"Master Servicer" means EFG Technologies, Inc. and any
successors and permitted assigns thereto with the consent of the Insurer so long
as no Insurer Default exists.
"Master Servicing Agreement" means the Master Servicing
Agreement, dated as of August 5, 1999, among the Issuer, the Master Servicer and
the Eligible Lender Trustee, as amended, modified or supplemented from time to
time in accordance with the terms thereof.
"Material Adverse Effect" with respect to any event or
circumstance and any Person, means a material adverse effect on:
(i) the business, assets, financial condition or operations of
such Person;
(ii) with respect to the Issuer or the General Partner, the
ability of such Person to perform its respective obligations under the
Indenture or any other Transaction Document;
(iii) with respect to the Issuer, the validity, enforceability
or collectibility of the Indenture, any other Transaction Document, a
material amount of the Financed Student Loans or a material amount of
the Student Loan Notes, or the Master Servicing Agreement, the
Subservicing Agreements or the Student Loan Guaranty Agreements; or
(iv) with respect to the Issuer, the status, existence,
perfection, priority or enforceability of the Indenture Trustee's
security interest in the Collateral.
"Monthly Advance" has the meaning set forth in
Section 3.06(c).
"Monthly Advance Amount" means the amount of any Monthly
Advance made pursuant to Section 3.06(c).
"Monthly Report" means a report, in substantially the form of
Exhibit 6.02(d) to the Indenture furnished by the Issuer to the Administrator,
the Eligible Lender Trustee, the Indenture Trustee and the Insurer.
"Moody's" means Moody's Investors Service, Inc.
"Net Cap Rate" means, with respect to any Collection Period,
the interest rate equivalent of the product of (a) the quotient obtained by
dividing (i) 360 by (ii) the actual number of days elapsed in such Collection
Period and (b) the percentage equivalent of a fraction, (i) the numerator of
which is equal to the Expected Interest Collections with respect to such
Collection Period less the sum of the Servicing Fee Amount, the Indenture
Trustee's Fees, the Eligible Lender Trustees Fee, the Liquidity Commitment Fee,
the Policy Premium and the Capped CP Program Payment Amount, in each case,
payable on the related Payment Date with respect to such Collection Period
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and (ii) the denominator of which is the weighted average of the Class A Note
Principal Amount outstanding during such Collection Period.
"Net Cap Rate Reserve Account" means an Eligible Deposit
Account, in the name of the Indenture Trustee, for the benefit of the Class A
Noteholders, which account has been designated the Net Cap Rate Reserve Account,
and any other account designated as the Net Cap Rate Reserve Account by the
Indenture Trustee.
"Net Cap Rate Reserve Account Funding Event" means, with
respect to any Payment Date, the occurrence of an Excess Spread Deficiency with
respect to the related Collection Period or any prior Collection Period;
provided, that any such Net Cap Rate Reserve Account Funding Event shall be
deemed not to have occurred if subsequent to the occurrence thereof (a) three
consecutive Collection Periods have occurred with respect to which no Excess
Spread Deficiency existed for any of such Collection Periods or (b) the amount
on deposit in the Net Cap Rate Reserve Account on such Payment Date (after
giving effect to any withdrawals therefrom) is equal to or greater than the Net
Cap Rate Reserve Account Maximum Requirement with respect to such Payment Date.
"Net Cap Rate Reserve Account Maximum Requirement" means, with
respect to any Payment Date, an amount equal to the product of (a) Class A Note
Principal Amount as of such Payment Date (after giving effect to any payments of
principal made on such Payment Date) and (b) 0.15%; provided, that if no Excess
Spread Deficiency shall have existed with respect to the three Collection
Periods immediately preceding the Collection Period during which such Payment
Date occurs, the Net Cap Rate Reserve Account Maximum Requirement shall be $0.
"Note Balance Equalization Amount" means with respect to any
Payment Date the excess of (a) the Class A Note Principal Amount on such Payment
Date (after giving effect to all payments of principal to the Class A
Noteholders pursuant to clause fifth of Section 3.03(b)(i) and 3.03(b)(ii)) over
(b) the Aggregate Student Loan Amount on such Payment Date.
"Note Purchase Agreement" means the Note Purchase Agreement,
dated as of August 5, 1999, between the Issuer and the CP Vehicle.
"Notice of Release" has the meaning set forth in
Section 2.04(a) of the Indenture.
"Notice of Addition or Substitution" has the meaning set forth
in Section 2.04(a).
"Obligor" means a Person obligated to make payments with
respect to a Student Loan, including the students, the Student Loan Guarantors
and the DOE.
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"Orion Specialty" means Orion Specialty, a Connecticut
domiciled insurance company and wholly-owned subsidiary of Orion Capital
Corporation, a Delaware corporation.
"Payment Date" means for any Collection Period the fifteenth
day of the following calendar month.
"Permitted Advance Amount" means, at the time of any Advance,
the product of (i) 108.35% and (ii) the portion of the Aggregate Student Loan
Amount allocable to such Advance.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, limited liability company,
trust, unincorporated association, joint venture, government or any agency or
political subdivision thereof or any other entity.
"PLUS Loan" means a Parent Loan for Undergraduate Students,
made in accordance with the Higher Education Act.
"Policy Premium" means the premium payable in accordance with
Section 3.02 of the Insurance Agreement.
"Premium Percentage" means at any time, the greater of (i)
100% and (ii) the percentage equivalent of a fraction, the numerator of which is
the Class A Note Principal Amount, and the denominator of which is equal to the
Aggregate Student Loan Amount; provided, however, that at no time shall the
Premium Percentage or any portion thereof exceed 108.35%.
"Prime Rate" means the interest rate that banks charge to
their most creditworthy customers.
"Principal Balance" with respect to any Student Loan means the
original principal amount of such Student Loan, plus capitalized interest
thereon, if any, less payments of principal by or on behalf of the Obligor of
such Student Loan.
"Principal Collections" means all Collections other than
Interest Collections.
"Private Placement Agreement" means the Private Placement
Agreement, dated as of August 5, 1999, among EFG, the CP Vehicle, Lehman
Brothers Inc. and Banc of America Securities LLC.
"Private Student Loan" means a TERI Loan or a TuitionGard
Loan, as the case may be.
"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
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"Purchase and Contribution Agreement" means the Purchase and
Contribution Agreement, dated as of August 5, 1999, among EFG, the Eligible
Lender Trustee, First Chicago, as eligible lender trustee for EFG, and the
Issuer, as the same may be amended, supplemented, or otherwise modified from
time to time.
"Purchase Amount" means, with respect to the purchase of any
Financed Student Loans and with respect to any reassignment of any Financed
Student Loan pursuant to Section 5.02 of the Indenture, Section 4.2 of the
Purchase and Contribution Agreement or Section 3.05 of the Master Servicing
Agreement, an amount equal to the sum of (i) the Principal Balance of such
Financed Student Loans multiplied by the Premium Percentage and (ii) all accrued
and unpaid interest thereon.
"Purchase Price" means with respect to any Student Loan, the
sum of (i) the product of (a) the Premium Percentage and (b) the unpaid
Principal Balance of such Student Loan, plus (ii) all accrued and unpaid
interest thereon.
"Qualified Institution" means a depository institution
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia (or any domestic branch of a foreign
bank), (i) which has either (A) a long-term unsecured debt rating acceptable to
the Insurer, Moody's and S&P or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Insurer, Moody's and S&P and
(ii) whose deposits are insured by the Federal Deposit Insurance Corporation.
"Rating Agencies" means Fitch, Moody's and S&P.
"Record Date" means with respect to any Payment Date, the
related Transfer Date.
"Reimbursement Contract" means the agreements between the
Student Loan Guarantors and the DOE providing for the payment by the Secretary
of amounts authorized to be paid pursuant to the Higher Education Act,
including, without limitation, reimbursement of amounts paid or payable upon
Defaulted Student Loans that are Federal Student Loans and Subsidy Payments to
holders of Student Loans that are Federal Student Loans.
"Reimbursement Payment" means any payment by the Secretary
pursuant to a Reimbursement Contract in respect of a Student Loan that is a
Federal Student Loan.
"Related Security" means, with respect to any Financed Student
Loan: (a) all of the right, title and interest of the Issuer and the Eligible
Lender Trustee in and to the Student Loan Note(s) and all other agreements that
relate to such Financed Student Loan; (b) any security interests or liens and
property subject thereto from time to time purporting to secure payment of such
Financed Student Loan, whether pursuant to the Student Loan Note related to such
Financed Student Loan or otherwise; (c) all UCC financing statements covering
any collateral securing payment of such Financed Student
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Loan and (d) all other guarantees and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Financed Student Loan.
"Reserve Account" means an Eligible Deposit Account, in the
name of the Indenture Trustee, for the benefit of Class A Noteholders, which
account has been designated as the Reserve Account, and any other account
designated as the Reserve Account by the Indenture Trustee.
"Responsible Officer" means with respect to the Indenture
Trustee, any officer within the Corporate Trust Office of the Indenture Trustee,
including any vice president, assistant vice president, assistant treasurer,
assistant secretary, or any other similar officer of the Indenture Trustee
customarily performing functions similar to those performed by any of the above
designated officers, with direct responsibility for the administration of the
Indenture and the other Transaction Documents on behalf of the Indenture Trustee
and also, with respect to a particular matter, any other officer to whom such
matter is referred because of such officer's knowledge of an familiarity with
the subject.
"Revolving Period" means the period commencing on the date
hereof and ending on the Amortization Period Commencement Date.
"Revolving Period Principal Payment Amount" means on any
Payment Date during the Revolving Period, the amount necessary to cure any
Collateral Deficiency.
"Rule 144A" has the meaning set forth in Section 1.06(A) of
the Indenture.
"Scheduled Amortization Period Commencement Date" means August
5, 2002; provided, that subject to the conditions precedent that no Early
Amortization Event or Event of Default shall have occurred and be continuing and
the Liquidity Facility shall remain in full force and effect, the Scheduled
Amortization Period Commencement Date may be extended by the Issuer to a date
that is no later than the one year anniversary of the current Scheduled
Amortization Period Commencement Date upon 60 days prior delivery by the Issuer
of an Extension Notice to the Class A Noteholder, the Indenture Trustee, the CP
Vehicle, the Liquidity Agent and the Insurer; provided further that such
extension will not become effective without (i) the prior consent of the
Insurer, which consent, if given, shall be delivered within 45 days of delivery
by the Issuer of the Extension Notice and (ii) confirmation by each of the
Rating Agencies that such extension will not result in a downgrade, withdrawal
or qualification of the rating assigned to the Class A Note, by each such Rating
Agency.
"Secretary" means the Secretary of the DOE or an official or
employee of the DOE acting for the Secretary under a delegation of authority.
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"Security Agreement" means the Security Agreement, dated as of
August 5, 1999, among the Liquidity Agent, the CP Vehicle and the Collateral
Agent.
"Securities Act" means the Securities Act of 1933, as amended.
"Servicer Event of Default" has the meaning assigned thereto
in Section 6.01 of the Master Servicing Agreement.
"Servicing Fee Amount" means, with respect to a Collection
Period, an amount equal to the product of (i) one-twelfth of 0.75% and (ii) the
aggregate unpaid Principal Balance of the Financed Student Loans as of the close
of business on the last day of the second preceding calendar month.
"SLS Loan" means a loan that is made under the Supplemental
Loans for Students Program in accordance with the Higher Education Act.
"Specified Reserve Account Balance" means (a) prior to the
Amortization Period Commencement Date, the product of (i) 7.70% and (ii) the
Class A Note Principal Amount and (b) on and after the Amortization Period
Commencement Date, the greater of (A) the product of (i) 7.70% and (ii) the
Class A Note Principal Amount and (B) the product of (i) 1.50% and (ii) the
Aggregate Student Loan Amount as of the Amortization Period Commencement Date.
"S&P" means Standard & Poor's, a division of The McGraw Hill
Companies, Inc.
"Stafford Loan" means a loan made to an Eligible Borrower
designated as such that is made under the Robert T. Stafford Student Loan
Program in accordance with the Higher Education Act, including subsidized loans
and Unsubsidized Loans.
"State" means any state within the United States and any
territory, possession of the United States or other area subject to its
jurisdiction.
"Student Loan" means a Federal Student Loan or a Private
Student Loan.
"Student Loan Guaranty Agreement" means any of, and "Student
Loan Guaranty Agreements" means all of, the agreements pursuant to which the
Student Loan Guarantors guarantee Financed Student Loans listed on Schedule A to
the Indenture, as such Schedule A and such Student Loan Guaranty Agreement may
be amended, supplemented or otherwise modified from time to time, in each case,
other than the TuitionGard Agreement, with the consent of the Insurer.
"Student Loan Guaranty Payment" means any payment by a Student
Loan Guarantor pursuant to a Student Loan Guaranty Agreement or, in the case of
TuitionGard, pursuant to a TuitionGard Policy, in respect of a Financed Student
Loan.
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"Student Loan Guarantors" means (i) any guaranty agency under
the Higher Education Act providing guarantees with respect to Financed Student
Loans that are originated in compliance with the Federal Student Loan Program,
(ii) TERI, in its capacity as guarantor under the TERI Guaranty Agreement, and
(iii) Orion Specialty or Guaranty National, as applicable, in their capacity as
insurer under a TuitionGard Policy.
"Student Loan Notes" means the promissory notes or other
writings evidencing the Student Loans.
"Student Loan Schedule" means Appendix B to the Indenture
constituting a listing of Student Loans legally or beneficially owned by the
Issuer (including all Federal Student Loans subject to the Lien of the
Indenture) delivered to and held by the Indenture Trustee pursuant to Section
6.02(e) of the Indenture (which Schedule may be in the form of microfiche or
computer file or other medium acceptable to the Indenture Trustee), as from time
to time amended, supplemented, or modified.
"Subservicer" means any of, and "Subservicers" means all of,
the Subservicer(s) which have been approved by the Insurer servicing the
Financed Student Loans, identified as such on the Student Loan Schedule, which
is Appendix B to the Indenture and on Schedule C of the Master Servicing
Agreement.
"Subservicer Event of Default" means for any Subservicing
Agreement, an event as defined therein pursuant to which the Subservicer's right
to service Financed Student Loans thereunder is subject to termination or
removal.
"Subservicing Agreement" means any of, and "Subservicing
Agreements" means all of, the agreements entered into between the Master
Servicer and any Subservicer which has been approved by the Insurer pursuant to
which such Subservicer agrees to service Financed Student Loans, in each case,
as the same may be amended, supplemented or otherwise modified from time to
time, with the Insurer's consent.
"Subsidiary" means a corporation of which the relevant Person
and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors.
"Subsidy Payment" means interest subsidy payments, special
allowance payments and other payments of a similar nature made to the Issuer
pursuant to the terms of the Higher Education Act.
"Substitution" shall have the meaning set forth in Section
5.02 of the Indenture.
"Substitution Amount" means with respect to the Substitution
of any Financed Student Loan pursuant to Section 5.02 of the Indenture, Section
4.2 of the Purchase and Contribution Agreement or Section 3.05 of the Master
Servicing
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Agreement, an amount equal to the sum of the Principal Balance of such Financed
Student Loan and all accrued and unpaid interest thereon.
"TERI" means The Educational Resources Institute, Inc., a
Massachusetts non-profit corporation, and its successors.
"TERI Guaranty Agreement" means the agreement among TERI, the
Issuer and the Eligible Lender Trustee pursuant to which the TERI Loans are
fully guaranteed against non-payment of principal and interest by TERI approved
by the Insurer, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with its terms with the consent of the Insurer.
"TERI Loan" means an education loan made to a student or
parent of a dependent student that is fully guaranteed as to non-payment of
principal and interest by TERI.
"Transaction Documents" means the Indenture, the Class A Note,
the Note Purchase Agreement, the Master Servicing Agreement, the Subservicing
Agreements, the Insurance Agreement, the Student Loan Guaranty Agreements, the
Purchase and Contribution Agreement, the Custodial Services Agreements, the Bank
One Custody Agreement, the Insurance Policy, the Trust Agreement, the CP
Documents and the other documents to be executed and delivered in connection
herewith.
"Transfer Date" means with respect to any Payment Date, the
Business Day preceding such Payment Date.
"Trust Agreement" means the Trust Agreement dated December 9,
1998, between EFG-I, LP and First Chicago, as trustee as amended by the First
Amendment to the Trust Agreement, dated as of June 1, 1999 by and among EFG-I,
LP and First Chicago.
"Trustees Fees" means the sum of the Eligible Lender Trustee
Fee and the Indenture Trustee's Fee.
"TuitionGard" means TuitionGard, Ltd.
"TuitionGard Agreement" means the Program Marketing,
Administration and Insurer Agreement, dated as of April 18, 1997, by and between
EFG and TuitionGard.
"TuitionGard Policy" means the insurance policies of Orion
Specialty or Guaranty National issued pursuant to the TuitionGard Agreement,
pursuant to which the TuitionGard Loans are insured up to 95% against
non-payment of principal and interest by Orion Specialty or Guaranty National.
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"TuitionGard Loan" means an education loan made to a student
or parent of a dependent student that is guaranteed up to 95% as to non-payment
of principal and interest under a TuitionGard Policy.
"UCC" means the Uniform Commercial Code as from time to time
in effect in the applicable jurisdiction or jurisdictions.
"Underwriting Guidelines" means the policies and procedures of
EFG with respect to the origination of Student Loans.
"Unmatured Event of Default" means any event which, with the
giving of notice or lapse of time, or both, would become an Event of Default.
"Unsubsidized Loan" means Stafford Loans that are not
subsidized by the DOE as set forth in Section 428H of the Higher Education Act
(20 U.S.C. Section 1078-8).
B. Other Terms. All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such Article 9.
C. Computation of Time Periods. Unless otherwise stated in the Indenture,
in the computation of a period of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
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<PAGE> 1
EXHIBIT 10.4
================================================================================
INDENTURE
Dated as of June 14, 1999
among
EFG-II, LP,
as Issuer,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee and Eligible Lender Trustee,
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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Article I
THE NOTES
Section 1.01. Form of Notes..........................................................................3
Section 1.02. Execution, Authentication and Delivery.................................................3
Section 1.03. Registration; Registration of Transfer and Exchange....................................4
Section 1.04. Mutilated, Destroyed, Lost or Stolen Notes.............................................5
Section 1.05. Persons Deemed Owner...................................................................6
Section 1.06. Certain Issuance and Transfer Restrictions.............................................6
Section 1.07. Legending of Notes.....................................................................8
Section 1.08. Provision of Information to Prospective Purchasers of the
Notes; Rule 144A Matters...............................................................9
Section 1.09. Cancellation...........................................................................9
Section 1.10. Book-Entry Notes.......................................................................9
Section 1.11. Notices to Clearing Agency............................................................10
Section 1.12. Definitive Notes......................................................................10
Section 1.13. Payment of Principal and Interest; Defaulted Interest;
Noteholders' Interest Basis Carryover.................................................11
Article II
REPRESENTATIONS AND WARRANTIES
Section 2.01. Representations and Warranties of the Issuer..........................................14
Section 2.02. Reassignment upon Breach..............................................................16
Section 2.03. Representations and Warranties of General Partner.....................................17
Section 2.04. Representations and Warranties of Indenture Trustee...................................18
Section 2.05. Representations and Warranties of Eligible Lender Trustee.............................18
Article III
GENERAL COVENANTS OF THE ISSUER
Section 3.01. Payment to Noteholders................................................................19
Section 3.02. Money for Payments to Be Held in Trust................................................19
Section 3.03. Existence.............................................................................20
Section 3.04. Protection of Indenture Trust Estate..................................................21
Section 3.05. Performance of Obligations............................................................21
Section 3.06. Reporting Requirements of the Issuer..................................................23
Section 3.07. Servicing Covenants...................................................................25
Section 3.08. Negative Covenants of the Issuer......................................................26
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Section 3.09. Issuer May Consolidate, etc...........................................................26
Section 3.10. Successor or Transferee...............................................................28
Section 3.11. No Other Business.....................................................................28
Section 3.12. No Borrowing..........................................................................28
Section 3.13. Guarantees, Loans, Advances and Other Liabilities.....................................29
Article IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture...............................................30
Section 4.02. Application of Trust Money............................................................31
Section 4.03. Repayment of Monies Held by Paying Agent..............................................31
Article V
REMEDIES
Section 5.01. Events of Default.....................................................................32
Section 5.02. Acceleration of Maturity; Rescission and Annulment....................................33
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.....................................................................34
Section 5.04. Remedies; Priorities..................................................................36
Section 5.05. Optional Preservation of the Indenture Trust Estate...................................38
Section 5.06. Limitation of Suits...................................................................38
Section 5.07. Unconditional Rights of Noteholders to Receive Principal and
Interest..............................................................................39
Section 5.08. Restoration of Rights and Remedies....................................................39
Section 5.09. Rights and Remedies Cumulative........................................................39
Section 5.10. Delay or Omission Not a Waiver........................................................40
Section 5.11. Control by Noteholders................................................................40
Section 5.12. Waiver of Past Defaults...............................................................40
Section 5.13. Undertaking for Costs.................................................................41
Section 5.14. Waiver of Stay or Extension Laws......................................................41
Section 5.15. Action on Notes.......................................................................42
Section 5.16. Performance and Enforcement of Certain Obligations....................................42
Article VI
INDENTURE TRUSTEE
Section 6.01. Acceptance of the Trusts..............................................................43
Section 6.02. Fees, Charges and Expenses of Indenture Trustee.......................................45
Section 6.03. Notice if Default Occurs..............................................................45
Section 6.04. Intervention by Indenture Trustee.....................................................45
Section 6.05. Successors............................................................................45
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Section 6.06. Resignation...........................................................................45
Section 6.07. Removal...............................................................................46
Section 6.08. Appointment of Successor..............................................................46
Section 6.09. Concerning Any Successor..............................................................46
Section 6.10. Appointment of Co-Trustee.............................................................46
Section 6.11. Successor Indenture Trustee as Trustee of Funds.......................................47
Section 6.12. Indemnification.......................................................................47
Section 6.13. Eligibility Requirements for Indenture Trustee........................................48
Article VII
RESERVED
Article VIII
SETTLEMENTS
Section 8.01. Trust Accounts; Investments by Indenture Trustee......................................50
Section 8.02. Collection of Moneys..................................................................51
Section 8.03. Collection Account; Class A-2 Distribution Account....................................52
Section 8.04. Reserve Account.......................................................................55
Section 8.05. Pre-Funding Account...................................................................56
Section 8.06. Claims on the Insurance Policy........................................................56
Section 8.07. Rights in Respect of Insolvency Proceedings...........................................57
Section 8.08. Effect of Payments by the Insurer; Subrogation........................................58
Section 8.09. Capitalized Interest Account..........................................................58
Article IX
REDEMPTION
Section 9.01. Redemption............................................................................59
Section 9.02. Form of Redemption Notice.............................................................59
Section 9.03. Notes Payable on Redemption Date......................................................60
Article X
MISCELLANEOUS
Section 10.01. Amendments, Etc.......................................................................61
Section 10.02. Notices, Etc..........................................................................62
Section 10.03. No Waiver; Remedies...................................................................63
Section 10.04. Binding Effect; Survival..............................................................63
Section 10.05. Costs, Expenses and Taxes.............................................................63
Section 10.06. No Proceedings........................................................................63
Section 10.07. Captions and Cross References.........................................................64
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Section 10.08. Integration...........................................................................64
Section 10.09. Governing Law.........................................................................64
Section 10.10. Waiver of Jury Trial..................................................................64
Section 10.11. Execution in Counterparts.............................................................64
Section 10.12. Usury.................................................................................64
Section 10.13. Compliance Certificates and Opinions..................................................65
Section 10.14. Certain Matters Regarding the Insurer and The Insurance Policy........................65
</TABLE>
APPENDICES
APPENDIX A Definitions
APPENDIX B Auction Procedures
APPENDIX C Student Loan Schedule
SCHEDULE
SCHEDULE 2.01(k) List of Offices of the Issuer where Records Are Kept
EXHIBITS
EXHIBIT 1.01(a) Form of Class A-1 Note
EXHIBIT 1.01(b) Form of Class A-2 Note
EXHIBIT 1.06(b) Form of Transfer Certificate
EXHIBIT 3.06(d) Form of Monthly Report
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<PAGE> 6
INDENTURE
Dated as of June 14, 1999
THIS IS AN INDENTURE, among EFG-II, LP, a Delaware limited partnership,
("Issuer") and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association ("First Chicago"), as indenture trustee hereunder (in such capacity,
and together with any successor thereto in such capacity, the "Indenture
Trustee") and as eligible lender trustee (in such capacity, and together with
any successor thereto in such capacity, the "Eligible Lender Trustee"). Unless
otherwise indicated, capitalized terms used in this Indenture are defined in
Appendix A.
BACKGROUND
(i) The Issuer is a limited partnership with Educational Finance Group,
Inc., a Delaware corporation ("EFG") as its Limited Partner and EFG-II SPC-I,
Inc., a Delaware corporation, as its General Partner (the "General Partner").
(ii) Pursuant to the Purchase and Contribution Agreement, First
Chicago, in its capacity as Eligible Lender Trustee, has purchased, at the
direction of and on behalf of the Issuer, from First Chicago, in its capacity as
eligible lender trustee for EFG, Student Loans. The legal title of the Student
Loans are held or will be held by the Eligible Lender Trustee on behalf of the
Issuer.
(iii) The Issuer intends to finance the purchase of the Student Loans
by issuing the Class A-1 Notes and the Class A-2 Notes, which it will sell to
Lehman Brothers Inc., as initial purchaser, pursuant to a Note Purchase
Agreement. The principal of and interest on the Notes will be secured by the
Financed Student Loans and other Collateral.
(iv) First Chicago has been requested, and is willing, to act as the
Indenture Trustee.
(v) MBIA Insurance Corporation, a stock insurance company organized and
created under the laws of the State of New York, has been requested and will
issue for the benefit of the Class A Noteholders, its Insurance Policy with
respect to the Class A Notes.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
GRANTING CLAUSE
The Issuer and, with respect to the legal title of the Student Loans,
the Eligible Lender Trustee hereby Grant to the Indenture Trustee at the Closing
Date, as trustee for the benefit of
<PAGE> 7
the Noteholders and the Insurer, all the Issuer's right, title and interest in
and to, but none of its obligations under, the following:
(i) the Financed Student Loans, and all obligations of the Obligors
thereunder including all monies paid thereunder on and after the Cutoff Date
(or, in the case of Additional Financed Student Loans, on and after the related
Subsequent Cutoff Date), including all Subsidy Payments and all Related Security
with respect thereto;
(ii) the Purchase and Contribution Agreement;
(iii) the Master Servicing Agreement;
(iv) each Student Loan Guarantee Agreement with respect to the Financed
Student Loans, including the right of the Issuer and the Eligible Lender Trustee
to cause the related Student Loan Guarantor to make Guarantee Payments in
respect of the Financed Student Loans;
(v) the Trust Agreement;
(vi) all funds on deposit from time to time in the Trust Accounts and
in all investments and proceeds thereof (including all income thereon);
(vii) all books and records (including computer tapes and disks)
related to the foregoing; and
(viii) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all payments on or under
and all proceeds of every kind and nature whatsoever in respect of any or all of
the foregoing, including all proceeds of the conversion, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, Trust
Accounts, Trust Accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit Trust Accounts, insurance proceeds, condemnation awards, rights
to payment of any and every kind and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing (collectively, the
"Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction and to secure
compliance with the provisions of this Indenture, subject to, and as further
provided in this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts under this Indenture in
accordance with the provisions of this Indenture and agrees to perform its
duties required in this Indenture to the best of its ability to the end that the
interests of the Noteholders may be adequately and effectively protected.
