As filed with the Securities and Exchange Commission on December 27, 1996
Registration Statement No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
AND
POST-EFFECTIVE AMENDMENT
Under
The Securities Act of 1933
----------------
CLASSNOTES INC.
(Seller)
TRANS-WORLD INSURANCE COMPANY
(Seller)
(Exact name of registrant as specified in its charter)
Delaware 22-3400682
Arizona 86-0255348
State of Incorporation IRS Employer Identification Number
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive office)
Eric R. Elwin, Esq.
Vice President and Corporate Counsel
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Richard L. Fried, Esq.
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
<PAGE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
======================================================================================
<CAPTION>
Proposed
Amount Maximum Proposed Maximum Amount of
Title of Securities to be Aggregate Price Aggregate Registration
Being Registered Registered(1) per Unit(2) Offering Price Fee
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes $1,000,000 100% $1,000,000 $344.83
======================================================================================
</TABLE>
(1) The amount of Securities being registered represents the maximum aggregate
principal amount of Securities currently expected to be offered for sale.
(2) Estimated solely for purposes of calculating the registration fee.
_______________
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET FURNISHED PURSUANT TO RULE 404(a)
Items and Captions in Form S-3 Location in Prospectus
<C> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus................ Forepart of Registration Statement and
Outside Front Cover Page of Prospectus**
2. Inside Front and Outside Back
Cover Pages of Prospectus............... Inside Front Cover Page of Prospectus**
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges........................ Summary of Terms
4. Use of Proceeds......................... Use of Proceeds**
5. Determination of Offering
Price................................... *
6. Dilution................................ *
7. Selling Security Holders................ *
8. Plan of Distribution.................... Plan of Distribution**
9. Description of Securities
to be Registered........................ Outside Front Cover Page; Summary of
Terms; The Trust Fund; Description of the
Securities**
10. Interests of Named Experts
and Counsel............................. *
11. Material Changes........................ **
12. Incorporation of Certain Information
by Reference............................ Incorporation of Certain Documents by
Reference
13. Disclosure of Commission
Position on Indemnification
For Securities Act
Liabilities............................. See page II-3
</TABLE>
- ------------
* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement.
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated December __, 1996)
[Name of Trust]
Series 199 -_
$ _LIBOR Rate Class A- Notes
$ Auction Rate Class A- Notes
Trans-World Insurance Company
d/b/a Educaid, a wholly-owned subsidiary of The Money Store Inc.
(Seller)
ClassNotes Inc., a
wholly-owned subsidiary of The Money Store
Inc.
(Seller)
The Money Store Inc.
(Representative)
[Name of Trust] (the "Trust") is offering an aggregate of $__________
Series 199_-_ Asset Backed Notes (the "Series 199_-_ Notes") in the two classes
(each, a "Class") and the original principal amounts set forth above. The Series
199_-_ Notes are secured primarily by a pool of student loans, as further
described herein and in the attached Prospectus, purchased by or contributed to
[Name of Eligible Lender Trustee], as eligible lender trustee on behalf of the
Trust (the "Eligible Lender Trustee"), from Trans-World Insurance Company, doing
business as Educaid, and ClassNotes Inc. (the "Sellers") (such loans, together
with any Additional Student Loans (as defined in the attached Prospectus)
purchased from the Sellers by, or contributed by the Sellers to, the Eligible
Lender Trustee on behalf of the Trust, the "Financed Student Loans"),
collections and other payments with respect to the
(cover continued on next page)
See "Risk Factors" on page __ in the Prospectus for a discussion of certain
material factors which should be considered in connection with an investment in
the Series 199_-_ Notes offered hereby.