2
<PAGE> 8
Article I
THE NOTES
Section 1.01. Form of Notes.
(a) The Class A-1 Notes and Class A-2 Notes, in each case together with
the Indenture Trustee's certificate of authentication, shall be in substantially
the form set forth in Exhibit 1.01(a) and Exhibit 1.01(b), respectively, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may, consistently herewith, be determined by the Authorized Officer of the
General Partner executing such Notes on behalf of the Issuer, as evidenced by
such Authorized Officer's execution of such Notes. The Notes shall be issued on
the Closing Date in minimum denominations of $10,000 and integral multiples of
$10,000 in excess thereof, and will be available in book-entry form only.
(b) With respect to each Class of Notes, the Indenture Trustee shall
record in its records the interest rate for each Interest Period with respect to
such Class, each repayment thereof, and the other information provided for
thereon. The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officer of the General Partner
executing each such Note on behalf of the Issuer, as evidenced by such
Authorized Officer's execution of such Note. Each Note shall be dated the date
of its authentication, and the terms of the Notes set forth in Exhibits 1.01(a)
and 1.01(b) are part of the terms of this Indenture.
Section 1.02. Execution, Authentication and Delivery.
(a) Execution of the Notes. The Notes shall be executed on behalf of
the Issuer by any of the Authorized Officers of the General Partner. The
signature of any such Authorized Officer on any Note may be original or
facsimile. Any Note bearing the original or facsimile signature of an individual
who was at any time an Authorized Officer of the General Partner of the Issuer
shall bind the Issuer, notwithstanding that such individual has ceased to hold
such office prior to the authentication and delivery of such Note or did not
hold such offices at the date of such Note.
(b) Authentication of the Notes. The Indenture Trustee shall upon
receipt of the Issuer Order, authenticate and deliver (i) the Class A-1 Notes
for original issue in an aggregate principal amount of $159,730,000 (the "Class
A-1 Original Note Principal Amount") and (ii) the Class A-2 Notes for original
issue in an aggregate principal amount of $159,730,000 (the "Class A-2 Original
Note Principal Amount"). The aggregate principal amount of each Class of Notes
outstanding at any time shall not exceed its respective Original Note Principal
Amount except as provided in Section 1.04. Each of the Notes shall be dated the
date of its
3
<PAGE> 9
authentication. No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears attached to such
Note a certificate of authentication substantially in the form provided for
herein executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate attached to any such Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
Section 1.03. Registration; Registration of Transfer and Exchange.
(a) Note Register; Note Registrar. The Issuer shall cause to be kept a
register (the "Note Register") in which, subject to such reasonable regulations
as it may prescribe, the Issuer shall provide for the registration of the Notes
and the registration of transfers of the Notes. The Indenture Trustee shall be
"Note Registrar" for the purpose of registering Notes and transfers of the
Notes, as herein provided. Upon any resignation of any Note Registrar, the
Issuer shall promptly appoint a successor or, if it elects not to make such an
appointment, assume the duties of Note Registrar.
(b) Appointment of Note Registrar. If a Person other than the Indenture
Trustee is appointed by the Issuer as Note Registrar, the Issuer will give the
Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee shall have the right to inspect the Note
Register at all reasonable times and to obtain copies thereof. The Indenture
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Noteholders and the related principal amounts and numbers of such Notes.
(c) Transfer of the Notes. Upon surrender for registration or transfer
of a Note at the office or agency of the Issuer to be maintained as provided in
Section 1.03(e), and if the requirements of Section 8-401(l) of the UCC are met,
the Issuer shall execute and cause the Indenture Trustee to authenticate a new
Note, in any authorized denominations of like aggregate principal amount. Any
Note issued upon any registration of transfer thereof shall be the valid
obligation of the Issuer, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Note surrendered upon such registration of
transfer. Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Note Registrar duly executed by, the
Noteholder thereof or such Noteholder's attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Note Registrar, which requirements include membership or
participation in Securities Transfer Agent's Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, STAMP.
4
<PAGE> 10
(d) No Service Charge. No service charge shall be made to a Noteholder,
for any registration of transfer or exchange of any Note, but the Note Registrar
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of a Note.
(e) Maintenance of Office or Agency. The Issuer will maintain in New
York, New York, an office or agency where the Notes may be surrendered for
registration of transfer thereof, and where notices and demands to or upon the
Issuer in respect of the Notes and this Indenture may be served. The Issuer
hereby initially appoints the Indenture Trustee to serve as its agent for the
foregoing purposes. The Issuer will give prompt written notice to the Indenture
Trustee of the location, and of any change in the location, of any such office
or agency. If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Indenture Trustee with the address thereof,
such surrenders, notices and demands may be made or served at the Corporate
Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent
to receive all such surrenders, notices and demands.
Section 1.04. Mutilated, Destroyed, Lost or Stolen Notes.
(a) Replacement of Notes. If (i) any mutilated Note is surrendered to
the Indenture Trustee, or the Indenture Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Note, and (ii) there is
delivered to the Indenture Trustee and the Issuer such security or indemnity as
may be required by them to hold the Issuer and the Indenture Trustee harmless,
then, in the absence of notice to the Issuer, the Note Registrar or the
Indenture Trustee that such Note has been acquired by a bona fide purchaser, and
provided that the requirements of Section 8-405 of the UCC are met, the Issuer
shall execute and upon its request the Indenture Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Note, a replacement Note; provided, however, that if any such destroyed,
lost or stolen Note, but not a mutilated Note, shall have become or within seven
days shall be due and payable, the Issuer may, instead of issuing a replacement
Note, direct the Indenture Trustee, in writing, to pay such destroyed, lost or
stolen Note when so due or payable without surrender thereof. If, after the
delivery of a replacement Note or payment of a destroyed, lost or stolen Note or
pursuant to the proviso to the preceding sentence, a bona fide purchaser of the
original Note in lieu of which such replacement Note was issued presents such
original Note for payment, the Issuer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
(b) Payment of Tax. Upon the issuance of any replacement Note under
this Section, the Issuer or the Indenture Trustee may require the payment by the
related Noteholder
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of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other reasonable expenses (including the
fees and expenses of the Indenture Trustee or the Note Registrar) connected
therewith.
(c) Enforcement of Replacement Notes. Every replacement Note issued
pursuant to this Section in replacement of any mutilated, destroyed, lost or
stolen Note shall constitute an original additional contractual obligation of
the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall
be at any time enforceable by anyone, and shall be entitled to all the benefits
of this Indenture equally and proportionately with any and all other Notes duly
issued hereunder.
(d) Exclusiveness of Section. The provisions of this Section are
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes.
Section 1.05. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer and the Indenture Trustee may treat the Person in whose name
any such Note is registered (as of the Record Date) as the owner of such Note
for the purpose of receiving payments of principal of and interest, if any, on
such Note, and for all other purposes whatsoever, whether or not such Note be
overdue, and none of the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 1.06. Certain Issuance and Transfer Restrictions.
(a) Issuance and Transfer of the Notes. The Notes may not be issued,
sold, transferred, assigned, participated, pledged or otherwise disposed of
unless such sale or transfer is pursuant to an exemption from the registration
requirements of the Securities Act, and, in each case, in compliance with any
applicable state securities or "Blue Sky" laws. Each prospective holder or
purchaser of a Note shall be deemed to have represented and acknowledged (for
the benefit of the Issuer and the Indenture Trustee) as follows:
(A) It is purchasing the Notes for its own account or an
account with respect to which it exercises sole investment discretion
and it or such account is a "QIB" ("Qualified Institutional Buyer") and
is aware that the sale to it is being made in reliance on Rule 144A
under the Securities Act ("Rule 144A") and is acquiring such Notes for
investment and not with a view to, or for offer or sale in connection
with, any distribution (within the meaning of the Securities Act of
1933) or fractionalization thereof or with any intention of reselling
the Notes or any part thereof, subject to any requirement of law that
the disposition of its property or the property of such account or
accounts be at all times within its or their control and subject to its
or their ability to resell such Notes pursuant to Rule 144A.
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(B) It acknowledges that the Notes have not been and will not
be registered under the Securities Act of 1933 and may not be sold
within the United States or to, or for the account or benefit of, U.S.
persons except as permitted below.
(C) If it is a person other than a foreign purchaser outside
the United States, it agrees that (i) if it should reoffer, resell,
pledge or otherwise transfer its Note prior to the second anniversary
of the later of (a) the original issuance of such Note (or any
predecessor Note), and (b) the sale of such Note (or any predecessor
Note) by the Issuer or any affiliate of the Issuer (computed in
accordance with paragraph (d) of Rule 144 under the Securities Act of
1933), or (ii) if it was at the date of such transfer or during the
three months preceding such date of transfer an affiliate of the Issuer
(a) it will do so in compliance with any applicable state securities or
"Blue Sky" laws and only (A) to the Issuer or (B) in compliance with
Rule 144A, and only if a certificate in the form attached to the
Indenture is delivered by the transferee to the Indenture Trustee, and
(b) it will give the transferee notice of any restrictions on resale of
such Note.
(D) It understands that the Issuer has not been registered
under the Investment Company Act and that such Note is being offered in
a transaction not involving any public offering in the United States
within the meaning of the Securities Act, that such Note has not been
registered under the Securities Act and that (1) such Note may be
offered, resold, pledged or otherwise transferred only (i) to a person
who the seller reasonably believes is a qualified institutional buyer
in a transaction meeting the requirements of Rule 144A under the
Securities Act, (ii) the Issuer or (iii) pursuant to an effective
registration statement, and in each case, in accordance with any
applicable laws of any State of the United States or any other
applicable jurisdiction, (2) no transfer of such Note may be made if
such transfer would require registration of either or both of the
Issuer or the pool of Collateral as an "investment company" under the
Investment Company Act, and (3) the purchaser will, and each subsequent
holder is required to, notify any subsequent purchaser from it of the
resale restrictions set forth in this clause (B).
(E) It understands that such Note will bear a legend
substantially as set forth in Section 1.07
(F) It has received the information, if any, requested by it
pursuant to Rule 144A, has had full opportunity to review such
information and has received all additional information necessary to
verify such information.
(G) It (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
its investment in
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the Notes, and (ii) has the ability to bear the economic risks of its
prospective investment and can afford the complete loss of such
investment.
(H) It understands that the Issuer, the Initial Purchaser and
others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements and agrees that if any
of the foregoing acknowledgments, representations or agreements deemed
to have been made by it are no longer accurate, it will promptly notify
the Issuer and the Initial Purchaser. If it is acquiring any Notes as a
fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such
account and it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of such account.
(I) It acknowledges that it has had the opportunity to ask
questions and receive answers concerning the terms and conditions of
the transaction contemplated by the Indenture and to obtain additional
information necessary to verify the accuracy and completeness of any
information furnished to it or to which it has had access.
(J) It will not sell, transfer, assign, participate, pledge,
or otherwise dispose of such Note (or any interest in such Note) other
than by unconditional sale of the entire right, title and interest of
the purchaser or transferee in and to a principal amount of such Note
not less than the minimum denomination of such Note.
(K) It is acquiring such Note for its own account, for
investment purposes only and not with a view to a distribution, and is
the sole beneficial owner of such Note, recognizing that the
disposition of its property shall at all times be and remain within its
control.
(b) Transfer Certificate. Notwithstanding the provisions of Section
1.06(a), an Owner is required to deliver to the Issuer, the Indenture Trustee
and the Note Registrar a certificate substantially in the form of Exhibit
1.06(b) hereto unless it is purchasing a Note from the Initial Purchaser or
pursuant to an Auction.
(c) Void Transfers. If (i) any Note is issued, sold, transferred,
assigned, participated, pledged or otherwise disposed of in contravention of the
provisions of this Section 1.06, (ii) at any time the foregoing representations
of such purchaser or transferee are not true, or (iii) the purchaser or
transferee breaches the foregoing agreements, then the purchase or transfer of
such Note shall be void ab initio and of no effect.
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Section 1.07. Legending of Notes.
Legending of Class A Notes. The Class A Notes shall each bear a legend
in substantially the following form:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF THE ISSUER
THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY
PREDECESSOR NOTE HERETO) OTHER THAN IN COMPLIANCE WITH THE SECURITIES
ACT AND OTHER APPLICABLE LAWS (1) TO THE ISSUER OR ANY OF ITS
AFFILIATES OR PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO AN
INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR
PURCHASING FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER WHOM THE
HOLDER HAS INFORMED, IN EACH CASE, THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, AND UPON THE RECEIPT
BY THE ISSUER OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE ISSUER THAT SUCH
RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND
OTHER APPLICABLE LAWS. ADDITIONAL TRANSFER RESTRICTIONS ARE SET FORTH
IN THE INDENTURE.
Section 1.08. Provision of Information to Prospective Purchasers of the
Notes; Rule 144A Matters. For so long as any of the Notes remain outstanding and
are a "restricted security" within the meaning of Rule 144(a)(3) under the
Securities Act, any Noteholder may request that the Indenture Trustee forward to
the Issuer a request that the Issuer provide the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Securities Act. Upon
receipt of such request, the Indenture Trustee shall forward such request
promptly to the Issuer. The Issuer shall provide such requested information
promptly to the Indenture Trustee, who shall forward such requested information
promptly to the requesting Noteholder.
Section 1.09. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes
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may be held or disposed of by the Indenture Trustee in accordance with its
standard retention or disposal policy as in effect at the time unless the Issuer
shall direct by an Issuer Order that they be destroyed or returned to it;
provided that such Issuer Order is timely and the Notes have not been previously
disposed of by the Indenture Trustee.
Section 1.10. Book-Entry Notes. The Class A Notes, upon original
issuance, will be issued in the form of typewritten Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Issuer. Such Notes shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner of any Class of Notes will receive a
Definitive Note (as defined below) representing such Note Owner's interest in
such Book-Entry Note, except as provided in Section 1.12. Unless and until
definitive, fully registered Notes (the "Definitive Notes") have been issued to
Note Owners pursuant to Section 1.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Issuer, the Note Registrar and the Indenture Trustee
may deal with the Clearing Agency for all purposes (including the
payment of principal of and interest and other amounts on the
Book-Entry Notes) as the sole holder of the Notes, and shall have no
obligation to the Note Owners of any Class of Notes;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Note Owners of each Class of Notes shall be
exercised only through the Clearing Agency and shall be limited to
those established by law and agreements between such Note Owners and
the Clearing Agency and/or the Clearing Agency Participants pursuant to
the Note Depository Agreement. Unless and until Definitive Notes are
issued pursuant to Section 1.12, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and receive
and transmit payments of principal of and interest and other amounts on
the Book-Entry Notes to such Clearing Agency Participants;
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Noteholders of any Class
of Notes evidencing a specified percentage of the Note Principal Amount
of such Class of Notes, the Clearing Agency shall be deemed to
represent such percentage only to the extent that it has received
instructions to such effect from Note Owners and/or Clearing Agency
Participants owning or representing, respectively, such required
percentage of the beneficial interest in the applicable Class of Notes
and has delivered such instructions to the Indenture Trustee; and
(vi) each Note Owner, by its acceptance of its interest in a
Note, shall be deemed to have made the representations and to have
bound itself by the agreements set
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forth pursuant to Section 1.06 and to have agreed to treat the Notes as
indebtedness for all tax and financial reporting purposes.
Section 1.11. Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
1.12, the Indenture Trustee shall give all such notices and communications
specified herein to be given to Noteholders of any Class of Notes to the
Clearing Agency, and shall have no obligation to the Note Owners to enforce such
notices or communications.
Section 1.12. Definitive Notes. If (i) the Issuer advises the Indenture
Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Book-Entry Notes,
and the Issuer is unable to locate a qualified successor, (ii) the Issuer at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of
an Event of Default, Note Owners representing beneficial interests aggregating
at least a majority of each of the Class A-1 Note Principal Amount and the Class
A-2 Note Principal Amount of the Book-Entry Notes advise the Clearing Agency
(which shall then notify the Indenture Trustee and the Issuer) in writing that
the continuation of a book-entry system through the Clearing Agency is no longer
in the best interests of the Note Owners, then the Indenture Trustee will cause
the Clearing Agency to notify all Note Owners, through the Clearing Agency, of
the occurrence of any such event and of the availability of Definitive Notes to
Note Owners requesting the same. Upon surrender to the Indenture Trustee of the
typewritten Notes representing the Book-Entry Notes by the Clearing Agency,
accompanied by registration instructions, the Issuer shall execute and the
Indenture Trustee shall authenticate the Definitive Notes in accordance with the
instructions of the Clearing Agency. None of the Issuer, the Note Registrar or
the Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee
shall recognize the holders of the Definitive Notes as Noteholders.
Section 1.13. Payment of Principal and Interest; Defaulted Interest;
Noteholders' Interest Basis Carryover.
(a) Class A Notes.
(i) The Class A-1 Notes shall accrue interest as provided in
the form of Class A-1 Note set forth in Exhibit 1.01(a), and such
interest shall be payable on each Primary Payment Date as specified
therein, subject, in each case, to Section 3.01. The Class A-2 Notes
shall accrue interest as provided in the form of Class A-2 Note set
forth in Exhibit 1.01(b), and such interest shall be payable on each
Secondary Payment Date as specified therein, subject, in each case, to
Section 3.01. Any installment of interest (and any Noteholders'
Interest Basis Carryover) or principal, if any, payable on
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any Class A Note which is punctually paid or duly provided for by the
Issuer on the applicable Primary Payment Date, in the case of the Class
A-1 Notes, or the applicable Secondary Payment Date, in the case of the
Class A-2 Notes, shall be paid to the Person in whose name such Class A
Note (or one or more Predecessor Notes) is registered on the Record
Date by wire transfer if such Person provides appropriate written
instructions to the Indenture Trustee no later than such Record Date,
and otherwise by check mailed first-class, postage prepaid to such
Person's address as it appears on the Note Register on such Record
Date, except that, unless Definitive Notes have been issued pursuant to
Section 1.12, with respect to Class A Notes registered on the Record
Date in the name of the nominee of the Clearing Agency (initially, such
nominee to be Cede & Co.), payment will be made by wire transfer in
immediately available funds to the account designated by such nominee
and except for the final installment of principal payable with respect
to such Class A Note on a Primary Payment Date, in the case of the
Class A-1 Notes, or a Secondary Payment Date, in the case of the Class
A-2 Notes, which shall be payable as provided below. The funds
represented by any such checks returned undelivered shall be held in
accordance with Section 3.02.
(ii) The principal of each Class A-1 Note shall be payable in
installments on each Primary Payment Date as provided in the form of
the Class A-1 Notes set forth in Exhibit 1.01(a). The principal of each
Class A-2 Note shall be payable in installments on each Secondary
Payment Date as provided in the form of the Class A-2 Notes set forth
in Exhibit 1.01(b). Notwithstanding the foregoing, the entire unpaid
principal amount of the Class A Notes shall be due and payable, if not
previously paid, if an Event of Default shall have occurred and if the
Indenture Trustee or the Noteholders of the Notes representing not less
than a majority of the Class A Note Principal Amount have declared the
Notes to be immediately due and payable with the prior consent of the
Insurer or at the direction of the Insurer, in the manner provided in
Section 5.02; provided, however, that during the existence and
continuation of an Insurer Default the Indenture Trustee shall not
require the prior consent or direction of the Insurer. All principal
payments on the Class A Notes shall be made, first, to the Class A-1
Notes until the Class A-1 Note Principal Amount has been paid in full
and then to the Class A-2 Notes until the Class A-2 Notes have been
paid in full; provided, that, if an Event of Default has occurred and
the unpaid principal amount of the Class A Notes has been
declared due and payable, principal payments on the Class A-1 Notes and
the Class A-2 Notes shall be made pro rata (based on the unpaid Note
Principal Amount of each such Class) to the Noteholders of each such
class. The Indenture Trustee shall notify the Person in whose name a
Class A Note is registered at the close of business on the Record Date
preceding the Primary Payment Date, in the case of the Class A-1 Notes,
or the Secondary Payment Date, in the case of the Class A-2 Notes, on
which the Issuer expects that the final installment of principal of and
interest (and any Noteholders' Interest Basis Carryover) on such Class
A Note will be paid. Such notice shall be mailed or transmitted by
facsimile prior to such final Primary Payment Date, in the
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case of the Class A-1 Notes, or such final Secondary Payment Date, in
the case of the Class A-2 Notes, and shall specify that such final
installment will be payable only upon presentation and surrender of
such Class A Note and shall specify the place where such Class A Note
may be presented and surrendered for payment of such installment.
Notices in connection with redemptions of Class A Notes shall be mailed
to Class A Noteholders as provided in Section 9.02.
(iii) If the Issuer defaults in a payment of interest on the
Class A Notes, the Issuer shall pay defaulted interest (plus interest
on such defaulted interest to the extent lawful) at the Class A-1 Note
Rate or Class A-2 Note Rate, as applicable, in any lawful manner. The
Issuer may pay such defaulted interest to Class A Noteholders on a
subsequent special record date, which date shall be at least five
Business Days prior to the payment date. The Issuer shall fix or cause
to be fixed any such special record date and payment date, and, at
least 15 days before any such special record date, the Issuer shall
mail to the Indenture Trustee a notice which the Indenture Trustee
will, as soon as practicable, distribute to each Class A Noteholder
that states the special record date, the payment date and the amount of
defaulted interest to be paid. Any shortfall in the payment of interest
on the Class A Notes shall be allocated pari passu among the Class A-1
and Class A-2 Notes (based on the ratio of each such amount to the
total of such amounts).
(iv) The Noteholders' Interest Basis Carryover on each Primary
Payment Date, in the case of the Class A-1 Notes, or each Secondary
Payment Date, in the case of the Class A-2 Notes, including all such
unpaid carryover from prior Primary Payment Dates or Secondary Payment
Dates, as applicable, and interest accrued thereon at the Class A-1
Note Rate or Class A-2 Note Rate, as applicable for each Class of Class
A Notes for each applicable Collection Period, shall be allocable among
the Class A-1 Notes and the Class A-2 Notes pari passu basis (based on
the ratio of each such amount to the total of such amounts) and shall
be payable on such Primary Payment Date, in the case of the Class A-1
Notes, or Secondary Payment Date, in the case of the Class A-2 Notes,
solely to the extent that the funds required are available to be
distributed to Class A Noteholders by the Indenture Trustee pursuant to
Section 8.04(b); provided, however, that the payment of any such
Noteholders' Interest Basis Carryover is not guaranteed by the Insurer
under the Insurance Policy.
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Article II
REPRESENTATIONS AND WARRANTIES
Section 2.01. Representations and Warranties of the Issuer. The Issuer
represents and warrants as follows:
(a) Organization, Powers. The Issuer is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all necessary power as a limited partnership to carry on its
present business, is duly licensed or qualified in all jurisdictions where the
nature of its activities require such licensing or qualifying and where its
failure to be so licensed or qualified would not have a Material Adverse Effect
on the Issuer or the Notes; and has full power, right and authority to enter
into this Indenture, the other Transaction Documents to which it is, or will be,
a party and the transactions contemplated hereby and thereby, to issue the Notes
and to perform each and all of the matters and things herein and therein
provided for. The Issuer has not been known by any name other than "EFG-II, LP"
and has not had any office other than its office at 495 Station Avenue, South
Yarmouth, Massachusetts 02664, and that office is its chief executive office and
principal place of business.
(b) Issuer Authority, etc. The execution, delivery and performance by
the Issuer of this Indenture, the Notes and the other Transaction Documents to
which it is, or will be, a party and the transactions contemplated hereby and
thereby have been duly authorized by all necessary limited partnership action
and this Indenture, the Notes and such Transaction Documents constitute the
legal, valid and binding obligations of the Issuer enforceable against the
Issuer in accordance with their terms, except to the extent that enforceability
may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or law.
(c) Compliance with Laws and Contracts. The execution, delivery and
performance by the Issuer of this Indenture, the Notes and the other Transaction
Documents to which the Issuer is a party do not and will not (i) violate, in any
material respect, any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award to which the Issuer or its
property is subject, or of the limited partnership agreement and certificate of
limited partnership of the Issuer; (ii) result in a material breach of or
constitute a material default under the provisions of any indenture, loan or
credit agreement or any other material agreement, lease or instrument to which
the Issuer may be or is subject or by which it, or its property, is bound; or
(iii) result in, or require, the creation or imposition of any Lien on or with
respect of any of the material properties of the Issuer other than the Lien in
favor of the Indenture Trustee provided herein; and the Issuer is not in
violation of, or in default under, any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument except for violations or defaults
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that singly or in the aggregate have not had nor would not have a Material
Adverse Effect on the Issuer.
(d) Governmental Approvals. The Issuer has obtained all authorizations,
consents, approvals, exemptions of or filings or registrations with all
governmental commissions, regulatory bodies, boards, bureaus, agencies and
instrumentalities, domestic or foreign, necessary to the conduct of its business
and with respect to which the failure to obtain would not have a Material
Adverse Effect on the Issuer, or necessary to the valid execution, delivery and
performance by the Issuer of this Indenture, the Notes and the other Transaction
Documents to which the Issuer is, or will be, a party (the "Approvals"), and
such Approvals remain in full force and effect.
(e) Litigation. There is no action, suit, proceeding, inquiry or
investigation at law or in equity or before or by any court, public board or
body pending or, to the knowledge of the Issuer, overtly threatened in writing
against or affecting the Issuer wherein an unfavorable decision, ruling or
finding would have a Material Adverse Effect on the Issuer or which affects, or
purports to affect, the validity or enforceability against the Issuer of any
Transaction Document.
(f) Employee Benefit Plans. All "employee benefit plans" (as such term
is defined in ERISA) of the Issuer and each of its ERISA Affiliates (as defined
in ERISA) (individually, a "Plan" and collectively the "Plans") are in
compliance in all material respects with any applicable provisions of ERISA and
the regulations and published interpretations thereunder, except for compliance
amendments which may be required due to changes in such laws and regulations and
which were not addressed by the latest determination letters and for which the
retroactive amendment period has not expired. No Plan is insolvent or in
reorganization. No proceedings have been instituted to terminate any Plan, and
no conditions exist which would permit the institution of proceedings to
terminate any such Plan.
(g) Perfected Interest. Each Financed Student Loan, including the
related Student Loan Note, is owned by the Issuer or by the Eligible Lender
Trustee, on behalf of the Issuer, free and clear of any Lien other than the Lien
created hereby. Except for the filing of the financing statements being executed
and filed in connection with the closing of the transaction, no further action,
including any filing or recording of any document, is necessary in order to
establish, protect and perfect the first priority security interest of the
Indenture Trustee, for the benefit of the Noteholders, in the Collateral as
against any third party in any applicable jurisdiction, including, without
limitation, any purchaser from, or creditor of, the Issuer. No financing
statement or other instrument similar in effect covering any of the Collateral
or any interest therein is on file in any recording office except such as may be
filed (i) in connection with any Lien arising solely as the result of any action
taken by the Indenture Trustee, (ii) in favor of the Indenture Trustee or (iii)
for which UCC termination statements have been filed or with respect to Liens
which by their terms do not require that a release be filed for the security
interest of the Indenture Trustee to be of first priority.
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(h) Accuracy of Information. All information (including each Monthly
Report, Student Loan Schedule and Computer Tape) supplied by, or on behalf of,
the Issuer in writing to the Indenture Trustee in connection with this Indenture
or the transactions contemplated hereby is true and accurate in all material
respects as of the date thereof stated or certified. No information, exhibit or
report furnished by the Issuer to the Indenture Trustee in connection with this
Indenture contained any material misstatement.
(i) Defaults. No Event of Default or Unmatured Event of Default exists.
(j) Margin Regulations. The use of all funds obtained by the Issuer
under this Indenture will not conflict with or contravene any of Regulations G,
T, U and X promulgated by the Board of Governors of the Federal Reserve System
from time to time.
(k) Offices. The chief place of business and chief executive office of
the Issuer are located at the address of the Issuer referred to in Section
10.02, and the offices where the Issuer keeps all its books, records and
documents evidencing the Financed Student Loans are located at the addresses
specified in Schedule 2.01(k) (or at such other locations, notified to the
Indenture Trustee in accordance with Section 10.02, in jurisdictions where all
action necessary to maintain the Indenture Trustee's first priority perfected
interest, for the benefit of the Noteholders, in the Collateral has been taken
and completed).
(l) Eligible Student Loans. Each Student Loan, as of the date of its
inclusion in the Collateral, is an Eligible Student Loan.
(m) The Issuer Not an Investment Company. The Issuer is not required to
register as an "investment company" within the meaning of the Investment Company
Act.
Section 2.02. Reassignment upon Breach. The Issuer or the Indenture
Trustee, as the case may be, shall inform the other parties to this Indenture,
the Insurer and the Noteholders promptly, in writing, upon the discovery of any
breach in any material respects of the representations and warranties made by
the Issuer pursuant to Sections 2.01(g) or (l) or any breach in any material
respects of the covenants of the Issuer made pursuant to Section 3.07; provided,
however, that a material breach of such representations, warranties and
covenants shall be deemed to have occurred only if the related Guarantee
Agreements are affected. Unless any such breach shall have been cured within 30
days (or in the sole discretion of the Insurer, 60 days) following the discovery
thereof by the Issuer or receipt by the Issuer of written notice from the
Indenture Trustee of such breach, the Financed Student Loan as to which such
representation and warranty or covenant relates shall be released from the
Collateral and reassigned to the Eligible Lender Trustee (a "Reassignment"), as
of the first Determination Date succeeding the end of such 30-day or 60-day
period, respectively. In consideration of and simultaneously with the
reassignment of such Financed Student Loan, the Issuer shall deposit to the
Collection Account on such Determination Date immediately available funds equal
to the Purchase Amount. Notwithstanding the foregoing, so long as no Event of
Default shall have occurred and be continuing the Issuer may, at its option in
lieu of
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depositing such Purchase Amount to the Collection Account on such date, cause
the Eligible Lender Trustee to pledge to the Indenture Trustee on such date for
inclusion in the Collateral a new Eligible Student Loan in substitution for such
Financed Student Loan having a Principal Balance plus accrued and unpaid
interest at least equal to the Substitution Amount of the Financed Student Loan
being substituted, by delivering an updated Student Loan Schedule to the
Indenture Trustee reflecting such substitution (a "Substitution"). The Indenture
Trustee shall execute such documents reasonably requested by the Issuer or
Insurer in order to effect such reassignment and to release the Indenture
Trustee's Lien thereunder. The sole remedy of the Indenture Trustee or the
Noteholders with respect to a breach of representations and warranties pursuant
to Sections 2.01(g) and (l) and the covenants contained in Section 3.07 shall be
to require the Issuer to deposit the Purchase Amount or substitute Financed
Student Loans as provided above.
Section 2.03. Representations and Warranties of General Partner. The
General Partner hereby represents and warrants as follows:
(a) Organization, Corporate Powers. The General Partner is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all necessary corporate power to carry on its
present business, is duly licensed or qualified in all jurisdictions where the
nature of its activities require such licensing or qualifying and where its
failure to be so licensed or qualified would not have a Material Adverse Effect
on the Issuer.
(b) Issuer Authority, etc. The execution, delivery and performance by
the General Partner of the limited partnership agreement of the Issuer and the
transactions contemplated thereby have been duly authorized by all necessary
corporate action.
(c) Compliance with Laws and Contracts. The execution, delivery and
performance by the General Partner of its duties under the limited partnership
agreement of the Issuer will not (i) violate, in any material respect, any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award to which the General Partner or its property is
subject, or of the certificate of incorporation or bylaws of the General
Partner; (ii) result in a material breach of or constitute a material default
under the provisions of any indenture, loan or credit agreement or any other
material agreement, lease or instrument to which the General Partner may be or
is subject or by which it, or its property, is bound; or (iii) result in, or
require, the creation or imposition of any Lien on or with respect of any of the
material properties of the General Partner, which in any case would have a
Material Adverse Effect on the General Partner; and the General Partner is not
in violation of, or in default under, any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument except for violations or defaults that
singly or in the aggregate have not had nor would not have a Material Adverse
Effect on the General Partner.
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(d) Governmental Approvals. The General Partner has obtained all
authorizations, consents, approvals, exemptions of or filings or registrations
with all governmental commissions, regulatory bodies, boards, bureaus, agencies
and instrumentalities, domestic or foreign, necessary to the conduct of its
business and with respect to which the failure to obtain would not have a
Material Adverse Effect on the General Partner.
(e) Litigation. There is no action, suit, proceeding, inquiry or
investigation at law or in equity or before or by any court, public board or
body pending or, to the knowledge of the General Partner, overtly threatened in
writing against or affecting the General Partner wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect on the General
Partner or which affects, or purports to affect, the validity or enforceability
against the General Partner of the limited partnership agreement of the Issuer.
Section 2.04. Representations and Warranties of Indenture Trustee. The
Indenture Trustee hereby represents and warrants as follows:
(a) Due Organization. It is a national banking association duly
organized and validly existing in good standing under the laws of the United
States. It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Indenture.
(b) Authorization. It has taken all corporate action necessary to
authorize the execution and delivery by it of this Indenture, and this Indenture
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Indenture on its behalf.
(c) Eligible Lender. It is an "eligible lender" as such term is defined
in Section 435(d) of the Higher Education Act, for purposes of being pledgee of
the Financed Student Loans as contemplated by this Indenture.
(d) Binding Obligation. This Indenture constitutes, and each other
Transaction Document to be executed by the Indenture Trustee when duly executed
and delivered, will constitute, a legal, valid and binding obligation of the
Indenture Trustee, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
Section 2.05. Representations and Warranties of Eligible Lender
Trustee. The Eligible Lender Trustee hereby represents and warrants as follows:
(a) Due Organization. It is a national banking association duly
organized and validly existing in good standing under the laws of the United
States. It has all requisite corporate power and authority to execute and
deliver this Indenture.
(b) Eligible Lender. It is an "eligible lender" as such term is defined
in Section 435(d) of the Higher Education Act.
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Article III
GENERAL COVENANTS OF THE ISSUER
Section 3.01. Payment to Noteholders. The Issuer will duly and
punctually pay the principal of, interest, if any, on and any interest on
Noteholders' Interest Basis Carryover (but only to the extent provided in
Sections 1.13(a)(iv) and 8.03(b)) with respect to the Notes in accordance with
the terms of the Notes and this Indenture. Without limiting the foregoing,
subject to Section 8.03(b), the Issuer will cause to be distributed to the Class
A-1 Noteholders that portion of the amounts on deposit in the Trust Accounts on
a Primary Payment Date which the Class A-1 Noteholders are entitled to receive
and will cause to be distributed to the Class A-2 Noteholders that portion of
the amounts on deposit in the Trust Accounts on a Secondary Payment Date which
the Class A-2 Noteholders are entitled to receive. Amounts properly withheld
under the Code by any Person from a payment to any Noteholder of interest
(including any Noteholders' Interest Basis Carryover) and/or principal shall be
considered as having been paid by the Issuer to such Noteholder for all purposes
of this Indenture.
Section 3.02. Money for Payments to Be Held in Trust. All payments of
amounts due and payable with respect to any Notes that are to be made from
amounts distributed from the Collection Account or any other Account shall be
made on behalf of the Issuer by the Indenture Trustee or by another Paying
Agent, and no amounts so distributed for payments of Notes shall be paid over to
the Issuer except as provided in this Section.
On or before the Business Day next preceding each Primary Payment Date,
the Issuer shall distribute or cause to be distributed to the Indenture Trustee
(or any other Paying Agent) an aggregate sum sufficient to pay the amounts then
becoming due under the Notes (or in the case of the Class A-2 Notes, becoming
due on the related Secondary Payment Date), such sum to be held in trust for the
benefit of the Persons entitled thereto and (unless the Paying Agent is the
Indenture Trustee) shall promptly notify the Indenture Trustee and the Insurer
of its action or failure so to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee and the Insurer an
instrument in which such Paying Agent shall agree with the Indenture Trustee
(and if the Indenture Trustee acts as Paying Agent, it hereby so agrees),
subject to the provisions of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee and the Insurer notice of any
default by the Issuer of which it has actual knowledge (or any other
obligor upon the Notes) in the making of any payment required to be
made with respect to the Notes;
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(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of
Notes if at any time it ceases to meet the standards required to be met
by a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to either (i) the Issuer on Issuer Request and with the prior
written consent of the Insurer or (ii) the Insurer if and to the extent such
money or any portion thereof was paid by the Insurer to the Indenture Trustee
for payment of interest on or principal of the Notes; and the Noteholder thereof
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
a newspaper published in the English language, customarily published on each
Business Day and of general circulation in The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee shall also adopt and employ, at the expense of the Issuer, any other
reasonable means of notification of such repayment (including mailing notice of
such repayment to Noteholders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in monies due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Noteholder).
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Section 3.03. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a limited partnership under the laws of the
State of Delaware (unless, subject to the prior written consent of the Insurer,
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other State or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Indenture Trust Estate. The Issuer will maintain its status as a pass-through
entity for federal income tax purposes.
Section 3.04. Protection of Indenture Trust Estate.
(a) The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest of
this Indenture or carry out more effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) collect payments due on the Financed Student Loans; or
(iv) preserve and defend title to the Indenture Trust Estate
and the rights of the Indenture Trustee, the Insurer and the
Noteholders in such Indenture Trust Estate against the claims of all
persons and parties. It shall be the responsibility of the Issuer to
prepare such instruments.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section.
(b) Opinions as to Indenture Trust Estate. On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Insurer an Opinion of
Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest of this Indenture and reciting the details of such action, or stating
that, in the opinion of such counsel, no such action is necessary to make such
lien and security interest effective.
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Section 3.05. Performance of Obligations.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others (if such action is within the
Issuer's control) that would release any Person from any of such Person's
material covenants or obligations under any instrument or agreement included in
the Indenture Trust Estate or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as expressly provided
in this Indenture, the Purchase and Contribution Agreement, the Master Servicing
Agreement or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee and the Insurer in an Officer's
Certificate of the Issuer shall be deemed to be action taken by the Issuer.
Initially, the Issuer has contracted with the Master Servicer to assist the
Issuer in performing its duties under this Indenture.
(c) If the Issuer shall have knowledge of the occurrence of a Servicer
Default, the Issuer shall promptly notify the Indenture Trustee, the Rating
Agencies and the Insurer, and shall specify in such notice the action, if any,
the Issuer is taking with respect to such default. If a Servicer Default shall
arise from the failure of the Master Servicer to perform any of its duties or
obligations under the Master Servicing Agreement with respect to the Financed
Student Loans, the Issuer shall take all reasonable steps available to it to
enforce its rights under the Transaction Documents in respect of such failure
and shall take all reasonable steps available to it to enforce its rights in
respect of such failure at the direction of the Insurer.
(d) Upon any termination of the Master Servicer's rights and powers
pursuant to the Master Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Insurer. As soon as a successor Master Servicer is
appointed with the consent of the Insurer, the Issuer shall notify the Indenture
Trustee and the Insurer of such appointment, specifying in such notice the name
and address of such successor Master Servicer.
(e) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees that it will not, without the
prior written consent of the Indenture Trustee and the Insurer, amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of any
Collateral or the Transaction Documents, except to the extent otherwise provided
in the Master Servicing Agreement, or waive timely performance or observance by
the Master Servicer, EFG, the Issuer or the Eligible Lender Trustee under a
material provision of the Purchase and Contribution Agreement, or the Master
Servicing Agreement; provided, however, that no such amendment shall (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, distributions that are required to be made for the benefit of the
Noteholders, (ii)
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reduce the aforesaid percentage of the Notes which are required to consent to
any such amendment, without the consent of the Noteholders of all the
Outstanding Notes, or (iii) result in a deemed exchange of Notes for new notes
under Section 1001 of the Code. If any such amendment, modification, supplement
or waiver shall be so consented to, the Issuer agrees, promptly following a
request by the Indenture Trustee or the Insurer to do so, to execute and
deliver, in its own name and at its own expense, such agreements, instruments,
consents and other documents as the Indenture Trustee or the Insurer may deem
necessary or appropriate in the circumstances.
(f) The Issuer shall maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records identifying and evidencing the Financed Student Loans and each
Sub-servicer servicing each Financed Student Loan in the event of the
destruction of the originals thereof), and keep and maintain, or cause to be
kept and maintained, all documents, books, records and other information
reasonably necessary or advisable for the collection of all the Financed Student
Loans (including, without limitation, records adequate to permit the daily
identification of each new Financed Student Loan included in the Collateral from
time to time and all Collections of and adjustments to each existing Financed
Student Loan).
(g) At its expense, the Issuer shall timely and fully perform and
comply, and cause the Eligible Lender Trustee to perform and comply, with all
material provisions, covenants and other promises required to be observed by
each of them under the Higher Education Act, Student Loan Notes, the Student
Loan Guaranty Agreements, the Master Servicing Agreement and other agreements to
which the Issuer is a party related to the Collateral.
(h) The Issuer shall administer, operate and maintain, or cause the
Eligible Lender Trustee to administer, operate and maintain, its student loan
program in such manner as to ensure that such program and the Financed Student
Loans will benefit, to the extent applicable and in all material respects, from
(i) the Student Loan Guaranty Agreements and (ii) the Federal Family Education
Loan Program authorized under the Higher Education Act and the federal program
of reimbursement for Student Loans pursuant to the Higher Education Act, or from
any other federal statute providing for such Federal Family Education Loan
Program.
(i) The Issuer shall (i) maintain, and cause the Eligible Lender
Trustee to maintain, in effect all Student Loan Guaranty Agreements and the
Master Servicing Agreement, diligently and promptly enforce its rights
thereunder and take, or use commercially reasonable steps to cause the Master
Servicer to take, all reasonable steps, actions and proceedings necessary or
appropriate for the enforcement of all material terms, covenants and conditions
of each Financed Student Loan, including the prompt payment of all principal and
interest payments and all other amounts due with respect to such Financed
Student Loan, including all Subsidy Payments, and all Student Loan Guaranty
Payments under the applicable Student Loan Guaranty Agreement, except for such
deferments and forbearance permitted with respect to Student Loans under the
Higher Education Act, and (ii) enter, and cause the Eligible Lender
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Trustee to enter, into Student Loan Guaranty Agreements and the Master Servicing
Agreement so that all Financed Student Loans are covered thereby.
Section 3.06. Reporting Requirements of the Issuer. From the date
hereof until the Final Scheduled Payment Date, the Issuer shall furnish to the
Eligible Lender Trustee, the Indenture Trustee and the Insurer:
(a) Quarterly Financial Statements. As soon as available and in any
event within 60 days after the end of each of the first three quarters of each
fiscal year of the Issuer, the Issuer's consolidated statement of income and
statement of changes in cash flow for such quarter and balance sheet as of the
end of such quarter presented fairly in accordance with generally accepted
accounting principles;
(b) Annual Financial Statements. As soon as available and in any event
within 120 days after the end of each fiscal year of the Issuer, the Issuer's
statement of income and statement of changes in cash flow for such year and
balance sheet as of the end of such year in each case presented fairly in
accordance with generally accepted accounting principles;
(c) [Quarterly] Officer's Certificate. Within 30 days after the last
day of each calendar [quarter], an officer's certificate executed by the chief
financial officer or treasurer of the General Partner, certifying that, as of
such calendar month, (i) the Issuer is in compliance with all of the terms,
conditions and requirements of the Transaction Documents, and (ii) no Event of
Default or Unmatured Event of Default under this Indenture or other event of
default as described in any other Transaction Documents exists;
(d) Monthly Report. No later than the tenth Business Day of each month,
a Monthly Report for the immediately preceding calendar month, substantially in
the form of Exhibit 3.06(d);
(e) DOE Audit Materials. Within 30 days after the last day of each
calendar month, notice of all DOE audits of or any other actions of a material
nature by the DOE with respect to, the Issuer or any Affiliate thereof, to the
extent that it has knowledge thereof, of the Master Servicer or Student Loan
Guarantor, under any Student Loan Guaranty Agreement, and, in each case, notice
of the results thereof (including, but not limited to, the rate of reimbursement
by the DOE for the Student Loan Guarantors under the related Student Loan
Guaranty Agreements, to the extent that such rate is below the maximum permitted
under the Higher Education Act (i.e., 95% for Student Loans disbursed on or
after October 1, 1998, 98% with respect to Student Loans disbursed on or after
October 1, 1993, and 100% for Student Loans disbursed prior thereto));
(f) Reports of Independent Accountants. As promptly as practicable,
copies of any reports or written comments (including, without limitation, audit
reports, management letters and any other reports or communications with respect
to the internal control structure) relating to the Issuer submitted by its
independent accountants;
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(g) Event of Defaults. Immediately upon becoming aware of the existence
of any Event of Default or Unmatured Event of Default, a written statement of an
Authorized Officer of the Issuer setting forth details of such event and the
action that the Issuer proposes to take with respect thereto; and immediately
upon becoming aware of a Servicer Default, written notice thereof.
In addition, the Issuer shall promptly furnish a copy of each Monthly
Report upon delivery thereof to the Indenture Trustee and the Eligible Lender
Trustee, to (i) S&P at Standard & Poor's, 26 Broadway, New York, New York 10004,
Attention: ABS Surveillance Department, (ii) Moody's at Moody's Investors
Service, Inc., 99 Church Street, New York, New York 10007, Attention: ABS
Monitoring Department and (iii) Fitch IBCA at Fitch IBCA, Inc., One State Street
Plaza, New York, New York 10004, Attention: Asset Backed Monitoring Unit.
Section 3.07. Servicing Covenants. From the date hereof until the Final
Scheduled Payment Date, the Issuer shall comply with the following covenants.
(a) Servicing. The Issuer shall cause the Master Servicer to service,
administer and make collections with respect to the Financed Student Loans in
accordance in all material respects with all applicable Federal and State laws,
including all applicable standards, guidelines and requirements of the Higher
Education Act and any Student Loan Guaranty Agreement, the failure to comply
with which would adversely affect the eligibility of one or more of the Financed
Student Loans for Subsidy Payments or Student Loan Guaranty Payments, as
applicable, or would have a Material Adverse Effect on the Issuer.
(b) Collection of Financed Student Loan Payments. The Issuer shall
cause the Master Servicer to make reasonable efforts (including all efforts that
may be specified under the Higher Education Act or any Student Loan Guaranty
Agreement), in each case in accordance with the terms of the Master Servicing
Agreement, to collect all payments called for under the terms and provisions of
the Financed Student Loans as and when the same shall become due.
(c) Collection of Student Loan Guaranty Payments. The Issuer shall (or
shall cause the Master Servicer to) make reasonable efforts to claim, pursue and
collect all Student Loan Guaranty Payments from the Student Loan Guarantors
pursuant to the Student Loan Guaranty Agreements with respect to any of the
Financed Student Loans as and when the same shall become due and payable, and
shall comply, and shall cause the Master Servicer to comply, in all material
respects with all applicable laws and agreements with respect to claiming,
pursuing and collecting such payments in each case in accordance with the terms
of the Master Servicing Agreement. In connection therewith, the Master Servicer
is hereby authorized and empowered to convey to any Student Loan Guarantor the
Student Loan Note and the related Financed Student Loan file representing any
Financed Student Loan in connection with submitting a claim to such Student Loan
Guarantor for a Student Loan Guaranty Payment in accordance
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with the terms of the applicable Student Loan Guaranty Agreement whereupon the
Lien of the Indenture Trustee relating to such Financed Student Loan shall be
released without any further action of any kind.
(d) Collection of Subsidy Payments. The Issuer shall make or cause to
be made reasonable efforts to claim, pursue and collect all Subsidy Payments
from the DOE with respect to any of the Financed Student Loans as and when the
same shall become due and payable, shall comply or undertake commercially
reasonable efforts to cause compliance with in all material respects with all
applicable laws and agreements with respect to claiming, pursuing and collecting
such payments. All amounts so collected by the Issuer or otherwise shall
constitute Collections for the applicable Collection Period and shall be
deposited into the Collection Account in accordance with Section 8.03 (a). In
connection therewith, the Issuer, shall prepare and file or cause there to be
prepared with the DOE on a timely basis all claims, forms and other documents
and filings necessary or appropriate in connection with the claiming of Subsidy
Payments and otherwise pursuing and collecting such Subsidy Payments from the
DOE.
(e) Realization upon Financed Student Loans. The Issuer shall cause the
Master Servicer to use reasonable efforts consistent with customary servicing
practices and procedures and subject to the Master Servicing Agreement,
including all efforts that may be specified under any applicable Student Loan
Guaranty Agreement and the Higher Education Act, in its servicing of any
delinquent Financed Student Loans.
(f) Termination of the Master Servicer. In the event that the Guaranty
Agreement dated June 14, 1999, among EFG, the Insurer and the Indenture Trustee
is no longer the enforceable obligation of EFG, the Issuer shall take all
reasonable steps to replace the Master Servicer with a successor acceptable to
the Insurer.
Section 3.08. Negative Covenants of the Issuer. The Issuer shall not:
(a) except as expressly permitted by this Indenture or any other
Transaction Document and except for properties and assets released from the
Indenture Trust Estate in accordance with this Indenture, sell, transfer,
exchange or otherwise dispose of any of the properties or assets of the Issuer,
including those included in the Indenture Trust Estate, unless directed to do so
by the Indenture Trustee (which direction the Indenture Trustee shall not give
without the prior written consent of the Insurer);
(b) claim any credit on, or make any deduction from the principal or
interest (including any Noteholders' Interest Basis Carryover) payable in
respect of, the Notes (other than amounts properly withheld from such payments
under the Code or applicable state law) or assert any claim against any present
or former Noteholder by reason of the payment of the taxes levied or assessed
upon any part of the Indenture Trust Estate; or
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(c) (i) permit the validity or effectiveness of this Indenture 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 with respect to the Notes under this Indenture
except as may be expressly permitted hereby, (ii) permit any lien, charge,
excise, claim, 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 Indenture Trust Estate or any part thereof or any interest therein or
the proceeds thereof (other than tax liens and other liens that arise by
operation of law, in each case arising solely as a result of an action or
omission of the related Obligor, and other than as expressly permitted by the
Transaction Documents) or (iii) permit the lien of this Indenture not to
constitute a valid first priority (other than with respect to any such tax or
other lien) security interest in the Indenture Trust Estate.
Section 3.09. Issuer May Consolidate, etc., Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other
Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee and the Insurer, in
form satisfactory to the Indenture Trustee and the Insurer, the due and
punctual payment of the principal of, interest on and any Noteholders'
Interest Basis Carryover, if any, with respect to all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(iii) the consent of the Insurer shall have been obtained with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer or any Noteholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
and the Insurer an Officer's Certificate of the Issuer stating that
such consolidation or merger and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with.
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(b) The Issuer shall not convey or transfer all or substantially all
its properties or assets, including those included in the Indenture Trust
Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America
or any state, (B) expressly assume, by an indenture supplemental
hereto, executed and delivered to the Indenture Trustee and the
Insurer, in form satisfactory to the Indenture Trustee and the Insurer,
the due and punctual payment of the principal of, interest on and
Noteholders' Interest Basis Carryover, if any, with respect to all
Notes and the performance or observance of every agreement and covenant
of this Indenture on the part of the Issuer to be performed or
observed, all as provided herein, (C) expressly agree by means of such
supplemental indenture that all right, title and interest so conveyed
or transferred shall be subject and subordinate to the rights of
Noteholders and the Insurer, (D) unless otherwise provided in such
supplemental indenture, expressly agree to indemnify, defend and hold
harmless the Issuer and the Insurer against and from any loss,
liability or expense arising under or related to this Indenture and the
Notes and (E) expressly agree by means of such supplemental indenture
that such Person (or if a group of Persons, then one specified Person)
shall make all filings with the Commission (and any other appropriate
Person) required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the consent of the Insurer shall have been obtained with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer or any Noteholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
and the Insurer an Officer's Certificate of the Issuer stating that
such conveyance or transfer and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with.
Section 3.10. Successor or Transferee.
(a) Upon any consolidation or merger of the Issuer in accordance with
Section 3.09(a), the Person formed by or surviving such consolidation or merger
(if other than the
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Issuer) shall succeed to, and be substituted for, and may exercise every right
and power of, the Issuer under this Indenture with the same effect as if such
Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.09(b), EFG-II, LP will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery by the
Issuer of written notice to the Indenture Trustee and the Insurer stating that
EFG-II, LP is to be so released.
Section 3.11. No Other Business. Except as contemplated by this
Indenture, its limited partnership agreement or the other Transaction Documents,
the Issuer shall not engage in any business other than financing, purchasing,
owning, selling and managing the Financed Student Loans in the manner
contemplated by this Indenture, its limited partnership agreement and the other
Transaction Documents and activities incidental thereto.