THE SERIES 199_-_ NOTES REPRESENT INTERESTS ONLY IN THE TRUST AND DO NOT
REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE MONEY STORE INC., THE SELLERS, THE ELIGIBLE
LENDER TRUSTEE, THE INDENTURE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES OR SUBSIDIARIES. NO GOVERNMENTAL AGENCY HAS PASSED
UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
============================================================================
Price to Underwriting Proceeds to the
Public Discount(1) Seller(2)
- ----------------------------------------------------------------------------
Class A-_ Notes............... 100.00% 0.__% _____%
- ----------------------------------------------------------------------------
Class A-_ Notes............... 100.00% 0.__% _____%
- ----------------------------------------------------------------------------
Total.................... $___,000,000 $______ $________
============================================================================
(1) The Representative has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses, estimated at $200,000. The Series 199_-_ Notes
are offered by [Name of Underwriter] (the "Underwriter") subject to prior
sale, when, as and if issued to and accepted by the Underwriter, subject to
approval of certain legal matters by counsel for the Underwriter. The
Underwriter reserves the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that delivery of the
Series 199_-_ Notes will be made in book-entry form only through the Same
Day Funds Settlement System of The Depository Trust Company on or about
_______, 199_.
[Name of Underwriter]
<PAGE>
(cover continued from previous page)
Financed Student Loans, monies on deposit in certain trust accounts, and a
surety bond with respect to the Series 199_- _ Notes (the "Series 199_-_ Note
Surety Bond") to be issued by:
[NAME OF SURETY PROVIDER]
The initial interest rate (the "Class Interest Rate") for each Class of
Series 199_-_ Notes will be as set forth herein. Thereafter, the Class Interest
Rate for each Class of Series 199_-_ Notes for each Interest Period will,
subject to certain limitations, equal (i) with respect to the Class A-_ Notes,
the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR")
plus 0.__%, and (ii) with respect to the Class A-_ Notes, the rate determined
from time to time for such Classes of Series 199_-_ Notes pursuant to the
Auction Procedures described in Appendix I of the attached Prospectus. In no
event will the Class Interest Rates for the Class A-_ Notes exceed __% per
annum. Principal and interest on the Class A-_ Notes will be payable monthly on
the 15th day of each month (or if such day is not a Business Day, on the next
succeeding Business Day), commencing in ___, 199_. Interest on the Class A-_
Notes will be payable on the first Business Day following the expiration of each
Interest Period for such Class, commencing in ____, 199_. Principal on the Class
A-_ Notes will be payable on the first Business Day following the expiration of
the first Interest Period for such Class ending in each month, commencing in
_____, 199_. However, no principal payments with respect to any Class of Notes
will be made until each Class of Notes with an earlier Final Maturity Date is
paid in full.
After the respective initial Interest Period, each Interest Period for (i)
the Class A-_ Notes will consist of the period beginning on the 15th day of each
month and ending on the 14th day of the following month and (ii) the Class A-_
Notes will consist of 28 days, subject to adjustment as described in the Auction
Procedures.
The Final Maturity Dates for the Class A-_ and A-_ Notes are ____ and
_____, respectively. However, payment in full of the Notes could occur earlier
than such dates as described in the attached Prospectus.
There is currently no secondary market for the Series 199_-_ Notes. The
Underwriter intends to make a secondary market for the Series 199_-_ Notes, but
has no obligation to do so. There can be no assurance that a secondary market
for the Series 199_-_ Notes will develop or, if one does develop, that it will
continue.
The Series 199_-_ Notes offered by this Prospectus Supplement constitute a
separate series of Notes being offered by the Representative and the Sellers
pursuant to the Prospectus dated _____, 1996, of which this Prospectus
Supplement is a part and which accompanies this Prospectus Supplement. The
Prospectus contains important information regarding this offering which is not
contained herein and prospective investors are urged to read the Prospectus and
this Prospectus Supplement in full.
(end of cover page)
------------------------------
Until 90 days after the date hereof, all dealers effecting transactions in
the Series 199_-_ Notes, whether or not participating in this distribution, may
be required to deliver a Prospectus Supplement and the Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
In connection with this offering, the Underwriter may overallot or effect
transactions which stabilize or maintain the market prices of the Series 19_-_
Notes offered hereby at levels above those which might otherwise prevail in the
open market. Such stabilizing, if commenced, may be discontinued at any time.
<PAGE>
TERMS OF THE SERIES 199_-_ NOTES
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in the attached Prospectus. Certain
capitalized terms used in this Prospectus Supplement and not defined herein have
the meaning ascribed to such terms in the attached Prospectus.