Section 3.12. No Borrowing. Unless the Insurer shall have given consent
with respect to such issuance, the Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.13. Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Transaction Documents or this Indenture, the Issuer shall
not make any loan or advance or credit to, or guarantee (directly or indirectly
or by an instrument having the effect of assuring another's payment or
performance on any obligation or capability of so doing or otherwise), endorse
or otherwise become contingently liable, directly or indirectly, in connection
with the obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to,
any other Person.
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Article IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest (including any Noteholders' Interest Basis
Carryover) thereon, (iv) Section 3.02, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Sections 6.02 and 6.12 and the obligations of the
Indenture Trustee under Section 4.02) and (vi) the rights of Noteholders and the
Insurer as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them, and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when:
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section
1.04 and (ii) Notes for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from
such trust, as provided in Section 3.02) have been delivered
to the Indenture Trustee for cancellation and the Insurance
Policy has been returned to the Insurer for cancellation and
any amounts owed to the Insurer under this Indenture have been
paid; or
(2) all Notes not theretofore delivered to the
Indenture Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable at the
Final Scheduled Payment Date within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and
at the expense, of the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited
with the Indenture Trustee cash or direct obligations of or
obligations guaranteed by the United States of America (which
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will mature prior to the date such amounts are payable), in
trust for such purpose, in an amount sufficient, as certified
by an independent certified public accountant, to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for
cancellation as of such day of discharge or when due on the
Final Scheduled Payment Date and all amounts due to the
Insurer;
(B) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the Insurer
an Officer's Certificate of the Issuer stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Section 4.02. Application of Trust Money. All monies deposited with the
Indenture Trustee pursuant to Section 4.01 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Noteholders of the particular Notes for
the payment or redemption of which such monies have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest (including any Noteholders' Interest Basis Carryover), to the Insurer
of all amounts due to the Insurer under the Transaction Documents; but such
monies need not be segregated from other funds except to the extent required
herein or in the Master Servicing Agreement or required by law.
Section 4.03. Repayment of Monies Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.02 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
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Article V
REMEDIES
Section 5.01. Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) without taking into account any payments under the Insurance
Policy, a default for two days or more in the payment by the Issuer of any
interest (provided, however, that any Noteholders' Interest Basis Carryover
shall not constitute interest for this purpose) on any Note after the same
becomes due and payable; or
(b) default in the payment by the Issuer of the remaining principal
balance of any Note when the same becomes due and payable on the Final Scheduled
Payment Date; or
(c) default for five days or more in the payment of any installment of
the principal of any Note when the same becomes due and payable and when
Available Funds are sufficient to make such payment; or
(d) default in any material respect in the observance or performance of
any covenant or agreement of the Issuer made in this Indenture and the
continuation of any such default for a period of 45 days after notice thereof is
given to the Issuer by the Indenture Trustee or to the Issuer and the Indenture
Trustee by the holders of at least 25% in principal amount of the Notes then
outstanding; provided, however, that if the Issuer demonstrates that it is
making a good-faith attempt to cure such default, such 45 day period may be
extended by the Indenture Trustee (with the prior consent of the Insurer) to 90
days; or
(e) any representation or warranty made by the Issuer in this Indenture
or in any certificate delivered pursuant thereto or in connection therewith
having been incorrect in a material adverse respect as of the time made, and
such breach not having been cured within 45 days after notice thereof is given
to the Issuer by the Indenture Trustee or to the Issuer and the Indenture
Trustee by the holders of at least 25% in principal amount of the Notes then
outstanding; provided, however, that if the Issuer demonstrates that it is
making a good-faith attempt to cure such breach, such 45 day period may be
extended by the Indenture Trustee (with the prior consent of the Insurer) to 90
days; or
(f) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Indenture Trust Estate in an involuntary case under any applicable federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of the Issuer or for any substantial part of the Indenture
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Trust Estate, or ordering the winding-up or liquidation of the Issuer's affairs,
and such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(g) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Indenture Trust Estate, or the making by the Issuer of
any general assignment for the benefit of creditors, or the failure by the
Issuer generally to pay its debts as such debts become due, or the taking of
action by the Issuer in furtherance of any of the foregoing.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur, then the Indenture Trustee may, with the consent
of the Insurer, or shall, at the direction of the Insurer, declare all the Notes
to be immediately due and payable, by a notice in writing to the Issuer, and
upon any such declaration the unpaid principal amount of such Notes, together
with accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable; provided, however, that during the existence
and continuation of an Insurer Default the right of consent or direction shall
instead be exercised by Noteholders representing 66-2/3 % of the Class A Note
Principal Amount.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter provided in this Article V, the
Noteholders of Notes representing a majority of the Class A-1 Note Principal
Amount and the Class A-2 Note Principal Amount may rescind and annul such
declaration and its consequences (with the prior consent of the Insurer) if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(i) all payments of principal of and interest on all Notes and
all other amounts that would then be due hereunder or upon such Notes
if the Event of Default giving rise to such acceleration had not
occurred; and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder plus all amounts owed to the Insurer under the Transaction
Documents and the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal
of the Notes that has become due solely by such acceleration, have been cured or
waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
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Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of
any interest (including, subject to the limitations of Sections 1.13(a)(iv) and
8.03(b), any Noteholders' Interest Basis Carryover) on any Note when the same
becomes due and payable, and such default continues for a period of five days,
or (ii) default is made in the payment of the remaining principal balance of any
Notes when the same becomes due and payable on the Final Scheduled Payment Date,
or (iii) default for five days or more is made in the payment of any installment
of the principal of any Note when the same becomes due and payable and when
Available Funds are sufficient to make such payment, the Issuer will, upon
demand of the Indenture Trustee with the Insurer's prior consent, pay to it, for
the benefit of the Noteholders, the whole amount then due and payable on such
Notes for principal and interest (and any Noteholders' Interest Basis
Carryover), with interest upon the overdue principal, and, to the extent payment
at such rate of interest shall be legally enforceable, upon overdue installments
of interest (and any Noteholders' Interest Basis Carryover), at the rate
specified in Section 1.13 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 Indenture
Trustee and its respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, may (with the prior written consent of the Insurer) institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon such Notes and collect in the manner provided
by law out of the property of the Issuer or other obligor upon such Notes,
wherever situated, the monies adjudged or decreed to be payable, in each case
subject to Section 10.06 hereof.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may, subject to the Insurer's right to direct and control all remedies
unless an Insurer Default has occurred and is continuing, as more particularly
provided in Section 5.04, in its discretion, proceed to protect and enforce its
rights and the rights of the Noteholders and the Insurer, by such appropriate
Proceedings as the Indenture Trustee shall deem most effective 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 or legal or equitable right vested
in the Indenture Trustee by this Indenture or by law, in each case subject to
Section 10.06 hereof.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Indenture Trust Estate, Proceedings under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been
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appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceeding
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, with the prior written consent of
the Insurer, and shall, at the written direction of the Insurer, by intervention
in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest (including any Noteholders' Interest Basis
Carryover) 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 Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence, willful misconduct or bad
faith) and of the Noteholders allowed in such Proceeding;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Noteholders in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceeding;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders, the Insurer and
the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee, the Insurer or the Noteholders allowed in any
judicial Proceeding relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence, willful
misconduct or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any
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Noteholder thereof or to authorize the Indenture Trustee to vote in respect of
the claim of any Noteholder in any such proceeding except, as aforesaid, to vote
for the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceeding relative thereto, and any such action or Proceeding instituted by the
Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
benefit of the Noteholders and the Insurer.
(g) In any Proceeding brought by the Indenture Trustee (and also any
Proceeding involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceeding.
Section 5.04. Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing and
the Notes have become due and payable, the Indenture Trustee may (upon the
Insurer's prior consent), and shall at the Insurer's direction, do one or more
of the following (subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes monies adjudged
due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Indenture
Trust Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Indenture Trustee, the Insurer and the Noteholders;
and
(iv) sell the Indenture Trust Estate or any portion thereof or
rights or interests therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that during the existence and continuation of an Insurer
Default the Indenture Trustee shall not require the prior consent and direction
of the Insurer; and further provided, however, that the Indenture Trustee may
not sell or otherwise liquidate the Indenture
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Trust Estate following an Event of Default, other than an Event of Default
described in Section 5.01(i) or (ii), unless (A) the Noteholders of 100% of the
Class A-1 Note Principal Amount and the Class A-2 Note Principal Amount, (B) the
proceeds of such sale or liquidation distributable to the Noteholders are
sufficient to discharge in full all amounts then due and unpaid upon such Notes
for principal and interest (as evidenced by a certificate of a Responsible
Officer of the Indenture Trustee which shall be provided to the Insurer) or (C)
the Indenture Trustee determines that the Indenture Trust Estate will not
continue to provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of the
Insurer and of Noteholders of 66-2/3% of the Class A-1 Note Principal Amount and
the Class A-2 Principal Amount. In determining such sufficiency or insufficiency
with respect to clauses (B) and (C), the Indenture Trustee may, but need not,
obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Indenture Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Insurer for all due and unpaid Policy Premiums;
SECOND: on a pari passu basis (based on the ratio of each such
amount to the total of such amounts), to the Indenture Trustee
for all due and unpaid Indenture Trustee Fees and to the
Eligible Lender Trustee for all due and unpaid Eligible Lender
Trustee Fees.;
THIRD: to the Master Servicer for all due and unpaid Servicing
Fee Amounts due to the Master Servicer under the Master
Servicing Agreement;
FOURTH: to the Class A-1 Noteholders and the Class A-2
Noteholders for amounts due and unpaid on the Class A-1 Notes
and Class A-2 Notes, respectively, for interest (other than
any Noteholders' Interest Basis Carryover), on a pari passu
basis (based on the ratio of each such amount to the total of
such amounts) as between the Class A-1 Notes and Class A-2
Notes and ratably as between Noteholders within each such
Class, without preference or priority of any kind, according
to the respective amounts due and payable on the Class A-1
Notes and Class A-2 Notes for interest;
FIFTH: to the Class A-1 Noteholders and the Class A-2
Noteholders for amounts due and unpaid on the Class A-1 Notes
and Class A-2 Notes, respectively, for principal, on a pro
rata basis as between the Class A-1 Notes and Class A-2 Notes
(based on the unpaid Note Principal Amount of each such Class)
and ratably as between Noteholders within each such Class,
without preference or priority of any kind, according to the
respective amounts due and
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payable on the Class A-1 Notes and Class A-2 Notes for
principal, until the Class A Note Principal Amount has been
paid in full;
SIXTH: to the Insurer for all due and unpaid Insurer
Reimbursement Amounts;
SEVENTH: to the Class A-1 Noteholders and Class A-2
Noteholders for any unpaid Noteholders' Interest Basis
Carryover, on a pari passu basis (based on the ratio of each
such amount to the total of such amounts) as between the Class
A-1 Notes and Class A-2 Notes and ratably as between
Noteholders within each such Class, without preference or
priority of any kind, according to the amounts due and payable
on the Class A-1 Notes and Class A-2 Notes for Noteholders'
Interest Basis Carryover;
EIGHTH: to the Master Servicer for all amounts due to it under
the Master Servicing Agreement and not paid to it pursuant to
priority THIRD above;
NINTH: to the Persons entitled thereto, any amounts due under
Section or 10.05; and
TENTH: to the Issuer, free and clear of the lien of this
Indenture.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
record date, the Issuer shall mail to each Noteholder, the Indenture Trustee and
the Insurer a notice that states the record date, the payment date and the
amount to be paid.
Section 5.05. Optional Preservation of the Indenture Trust Estate. If
the Notes have been declared to be due and payable under Section 5.02 following
an Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee (with the prior consent of the
Insurer) may elect to maintain possession of the Indenture Trust Estate. It is
the desire of the parties hereto and the Noteholders that there be at all times
sufficient funds for the payment of principal of and interest (including any
Noteholders' Interest Basis Carryover) on the Notes, and the Indenture Trustee
shall take such desire into account when determining whether to maintain
possession of the Indenture Trust Estate. In determining whether to maintain
possession of the Indenture Trust Estate, the Indenture Trustee may, but need
not, obtain and rely upon an opinion (which shall be obtained at the expense of
the Issuer) of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Indenture Trust Estate for such purpose.
Section 5.06. Limitation of Suits. No Noteholder shall have any right
to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
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(i) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Noteholders of not less than 25% of the Class A-1
Note Principal Amount and the Class A-2 Note Principal Amount have made
written request to the Indenture Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Indenture
Trustee hereunder;
(iii) such Noteholder or Noteholders have offered to the
Indenture Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceeding;
(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Noteholders of a majority of the Class A-1 Note Principal Amount and
the Class A-2 Note Principal Amount or the Insurer; and
(vi) the Insurer shall have given its prior written consent;
provided, however, that during the existence and continuation of an
Insurer Default the Indenture Trustee shall not require the prior
written consent of the Insurer.
it being understood and intended that no one or more Noteholders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Noteholders or to obtain or to seek to obtain priority or preference over any
other Noteholders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders
pursuant to this Section 5.06, each representing less than a majority of the
Class A-1 Note Principal Amount and the Class A-2 Note Principal Amount, the
Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture, but such
action, if any, shall require the prior consent of the Insurer or shall be at
the direction of the Insurer.
Section 5.07. Unconditional Rights of Noteholders to Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, any
Noteholder shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Primary Payment Date, in the case of the
Class A-1 Notes, or the Secondary Payment Date, in the case of the Class A-2
Notes, fixed
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for redemption) and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Noteholder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee, the Insurer or any Noteholder has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Insurer or to such Noteholder, then and in every such
case the Issuer, the Indenture Trustee, the Insurer and the Noteholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee, the Insurer and the Noteholders shall
continue as though no such Proceeding had been instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Insurer or to the
Noteholders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Noteholder or the Insurer to exercise any right or
remedy accruing upon any Default or Event of Default shall impair any such right
or remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee, to the Noteholders or to the Insurer may be exercised
from time to time, and as often as may be deemed expedient, by the Indenture
Trustee, the Noteholders or the Insurer, as the case may be.
Section 5.11. Control by Noteholders. The Noteholders of a majority of
the Class A-1 Note Principal Amount and the Class A-2 Note Principal Amount
shall have the right to direct the time, method and place of conducting any
Proceeding for any remedy available to the Indenture Trustee with respect to the
Notes or exercising any trust or power conferred on the Indenture Trustee;
provided, however, that
(i) the Insurer shall have consented to such direction;
(ii) such direction shall not be in conflict with any rule of
law or with this Indenture;
(iii) subject to the express terms of Section 5.04 and only
during the existence and continuation of an Insurer Default, any
direction to the Indenture Trustee to sell or liquidate the Indenture
Trust Estate shall be by the Noteholders of 100% of the Class A-1 Note
Principal Amount and the Class A-2 Note Principal Amount;
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(iv) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Indenture
Trust Estate pursuant to such Section, then any direction to the
Indenture Trustee by Noteholders of less than 100% of the Class A-1
Note Principal Amount and the Class A-2 Note Principal Amount to sell
or liquidate the Indenture Trust Estate shall be of no force and
effect; and
(v) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
and provided, further, that, subject to Section 6.01, the Indenture Trustee need
not take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
Section 5.12. Waiver of Past Defaults. Prior to the time a judgment or
decree for payment of money due has been obtained as described in Section 5.02,
the Noteholders (with the consent of the Insurer) of not less than a majority of
the Class A-1 Note Principal Amount and the Class A-2 Note Principal Amount may
waive any past Default or Event of Default and its consequences except a Default
or Event of Default (a) in payment when due of principal of or interest
(including, subject to the limitations of Sections 1.13(a)(iv) and 8.03(b), any
Noteholders' Interest Basis Carryover) on any of the Notes or (b) in respect of
a covenant or provision hereof which cannot be modified or amended without the
consent of each Noteholder; provided, however, that all Class A Noteholders
(with the consent of the Insurer) may waive events described in clauses (a) and
(b) hereof. In the case of any such waiver, the Issuer, the Indenture Trustee,
the Insurer and the Noteholders shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to be cured and not to have occurred, for every
purpose of this Indenture to the extent specified in such waiver but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Noteholder by such Noteholder's acceptance of any Note shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee or the Insurer, (b) any suit instituted by any Noteholder, or
group of
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Noteholders, in each case holding in the aggregate more than 10% of the Note
Principal Amount or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest (including any
Noteholders' Interest Basis Carryover) on any Note on or after the respective
due dates expressed in such Note and in this Indenture (or, in the case of
redemption, on or after the Primary Payment Date, in the case of the Class A-1
Notes, or the Secondary Payment Date, in the case of the Class A-2 Notes, fixed
for redemption).
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee or the Insurer, but will suffer and permit the execution
of every such power as though no such law had been enacted.
Section 5.15. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee, the Insurer or the Noteholders shall be
impaired by the recovery of any judgment by the Indenture Trustee or the Insurer
against the Issuer or by the levy of any execution under such judgment upon any
portion of the Indenture Trust Estate or upon any of the assets of the Issuer.
Any money or property collected by the Indenture Trustee shall be applied in
accordance with Section 5.04(b).
Section 5.16. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee or the
Insurer to do so, the Issuer shall take all such lawful action as the Indenture
Trustee may request to compel or secure the performance and observance by EFG or
the Master Servicer, as applicable, of each of their obligations to the Issuer
under or in connection with the Purchase and Contribution Agreement, the Master
Servicing Agreement and the other Transaction Documents and to exercise any and
all rights, remedies, powers and privileges lawfully available to the Issuer
under or in connection with the Purchase and Contribution Agreement, the Master
Servicing Agreement and the other Transaction Documents to the extent and in the
manner directed by the Indenture Trustee or the Insurer, including the
transmission of notices of default on the part of the Master Servicer thereunder
and the institution of legal or administrative actions or proceedings to compel
or secure performance by EFG or the Master Servicer of each of their obligations
under the Purchase and Contribution Agreement, the Master Servicing Agreement or
the other Transaction Documents.
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(b) The Indenture Trustee, with the written consent of the Insurer or
during the existence and continuation of an Insurer Default the Noteholders of
66-2/3% of the Class A-1 Note Principal Amount and the Class A-2 Note Principal
Amount, shall exercise all rights, remedies, powers, privileges and claims of
the Issuer against EFG and the Master Servicer under or in connection with the
Purchase and Contribution Agreement, the Master Servicing Agreement or the other
Transaction Documents, including the right or power to take any action to compel
or secure performance or observance by EFG or the Master Servicer of each of
their obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Purchase and
Contribution Agreement, the Master Servicing Agreement or the other Transaction
Documents and any right of the Issuer to take such action shall be suspended.
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Article VI
INDENTURE TRUSTEE
Section 6.01. Acceptance of the Trusts. The Indenture Trustee accepts
and agrees to execute the trusts granted to it by this Indenture, but only upon
the terms and conditions set forth herein. The Indenture Trustee, prior to the
occurrence of an Event of Default and after the curing or waiving of all Events
of Default which may have occurred, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the Indenture
Trustee.
In case an Event of Default has occurred of which the Indenture Trustee
has, or is deemed to have, notice in accordance with this Indenture and has not
been cured, the Indenture Trustee agrees to act in accordance with the
instructions and orders of the Noteholders, but in any such event, only upon and
subject to the following expressed terms and conditions:
(a) The Indenture Trustee may execute any of the trusts or powers
hereof and perform any of its duties by or through attorneys, agents, receivers,
employees or co-trustees and shall not be answerable for the conduct of the same
if appointed in accordance with the standard specified above, and shall be
entitled to advice of counsel concerning all matters of trusts hereof and the
duties hereunder, and may in all cases pay such reasonable compensation to all
such attorneys, agents, receivers, and employees as may reasonably be employed
in connection with the trusts hereof. The Indenture Trustee may act upon the
opinion or advice of an attorney or accountant by it in the exercise of
reasonable care. The Indenture Trustee shall not be responsible for any loss or
damage resulting from any action or nonaction of such Person which is in good
faith and in reliance upon such opinion or advice. The Indenture Trustee shall
not be responsible for any action or inaction of the Master Servicer or any
party hereto except as provided herein or under applicable laws, rules and
regulations.
(b) The Indenture Trustee shall not be responsible for any recital
herein, or in any Note, or for the validity of the execution by the Issuer of
this Indenture, or of any supplemental indentures or instruments of further
assurance, or for the sufficiency of the security for the Notes issued hereunder
or intended to be secured hereby, or for the value or title of the property
herein conveyed or otherwise as to the maintenance of the security hereof.
(c) The Indenture Trustee shall not be accountable for the use or
application by the Issuer of the Notes or the proceeds thereof or for the use or
application of any money paid over by the Indenture Trustee in accordance with
the provisions of this Indenture or for the use and application of other money
received by the Indenture Trustee.
(d) The Indenture Trustee shall be protected in acting upon any notice,
requisition, request, consent, certificate, order, opinion, affidavit, letter,
telegram or other paper or document reasonably believed to be genuine and
correct and to have been signed or sent by the proper Person or Persons. Any
action taken by the Indenture Trustee pursuant to this
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Indenture upon the request or authority or consent of any Person who at the time
of making such request or giving such authority or consent is the owner of a
Note shall be conclusive and binding upon all future owners of the Notes and
upon any Notes issued in exchange therefor or in place thereof.
(e) Except as otherwise expressly provided in this Indenture, as to the
existence or nonexistence of any fact or as to the sufficiency or validity of
any instrument, paper or proceeding, the Indenture Trustee shall be entitled to
rely upon a certificate of an officer of any Noteholder as sufficient evidence
of facts therein contained, and prior to the occurrence of a default of which
the Indenture Trustee has been notified as provided in subsection (g) of this
Section, or of which by said subsection it is deemed to have notice, shall also
be at liberty to accept a dealing, transaction or action as necessary or
expedient, but may at its discretion secure such further evidence deemed
necessary or advisable, but shall in no case be bound to secure the same.
(f) The permissive right of the Indenture Trustee to do things
enumerated in this Indenture shall not be construed as a duty and the Indenture
Trustee shall not be answerable for other than its negligence or willful
misconduct; provided, however, that the Indenture Trustee shall not be liable
for any error of judgment made in good faith, unless it shall be proved that
such Person was negligent in ascertaining the pertinent facts.
(g) The Indenture Trustee shall not be required to take notice or be
deemed to have notice of any default hereunder except failure by the Issuer to
cause to be made any of the payments to it for the account of the Noteholders
required to be made by Section 3.01, or defaults under Section 5.01, unless the
Indenture Trustee shall be specifically notified in writing of such default by
the Issuer or a Noteholder.
(h) The Indenture Trustee shall not be required to give any bond or
surety in respect of the execution of the said trusts and powers or otherwise in
respect of the premises.
(i) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(j) All moneys received by the Indenture Trustee shall, until used or
applied or invested as herein provided, be held in trust for the purposes for
which they were received in the Collection Account, the Class A-2 Distribution
Account, the Pre-Funding Account, the Capitalized Interest Account or the
Reserve Account.
(k) Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee shall be subject to the provisions
of this Section.
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(l) NOTWITHSTANDING ANY OTHER PROVISION OF THIS INDENTURE OR THE OTHER
TRANSACTION DOCUMENTS, NOTHING IN THIS INDENTURE OR THE OTHER TRANSACTION
DOCUMENTS SHALL BE CONSTRUED TO LIMIT THE LEGAL RESPONSIBILITY OF THE INDENTURE
TRUSTEE TO THE SECRETARY OF EDUCATION OR A FEDERAL GUARANTOR FOR ANY VIOLATIONS
OF STATUTORY OR REGULATORY REQUIREMENTS THAT MAY OCCUR WITH RESPECT TO STUDENT
LOANS HELD BY THE INDENTURE TRUSTEE PURSUANT TO, OR TO OTHERWISE COMPLY WITH ITS
OBLIGATIONS UNDER, THE HIGHER EDUCATION ACT OR IMPLEMENTING REGULATIONS.
Section 6.02. Fees, Charges and Expenses of Indenture Trustee. The
Indenture Trustee shall be entitled (i) to payment of the Indenture Trustee's
Fees for its services rendered hereunder pursuant to the priorities set forth in
Section 8.03(b) and (ii) to payment by the Issuer of, or reimbursement for, all
advances, reasonable counsel fees and expenses and other out-of-pocket expenses
reasonably and necessarily made or incurred by the Indenture Trustee, in
connection with such services, which shall be paid to it.
Section 6.03. Notice if Default Occurs. If a default occurs of which
the Indenture Trustee is by Section 6.01(g) required to take notice or if notice
of default be given as provided in said Section 6.01(g), then the Indenture
Trustee shall give written notice thereof by registered or certified mail to the
Issuer and the Noteholders.
Section 6.04. Intervention by Indenture Trustee. In any judicial
proceeding to which the Issuer is a party, the Indenture Trustee shall intervene
if directed to do so in writing by the Insurer or a Majority Interest of the
Noteholders with the consent of the Insurer.
Section 6.05. Successors. Any corporation or association into which the
Indenture Trustee may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its corporate trust business
and assets as a whole or substantially as a whole, or any corporation or
association resulting from any such conversion, sale, merger, consolidation or
transfer to which it is a party, ipso facto, shall be and become successor
Indenture Trustee hereunder and vested with all of the title to the whole
property or trust estate and all the trusts, powers, discretions, immunities,
privileges and all other matters as was its predecessor, without the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
Section 6.06. Resignation. The Indenture Trustee may at any time resign
from the trusts hereby created by giving 90 days' written notice to the Issuer,
the Insurer and the Noteholders, and such resignation shall take effect at the
end of such 90 days, or upon the earlier appointment and acceptance of a
successor Indenture Trustee, as provided in Section 6.08 hereof, or removal as
provided in Section 6.07 hereof. Notwithstanding the foregoing, resignation of
the Indenture Trustee shall not be effective until a successor or temporary
Indenture Trustee is appointed and has accepted such appointment; provided,
however, if an
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instrument of acceptance shall not have been delivered within 120 days after
giving such notice of resignation, the resigning Indenture Trustee may petition
a court of competent jurisdiction for the appointment of a successor, and any
attorneys' fees and expenses incurred in connection with such petition shall be
payable by the Issuer.
Section 6.07. Removal. The Indenture Trustee may be removed by the
Insurer or a Majority Interest of the Noteholders at any time with the consent
of the Insurer, by an instrument in writing delivered to the Indenture Trustee.
The Issuer shall remove the Indenture Trustee if (i) the Indenture Trustee fails
to comply with Section 6.13, (ii) an Insolvency Event occurs with respect to the
Indenture Trustee, (iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property or (iv) the Indenture Trustee otherwise
becomes incapable of acting. Notwithstanding the foregoing, removal of the
Indenture Trustee shall not be effective until a successor is appointed and has
accepted such appointment.