Issuer..........................[Name of Trust] (the "Trust") is a business
trust established under the laws of the
[State][Commonwealth] of _______ by a Trust
Agreement between the Sellers, as
depositors, and the Eligible Lender
Trustee. The Trust's principal officers are
in _____, ____ in care of [Name of Eligible
Lender Trustee] as Eligible Lender Trustee,
at the address listed below.
Securities Offered..............Series 199_-_ Asset Backed Notes (the "Series
199_-_ Notes") to be issued in the
following classes and initial principal
amounts (each a "Class"):
$______ LIBOR Rate Class A-_ Notes (the
"LIBOR Rate Notes")
$______ Auction Rate Class A-_ Notes (the
"Auction Rate Notes")
The Trust will issue the Series 199_-_ Notes
pursuant to the Indenture dated as of ____,
199_ (as amended and supplemented from time
to time, the "Master Indenture") and a ____
Terms Supplement dated as of _____, 199_
authorizing such Notes (as amended from
time to time, the "Terms Supplement" and,
together with the Master Indenture, the
"Indenture") between the Trust and the
Indenture Trustee.
The LIBOR Rate Notes will be issued in minimum
denominations of $50,000 and integral
multiples of $50,000 in excess thereof. The
Auction Rate Notes will be issued in
minimum denominations of $50,000 and
integral multiples of $50,000 in excess
thereof. The Series 199_-_ Notes are
available in book-entry form only. On each
Note Distribution Date for which the LIBOR
Rate Notes are receiving a payment of
principal, such principal will be
distributed pro rata among all owners of
the applicable Class of LIBOR Rate Notes as
of the related Record Date based on the
amount of such Class of LIBOR Rate Notes so
owned, as the case may be, and such
distributions may be made in amounts less
than $50,000. On each Note Distribution
Date for which the Auction Rate Notes are
receiving a payment of principal, such
principal will be distributed as set forth
in the Prospectus under "Description of the
Transfer and Servicing Agreements --
Distributions."
Master Servicer and Servicer....Each Seller will act as Master Servicer with
respect to the Financed Student Loans sold
by it to the Trust (in such capacity, the
"Master Servicer") and generally will
service the Financed Student Loans
originated by it during the Deferral Phase.
[Name of Servicer], a ______ corporation,
will service the Financed Student Loans
originated by the Sellers during the
Repayment Phase. See "[Name of Servicer]"
herein.
Eligible Lender Trustee.........[Name of Eligible Lender Trustee] , a ____ bank
and trust company, will act as the eligible
lender trustee under the Trust Agreement
and will hold legal title to the Financed
Student Loans on behalf of the Trust (the
"Eligible Lender Trustee"). The Eligible
Lender Trustee has its chief executive
office in _______. The office of the
Eligible Lender Trustee for purposes of
administering the Trust is located at
________________.
Indenture Trustee...............[Bankers Trust Company, a New York banking
corporation] (the "Indenture Trustee"),
will act as trustee under the Indenture.
Auction Agent...................[Bankers Trust Company] will act as auction
agent (in such capacity, the "Auction
Agent") under the Auction Agent Agreement
with respect to each Class of Auction Rate
Notes and the Certificates.
Broker-Dealer...................[Smith Barney Inc.] will act as broker-dealer
under the Broker- Dealer Agreement (in such
capacity, the "Broker-Dealer") with respect
to each Class of Auction Rate Notes and the
Certificates.
Administrator...................[Trans-World Insurance Company, d/b/a
Educaid][ClassNotes Inc.] will act as
administrator (the "Administrator") on
behalf of the Trust pursuant to an
Administration Agreement (as amended and
supplemented from time to time, the
"Administration Agreement"), between the
Administrator[s], the Eligible Lender
Trustee and the Indenture Trustee.
Surety Provider.................[Name of Surety Provider,], a _____-domiciled
stock insurance company (" "), will act as
provider of the Note Surety Bond issued
with respect to the Series 199_-_ Notes
(the "Surety Provider").
Initial Class Interest Rates....____% per annum with respect to the Class A-_
Notes until _____, 199_, the first rate
adjustment date for such Class; and ___%
per annum with respect to the Class A-
Notes until ____, 199_, the first Auction
Date for such Class.