Section 6.08. Appointment of Successor. In case the Indenture Trustee
shall resign or be removed, or be dissolved, or shall be in course of
dissolution or liquidation, or otherwise become incapable of acting hereunder,
or in case it shall be taken under the control of any public officer or
officers, or of a receiver appointed by a court, a successor acceptable to the
Insurer and meeting the eligibility requirements of Section 6.13 may be
appointed by the Issuer by an instrument in writing signed by the Issuer. The
Issuer shall also inform the Rating Agencies promptly of any such resignation or
removal of the Indenture Trustee. If no appointment of a successor Indenture
Trustee shall have been made pursuant to the foregoing provisions of this
Section within 120 days after the Indenture Trustee shall have given written
notice as provided in Section 6.06 hereof, the Indenture Trustee, the Issuer or
a Majority Interest of the Noteholders may apply to a court of competent
jurisdiction to appoint a successor Indenture Trustee. Each such successor
Indenture Trustee shall agree in writing to be bound by the provisions of
Section 10.06.
Section 6.09. Concerning Any Successor. Every successor Indenture
Trustee appointed hereunder shall execute, acknowledge and deliver to its
predecessor and also to the Issuer an instrument in writing accepting such
appointment hereunder, and thereupon such successor, without any further act,
deed or conveyance, shall become fully vested with all the estates, properties,
rights, powers, trusts, duties and obligations of its predecessor; but such
predecessor shall, nevertheless, upon receipt of a request from the Issuer
execute and deliver an instrument transferring to such successor all the
estates, properties, rights, powers and trusts of such predecessor hereunder;
and every predecessor shall deliver all securities and moneys held by it as
Indenture Trustee hereunder to its successor.
Section 6.10. Appointment of Co-Trustee. It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
denying or restricting the right of banking corporations or associations to
transact business as the Indenture Trustee in such jurisdiction. It is
recognized that in case of litigation under this Indenture or any other
Transaction
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Document or any Student Loan or related agreement, and in particular in case of
the enforcement thereof on default, or in case of a conflict of interest, or in
case the Indenture Trustee deems that by reason of any present or future law of
any jurisdiction it may not exercise any of the powers, rights or remedies
herein granted to the Indenture Trustee or hold title to the properties, in
trust, as herein granted, or take any other action which may be desirable or
necessary in connection therewith, it may be necessary that the Indenture
Trustee appoint an additional institution, which must be a commercial bank with
trust powers acceptable to the Insurer, as a separate or co-Trustee. The
following provisions of this Section are intended to accomplish these ends.
In the event that the Indenture Trustee appoints an additional
individual or institution as a separate or co-Trustee, each and every remedy,
power, right, claim, demand, cause of action, immunity, estate, title, interest
and lien expressed or intended by this Indenture to be exercised by or vested in
or conveyed to the Indenture Trustee with respect thereto shall be exercisable
by and vest in such separate or co-Trustee but only to the extent necessary to
enable such separate or co-Trustee to exercise such powers, rights and remedies,
and every covenant and obligation necessary to the exercise thereof by such
separate or co-Trustee shall run to and be enforceable by either of them.
Should any instrument in writing from the Issuer be required by the
separate or co-Trustee so appointed by the Indenture Trustee for more fully and
certainly vesting in and confirming to him, her or it such properties, rights,
powers, trusts, duties and obligations, any and all such instruments in writing
shall, on request, be executed, acknowledged and delivered by the Issuer. In
case any separate or co-Trustee, or a successor to either, shall die, become
incapable of acting, resign or be removed, all the estates, properties, rights,
powers, trusts, duties and obligations of such separate or co-Trustee, so far as
permitted by law, shall vest in and be exercised by the Indenture Trustee until
the appointment of a new Indenture Trustee or a successor to such separate or
co-Trustee.
Section 6.11. Successor Indenture Trustee as Trustee of Funds. In the
event of a change of the Indenture Trustee the predecessor which has resigned or
been removed shall cease to be trustee of any funds then held by it hereunder
and the successor Indenture Trustee shall become such trustee.
Section 6.12. Indemnification.
(a) The Indenture Trustee shall not be under any obligation or duty to
perform any act at the request of the Noteholders or the Issuer or to institute
or defend any suit in respect hereof or to exercise any remedy hereunder unless
properly indemnified to its satisfaction subject to Section 6.01(i) hereof,
except making payment of principal and interest, making a draw on the Insurance
Policy or accelerating the Notes as provided herein. The Indenture Trustee shall
not be required to take notice, or be deemed to have knowledge, of any default
of the Issuer, except as provided in Section 6.01(g).
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(b) The Issuer agrees to indemnify the Indenture Trustee for, and to
hold it harmless against, any loss, liability or expense, including reasonable
attorneys' fees and expenses, incurred without negligence or bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder except as a result of negligence, bad faith or willful misconduct on
its part and except any liability to the DOE on account of the Indenture
Trustee's status as such.
Section 6.13. Eligibility Requirements for Indenture Trustee. The
Indenture Trustee and any successor Indenture Trustee shall at all times be (i)
an institution insured by the Federal Deposit Insurance Corporation, (ii) a
corporation or national bank or national banking association organized and doing
business under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by federal and state authority, (iii) an institution whose long-term
senior unsecured debt is rated at least "BBB-", in the case of S&P, "Ba2", in
the case of Moody's, or "BBB-", in the case of Fitch IBCA (or in the case of
each Rating Agency, such lower rating as is confirmed by such Rating Agency in
writing would not adversely affect any of the ratings then assigned to the Class
A Notes), and (iv) unaffiliated with the Issuer or EFG. If such corporation,
national bank or national banking association publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of this Section, the
combined capital and surplus of such corporation, national bank or national
banking association shall be deemed to be its combined capital and surplus as
set forth in its most recent report or condition so published. If at any time
the Indenture Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Indenture Trustee shall resign immediately in
the manner and with the effect specified in Section 6.06. No person shall become
a successor trustee hereunder if the succession of such Person would result in
the qualification, downgrading and withdrawal of any of the ratings then
assigned by the Ratings Agencies to the Notes.
Section 6.14. Tax Information. The Indenture Trustee shall deliver to
each Noteholder such information as may be required to enable such holder to
prepare its federal and state incime tax returns, provided that such information
shall consist only of Form 1099's or any successor forms required to be given to
Noteholders pursuant to the Code.
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Article VII
[RESERVED]
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Article VIII
SETTLEMENTS
Section 8.01. Trust Accounts; Investments by Indenture Trustee.
(a) Trust Accounts. On or before the Closing Date, the Indenture
Trustee shall establish, for the benefit of the Noteholders, to the extent of
their interests therein as provided herein, the Collection Account, the
Pre-Funding Account, the Reserve Account and the Capitalized Interest Account,
which Trust Accounts shall be maintained as Eligible Deposit Accounts. On or
before the Closing Date, the Indenture Trustee shall establish, for the benefit
of the Class A-2 Noteholders, to the extent of their interests therein as
provided herein, the Class A-2 Distribution Account, which account shall be
maintained as an Eligible Deposit Account. Subject to the further provisions of
this Section 8.01, the Indenture Trustee shall, upon receipt deposit into such
Trust Accounts all amounts received by it which are required to be deposited
therein in accordance with the provisions hereof. All such amounts and all
investments made with such amounts, including all income and other gain from
such investments, shall be held by the Indenture Trustee in such Trust Accounts
as part of the Collateral as herein provided, subject to withdrawal by the
Indenture Trustee in accordance with, and for the purposes specified in the
provisions of, this Indenture.
(b) Administration of Payments. The Indenture Trustee shall assume that
any amount remitted to it by the Master Servicer, any Sub-servicer or the Issuer
is to be deposited into the Collection Account pursuant to Section 8.03. The
Indenture Trustee may establish from time to time such deadline or deadlines as
it shall determine are reasonable or necessary in the administration hereof
after which all amounts received or collected by the Indenture Trustee on any
day shall not be deemed to have been received or collected until the next
succeeding Business Day.
(c) No Set-Off. None of the Eligible Lender Trustee or the Indenture
Trustee shall have any right of set-off against Collections, Trust Accounts, or
any investment therein, whether or not commingled to satisfy any other
obligations, and each of the Eligible Lender Trustee and the Indenture Trustee
hereby irrevocably waives any and all such rights.
(d) Investments. Amounts in the Trust Accounts shall be invested and
reinvested by the Indenture Trustee in Eligible Investments. Subject to the
restrictions on the maturity of investments set forth in Section 8.01(f), an
Issuer Order may authorize the Indenture Trustee to make the specific Eligible
Investments set forth therein, to make Eligible Investments from time to time
consistent with the general instructions set forth therein, or to make specific
Eligible Investments pursuant to instructions received in writing or by
facsimile transmission from the employees or agents of the Issuer identified
therein, in each case in such amounts as such Issuer Order shall specify. The
Issuer agrees to report as income for financial reporting
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and tax purposes (to the extent reportable) all investment earnings on amounts
in the Trust Accounts.
(e) Investments in the Absence of an Issuer Order; Notice of Uninvested
Cash. In the event that either (i) the Issuer shall have failed to give
investment directions to the Indenture Trustee by 11:00 a.m., New York City
time, on any Business Day on which there may be uninvested cash deposited in the
Trust Accounts or (ii) an Event of Default or Unmatured Event of Default shall
have occurred and be continuing, then the Indenture Trustee shall invest such
funds in Eligible Investments described in clause (v) of the definition thereof.
All Eligible Investments made by the Indenture Trustee shall mature no later
than the maturity date therefor permitted by Section 8.01(f).
(f) Maturity of Eligible Investments. All Eligible Investments shall
mature (or, with respect to mutual fund investments, shall be redeemable without
premium or penalty) no later than the Business Day prior to each Primary Payment
Date, or only in the case of the Class A-2 Distribution Account, no later than
the Business Day prior to each Secondary Payment Date. All income or other gains
from the investment of moneys deposited in the Trust Accounts shall be deposited
by the Indenture Trustee in the Collection Account upon receipt and shall deemed
to constitute a portion of the Available Funds for the related Primary Payment
Date or Secondary Payment Date, as applicable.
(g) Form of Investment. Any investment of any funds in the Trust
Accounts shall be made under the following terms and conditions:
(i) each such investment shall be made in the name of the
Indenture Trustee, for the benefit of the Issuer and the Noteholders
(to the extent of their respective interests therein), or in the name
of a nominee of the Indenture Trustee; and
(ii) any certificate or other instrument evidencing such
investment shall be delivered directly to the Indenture Trustee, and
the Indenture Trustee shall have sole possession of such instrument,
and all income on such investment.
(h) [Reserved]
(i) Indenture Trustee Not Liable. The Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in the Trust Accounts
resulting from losses on investments made in accordance with the provisions of
this Section 8.01 (but the institution serving as Indenture Trustee shall at all
times remain liable for its own debt obligations, if any, constituting part of
such investments) except for negligence or intentional misconduct. The Indenture
Trustee shall not be liable for any investment made by it in accordance with
this Section 8.01 on the grounds that it could have made a more favorable
investment.
Section 8.02. Collection of Moneys. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect,
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directly and without intervention or assistance of any fiscal agent or other
intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Indenture Trust Estate, the Indenture Trustee may take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate Proceedings in accordance with the terms hereof.
Any such action shall be without prejudice to any right to claim a Default or
Event of Default under this Indenture and any right to proceed thereafter as
provided in Article V.
If at any time the Issuer shall receive any Collections on or in
respect of any Financed Student Loan (including any Student Loan Guaranty
Payment or Subsidy Payment), it shall hold such Collections for the benefit of
the Indenture Trustee (for the benefit of the Noteholders and the Insurer),
shall segregate such payment from the other property of the Issuer and shall
deliver such payment in the form received (endorsed as necessary for transfer)
to the Indenture Trustee for deposit in the Collection Account in accordance
with Section 8.03.
Section 8.03. Collection Account; Class A-2 Distribution Account.
(a) Deposits. The Issuer shall remit all Collections received by it to
the Collection Account no later than the close of business on the second
Business Day after receipt thereof, and the Master Servicer shall be instructed
to remit all Collections received by it in accordance with the Master Servicing
Agreement to the Collection Account for deposit therein. In addition, the Issuer
shall deposit to the Collection Account no later than the close of business on
each Determination Date the aggregate Purchase Amounts payable by the Issuer
pursuant to Section 2.02. If the Issuer shall receive any written statement from
the Master Servicer stating that any amount previously paid by the Master
Servicer to the Indenture Trustee or Issuer and deposited into the Collection
Account was so paid and deposited into the Collection Account in error, the
Issuer, if it shall concur as to the truth of such statement, shall forward to
the Indenture Trustee in writing, together with such security or indemnity as
may be required by it to hold the Indenture Trustee harmless, a copy of such
written statement from the Master Servicer, along with an instruction to the
Indenture Trustee to withdraw such amount from the Collection Account and pay
such amount to the Master Servicer. Following receipt from the Issuer of the
Master Servicer's statement and the written instructions set forth in the
preceding sentence, so long as no Event of Default shall have occurred and be
continuing, the Indenture Trustee shall withdraw such amount from the Collection
Account and pay such amount to such Master Servicer.
(b) Payment Date Procedures.
(i) Amounts on deposit on any Primary Payment Date in the
Collection Account representing Available Funds received during or with
respect to the related
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Collection Period, shall be withdrawn from the Collection Account on
such Primary Payment Date no later than 11:00 a.m. (New York City
time), in the amounts required, and applied in the following order of
priority set forth below, in each case to the extent of Available Funds
remaining after application of each clause representing a higher
priority:
first, an amount equal to the Policy Premium then
due, if any, pursuant to the Insurance Agreement shall be set
aside in the Collection Account and paid to the Insurer on
such Primary Payment Date;
second, an amount equal to the sum of (i) the
Servicing Fee Amount then due with respect to such Primary
Payment Date, plus any overdue Servicing Fees Amounts, (ii)
the Eligible Lender Trustee's Fees with respect to such
Primary Payment Date, plus any overdue Eligible Lender
Trustee's Fees, (iii) the Indenture Trustee's Fees with
respect to such Primary Payment Date, plus any overdue
Indenture Trustee's Fees, (iv) the Auction Agent Fee with
respect to such Primary Payment Date plus any overdue Auction
Agent Fees and (v) the Broker-Dealer Fee with respect to such
Primary Payment Date, plus any overdue Broker Dealer Fees,
shall in each case be paid to the Master Servicer, the
Eligible Lender Trustee (in the case of the Eligible Lender
Trustee's Fee), the Indenture Trustee (in the case of the
Indenture Trustee's Fee), the Auction Agent (in the case of
the Auction Agent Fee) and the Broker-Dealer (in the case of
the Broker-Dealer Fee), pari passu (based on the ratio of each
such amount to the total of such amounts), on such Primary
Payment Date;
third, an amount equal to the Class A-1 Noteholders'
Interest Distribution Amount and the Class A-2 Noteholders'
Interest Distribution Amount shall be allocated to the Class
A-1 Noteholders and the Class A-2 Noteholders, respectively,
pari passu (based on the ratio of each such amount to the
total of such amounts) and shall be set aside in the
Collection Account and, in the case of the Class A-1
Noteholders, paid as a distribution of interest to the Class
A-1 Noteholders on such Primary Payment Date and, in the case
of the Class A-2 Noteholders, deposited in the Class A-2
Distribution Account for payment as a distribution of interest
to the Class A-2 Noteholders on the related Secondary Payment
Date;
fourth, if the amount on deposit in the Reserve
Account is less than the Specified Reserve Account Balance, an
amount sufficient to cause the amount on deposit in the
Reserve Account to equal the Specified Reserve Account Balance
will be deposited into the Reserve Account;
fifth, an amount equal to the Noteholders' Principal
Distribution Amount shall be set aside in the Collection
Account and paid as a distribution of
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principal to the Class A-1 Noteholders on such Primary Payment
Date until the Class A-1 Note Principal Amount shall be
reduced to zero and thereafter shall be deposited in the Class
A-2 Distribution Account to be paid as a distribution of
principal to the Class A-2 Noteholders on the related
Secondary Payment Date until the Class A-2 Note Principal
Amount shall be reduced to zero; provided, however, that any
Principal Holdover Amounts shall be set aside and deposited
into the Collection Account and not distributed or deposited
on each Primary Payment Date;
sixth, an amount equal to any Insurer Reimbursement
Amounts shall be set aside in the Collection Account and paid
to the Insurer on such Primary Payment Date;
seventh, an amount equal to the Class A-1
Noteholders' Interest Basis Carryover and the Class A-2
Noteholders' Interest Basis Carryover shall be allocated to
the Class A-1 Noteholders and the Class A-2 Noteholders,
respectively, pari passu (based on the ratio of each such
amount to the total of such amounts) and shall be, in the case
of the Class A-1 Noteholders, distributed to the Class A-1
Noteholders on such Primary Payment Date and, in the case of
the Class A-2 Noteholders, deposited in the Class A-2
Distribution Account for distribution to the Class A-2
Noteholders on the related Secondary Payment Date; and
eighth, any Available Funds remaining in the
Collection Account after the distributions pursuant to clauses
first through seventh above shall be released to the Issuer on
such Primary Payment Date.
(ii) For any calendar month in which no Payment Dates occur
(because no Auction has occurred in accordance with the Auction
Procedures) amounts on deposit in the Collection Account in such month,
shall be withdrawn from the Collection Account on the Administrative
Payment Date in such month no later than 11:00 a.m. (New York City
time), in the amounts required, and applied in the following order of
priority set forth below, to the extent of the amounts on deposit in
the Collection Account are sufficient therefor:
first, an amount equal to the Policy Premium then
due, if any, pursuant to the Insurance Agreement shall be set
aside in the Collection Account and paid to the Insurer on
such Administrative Payment Date; and
second, an amount equal to the sum of (i) the
Servicing Fee Amount then due with respect to such
Administrative Payment Date, plus any overdue Servicing Fee
Amounts, (ii) the Eligible Lender Trustee's Fees with respect
to such Administrative Payment Date, plus any overdue Eligible
Lender Trustee's Fees, (iii) the Indenture Trustee's Fees with
respect to such Administrative
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Payment Date, plus any overdue Indenture Trustee's Fees, (iv)
the Auction Agent Fee with respect to such Administrative
Payment Date, plus any overdue Auction Agent Fees and (v) the
Broker-Dealer Fee with respect to such Administrative Payment
Date, plus any overdue Broker Dealer Fees, shall in each case
be paid to the Master Servicer, the Eligible Lender Trustee
(in the case of the Eligible Lender Trustee's Fee), the
Indenture Trustee (in the case of the Indenture Trustee's
Fee), the Auction Agent (in the case of the Auction Agent
Fee), the Broker-Dealer (in the case of the Broker-Dealer Fee)
and amounts owed under the Insurance Agreement, pari passu
(based on the ratio of each such amount to the total of such
amounts), on such Administrative Payment Date.
(c) Class A-2 Distribution Account. On each Secondary Payment Date, the
amount on deposit in the Class A-2 Distribution Account shall be applied to pay
all amounts due to the Class A-2 Noteholders. Such amount shall be distributed
as interest, principal or Noteholders' Interest Basis Carryover on the Class A-2
Notes based on the portion and amount, if any, of the deposit into the Class A-2
Distribution Account in respect of the related Primary Payment Date that was
allocated to each such item pursuant to Section 8.03(b), 8.04(b), 8.05(b),
5.04(b) or any other relevant provision of this Indenture or the Notes. To the
extent that amounts on deposit in the Class A-2 Distribution Account, including
Investment Earnings thereon, are not needed for distribution on each Secondary
Payment Date, all such amounts shall be transferred to the Collection Account on
such Secondary Payment Date.
Section 8.04. Reserve Account.
(a) On the Closing Date, the Issuer shall deposit the Reserve Account
Initial Deposit into the Reserve Account.
(b) On each Primary Payment Date (after giving effect to any deposit to
the Reserve Account pursuant to Section 8.03(b)(i), fourth, and after giving
effect to any withdrawal from the Reserve Account pursuant to Section 8.04(d)),
the Issuer shall instruct the Indenture Trustee to withdraw from the Reserve
Account the amount of any Reserve Account Excess and distribute such amount in
the following order of priority: (A) to the Noteholders, the aggregate unpaid
amount of any Noteholders' Interest Basis Carryover, (such amount to be
allocated on a pari passu basis (based on the ratio of the Class A-1
Noteholders' Interest Basis Carryover or the Class A-2 Noteholders' Interest
Basis Carryover, as applicable, to the total of such amounts) among the Class
A-1 Notes and the Class A-2 Notes, with the amount to be allocated to the Class
A-2 Notes to be deposited into the Class A-2 Distribution Account for
distribution on the related Secondary Payment Date, and (B) the remaining amount
of such excess to the Issuer. Amounts properly distributed pursuant to clause
(B) of this Section 8.04(b) shall be deemed released from the Indenture Trust
Estate and the security interest therein granted to the Indenture Trustee, and
the Issuer shall in no event thereafter be required to refund any such
distributed amounts.
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(c) Following the payment in full of the Note Principal Amount and of
all other amounts owing or to be distributed hereunder to the Noteholder, the
Indenture Trustee, the Insurer and the Master Servicer (including any
Noteholders' Interest Basis Carryover), any amount remaining on deposit in the
Reserve Account shall be distributed to the Issuer. Issuer shall in no event be
required to refund any amounts properly distributed pursuant to this Section
8.04(c).
(d) Amounts on deposit in the Reserve Account will be applied (i) on
each Primary Payment Date to cover any shortfalls (in the priority indicated in
Section 8.03(b)(i)) in payments of (A) Policy Premiums and any overdue Policy
Premiums, (B) the Servicing Fee Amount, the Trustee Fees, the Broker-Dealer Fee,
the Auction Agent Fee and any such amounts that are overdue Servicing Fee
Amounts, Trustee Fees, Auction Agent Fees or Broker-Dealer Fees, and (C) the
Class A Noteholders' Interest Distribution Amount, in each case, for which
Available Funds for such Payment Date are insufficient to make such payments and
(ii) and only on the Primary Payment Date on which either the Final Scheduled
Payment Date (whether as scheduled or if accelerated after an Event of Default)
occurs or on which, after allocating all Available Funds and making any
withdrawals required under clause (i) above, the remaining balance on deposit in
the Reserve Account exceeds the remaining principal balance of the Notes, to pay
(or deposit into the Class A-2 Distribution Account for distribution on the
following Secondary Payment Date) the remaining principal balance of the Notes.
Section 8.05. Pre-Funding Account.
(a) On the Closing Date, the Issuer will deposit in the Pre-Funding
Account $____________. During the Funding Period, the Issuer shall instruct the
Indenture Trustee to withdraw from the Pre-Funding Account on each Transfer
Date, an amount equal to the Additional Fundings Purchase Amount of the
Additional Financed Student Loans transferred to the Eligible Lender Trustee on
behalf of the Issuer on such Transfer Date and to distribute such amount to or
upon the order of the Issuer upon satisfaction of the conditions set forth in
Section 3.2 of the Purchase and Contribution Agreement with respect to such
transfer.
(b) If the Pre-Funded Amount has not been reduced to zero on the
Primary Payment Date on which the Funding Period ends (or, if the Funding Period
does not end on a Primary Payment Date, on the first Primary Payment Date
following the end of the Funding Period), the Issuer shall instruct the
Indenture Trustee to withdraw from the Pre-Funding Account on such Primary
Payment Date an amount equal to the Pre-Funded Amount and to distribute such
amount to Noteholders as a payment of principal. Such distribution shall be
allocated to the Class A-1 Notes until the Class A-1 Note Principal Amount has
been reduced to zero, and then to the Class A-2 Distribution Account, until the
amount on deposit therein is sufficient to reduce the Class A-2 Note Principal
Amount to zero on the related Secondary Payment Date.
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Section 8.06. Claims on the Insurance Policy.
(a) If an Insured Payment is necessary for any Collection Period, then
the Indenture Trustee shall give notice to the Insurer and the Fiscal Agent (as
defined in the Insurance Policy), if any, by telephone or telecopy of the amount
of the required Insured Payment. Such notice shall be confirmed in writing by
the Indenture Trustee in the form set forth as Exhibit A to the Insurance
Policy, to the Insurer and the Fiscal Agent, if any, so that such notice is
received by the Insurer and the Fiscal Agent no later than 12:00 noon, New York
City time, on the Deficiency Claim Date (as defined in the Insurance Policy).
Following receipt by the Insurer of such notice in such form, the Insurer or the
Fiscal Agent shall pay the Indenture Trustee any amount payable under the
Insurance Policy, on the later to occur of (i) 12:00 noon, New York City time,
on the third Business Day following such receipt and (ii) 12:00 noon, New York
City time, on the Primary Payment Date to which such deficiency relates, as
provided in the Insurance Policy.
(b) The Indenture Trustee shall deposit the Insured Payment made under
the Insurance Policy in the Collection Account and distribute such amount only
to pay to the Noteholders in accordance with the terms of the Insurance Policy,
and such amount may not be applied in any other manner. Amounts paid under the
Insurance Policy shall remain uninvested and shall be disbursed by the Indenture
Trustee to Noteholders in accordance with Section 8.03(b) hereof, the Insurance
Policy and this Indenture. However, the amount of any payment of principal of or
interest on the Notes to be paid from amounts in the Collection Account in
respect of payments on the Insurance Policy shall be noted as provided in
paragraph (c) below in the Note Register, and in the statement to be furnished
to the Noteholders pursuant to Section 3.06(d) hereof.
(c) The Indenture Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of any Notes from moneys
received under the Insurance Policy. The Insurer shall have the right to inspect
such records at reasonable times during normal business hours upon three
Business Day's prior notice to the Indenture Trustee at the expense of the
Insurer.
Section 8.07. Rights in Respect of Insolvency Proceedings.
(a) In the event that the Indenture Trustee has received a certified
copy of a final, nonappealable order of the appropriate court that any
distribution of the Noteholders' Distribution Amount has been voided in whole or
in part as a preference payment under applicable bankruptcy or insolvency law,
the Indenture Trustee shall comply with the terms of the Insurance Policy
relating to Preference Amounts (as defined in the Insurance Policy).
(b) The Indenture Trustee shall promptly notify the Insurer of either
of the following as to which an applicable Responsible Officer has actual
knowledge: (i) the commencement of any proceeding by or against the Issuer
commenced under the United States Bankruptcy Code or any other applicable United
States federal or state bankruptcy, insolvency, receivership, rehabilitation, or
similar law (an "Insolvency Proceeding") or (ii) the making of
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any claim in connection with any Insolvency Proceeding seeking the avoidance as
a preferential transfer (a "Preference Claim") of any payment of principal of or
interest on the Notes. Each Noteholder, by its purchase of a Note, and the
Indenture Trustee hereby agree that, so long as a Insurer Default shall not have
occurred and be continuing, the Insurer may at any time during the continuation
of an Insolvency Proceeding direct all matters relating to such Insolvency
Proceeding, including (i) all matters relating to any Preference Claim, (ii) the
direction of any appeal of any order relating to any Preference Claim and (iii)
the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition, and without limitation of the foregoing, as set forth in
Section 8.08, the Insurer shall be subrogated to, and each Noteholder and the
Indenture Trustee hereby delegate and assign, to the fullest extent permitted by
law, the rights of the Indenture Trustee and such Noteholder in the conduct of
any Insolvency Proceeding, including all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with any
such Insolvency Proceeding.
(c) Upon the occurrence of any of the events described in (a) or (b)
above, the Indenture Trustee shall furnish to the Insurer its records evidencing
the distributions of principal of and interest on the Notes that have been made
and subsequently recovered from Noteholders and the dates on which such payments
were made.
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Section 8.08. Effect of Payments by the Insurer; Subrogation.
(a) Anything herein to the contrary notwithstanding, any distribution
of principal of or interest on the Notes that is made with moneys received
pursuant to the terms of the Insurance Policy shall not be considered payment of
the Notes by the Issuer and shall not discharge the Issuer in respect of such
distribution. The Indenture Trustee acknowledges that, without the need for any
further action on the part of the Insurer, the Indenture Trustee or the Note
Registrar, (i) to the extent the Insurer makes payments, directly or indirectly,
on account of principal of or interest on the Notes to the Noteholders thereof,
the Insurer will be fully subrogated to the rights of such Noteholders to
receive such principal and interest from distributions of the assets of the
Issuer and will be deemed to the extent of the payments so made to be a
Noteholder and (ii) the Insurer shall be paid principal and interest in its
capacity as a Noteholder until all such payments by the Insurer have been fully
reimbursed, but only from the sources and in the manner provided herein for the
distribution of such principal and interest and in each case only after the
Noteholders have received all payments of principal and interest due to them
under this Indenture on the related Primary Payment Date or Secondary Payment
Date, as applicable.
(b) Without limiting the rights or interests of the Noteholders as
otherwise set forth herein, so long as no Insurer Default exists, the Indenture
Trustee shall cooperate in all respects with any reasonable request by the
Insurer for action to preserve or enforce the Insurer's rights or interests
under this Indenture, including a request to take any one or more of the
following actions upon the occurrence of an Event of Default:
(i) institute proceedings for the collection of all amounts
then payable on the Notes or under this Indenture, enforce any judgment
obtained and collect moneys adjudged due; and
(ii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Insurer hereunder.
Section 8.09. Capitalized Interest Account.
(a) On the Closing Date, the Issuer shall deposit in the Capitalized
Interest Account $450,000. On the Determination Date with respect to each
Primary Payment Date occurring during the Funding Period and with respect to the
Primary Payment Date occurring immediately after the Collection Period during
which the Funding Period ends, the Issuer shall instruct the Indenture Trustee
to transfer from the Capitalized Interest Account to the Collection Account, the
Capitalized Interest Requirement for such Primary Payment Date.
(b) Immediately after the last Primary Payment Date with respect to
which the Capitalized Interest Requirement may be transferred to the Collection
Account as provided in clause (a) above, any amounts remaining in the
Capitalized Interest Account, shall be paid to the Issuer free and clear of the
Indenture. Immediately after such transfers, the Capitalized Interest Account
shall be closed.
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Article IX
REDEMPTION
Section 9.01. Redemption.
(a) In the event that on the Primary Payment Date on which the Funding
Period ends (or on the Primary Payment Date on or immediately following the last
day of the Funding Period, if the Funding Period does not end on a Primary
Payment Date) any amount that remains on deposit in the Pre-Funding Account
after giving effect to the making of all Additional Fundings, including any such
Additional Fundings on the Redemption Date, shall be used to redeem, in part,
the Class A-1 Notes and, to the extent all the Class A-1 Notes are paid in full,
the Class A-2 Notes in an aggregate principal amount equal to the amount then on
deposit in the Pre-Funding Account.
(b) [Reserved]
(c) The Issuer may elect to redeem the Notes in whole but not in part
on any Primary Payment Date by depositing with the Indenture Trustee an amount
which, when combined with all other amounts on deposit in the Trust Accounts on
such Primary Payment Date, is sufficient to distribute (or deposit in the case
of clause (ii)) on such Primary Payment Date (i) to the Class A-1 Noteholders,
the entire unpaid Class A-1 Note Principal Amount, all accrued and unpaid
interest on the Class A-1 Notes and all accrued and unpaid Class A-1
Noteholders' Interest Basis Carryover, (ii) into the Class A-2 Distribution
Account, an amount sufficient to distribute to the Class A-2 Noteholders on the
related Secondary Payment Date, the entire unpaid Class A-2 Note Principal
Amount, all accrued and unpaid interest on the Class A-2 Notes and all accrued
and unpaid Class A-2 Noteholders' Interest Basis Carryover, (iii) to the
Indenture Trustee, all amounts due to it under Section 6.02, (iv) to the Master
Servicer, all amounts due to the Master Servicer under the Master Servicing
Agreement and Sections 5.04 and 8.04(b) hereof, (v) to the Insurer, all due and
unpaid Policy Premiums and all Insurer Reimbursement Amounts and (vi) to the
Persons entitled thereto, any amounts due under Sections 7.01 or 10.05. Notice
of any redemption pursuant to this Section 9.01(c) shall be furnished by the
Issuer to the Indenture Trustee not later than 25 days prior to the Redemption
Date whereupon all of the amounts set forth above in this Section 9.01(c) shall
be payable on such Redemption Date.
Section 9.02. Form of Redemption Notice. Notice of redemption under
Section 9.01 shall be given by the Indenture Trustee by first-class mail,
postage prepaid, or by facsimile, mailed or transmitted on or prior to the
applicable Redemption Date to each Noteholder, as of the close of business on
the Record Date preceding the applicable Redemption Date, at such Noteholder's
address or facsimile number appearing in the Note Register.
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All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of
the Issuer to be maintained as provided in Section 1.03).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Noteholder of any Note shall not
impair or affect the validity of the redemption of any other Note.
Section 9.03. Notes Payable on Redemption Date. The Notes or portions
thereof to be redeemed shall on the Redemption Date become due and payable at
the Redemption Price and (unless the Issuer shall default in the payment of the
Redemption Price) no interest shall accrue on the Redemption Price for any
period after the date to which accrued interest is calculated for purposes of
calculating the Redemption Price.
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Article X
MISCELLANEOUS
Section 10.01. Amendments, Etc.
(a) Without the consent of any Noteholders, the Issuer and the
Indenture Trustee, at any time and from time to time with prior written consent
of the Insurer, may enter into one or more indentures supplemental hereto, in
form satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to add to the covenants of the Issuer for the benefit of
the Noteholders, or to surrender any right or power herein conferred
upon the Issuer;
(ii) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein; or
(iii) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or to better assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture; or
(iv) to evidence and provide for the acceptance of the
appointment of a successor Indenture Trustee; or
(v) add, change or eliminate any other provision herein in any
manner;
provided such action pursuant to this Section 10.01(a) shall not
materially and adversely affect the interests of the Noteholders in any respect.
The Indenture Trustee shall promptly deliver to each Noteholder and the
Rating Agency a copy of any supplemental indenture entered into pursuant to this
Section 10.01(a).
(b) With the written consent of the Holders of not less than 66-2/3% of
the then Note Principal Amount (for which purpose the Insurer shall be deemed
the sole Holder for so long as the Insurance Policy is in effect and the Insurer
has not defaulted), the Issuer and the Indenture Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Noteholders under
this Indenture; provided, however, that no supplemental indenture shall, without
the written consent (which consent shall in no event be exercised by the
Insurer) of the Holder of each Outstanding Note affected thereby,
(i) change the Final Scheduled Payment Date of any Note or the
principal payments or interest payments due or to become due on any
Payment Date with respect
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to any Note, or change the priority of payment thereof as set forth
herein, or reduce the principal amount thereof or the Note Rate
thereon, or change the place of payment where, or the coin or currency
in which, any Note or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or
after the maturity thereof;
(ii) reduce the percentage of the Note Principal Amount
required for any such supplemental indenture pursuant to Section
10.01(b) hereof, for any waiver of compliance with provisions of this
Indenture or Events of Default and their consequences, or for any act
of Noteholders;
(iii) modify any of the provisions of this Section except to
increase any percentage or fraction set forth therein or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Note
affected thereby;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding"; or
(v) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Indenture Trust Estate or terminate the lien of this Indenture on any
property at any time subject hereto or deprive any Noteholder of the
security afforded by the lien of this Indenture; or
(vi) result in a taxable event to any Class of Noteholders.
(c) In executing any supplemental indenture, the Indenture Trustee
shall be entitled to receive and shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any supplemental indenture which affects the
Indenture Trustee's own rights, duties, protections, or immunities under this
Indenture or otherwise.
(d) Upon the execution of any supplemental indenture under this Section
10.01, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes, and
every Noteholder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 10.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile communication) and shall be personally delivered or sent by
express mail or courier or by certified mail, postage prepaid, or by facsimile,
to the intended party at the address or facsimile number of such party set forth
under its name on the signature pages hereof or at such other address or
facsimile number as shall be designated by such party in a written notice
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to the other parties hereto. All such notices and communications shall be
effective, (a) if personally delivered or sent by express mail or courier or if
sent by certified mail, when received, and (b) if transmitted by facsimile, when
sent, receipt confirmed by telephone or electronic means.
Section 10.03. No Waiver; Remedies. No failure on the part of the
Issuer, the Indenture Trustee or any Noteholder to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof (unless waived
in writing); nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 10.04. Binding Effect; Survival. This Indenture shall be
binding upon and inure to the benefit of the Issuer, the Indenture Trustee, the
Insurer, the Noteholders, and their respective successors and assigns. This
Indenture shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until the Final Scheduled Payment Date. The rights and remedies with respect to
any breach of any representation and warranty made by the Issuer pursuant to
Article II and the indemnification and payment provisions of Article VI, and
Section 10.05 and 10.06 shall be continuing and shall survive any termination of
this Indenture.
Section 10.05. Costs, Expenses and Taxes. The Issuer agrees to pay
within three Business Days of demand:
(a) all reasonable costs and expenses incurred by the Indenture Trustee
and its Affiliates in connection with the negotiation, preparation, execution
and delivery, the administration (including periodic auditing and monitoring
fees of the Ratings Agencies), the amendment to, or waiver of, or the
enforcement of, or any actual or claimed breach of, this Indenture and the other
Transaction Documents, including, without limitation (i) the reasonable fees and
expenses of counsel to any of such Persons incurred in connection with any of
the foregoing or in advising such Persons as to their respective rights and
remedies under any of the Transaction Documents, and (ii) all reasonable
out-of-pocket expenses (including reasonable fees and expenses of independent
accountants), incurred in connection with any review of the Issuer's, the Master
Servicer's or a Sub-servicer's books and records either prior to the execution
and delivery hereof or pursuant to this Indenture, the Master Servicing
Agreement or a Sub-servicing Agreement; and
(b) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of this
Indenture or the other Transaction Documents, and agrees to indemnify the
Indenture Trustee against any liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.
Section 10.06. No Proceedings. Notwithstanding any provision hereof to
the contrary, the Indenture Trustee, by entering into this Indenture, and each
Noteholder by accepting a
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Note, hereby covenant and agree that they will not at any time institute against
the Issuer, or join in any institution against the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, this Indenture or any
of the Transaction Documents. The provisions of this Section 10.06 shall survive
the termination of this Indenture.
Section 10.07. Captions and Cross References. The various captions
(including, without limitation, the table of contents) in this Indenture are
provided solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Indenture. Unless otherwise indicated,
references in this Indenture to any Section, Appendix, Schedule or Exhibit are
to such Section of or Appendix, Schedule or Exhibit to this Indenture, as the
case may be, and references in any Section, subsection, or clause to any
subsection, clause or subclause are to such subsection, clause or subclause of
such Section, subsection or clause.
Section 10.08. Integration. This Indenture and the other Transaction
Documents, contains a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings.
Section 10.09. Governing Law. THIS INDENTURE, INCLUDING THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE
PERFECTION OF THE INTERESTS OF NOTEHOLDERS IN THE COLLATERAL IS GOVERNED BY THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 10.10. Waiver of Jury Trial. THE ISSUER HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS INDENTURE, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY BE IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER
RELATIONSHIP EXISTING IN CONNECTION WITH THIS INDENTURE OR ANY OTHER TRANSACTION
DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT A JURY TRIAL.
Section 10.11. Execution in Counterparts. This Indenture may be
executed in any number of counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
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Section 10.12. Usury. The amount of interest payable or paid on any
Note under the terms of this Indenture shall be limited to an amount that shall
not exceed the maximum nonusurious rate of interest allowed by the applicable
laws of the State of New York or any applicable law of the United States of
America permitting a higher maximum nonusurious rate that preempts such
applicable New York laws, which could lawfully be contracted for, charged or
received (the "Highest Lawful Rate"). In the event any payment of interest on
any Note exceeds the Highest Lawful Rate, the Issuer stipulates that such excess
amount will be deemed to have been paid to the applicable Noteholder as a result
of an error and the Noteholder receiving such excess payment shall promptly,
upon discovery of such error or upon notice thereof from the Indenture Trustee
on behalf of the Issuer, refund the amount of such excess or, at the option of
such Noteholder, apply the excess to the payment of principal of such Note, if
any, remaining unpaid. In addition, all sums paid or agreed to be paid to the
Indenture Trustee for the benefit of Noteholders for the use, forbearance or
detention of money shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
Notes.
Section 10.13. Compliance Certificates and Opinions. Every certificate
or opinion with respect to compliance with a condition or covenant provided for
in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether such covenant or condition has been complied with; and
(iii) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
Section 10.14. Certain Matters Regarding the Insurer and The Insurance
Policy.
(a) Rights of the Insurer to Exercise Certain Rights of Class A
Noteholders. By accepting its Note, each Class A Noteholder agrees that unless
an Insurer Default exists, the Insurer, notwithstanding any other provision
contained herein, shall have the right to exercise the rights of the Class A
Noteholders with respect to all matters, including without limitation the
following matters without consent of the Class A Noteholders, to the extent such
rights are provided for herein:
(i) the right to direct the Indenture Trustee in writing to
terminate the rights and obligations of the Master Servicer under the
Master Servicing Agreement in the event of a Servicer Default;
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(ii) the right to consent to or direct any waivers of defaults
by the Master Servicer;
(iii) the right to remove the Indenture Trustee pursuant to
this Indenture;
(iv) the right to control actions of the Master Servicer with
respect to modifications or waivers with respect to the Collateral; and
(v) the right to exercise all rights of consent, election,
waiver, recission, annulment, instruction, direction or control
provided to Noteholders under Article V of the Indenture, including but
not limited to any declaration of acceleration with respect to the
Notes.
In addition, unless an Insurer Default exists, the Insurer's consent
will be required prior to, among other things, (i) the appointment of any
successor Indenture Trustee or Master Servicer or (ii) any amendment to the
Indenture or the other Transaction Documents; provided, however, in any case
that the Insurer shall not unreasonably withhold, condition or delay its
consent. Each Class A Noteholder agrees that, unless an Insurer Default exists,
the rights specifically set forth above may be exercised by the Class A
Noteholders only with the prior written consent of the Insurer.
(b) Issuer to Act Solely with Consent of the Insurer. Unless an Insurer
Default exists, the Issuer shall not exercise the right to appoint a co-trustee
pursuant to Section 6.10 of this Indenture or successor Indenture Trustee
pursuant to Section 6.08 of this Indenture without the prior written consent of
the Insurer which shall not be unreasonably withheld.
Unless an Insurer Default exists and is continuing, the Issuer and the
Indenture Trustee shall not undertake any litigation with respect to the
Indenture Trust Estate without the prior consent of or at the written direction
of the Insurer.
(c) Indenture Trustee to Act Solely with Consent of the Insurer. Unless
an Insurer Default exists and is continuing, the Indenture Trustee shall not
exercise the right to:
(i) undertake any litigation pursuant to the Indenture or
incur any expenses reimbursable pursuant to Section 10.05 of this
Indenture.
(ii) make any of the elections or exercise any of the remedies
set forth in Section 5.02, 5.03, 5.04(a) or 5.05 of this Indenture; and
(iii) agree to any amendment to, or grant any waiver of its
rights under, the Master Servicing Agreement;
without the prior written consent of the Insurer, which shall not be
unreasonably withheld, but shall do so at the direction of the Insurer;
provided, however, that during the existence and
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continuation of an Insurer Default the Indenture Trustee shall not require the
prior written consent of the Insurer to exercise any of the rights enumerated
above.
(d) Collateral and Trust Accounts Held for Benefit of the Insurer and
the Class A Noteholders. The Indenture Trustee shall hold the Collateral for the
benefit of the Noteholders and, unless an Insurer Default exists, the Insurer,
and all references in this Indenture and in the Notes to the benefit of Holders
of the Notes shall, unless an Insurer Default exists, be deemed to include the
Insurer.
(e) Indenture Trustee to Cooperate. Unless an Insurer Default exists,
the Indenture Trustee shall cooperate in all respects with any reasonable
written request by the Insurer for action to preserve or enforce the Insurer's
rights or interests hereunder without limiting the rights or affecting the
interests of the Noteholders as otherwise set forth herein. The Indenture
Trustee shall be fully protected in acting at the direction of the Insurer as
provided hereunder.
(f) Surrender and Cancellation. The Indenture Trustee shall surrender
the Insurance Policy to the Insurer for cancellation upon the expiration of the
term of the Insurance Policy as provided in the Insurance Policy.
(g) Reports to the Insurer. All notices, statements, reports,
certificates or opinions required by this Indenture to be sent to any other
party hereto or to any of the Class A Noteholders shall also be sent to the
Insurer. The Issuer and the Indenture Trustee shall make available to the
Insurer their books and records during regular business hours for the purpose of
copying at the Insurer's expense and inspection of any information about the
Class A Notes or the Class A Noteholders.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have caused this Indenture to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
EFG-II, LP,
as Issuer
By: EFG-II SPC-I, Inc.,
as General Partner
By:
Address: 495 Station Avenue
S. Yarmouth, Massachusetts 02664
Attention: Mr. Stephen J. Galvin
Telephone No.: (508) 760-8026
Facsimile No.: (508) 394-1755
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee and Eligible Lender
Trustee
By:
Name:
Title:
Address: One First National Plaza,
Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust
Services Division
Telephone No.:
Facsimile No.:
Solely for the purpose of making
the representations and warranties set
forth in Section 2.03
EFG-II SPC-II, INC.
By:
Name:
Title:
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APPENDIX A
DEFINITIONS
This is Appendix A to the Indenture, dated as of June 14, 1999, among
EFG-II, LP and The First National Bank of Chicago, as Indenture Trustee and
Eligible Lender Trustee (as amended, supplemented or otherwise modified from
time to time, the "Indenture"). Each reference in this Appendix A to any
Section, the Preamble, Appendix or Exhibit, unless otherwise stated, refers to
such Section of or Appendix, Preamble or Exhibit to the Indenture.
<PAGE> 77
Defined Terms. As used in the Indenture, unless the context requires a
different meaning, the following terms have the meanings indicated below (such
definitions to be applicable to both the singular and plural forms of such
terms):
"Additional Financed Student Loans" means a Student Loan which is
transferred to the Issuer pursuant to the Purchase and Contribution Agreement
during the Funding Period or any Student Loan substituted pursuant to Section
2.02 of the Indenture.
"Additional Fundings" means any withdrawal of amounts from the
Pre-Funding Account for the purposes set forth in Section 8.05(a) of the
Indenture.
"Additional Fundings Purchase Amount" means with respect to the
purchase of Additional Financed Student Loans an amount equal to the sum of the
Principal Balance of such Additional Financed Student Loans and all accrued and
unpaid interest thereon.
"Administrative Payment Date" means, for a calendar month in which a
Payment Date does not occur, the eighteenth day of such calendar month or if
such day is not a Business Day, the next succeeding Business Day.
"Affiliate" when used with respect to a Person means any other Person
controlling, controlled by, or under common control with, such Person. For
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Auction" means the implementation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company and its
successors and assigns.
"Auction Agent Agreement" means the Auction Agent Agreement dated as of
June 14, 1999, between the Indenture Trustee and the Auction Agent including any
amendment thereof or supplement thereto.
"Auction Date" means (i) in the case of the Class A-1 Notes, the
eighteenth day of each calendar month in which an Auction occurs, or if the
eighteenth day is not a Business Day, the next succeeding Business Day and (ii)
in the case of the Class A-2 Notes, the twenty-fifth day of each calendar month
in which an Auction occurs, of if the twenty-fifth day is not a Business Day,
the next succeeding Business Day.
"Auction Agent Fee" means the fee payable to the Auction Agent as set
forth in the Auction Agent Agreement.
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"Auction Procedures" means the procedures set forth in Appendix B to
the Indenture by which each Auction Rate is determined.
"Auction Rate" means each per annum rate of interest that results from
the implementation of the Auction Procedures which rate is determined as
described in Section 2.1.1(c)(ii) of the Auction Procedures.
"Authorized Officer" means (i) with respect to the Issuer, any officer
or agent of the General Partner, acting on behalf of the General Partner for and
on behalf of the Issuer and (ii) with respect to the Seller and the Master
Servicer, any officer of the Seller or the Master Servicer, respectively, who is
authorized to act for and on behalf of the Seller or the Master Servicer,
respectively.
"Available Funds" means with respect to each Primary Payment Date and
the related Collection Period the sum of (x) (i) all Collections received during
or with respect to such Collection Period, (ii) all Purchase Amounts received in
respect of such Collection Period pursuant to Section 2.02 of the Indenture,
Section 4.2 of the Purchase and Contribution Agreement or Section 4.01 of the
Master Servicing Agreement, (iii) all Investment Earnings, (iv) the Principal
Holdover Amount for the preceding Primary Payment Date and (v) the amount
deposited from the Capitalized Interest Account into the Collection Account on
such Primary Payment Date and minus (y) the amounts paid on any Administrative
Payment Date during such Collection Period.
"Bankruptcy Code" means Title 11 of the United States Code.
"Book-Entry Note" means a beneficial interest in the Notes, ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 1.10 of the Indenture.
"Borrower" means an individual who is the maker of a Student Loan Note
and who obtains a Student Loan from an "eligible lender" in accordance with the
Higher Education Act and the policies and procedures of the applicable Student
Loan Guarantor.
"Broker-Dealer" means Lehman Brothers Inc. or any other broker or
dealer (each as defined in the Securities Exchange Act of 1934, as amended),
commercial bank or other entity permitted by law to perform the functions
required of a Broker-Dealer set forth in the Auction Procedures that (a) is a
Participant (or an affiliate of a Participant), (b) has been appointed as such
by the Issuer pursuant to Section 2.1.6 of the Auction Procedures and (c) has
entered into a Broker-Dealer Agreement that is in effect on the date of
reference.
"Broker-Dealer Agreement" means each agreement between the Auction
Agent and a Broker-Dealer, and approved by the Issuer, pursuant to which the
Broker-Dealer agrees to participate in Auctions as set forth in the Auction
Procedures, as from time to time amended or
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supplemented. Each Broker-Dealer Agreement shall be in substantially the form of
the Broker-Dealer Agreement dated as of June 14, 1999, between the Auction
Agent, and the Broker-Dealer.
"Broker-Dealer Fee" means the fee payable to the Broker-Dealer as set
forth in the Broker-Dealer Agreement.
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii)
a day on which the Indenture Trustee or banks located in Chicago, Illinois, New
York, New York or the Commonwealth of Massachusetts are all authorized or
obligated by law or executive order to be closed for business.
"Capitalized Interest Account" means the account designated as such,
established and maintained pursuant to Sections 8.01 and 8.09 of the Indenture.
"Capitalized Interest Amount" means for any Collection Period or other
period of determination, the amount of interest that accrued on the Financed
Student Loans during such period but was not then payable and that has been or
will, pursuant to the terms of such Financed Student Loans, be capitalized and
added to the principal balances of such loans.
"Capitalized Interest Requirement" means, with respect to each Primary
Payment Date occurring during the Funding Period and the Primary Payment Date
occurring immediately after the Collection Period during which the Funding
Period ends, the excess, if any, of (x) the sum of the Servicing Fee Amount,
Indenture Trustee's Fees and Expenses, Auction Agent Fee, Broker-Dealer Fee,
Policy Premium and Noteholders' Interest Distribution Amount over (y) the
Expected Interest Collection with respect to the related Collection Period.
"Class" means the Class A-1 Notes or the Class A-2 Notes.
"Class A Note" means a Class A-1 Note or a Class A-2 Note and "Class A
Notes" means the Class A-1 Notes, together with the Class A-2 Notes.
"Class A Noteholder" means a Person in whose name a Class A-1 Note or a
Class A-2 Note is registered in the Note Register.
"Class A Note Principal Amount" means the sum of the Class A-1 Note
Principal Amount and the Class A-2 Note Principal Amount.
"Class A-1 Available Funds" means, solely with respect to Class A-1
Required Distributions, for any Primary Payment Date, the Available Funds for
such Primary Payment Date plus any amounts available from the Reserve Account
less (i) all amounts allocated pursuant to the Indenture in respect of the
Servicing Fee, the Trustee Fees and Expenses, the Auction Agent Fee and the
Policy Premium, including any such amounts that are overdue and
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(ii) the amount allocated on such Primary Payment Date for deposit into the
Class A-2 Distribution Account.
"Class A-1 Deficiency Amount" means the excess if any of the Class A-1
Required Distribution over, in the case of any Primary Payment Date or the Final
Scheduled Payment Date for the Class A-1 Notes, the Class A-1 Available Funds
for such date.
"Class A-1 Formula Rate" means with respect to any Primary Payment
Date, the Auction Rate established for the Class A-1 Notes for such Primary
Payment Date as determined pursuant to the Auction Procedures.
"Class A-1 Insurance Policy" means a note guaranty insurance policy
with respect to the Class A-1 Notes and all endorsements thereto, if any, dated
the Closing Date, issued by the Insurer for the benefit of the Class A-1
Noteholders.
"Class A-1 Note" means a Class A-1 Note issued pursuant to Section
1.01(a) of the Indenture, substantially in the form of Exhibit 1.01(a) to the
Indenture.
"Class A-1 Note Principal Amount" means with respect to the Class A-1
Notes at any time, the Class A-1 Original Note Principal Amount, less all
payments in reduction of principal of the Class A-1 Notes that have actually
been received by the Class A-1 Noteholders.