After the initial Interest Period for the
Class A-_ Notes, the Class Interest Rate
for the Class A-_ Notes will be reset to
equal the lesser of (i) One-Month LIBOR
plus ___% and (ii) the applicable Net Loan
Rate. After the initial Interest Period for
the Class A-_ Notes, each Interest Period
will consist of [28] days, subject to
adjustment as set forth in the Auction
Procedures described in Appendix I to the
attached Prospectus. After the initial
Interest Period for the Class A-_ Notes,
the Class Interest Rate for such Class will
be reset pursuant to the Auction Procedures
described in Appendix I to the attached
Prospectus (but in no event exceeding [18]%
per annum). See "Description of the
Securities -- the Notes -- Distributions of
Interest" in the attached Prospectus.
Interest on the Class A-_ Notes will be
payable monthly on the 15th day of each
month (or if such day is not a Business
Day, on the next succeeding Business Day),
commencing in _____, 199_. Interest on the
Class A-_ Notes will be payable on the
first Business Day following the expiration
of each Interest Period for such Class of
Notes. The date on which a Class of Notes
is entitled to receive a distribution is
referred to as the "Note Distribution Date"
for such Class. Distributions will be made
to holders of record of the related Class
of Series 199_-_ Notes as of the second
Business Day preceding the related Note
Distribution Date.
If the Class Interest Rate for any Class of
Notes for any Interest Period is based on
the Net Loan Rate, the excess of (a) the
amount of interest on such Class of Notes
that would have accrued in respect of the
related Interest Period had interest been
calculated based on the applicable Auction
Rate or LIBOR Rate, as the case may be,
over (b) the amount of interest on the
Class of Notes actually accrued in respect
of such Interest Period based on the Net
Loan Rate (such excess, together with the
unpaid portion of any such excess from
prior Interest Periods (and interest
accrued thereon calculated based on
One-Month LIBOR), is referred to as the
"Noteholders' Interest Carryover") will be
paid on the dates and in the priority set
forth herein under "--Collection Account;
Note Distribution Account; Certificate
Distribution Account; and Expense Account."
The rating of the Series 199_-_ Notes does
not address the likelihood of the payment
of the amount of any Noteholders' Interest
Carryover.
Principal.......................Principal will be payable to the Class of Notes
with the earliest Final Maturity Date on
each Note Distribution Date for such Class
in an amount equal to the Noteholders'
Principal Distribution Amount for such Note
Distribution Date. The Noteholders'
Principal Distribution Amount will be equal
to (i) the amount of principal paid with
respect to the Financed Student Loans (plus
any Realized Losses thereon), (ii) proceeds
realized upon the sale of Financed Student
Loans by the Trust and (iii) Additional
Principal Payments, if any. Also, on the
Final Maturity Date for a Class of Notes,
the Noteholders' Principal Distribution
Amount also will include the then
outstanding principal balance of such Class
of Notes. See "Description of the Transfer
and Servicing Agreements--Distributions" in
the attached Prospectus.
Principal of the Notes will be applied on
each applicable Note Distribution Date,
first, to the principal balance of the
Class of Notes with the earliest Final
Maturity Date until such principal balance
is reduced to zero and then, with respect
to any additional Classes of Notes, to the
principal balance of each other Class,
sequentially in order of Final Maturity
Date, until the principal balance of each
Class is reduced to zero.
Payment in full of any Class of Notes is
likely to occur sooner than such Final
Maturity Date as a result of a variety of
factors, including the sale by the Trust of
Financed Student Loans and borrowers
leaving school and commencing repayment of
their Financed Student Loans. Additionally,
with the consent of the Surety Provider,
Additional Principal Payments may be made
on the Notes. See "The Financed Student
Loan Pool--Maturity and Prepayment
Assumptions" in the attached Prospectus.