"Class A-1 Note Rate" means with respect to the first Primary Payment
Date, 5.038% per annum, and for any subsequent Primary Payment Date, the per
annum rate equal to the lesser of (i) the Class A-1 Formula Rate and (ii) the
Student Loan Rate for the related Collection Period.
"Class A-1 Noteholder" means a Person in whose name a Class A-1 Note is
registered in the Note Register.
"Class A-1 Noteholders' Interest Basis Carryover" means, if the Class
A-1 Note Rate for any Payment Date is based on the Student Loan Rate, the amount
equal to the excess, if any, of (a) the amount of interest on the Class A-1
Notes that would have accrued in respect of the related Interest Period had
interest been calculated based on the Class A-1 Formula Rate over (b) the amount
of interest on the Class A-1 Notes actually accrued in respect of such Interest
Period based on the Student Loan Rate, together with the unpaid portion of any
such excess from prior Payment Dates (and interest accrued thereon, to the
extent permitted by law, at the applicable Class A-1 Note Rate calculated based
on the Class A-1 Formula Rate).
"Class A-1 Noteholders' Interest Carryover Shortfall" means, with
respect to any Primary Payment Date, the excess, if any, of (i) the Class A-1
Noteholders' Interest Distribution Amount on the preceding Primary Payment Date
over (ii) the amount of interest
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actually distributed to the Class A-1 Noteholders on such preceding Primary
Payment Date, plus interest on the amount of such excess, to the extent
permitted by law, at the interest rate borne by the Class A-1 Notes from such
preceding Primary Payment Date to the current Primary Payment Date.
"Class A-1 Noteholders' Interest Distribution Amount" means, with
respect to any Primary Payment Date, the sum of (i) the amount of interest
accrued at the Class A-1 Note Rate for the related Interest Period on the
outstanding Class A-1 Note Principal Amount on the immediately preceding Primary
Payment Date after giving effect to all principal distributions to holders of
Class A-1 Notes on such date (or, in the case of the first Primary Payment Date,
outstanding on the Closing Date) and (ii) the Class A-1 Noteholders' Interest
Carryover Shortfall for such Primary Payment Date; provided, however, that the
Class A-1 Noteholders' Interest Distribution Amount will not include any Class
A-1 Noteholders' Interest Basis Carryover.
"Class A-1 Original Note Principal Amount" has the meaning set forth in
Section 1.02(b) of the Indenture.
"Class A-1 Required Distribution" means for the Class A-1 Insurance
Policy and (i) any Primary Payment Date prior to the Final Scheduled Payment
Date, an amount equal to the Class A-1 Noteholders' Interest Distribution Amount
plus (x) the lesser of (1) the Subordination Deficit, if any, and (2) the
outstanding Class A-1 Note Principal Amount or (y) if an Event of Default has
occurred and is continuing, the Subordination Deficit, if any, multiplied by a
fraction the numerator of which is the outstanding Class A-1 Note Principal
Amount and the denominator of which is the outstanding Class A Note Principal
Amount and (ii) for the Final Scheduled Payment Date (whether as scheduled or if
accelerated after an Event of Default) with respect to the Class A-1 Notes, an
amount equal to the sum of the Class A-1 Noteholders' Interest Distribution
Amount plus the outstanding Class A-1 Note Principal Amount.
"Class A-2 Available Funds" means, solely with respect to the Class A-2
Required Distributions, for any Secondary Payment Date, the amount on deposit in
the Class A-2 Distribution Account on such date consisting of the amount
allocated on the immediately preceding Primary Payment Date for deposit into the
Class A-2 Distribution Account plus any Investment Earnings realized on such
amount since such Primary Payment Date plus any amounts available from the
Reserve Account.
"Class A-2 Deficiency Amount" means the excess if any of the Class A-2
Required Distribution over, in the case of any Secondary Payment Date or the
Final Scheduled Payment Date for the Class A-2 Notes, the Class A-2 Available
Funds for such date.
"Class A-2 Distribution Account" means the segregated trust account
established at a Qualified Institution, in the name of the Indenture Trustee,
for the benefit of the Class A-2
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Noteholders, which account has been designated as the Class A-2 Distribution
Account, and any other account designated as the Class A-2 Distribution Account
by the Indenture Trustee.
"Class A-2 Formula Rate" means with respect to any Secondary Payment
Date, the Auction Rate established for the Class A-2 Notes for such Secondary
Payment Date as determined pursuant to the Auction Procedures.
"Class A-2 Insurance Policy" means a note guaranty insurance policy
with respect to the Class A-2 Notes and all endorsements thereto, if any, dated
the Closing Date, issued by the Insurer for the benefit of the Class A-2
Noteholders.
"Class A-2 Note" means a Class A-2 Note issued pursuant to Section
1.01(a) of the Indenture, substantially in the form of Exhibit 1.01(b) to the
Indenture.
"Class A-2 Note Principal Amount" means with respect to the Class A-2
Notes at any time, the Class A-2 Original Note Principal Amount, less all
payments in reduction of principal of the Class A-2 Notes that have actually
been received by the Class A-2 Noteholders.
"Class A-2 Note Rate" means with respect to the first Secondary Payment
Date, 5.038% per annum, and for any subsequent Secondary Payment Date, the per
annum rate equal to the lesser of (i) the Class A-2 Formula Rate and (ii) the
Student Loan Rate for the related Collection Period.
"Class A-2 Noteholder" means a Person in whose name a Class A-2 Note is
registered in the Note Register.
"Class A-2 Noteholders' Interest Basis Carryover" means, if the Class
A-2 Note Rate for any Payment Date is based on the Student Loan Rate, the amount
equal to the excess, if any, of (a) the amount of interest on the Class A-2
Notes that would have accrued in respect of the related Interest Period had
interest been calculated based on the Class A-2 Formula Rate over (b) the amount
of interest on the Class A-2 Notes actually accrued in respect of such Interest
Period based on the Student Loan Rate , together with the unpaid portion of any
such excess from prior Payment Dates (and interest accrued thereon, to the
extent permitted by law, at the applicable Class A-2 Note Rate calculated based
on the Class A-2 Formula Rate).
"Class A-2 Noteholders' Interest Carryover Shortfall" means, with
respect to any Secondary Payment Date, the excess, if any, of (i) the Class A-2
Noteholders' Interest Distribution Amount on the preceding Secondary Payment
Date over (ii) the amount of interest actually distributed to the Class A-2
Noteholders on such preceding Secondary Payment Date, plus interest on the
amount of such excess, to the extent permitted by law, at the interest rate
borne by the Class A-2 Notes from such preceding Secondary Payment Date to the
current Secondary Payment Date.
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"Class A-2 Noteholders' Interest Distribution Amount" means, with
respect to any Secondary Payment Date, the sum of (i) the amount of interest
accrued at the Class A-2 Note Rate for the related Interest Period on the
outstanding Class A-2 Note Principal Amount on the immediately preceding
Secondary Payment Date after giving effect to all principal distributions to
holders of Class A-2 Notes on such date (or, in the case of the first Secondary
Payment Date, outstanding on the Closing Date) and (ii) the Class A-2
Noteholders' Interest Carryover Shortfall for such Secondary Payment Date;
provided, however, that the Class A-2 Noteholders' Interest Distribution Amount
will not include any Class A-2 Noteholders' Interest Basis Carryover.
"Class A-2 Required Distribution" means for the Class A-2 Insurance
Policy and (i) any Secondary Payment Date prior to the Final Scheduled Payment
Date, an amount equal to the Class A-2 Noteholders' Interest Distribution Amount
plus (x) if the Class A-1 Note Principal Amount has been paid in full the
Subordination Deficit, if any, or (y) if an Event of Default has occurred and is
continuing, the Subordination Deficit, if any, multiplied by a fraction the
numerator of which is the outstanding Class A-2 Note Principal Amount and the
denominator of which is the outstanding Class A Note Principal Amount and (ii)
for the Final Scheduled Payment Date (whether as scheduled or if accelerated
after an Event of Default) with respect to the Class A-2 Notes, an amount equal
to the sum of the Class A-2 Noteholders' Interest Distribution Amount plus the
outstanding Class A-2 Note Principal Amount.
"Class A-2 Original Note Principal Amount" has the meaning set forth in
Section 1.02(b) of the Indenture.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means June 14, 1999.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning specified in the granting clause of the
Indenture.
"Collection Account" means the segregated trust account established at
a Qualified Institution, in the name of the Indenture Trustee, for the benefit
of the Noteholders, which account has been designated as the Collection Account,
and any other account designated as the Collection Account by the Indenture
Trustee.
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"Collection Period" means, with respect to the Payment Dates occurring
in July 1999, the period beginning on the Closing Date, and ending on June 30,
1999, and, with respect to each succeeding Payment Date, the period beginning on
the first day after the end of the preceding Collection Period and ending on the
last day of the month preceding such Payment Date.
"Collections" means (i) all funds which are received by Issuer, the
Master Servicer or the Indenture Trustee from or on behalf of the related
Obligors in payment of any amounts owed (including, without limitation, all
Subsidy Payments, Student Loan Guaranty Payments, Reimbursement Payments,
finance charges, interest and all other charges) in respect of the Financed
Student Loans, or applied to such amounts owed by such Obligors, net of accrued
Consolidated Rebate Amounts and other amounts required by the Higher Education
Act to be paid to the DOE, with respect to the Financed Student Loans for the
related Collection Period, (ii) all funds received pursuant to the Master
Servicing Agreement, including all payments representing the Purchase Amount of
any purchased Financed Student Loan, and (iii) all funds, including any Purchase
Amounts received for Financed Student Loans repurchased by the Seller, received
by the Issuer, the Indenture Trustee or the Master Servicer pursuant to the
Purchase and Contribution Agreement or from any other source in respect of the
Financed Student Loans.
"Confidential Information" means information provided by the Master
Servicer or the Seller to the Eligible Lender Trustee or the Indenture Trustee
related to the transactions effected under the Transaction Documents and any
computer software provided to the Eligible Lender Trustee or the Indenture
Trustee in connection with the transactions effected under the Transactions
Documents, in each case whether in the form of documents, reports, lists, tapes,
discs or any other form.
"Consolidated Rebate Amount" means with respect to any Collection
Period, the aggregate amount of all rebate fees payable to the DOE in respect of
any Federal Consolidation Loans that are then included in the Collateral.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which on the Closing Date shall be the address indicated beneath
the signature of the Indenture Trustee in the Indenture, or any other address
indicated by the Indenture Trustee in a written notice furnished by the
Indenture Trustee to the Issuer.
"Cutoff Date" means June 11, 1999, with respect to the Initial Financed
Student Loans and as of the date established pursuant to the Purchase and
Contribution Agreement with respect to the Additional Financed Student Loans.
"Defaulted Financed Student Loan" means any Financed Student Loan that
is a Defaulted Student Loan.
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"Defaulted Student Loan" means any Student Loan (i) as to which any
payment, or portion thereof, is more than 180 days past due from the original
due date therefor, unless such Student Loan is in a Deferment Status or
Forbearance Status, (ii) the borrower of which is the subject of an Event of
Bankruptcy or is deceased or disabled or (iii) as to which a continuing
condition that with notice or the lapse of time or both would constitute a
default, breach, violation or event permitting acceleration under the terms of
such Student Loan (other than payment defaults continuing for a period of not
more than 180 days).
"Deferment Status" means a status with respect to any Student Loan
permitted by the Higher Education Act and the policies of the applicable Student
Loan Guarantor during which the related obligor may postpone or reduce the
amount of the obligor's scheduled payment of principal and interest.
"Deficiency Claim Date" means the third Business Day prior to the
applicable Payment Date.
"Definitive Notes" has the meaning specified in Section 1.10 of the
Indenture.
"Delinquent Student Loan" means any student loan as to which the any
portion of a scheduled payment remains outstanding for greater than 30 days.
"Depository" means the nominee of DTC and any successor depository
selected by the Issuer.
"Determination Date" means the fifth Business Day preceding the Primary
Payment Date.
"DOE" means the U.S. Department of Education, and any successor
thereto.
"Dollars" means dollars in lawful money of the United States of
America.
"DTC" means The Depository Trust Company, and any successor thereto.
"EFG" means Educational Finance Group, Inc.
"Eligible Borrower" means, with respect to any Student Loan, an
individual who is eligible under the Higher Education Act to be the Obligor of a
Student Loan for financing a program of education at an Eligible Institution or
for consolidating two or more such Student Loans, including an individual who is
eligible under the Higher Education Act to be an Obligor of a loan made pursuant
to Section 428A, 428B, 428C or 428H of the Higher Education Act (20 U.S.C.
Sections 1078-1, 1078-2, 1078-3, or 1078-8).
"Eligible Deposit Account" means either (i) a segregated account with a
Qualified Institution or (ii) a segregated trust account with a Qualified
Institution.
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"Eligible Financed Student Loan" means a Financed Student Loan that is
an Eligible Student Loan as of the date it became a Financed Student Loan.
"Eligible Institution" means an institution that is (i) an institution
of higher education, (ii) a vocational school or (iii) any other institution
that, in all of the above case, is an "eligible institution" as defined in the
Higher Education Act.
"Eligible Investments" means any one or more of the following
obligations or securities:
direct obligations of or obligations insured or guaranteed by the
United States of America;
obligations issued or guaranteed by any instrumentality or agency of
the United States of America, whether now existing or hereafter organized, which
bear the full faith and credit of the United States of America;
certificates of deposit of not more than $100,000 issued by a financial
institution with its principal place of business in the United States of
America, but only if such certificates of deposit are fully insured as to
principal by the Federal Deposit Insurance Corporation or the Federal Savings
and Loan Insurance Corporation; and
shares in mutual funds investing solely in short term securities of the
United States government where the mutual fund custodian has taken delivery of
the collateralizing securities, provided that (i) such fund shall have the
highest short-term credit rating available from Moody's and S&P and (ii) such
shares shall be freely redeemable by the holder on a daily basis.
"Eligible Lender Trustee" has the meaning set forth in the preamble to
the Indenture.
"Eligible Lender Trustee Fee" means the fee paid to the Eligible Lender
Trustee pursuant to Section 10 of the Trust Agreement; provided, however, that
under no circumstance shall such fee (exclusive of the acceptance fee) exceed an
annual amount equal to $12,000, payable in twelve equal monthly installments
pursuant to Section 8.03(b) of the Indenture.
"Eligible Student Loan" means a Student Loan:
which was originated in the United States of America, its territories,
its possessions or other areas subject to its jurisdiction to an eligible
borrower under applicable law and agreements and was fully and properly executed
by the parties thereto;
was originated or acquired by EFG (or by the Eligible Lender Trustee on
its behalf) and acquired by the Issuer in the ordinary course of its business;
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provides for payments on a periodic basis that fully amortizes the
Principal Balance of such Student Loan by its maturity, as such maturity may be
modified in accordance with any applicable deferral or forbearance periods
granted in accordance with applicable laws and restrictions or any related
Student Loan Guaranty Agreement, and yield interest at the rates applicable
thereto;
was originated by an "eligible lender" under the Higher Education Act
in the ordinary course of its business and is guaranteed by a Student Loan
Guarantor that is an eligible guarantor under the Higher Education Act,
qualifies the holder thereof to receive Subsidy Payments from the DOE and
Student Loan Guaranty Payments from the related Student Loan Guarantor,
qualifies the related Student Loan Guarantor to receive reinsurance payments
thereon from the DOE, and such Student Loan qualifies for a rate of
reimbursement to the related lender equal to at least 98%;
complied at the time of origination and, except as may otherwise be
agreed to by the Insurer, complies, at the time of its inclusion in the
Collateral, in all material respects with all applicable requirements of local,
state, and federal laws, rules and regulations which govern the making and
servicing of such Student Loan including the requirements of the applicable
Student Loan Guaranty Agreement;
all signatures with respect to which are genuine and the Student Loan
Note evidencing such Student Loan has been duly executed and delivered and
constitutes the legal, valid and binding obligation of the related Obligors
enforceable in accordance with its terms;
with respect to which no right of rescission, setoff, counterclaim, or
defense has been asserted or threatened or exists with respect to such Student
Loan;
no payment with respect to which is more than 120 days delinquent;
except as permitted in this clause (h), no default, breach, violation or event
permitting acceleration under the terms of such Student Loan has occurred, and
except for payment defaults continuing for a period of not more than 120 days,
no continuing condition that with notice or the lapse of time or both that would
constitute a default, breach, violation or event permitting acceleration under
terms of such Student Loan has arisen; and with respect to such Student Loan,
none of the forgoing events has occurred and been waived by any Person;
with respect to which, to the best of the Issuer's knowledge, an Event
of Bankruptcy has not occurred with respect to the related borrower;
that has not been originated in, and is not subject to the laws of, any
jurisdiction under which the origination, sale, transfer and assignment of such
Student Loan or beneficial ownership therein, is unlawful, void or voidable;
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with respect to which there is only one original executed copy of the
Student Loan Note;
with regard to which the warranty of the Issuer in Section 2.01(g) of
the Indenture is true and correct;
the sale or assignment of which to the Issuer pursuant to the Purchase
and Contribution Agreement, if applicable, and the granting of a security
interest to the Indenture Trustee pursuant to the Indenture does not contravene
or conflict with any law or regulation, or require the consent or approval of,
or notice to, any Person;
that is the subject of a valid Subservicing Agreement and as to which a
Sub-servicer Event of Default has not occurred;
the maturity date with respect to such Student Loan does not occur
after the date which is one year prior to the Final Scheduled Payment Date;
if such Student Loan is a subsidized Stafford Loan to an Eligible
Borrower attending a non-proprietary institution with a matriculation period
less than four years, if the outstanding Principal Balance thereof is added to
the aggregate outstanding Principal Balance of all subsidized Stafford Loans to
Eligible Borrowers attending non-proprietary institutions with a matriculation
period less than four years that are Financed Student Loans, the aggregate
outstanding balance of all subsidized Stafford Loans to Eligible Borrowers
attending a non-proprietary institution with a matriculation period less than
four years that are Financed Student Loans shall not exceed 5% of the aggregate
outstanding Principal Balance of all Financed Student Loans;
if such Student Loan is a subsidized Stafford Loan to an Eligible
Borrower attending a proprietary institution, if the outstanding Principal
Balance thereof is added to the aggregate outstanding Principal Balance of all
subsidized Stafford Loans to Eligible Borrowers attending proprietary
institutions that are Financed Student Loans, the aggregate outstanding balance
of all subsidized Stafford Loans to Eligible Borrowers attending proprietary
institutions that are Financed Student Loans shall not exceed 5% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
if such Student Loan is a PLUS Loan to an Eligible Borrower attending a
non-proprietary institution with a matriculation period less than four years, if
the outstanding Principal Balance thereof is added to the aggregate outstanding
Principal Balance of all PLUS Loans to Eligible Borrowers attending
non-proprietary institutions with a matriculation period less than four years
that are Financed Student Loans, the aggregate outstanding balance of all PLUS
Loans to Eligible Borrowers attending a non-proprietary institution with a
matriculation period less than four years that are Financed Student Loans shall
not exceed 1% of the aggregate outstanding Principal Balance of all Financed
Student Loans;
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if such Student Loan is a Federal Consolidation Loan to an Eligible
Borrower attending a non-proprietary institution with a matriculation period
less than four years, if the aggregate outstanding Principal Balance thereof is
added to the outstanding Principal Balance of all Federal Consolidation Loans to
Eligible Borrowers attending non-proprietary institutions with a matriculation
period less than four years that are Financed Student Loans, the aggregate
outstanding balance of all Federal Consolidation Loans to Eligible Borrowers
attending a non-proprietary institution with a matriculation period less than
four years that are Financed Student Loans shall not exceed 1% of the aggregate
outstanding Principal Balance of all Financed Student Loans;
if such Student Loan is a Federal Consolidation Loan to an Eligible
Borrower attending a proprietary institution, if the outstanding Principal
Balance thereof is added to the aggregate outstanding Principal Balance of all
Federal Consolidation Loans to Eligible Borrowers attending proprietary
institutions that are Financed Student Loans, the aggregate outstanding balance
of all Federal Consolidation Loans to Eligible Borrowers attending proprietary
institutions that are Financed Student Loans shall not exceed 2.0% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
if such Student Loan is a Federal Consolidation Loan to an Eligible
Borrower, if the outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all Federal Consolidation Loans to Eligible
Borrowers that are Financed Student Loans, the aggregate outstanding balance of
all Federal Consolidation Loans to Eligible Borrowers that are Financed Student
Loans shall not exceed 3% of the aggregate outstanding Principal Balance of all
Financed Student Loans;
if such Student Loan is a Student Loan in which the related Eligible
Borrower is in a Deferment Status, if the outstanding Principal Balance thereof
is added to the aggregate outstanding Principal Balance of all Financed Student
Loans the Eligible Borrowers with respect to which are in a Deferment Status,
the aggregate outstanding balance of all Financed Student Loans that the
Eligible Borrowers with respect to which are in a Deferment Status shall not
exceed 5% of the aggregate outstanding Principal Balance of all Financed Student
Loans;
if such Student Loan is a Student Loan in which the related Eligible
Borrower is in an In School Status, if the outstanding Principal Balance thereof
is added to the aggregate outstanding Principal Balance of all Financed Student
Loans the Eligible Borrowers with respect to which are in an In School Status,
the aggregate outstanding balance of all Financed Student Loans that the
Eligible Borrowers with respect to which are in an In School Status shall not
exceed 65% of the aggregate outstanding Principal Balance of all Financed
Student Loans;
if such Student Loan is a Student Loan which is in a Grace Period, if
the outstanding Principal Balance thereof is added to the aggregate outstanding
Principal Balance of all Financed Student Loans that are in a Grace Period, the
aggregate outstanding balance of all
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Financed Student Loans that are in a Grace Period shall not exceed 15% of the
aggregate outstanding Principal Balance of all Financed Student Loans;
if such Student Loan is a Student Loan which is in Forbearance Status,
if the outstanding Principal Balance thereof is added to the aggregate
outstanding Principal Balance of all Financed Student Loans the are in
Forbearance Status, the aggregate outstanding balance of all Financed Student
Loans that are in Forbearance Status shall not exceed 5% of the aggregate
outstanding Principal Balance of all Financed Student Loans; and
if such Student Loan is an Unsubsidized Loan in which the related
Eligible Borrower is in an In School Status, if the outstanding Principal
Balance thereof is added to the aggregate outstanding Principal Balance of all
Unsubsidized Loans in which the related Eligible Borrower is in an In School
Status, the aggregate outstanding balance of all Unsubsidized Loans to Eligible
Borrowers in which the related Eligible Borrower is in an In School Status, that
are Financed Student Loans shall not exceed 30% of the aggregate outstanding
Principal Balance of all Financed Student Loans.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Bankruptcy" shall be deemed to have occurred with respect to
a Person if either:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up,
or composition or readjustment of debts of such Person, the appointment
of a trustee, receiver, custodian, liquidator, assignee, sequestrator
or the like for such Person or all or substantially all of its assets,
or any similar action with respect to such Person under any law
relating to bankruptcy, insolvency, reorganization, winding up or
composition or adjustment of debts, and such case or proceeding shall
continue undismissed, or unstayed and in effect, for a period of 60
consecutive days; or an order for relief in respect of such Person
shall be entered in an involuntary case under the federal bankruptcy
laws or other similar laws now or hereafter in effect; or
such Person shall commence a voluntary case or other proceeding under
any applicable bankruptcy, insolvency, reorganization, debt arrangement,
dissolution or other similar law now or hereafter in effect, or shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) for, such Person or
for any substantial part of its property, or shall make any general assignment
for the benefit of creditors, or shall fail to, or admit in writing its
inability to, pay its debts generally as they become due, or, if a corporation
or similar entity, its board of directors shall vote to implement any of the
foregoing.
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"Event of Default" has the meaning set forth in Section 5.01 of the
Indenture.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation.
"Expected Interest Collections" means, with respect to any Collection
Period, the sum of (i) the amount of interest accrued, net of accrued
Consolidated Rebate Amounts and other amounts required by the Higher Education
Act to be paid to the DOE, with respect to the Financed Student Loans for the
related Collection Period (whether or not such interest is actually paid), (ii)
all Subsidy Payments estimated to have accrued for such Collection Period
whether or not actually received and (iii) Investment Earnings on amounts in the
Collection Account, the Pre-Funding Account and the Class A-2 Distribution
Account (in the case of the Class A-2 Distribution Account, to the extent not
used to make payment on such Notes) since the preceding Primary Payment Date.
"Federal Consolidation Loan" means a loan made to an Eligible Borrower
pursuant to which the Eligible Borrower consolidates two or more of its PLUS
Loans, SLS Loans or Stafford Loans in accordance with the Higher Education Act.
"Federal Guarantor" means each guarantor with whom the Eligible Lender
Trustee has entered into a separate Guaranty Agreement.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
"Federal Student Loan Program" means the Federal Family Education Loan
Program authorized under the Higher Education Act.
"Final Scheduled Payment Date" means the Primary Payment Date, in the
case of the Class A-1 Notes and the Secondary Payment Date, in the case of the
Class A-2 Notes, occurring in November 2022, on which dates the principal of and
interest on the Class A-1 Notes and Class A-2 Notes, respectively, shall have
been paid in full.
"Financed Student Loan" means each Student Loan identified from time to
time on the Student Loan Schedule and, without duplication but by way of
inclusion and emphasis, all Additional Financed Student Loans funded or
substituted, or purported to be funded or substituted, with amounts on deposit
in the Pre-Funding Account or pursuant to Section 2.02 of the Indenture,
respectively and all Student Loans, whether or not funded or substituted as
described above, that are subject to the Lien of the Indenture.
"Fitch IBCA" means Fitch IBCA, Inc.
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"Forbearance Status" means the temporary period of time where the
Obligor's required interest and principal payments are postponed or reduced due
to financial hardship in accordance with the Higher Education Act and the
policies of the applicable Student Loan Guarantor.
"Funding Period" means the period from the Closing Date until the first
to occur of (i) the Primary Payment Date on which the amount on deposit in the
Pre-Funding Account is less than $100,000, (ii) an Event of Default occurring
under the Indenture, (iii) the date on which a Bankruptcy Event occurs with
respect to EFG or (iv) the last day of September 1999.
"General Partner" means EFG-II SPC-I, Inc., a Delaware corporation, in
its capacity as the general partner of the Issuer under the Issuer's limited
partnership agreement.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any body or entity exercising executive,
legislative, judicial, regulatory or administrative functions or pertaining to
government, including without limitation any court, and any Person owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Grace Period" means the period of time from when the student borrower
leaves school or drops below half-time status and when the student borrower's
repayment period begins.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to the Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Guaranty Agreement" means each guaranty agreement pursuant to which
each Financed Student Loan to be sold to the Eligible Lender Trustee on behalf
of the Issuer will be guaranteed as to principal and interest by a Federal
Guarantor.
"Higher Education Act" means the Higher Education Act of 1965, as
amended, together with any rules, regulations and interpretations thereunder of
DOE or the applicable guaranty agent.
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"Indemnification Agreement" means the Indemnification Agreement dated
as of the Closing Date among the Insurer, EFG, the General Partner and Lehman
Brothers Inc.
"Indenture" means the Indenture dated as of June 14, 1999, as amended,
between the Issuer and First Chicago, as Indenture Trustee.
"Indenture Trust Estate" means all money, instruments, rights and other
property that are subject or intended to be subject to the lien and security
interest of the Indenture for the benefit of the Noteholders and the Insurer
(including all property and interests Granted to the Indenture Trustee),
including all proceeds thereof.
"Indenture Trustee" has the meaning set forth in the preamble to the
Indenture.
"Indenture Trustee's Fees" means an amount equal to $10,000 per annum,
payable in twelve equal monthly installments pursuant to Section 8.03(b) of the
Indenture.
"Indenture Trustee's Office" means The First National Bank of Chicago,
One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126, Attention:
Corporate Trust Services Division.
"Independent" means, when used with respect to any specified Person,
that the Person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, EFG and any Affiliate of any of the foregoing Persons, (b) does not
have any interest in the Issuer, any such other obligor, EFG or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obligor, EFG or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"In School Status" means with respect to any Student Loan the period
during which (i) the student borrower is attending school at least half-time and
maintaining satisfactory academic progress and (ii) the student borrower is
eligible for additional student loans and in-school deferment of payment of
interest and principal.
"Initial Financed Student Loans" means the Financed Student Loans sold
and/or contributed to the Issuer on or prior to the Closing Date pursuant to the
Purchase and Contribution Agreement.
"Initial Pool Balance" means the Pool Balance (including the Pre-Funded
Amount) as of the Closing Date.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
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receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of sixty consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by such Person to the entry of an order for
relief in an involuntary case under any such law, or the consent by such Person
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"Insurance Agreement" means the Insurance Agreement, dated as of the
Closing Date, among EFG, the Issuer, the Insurer, the Master Servicer, EFG, the
General Partner, the Indenture Trustee and the Eligible Lender Trustee.
"Insurance Policy" means the Class A-1 Insurance Policy and the Class
A-2 Insurance Policy.
"Insured Payment" means (a) with respect to the Class A-1 Insurance
Policy (i) as of any Primary Payment Date, any Class A-1 Deficiency Amount and
(ii) any Preference Amount with respect to the Class A-1 Notes and (b) with
respect to the Class A-2 Insurance Policy (i) as of any Secondary Payment Date,
any Class A-2 Deficiency Amount and (ii) any Preference Amount with respect to
the Class A-2 Notes.
"Insurer" means MBIA Insurance Corporation, a stock insurance company
organized and created under the laws of the State of New York and any successors
thereto.
"Insurer Default" means (i) the occurrence of an Event of Bankruptcy
with respect to the Insurer or (ii) the occurrence of a failure by the Insurer
to make an Insured Payment in accordance with the Insurance Policy.
"Insurer Reimbursement Amount" means, as of any Primary Payment Date,
the sum of (i) all amounts previously paid by the Insurer under the Insurance
Policy which have not previously been reimbursed and (ii) all other amounts due
to the Insurer under the Insurance Agreement and Indemnification Agreement,
other than the Policy Premium.
"Interest Collections" means, with respect to any Collection Period,
that portion of any Collections received during such Collection Period
attributable to interest accrued on the Financed Student Loans, including, but
not limited to all Subsidy Payments and that portion of any Purchase Amounts,
Reimbursement Payments and Student Loan Guaranty Payments attributable to
interest accrued on the Financed Student Loans, plus all Investment Earnings.
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"Interest Period" means (i) with respect to the Class A-1 Notes and any
Primary Payment Date, the period commencing on and including the preceding
Primary Payment Date (or in the case of the first Primary Payment Date
commencing on the Closing Date) and ending on and not including such Primary
Payment Date and (ii) with respect to the Class A-2 Notes and any Secondary
Payment Date, the period commencing on and including the preceding Secondary
Payment Date (or in the case of the first Secondary Payment Date commencing on
the Closing Date) and ending on and not including such Secondary Payment Date.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Investment Earnings" means, with respect to each Primary Payment Date,
all investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts realized since the preceding Primary Payment Date
(and in the case of the Class A-2 Distribution Account not distributed on the
preceding Secondary Payment Date).
"Issuer" has the meaning set forth in the preamble to the Indenture.
"Issuer Order" and "Issuer Request" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt for a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property.
"Majority Interest" means with respect to the rights of the Noteholders
arising under the Indenture and in connection with any other Transaction
Document, the holders of Notes evidencing more than 50% of the balance of the
Notes by outstanding principal amount.
"Master Servicer" means EFG Technologies, Inc. and any successors
thereto.
"Master Servicing Agreement" means the Master Servicing Agreement,
dated as of June 14, 1999, among the Issuer, the Master Servicer and the
Eligible Lender Trustee.
"Material Adverse Effect" with respect to any event or circumstance and
any Person, means a material adverse effect on:
(i) the business, assets, financial condition or operations of such
Person;
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with respect to the Issuer or General Partner, the ability of such
Person to perform its respective obligations under the Indenture or any other
Transaction Document;
with respect to the Issuer, the validity, enforceability or
collectibility of the Indenture, any other Transaction Document, a material
amount of the Financed Student Loans or a material amount of the Student Loan
Notes, or the Master Servicing Agreement or the Student Loan Guaranty
Agreements; or
with respect to the Issuer, the status, existence, perfection, priority
or enforceability of the Indenture Trustee's security interest in the
Collateral.
"Monthly Report" means a report, in substantially the form of Exhibit
3.06(d) to the Indenture, furnished by the Issuer to the Eligible Lender
Trustee, the Indenture Trustee and the Insurer.
"Moody's" means Moody's Investors Service, Inc.
"Net Principal Collections" means, as of any date, the Principal
Collections (calculated for the Collection Period ending in the preceding
calendar month) minus the Capitalized Interest Amount for such Collection
Period.
"Note" means a Class A-1 Note or Class A-2 Note, and "Notes" means the
Class A-1 Notes and Class A-2 Notes.
"Note Depository Agreement" means the agreement dated as of June 14,
1999, among the Issuer, the Indenture Trustee and The Depository Trust Company.
"Note Owner" means, with respect to a Book-Entry Note, the Person who
is the owner of such Book-Entry Note, as reflected on the books of the Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"Note Principal Amount" means the Class A-1 Note Principal Amount
and/or the Class A-2 Note Principal Amount, as applicable.
"Note Purchase Agreement" means the purchase agreement, dated as of
June 11, 1999, among Lehman Brothers, Inc., the Issuer and EFG relating to the
Notes.
"Note Register" has the meaning set forth in Section 1.03(a) of the
Indenture.
"Note Registrar" has the meaning set forth in Section 1.03(a) of the
Indenture.
"Note Rate" means the Class A-1 Note Rate or the Class A-2 Note Rate,
as applicable.
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"Noteholder" means a Person in whose name a Class A-1 Note or Class A-2
Note is registered in the Note Register.
"Noteholders' Distribution Amount" means, with respect to any Primary
Payment Date, the sum of the Noteholders' Interest Distribution Amount and the
Noteholders' Principal Distribution Amount for such Primary Payment Date.
"Noteholders' Interest Basis Carryover" means, with respect to any
Primary Payment Date, the sum of the Class A-1 Noteholders' Interest Basis
Carryover and the Class A-2 Noteholders' Interest Basis Carryover.
"Noteholders' Interest Distribution Amount" means, with respect to any
Primary Payment Date, the sum of the Class A-1 Noteholders' Interest
Distribution Amount for such Primary Payment Date and the Class A-2 Noteholders'
Interest Distribution Amount for the related Secondary Payment Date.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
business on any Primary Payment Date, the excess of (i) the Noteholders'
Principal Distribution Amount on such Primary Payment Date over (ii) the amount
of principal actually distributed to the Class A-1 Noteholders and deposited in
respect of principal into the Class A-2 Distribution Account on such Primary
Payment Date.
"Noteholders' Principal Distribution Amount" means, with respect to any
Primary Payment Date, the sum of (a) the Principal Distribution Amount for such
Primary Payment Date and (b) the Noteholders' Principal Carryover Shortfall as
of the close of the preceding Primary Payment Date; provided, however, that in
each case such amount will be rounded down to the nearest multiple of $10,000;
provided, further, that the Noteholders' Principal Distribution Amount will in
no event exceed the outstanding Class A Note Principal Amount; and provided,
further, that on the Final Scheduled Payment Date the Noteholders' Principal
Distribution Amount will equal the amount, if any, that is necessary in order to
reduce the Class A Note Principal Balance to zero on such date.
"Obligor" means a Person obligated to make payments with respect to a
Student Loan, including the students, the Student Loan Guarantors and the DOE.
"Officer's Certificate" means (i) in the case of the Issuer, a
certificate signed by an Authorized Officer of the Issuer, under the
circumstances described in, and otherwise complying with, the applicable
requirements of Section 10.13 of the Indenture, and delivered to the Indenture
Trustee and (ii) in the case of the Seller and the Master Servicer, a
certificate signed by an Authorized Officer of the Seller and the Master
Servicer, respectively.
"Opinion of Counsel" means a written opinion of counsel acceptable to
the Indenture Trustee and the Insurer, who may be in-house counsel for the
Master Servicer or EFG (except
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that any opinion pursuant to Section 3.04(b) of the Indenture or any opinion
pursuant to any other Transaction Document or relating to taxation must be an
opinion of independent outside counsel) and who, in the case of opinions
delivered to the Insurer and the Rating Agencies, is reasonably acceptable to
it.
"Original Note Principal Amount" means the Class A-1 Original Note
Principal Amount or the Class A-2 Original Note Principal Amount, as applicable.
"Outstanding" means, as of any date of determination and with respect
to the Notes, all Notes theretofore authenticated and delivered under the
Indenture except: (i) Notes theretofore cancelled or delivered for cancellation,
as specified in the Indenture; (ii) Notes or portions thereof for which payment
or redemption money in the necessary amount has been theretofore deposited as
specified in the Indenture; (iii) Notes in exchange for or in lieu of which
other Notes have been authenticated and delivered pursuant to the Indenture
unless proof is presented to the Indenture Trustee that any such Notes are held
by a holder in due course; and (v) Notes alleged to have been destroyed, lost or
stolen and for which replacement Notes have been issued as provided for in the
Indenture.
"Owner" means each Noteholder who, on the applicable Payment Date, is
entitled under the terms of the applicable Notes to payment thereunder.
"Parity Date" means the first Primary Payment Date on which the Class A
Note Principal Amount as of such Primary Payment Date, after giving effect to
all distributions on the Class A-1 Notes and deposits to the Class A-2
Distribution Account on such date, is less than or no more than $9,999 in excess
of, the Pool Balance as of the last day of the related Collection Period.
"Paying Agent" means the Indenture Trustee or any other Person that
meets the eligibility standards for the Indenture Trustee specified in Section
6.13 of the Indenture and is authorized by the Issuer to make the payments to
and distributions from the Collection Account and payments of principal of and
interest and any other amounts owing on the Notes on behalf of the Issuer.
"Payment Date" means a Primary Payment Date or a Secondary Payment
Date.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
unincorporated association, joint venture, government or any agency or political
subdivision thereof or any other entity.
"Policy Premium" means the premium described in each Insurance Policy.
"Pool Balance" at any time means the aggregate outstanding Principal
Balance of the Financed Student Loans at the end of the preceding Collection
Period (including accrued
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interest thereon through the end of such Collection Period to the extent such
interest will be capitalized upon commencement of repayment), after giving
effect to the following, without duplication: (i) all payments received by the
Issuer and/or the Indenture Trustee during such Collection Period from or on
behalf of the Obligors, the Federal Guarantors and the DOE, (ii) all Purchase
Amounts received by the Issuer and/or the Indenture Trustee for such Collection
Period from the Seller, the Issuer or the Master Servicer in respect of any
Financed Student Loans that have been repurchased by the Seller or reassigned to
the Issuer due to a breach of a representation or warranty made by the Seller or
Issuer as to the Financed Student Loans in the Indenture or the Purchase and
Contribution Agreement, respectively, or that have been purchased by the Master
Servicer due to a breach of certain servicing covenants by the Master Servicer,
and (iii) all Realized Losses on Financed Student Loans liquidated during such
Collection Period; provided, that, during the Funding Period, the Pool Balance
will also include an amount equal to the difference between the amount deposited
into the Pre-Funding Account on the Closing Date and the amount of Additional
Fundings since the Closing Date.
"PLUS Loan" means a Parent Loan for Undergraduate Students, made in
accordance with the Higher Education Act.
"Preferred Amount" means any amount previously distributed to an Owner
with respect to the Notes that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final non-applicable order of a court having competent jurisdiction.
"Pre-Funded Amount" means, with respect to any Primary Payment Date or
other specified date of determination, the amount on deposit in the Pre-Funding
Account.
"Pre-Funding Account" means the account designated as such, established
and maintained pursuant to Sections 8.01 and 8.05 of the Indenture.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 1.04 of the Indenture and in lieu of a
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"Premium Percentage" means, at any time, the percentage equivalent of a
fraction, the numerator of which is the outstanding Class A Note Principal
Amount, and the denominator of which is equal to the Pool Balance.
"Primary Payment Date" means for any Collection Period the first
Business Day after each Auction Date relating to the Class A-1 Notes.
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"Prime Rate" means the interest rate that banks charge to their most
creditworthy customers.
"Principal Balance" with respect to any Student Loan means the original
principal amount of such Student Loan, plus capitalized interest thereon, if
any, less payments of principal by or on behalf of the Obligor of such Student
Loan.
"Principal Collections" means all Collections other than Interest
Collections.
"Principal Distribution Amount" means, with respect to any Primary
Payment Date, the lesser of (i) the Available Funds remaining for the related
Primary Payment Date after the payment and allocations required pursuant to
clauses first through fourth of Section 8.03(b) of the Indenture and (ii) the
excess of the outstanding Class A Note Principal Amount immediately prior to
such Primary Payment Date over the Pool Balance as of the end of the preceding
Collection Period.
"Principal Holdover Amount" means, with respect to any Primary Payment
Date, the amount by which the Noteholders' Principal Distribution Amount is
rounded down pursuant to the first proviso of the definition thereof.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Purchase Amount" means, with respect to the purchase of any Initial
Financed Student Loans and with respect to any reassignment of any Financed
Student Loan pursuant to Section 2.02 of the Indenture, Section 4.2 of the
Purchase and Contribution Agreement or Section 3.05 of the Master Servicing
Agreement, an amount equal to the sum of (i) the Principal Balance of such
Financed Student Loans multiplied prior to the Parity Date by the Premium
Percentage and (ii) all accrued and unpaid interest thereon.
"Purchase and Contribution Agreement" means the Purchase and
Contribution Agreement, dated as of June 14, 1999, among EFG, the Eligible
Lender Trustee and the Issuer, as the same may be amended, supplemented, or
otherwise modified from time to time.
"Qualified Institution" means a depository institution organized under
the laws of the United States of America on any one of the States thereof or the
District of Columbia (or any domestic branch of a foreign bank), (i) which has
either (A) a long-term unsecured debt rating acceptable to the Insurer, Moody's
and S&P or (B) a short-term unsecured debt rating or certificate of deposit
rating acceptable to the Insurer, Moody's and S&P and (ii) whose deposits are
insured by the Federal Deposit Insurance Corporation.
"Ratings Agencies" means Moody's, S&P and Fitch IBCA.
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"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given ten days' prior notice thereof and that each
of the Rating Agencies shall have notified the Issuer and the Indenture Trustee
(with a copy to the Insurer) in writing that such action will not result in and
of itself in a reduction or withdrawal of the then current rating of the Notes
without regard to the Insurance Policy.
"Realized Losses" means, with respect to a Collection Period and for
Student Loans that became Defaulted Student Loans during such Collection Period,
the excess of the Principal Balance of each such Defaulted Student Loan plus
accrued but unpaid interest thereon over any net recoveries or other Collections
thereon during such Collection Period.
"Reassignment" has the meaning assigned thereto in Section 2.02 of the
Indenture.
"Record Date" means (i) with respect to the Book Entry Notes, the
Transfer Date immediately preceding each Primary Payment Date and (ii) with
respect to the Definitive Notes, the last day of the calendar month immediately
preceding each Primary Payment Date.
"Redemption Date" means in the case of a payment to Noteholders
pursuant to Section 9.01 of the Indenture, the Primary Payment Date specified by
the Issuer pursuant to Section 9.01 of the Indenture.
"Redemption Price" means in the case of a payment made to Noteholders
pursuant to Section 9.01 of the Indenture, the amount to be so paid pursuant to
such Section 9.01.
"Reimbursement Contract" means the agreements between the Student Loan
Guarantors and the DOE providing for the payment by the Secretary of amounts
authorized to be paid pursuant to the Higher Education Act, including, without
limitation, reimbursement of amounts paid or payable upon Defaulted Student
Loans and Subsidy Payments to holders of Student Loans.
"Reimbursement Payment" means any payment by the Secretary pursuant to
a Reimbursement Contract in respect of a Student Loan.
"Related Security" means, with respect to any Financed Student Loan:
(a) all of the right, title and interest of the Issuer and the Eligible Lender
Trustee in and to the Student Loan Note(s) and all other agreements that relate
to such Financed Student Loan; (b) any security interests or liens and property
subject thereto from time to time purporting to secure payment of such Financed
Student Loan, whether pursuant to the Student Loan Note related to such Financed
Student Loan or otherwise and (c) all other guarantees and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Financed Student Loan.
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"Reserve Account" means the account established at Qualified
Institution, in the name of the Indenture Trustee, for the benefit of the
Noteholders, which account has been designated as the Reserve Account, and any
other account designated as the Reserve Account by the Indenture Trustee.
"Reserve Account Excess" means, as of each Primary Payment Date, the
amount, if any, by which the amount on deposit in the Reserve Account (after
giving effect to all deposits thereto pursuant to Section 8.03(b) and all
withdrawals therefrom pursuant to Section 8.04(d) of the Indenture) is greater
than the Specified Reserve Account Balance for such Primary Payment Date.
"Reserve Account Initial Deposit" means $10,701,901.
"Responsible Officer" means with respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any vice president, assistant vice president, assistant treasurer, assistant
secretary, or any other similar officer of the Indenture Trustee customarily
performing functions similar to those performed by any of the above designated
officers, with direct responsibility for the administration of the Indenture and
the other Transaction Documents on behalf of the Indenture Trustee and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of an familiarity with the subject.
"Rule 144A" has the meaning set forth in Section 1.06(a) of the
Indenture.
"Secondary Payment Date" means for any Collection Period the first
Business Day after each Auction Date relating to the Class A-2 Notes.
"Secretary" means the Secretary of the DOE or an official or employee
of the DOE acting for the Secretary under a delegation of authority.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means Educational Finance Group, Inc., a Delaware corporation,
and any successors thereto.
"Servicer Default" has the meaning assigned thereto in Section 6.01 of
the Master Servicing Agreement.
"Servicing Fee Amount" means an amount equal to the product of (i)
one-twelfth of 0.75% and (ii) the Pool Balance as of the close of business on
the last day of the second preceding calendar month.
"SLS Loan" means a loan that is made under the Supplemental Loans for
Students Program in accordance with the Higher Education Act.
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"Specified Reserve Account Balance" means with respect to any Primary
Payment Date, an amount equal to the greater of (i) 3.35% of the aggregate
principal balance of the Notes after taking into account the effect of
distributions and deposits to the Class A-2 Distribution Account on such Primary
Payment Date and (ii) $798,650.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
Inc.
"Stafford Loan" means a loan made to an Eligible Borrower designated as
such that is made under the Robert T. Stafford Student Loan Program in
accordance with the Higher Education Act, including subsidized loans and
Unsubsidized Loans.
"Student Loan" means a student loan originated in compliance with the
Federal Student Loan Program and which is guaranteed as to principal and
interest by a Student Loan Guarantor pursuant to a Student Loan Guaranty
Agreement.
"Student Loan Files" means the documents relating to the Financed
Student Loans specified in Section 2.01 of the Master Servicing Agreement.
"Student Loan Guaranty Agreement" means any of, and "Student Loan
Guaranty Agreements" means all of, the agreements pursuant to which the Student
Loan Guarantors guarantee Financed Student Loans, in each case as the same may
be amended, supplemented or otherwise modified from time to time.
"Student Loan Guaranty Payment" means any payment by a Student Loan
Guarantor pursuant to a Student Loan Guaranty Agreement in respect of a Financed
Student Loan.
"Student Loan Guarantors" means any guaranty agency under the Higher
Education Act providing guarantees with respect to Financed Student Loans
approved by the Insurer.
"Student Loan Notes" means the promissory notes or other writings
evidencing the Student Loans.
"Student Loan Rate" means, with respect to any Collection Period, the
interest rate equal to the product of (a) the quotient obtained by dividing (i)
360 by (ii) the actual number of days elapsed in such Collection Period and (b)
the percentage equivalent of a fraction, the numerator of which is equal to the
sum of the Expected Interest Collection for such Collection Period, less the sum
of the Policy Premium, the Servicing Fee Amount, the Trustee's Fees and
Expenses, the Auction Agent Fee, the Broker-Dealer Fee, the Eligible Lender
Trustee's Fees, with respect to such Collection Period and (ii) the denominator
of which is the aggregate principal amount of the Notes as of the last day of
such Collection Period (provided, that, during the Funding Period such
denominator shall equal the aggregate principal amount of the Notes less the
Pre-Funded Amount as of the last day of such Collection Period).
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"Student Loan Schedule" means Appendix C to the Indenture constituting
a listing of Student Loans legally or beneficially owned by the Issuer
(including all Student Loans subject to the Lien of the Indenture) delivered to
and held by the Indenture Trustee pursuant to the Indenture (which Schedule may
be in the form of microfiche or computer file or other medium acceptable to the
Indenture Trustee), as from time to time amended, supplemented, or modified.
"Subordination Deficit" means, with respect to a Primary Payment Date
occurring after the Parity Date, and the Secondary Payment Date immediately
subsequent to such Primary Payment Date, the amount, if any, by which (x) the
Class A Note Principal Amount as of such Primary Payment Date, and following the
making of all payments to be made on such Primary Payment Date and the
immediately subsequent Secondary Payment Date (except for any payment to be made
as to principal from proceeds of the Insurance Policy), exceeds (y) the Pool
Balance as of the last day of the preceding Collection Period.
"Subsequent Cutoff Date" means the date during the Funding Period as of
which any New Loan is transferred to the Issuer pursuant to the Purchase and
Contribution Agreement and the date on and after which all distributions on such
loan are property of the Issuer.
"Sub-servicer" means any of, and "Sub-servicers" means all of, the
sub-servicer(s) which have been approved by the Insurer servicing the Financed
Student Loans, identified as such on the Student Loan Schedule, which is
Appendix C to the Indenture and on Schedule C of the Master Servicing Agreement.
"Sub-servicer Event of Default" means for any Subservicing Agreement,
an event as defined therein pursuant to which the Sub-servicer's right to
service Financed Student Loans thereunder is subject to termination or removal.
"Sub-servicing Agreement" means any of, and "Sub-servicing Agreements"
means all of, the agreements entered into between the Master Servicer and any
Sub-servicer which has been approved by the Insurer pursuant to which such
Sub-servicer agrees to service Financed Student Loans, in each case, as the same
may be amended, supplemented or otherwise modified from time to time, with the
Insurer's consent.
"Subsidiary" means a corporation of which the relevant Person and/or
its other Subsidiaries own, directly or indirectly, such number of outstanding
shares as have more than 50% of the ordinary voting power for the election of
directors.
"Subsidy Payment" means interest subsidy payments, special allowance
payments and other payments of a similar nature made to the Issuer pursuant to
the terms of the Higher Education Act.
"Substitution" has the meaning assigned thereto in Section 2.02 of the
Indenture.
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"Substitution Amount" means with respect to the Substitution of any
Financed Student Loan pursuant to Section 2.02 of the Indenture, Section 4.2 of
the Purchase and Contribution Agreement or Section 3.05 of the Master Servicing
Agreement, an amount equal to the sum of the Principal Balance of such Financed
Student Loans and all accrued and unpaid interest thereon.
"Transaction Documents" means the Indenture, the Notes, the Master
Servicing Agreement, the Sub-servicing Agreements, the Student Loan Guaranty
Agreements, the Purchase and Contribution Agreement, the Lender Services
Agreement, the Trust Agreement, the Insurance Agreement, the Indemnification
Agreement, the Insurance Policy and the Reimbursement Contract and the other
documents to be executed and delivered in connection herewith.
"Transfer Date" means the date designated for the purchase of
Additional Financed Student Loans pursuant to the Purchase and Contribution
Agreement.
"Trust Accounts" means the Collection Account, the Class A-2
Distribution Account, the Pre-Funding Account, the Reserve Account and the
Capitalized Interest Account.
"Trust Agreement" means the Trust Agreement dated December 7, 1998,
between EFG-I, LP, and The First National Bank of Chicago, as trustee, as
amended by the amendment dated June 1, 1999 among the Issuer, EFG-I, LP, the
Indenture Trustee and the Eligible Lender Trustee.
"Trustees Fees" means the sum of the Eligible Lender Trustee's Fee and
the Indenture Trustee's Fee.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction or jurisdictions.
"Unmatured Event of Default" means any event which, with the giving of
notice or lapse of time, or both, would become an Event of Default.
"Unsubsidized Loan" means Stafford Loans that are not subsidized by the
DOE as set forth in Section 428H of the Higher Education Act (20 U.S.C.
Section 1078-8).
A-30
<PAGE> 106
Other Terms. All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such Article 9.
A-31
<PAGE> 107
Computation of Time Periods. Unless otherwise stated in the Indenture,
in the computation of a period of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
A-32
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 856,765
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 23,362
<MORTGAGE> 8,460
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,090,559
<CASH> 36,020
<RECOVER-REINSURE> 90,564
<DEFERRED-ACQUISITION> 83,832
<TOTAL-ASSETS> 3,487,445
<POLICY-LOSSES> 774,437
<UNEARNED-PREMIUMS> 89,693
<POLICY-OTHER> 20,033
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,411,379
0
0
<COMMON> 466
<OTHER-SE> 622,040
<TOTAL-LIABILITY-AND-EQUITY> 3,487,455
556,175
<INVESTMENT-INCOME> 62,231
<INVESTMENT-GAINS> 1,306
<OTHER-INCOME> 3,244
<BENEFITS> 388,472
<UNDERWRITING-AMORTIZATION> 9,128
<UNDERWRITING-OTHER> 171,381
<INCOME-PRETAX> 104,116
<INCOME-TAX> 33,844
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,184
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