On the Final Maturity Date of each Class of
Notes, the Surety Provider will be required
to provide for payment to the Trust
pursuant to the related Note Surety Bond of
an amount equal to the excess, if any, of
the unpaid principal balance of such Class
of Notes on such Final Maturity Date over
amounts on deposit in the Note Distribution
Account, after taking into account the
required application of funds in the
remaining Trust Accounts, including but not
limited to the Reserve Account, pursuant to
the Sale and Servicing Agreement, to the
payment of principal on such Class of Notes
on such Final Maturity Date, subject to the
exceptions described [herein][in the
Prospectus] under "Description of the
Surety Bonds --Note Surety Bonds." Any such
amount will be distributed to holders of
such Class of Notes on the related Final
Maturity Date. If, however, no required
payments are made under a Note Surety Bond
in respect of a Class of Notes, an Event of
Default will then have occurred under such
Class of Notes and holders of such Class
would likely incur losses. In addition, the
maturity of many of the Financed Student
Loans may extend beyond the Final Maturity
Date of certain Classes of Notes.
The Certificates..............Concurrently with the issuance of the Series
199_-_ Notes, the Trust will issue the
Class __ Certificates pursuant to a Trust
Agreement and, after the issuance of the
Class __ Certificates, a supplement thereto
(each, a "Trust Supplement"). The
Certificates represent undivided
participation interests in the Trust.
Student Holdings will purchase a 1.0%
interest in the Certificates. See
"Formation of the Trust -- The Trust" in
the attached Prospectus.
A. Interest..................Each Class of Certificates will bear interest at
the rate per annum (the "Certificate Rate")
set forth in the related Trust Agreement or
the related Trust Supplement until (i) with
respect to Auction Rate Certificates, the
first Auction Date for such Class, at which
time the related Certificate Rate will be
reset pursuant to the Auction Procedures
described in Appendix I, (ii) with respect
to LIBOR Rate Certificates, the date set
forth in the related Trust Supplement at
which time the related Certificate Rate
will be reset based upon One-Month LIBOR or
(iii) with respect to Treasury Rate
Certificates, the date set forth in the
related Trust Supplement at which time the
related Certificate Rate will be reset
based upon the Treasury Rate. If a Class of
Certificates bears interest based upon
another method, the related Trust
Supplement will describe such method.
Interest on the outstanding principal
balance of each Class of Certificates will
accrue initially from and including the
related Closing Date through and including
the date set forth in the related Trust
Agreement or the related Trust Supplement
and thereafter, except as otherwise set
forth in a Trust Supplement, for Interest
Periods consisting of (i) with respect to
Auction Rate Certificates, periods of 28
days, subject to adjustment as set forth in
the Auction Procedures described in
Appendix I, (ii) with respect to LIBOR Rate
Certificates, the one-month period
beginning and ending on the dates set forth
in the related Trust Supplement, (iii) with
respect to Treasury Rate Certificates, the
one-month period beginning and ending on
the dates set forth in the related Trust
Supplement, and (iv) with respect to
Certificates accruing interest based on
some other method, the period set forth in
the related Trust Supplement. Interest on
the Certificates will be payable on the
first Business Day following the expiration
of each Interest Period, or on such other
dates and for such other periods as may be
set forth in the related Trust Supplement
(each, a "Certificate Distribution Date")
to holders of record of the Certificates
(the "Certificateholders" and, together
with the Noteholders, the
"Securityholders") as of the second
Business Day preceding the related
Certificate Distribution Date (such day,
the "Certificate Record Date"). Interest
will be calculated on the basis of the
actual number of days elapsed in each
Interest Period divided by 360.
Notwithstanding the foregoing, if the
Certificate Rate with respect to a Class of
Certificates for an Interest Period is
greater than the Net Loan Rate, then the
Certificate Rate for such Class of
Certificates for such Interest Period will
be such Net Loan Rate. However, in no event
will the Certificate Rate exceed 18.0% per
annum, or such other rate as may be set
forth in a Trust Supplement.
As used herein, the term "Distribution
Date" refers to either a Note Distribution
Date or a Certificate Distribution Date, as
the context requires.
If the Certificate Rate for any Class of
Certificates for any Certificate
Distribution Date is based on the Net Loan
Rate, the excess of (a) the amount of
interest on such Class of Certificates that
would have accrued in respect of the
related Interest Period had interest been
calculated based on the applicable Auction
Rate, LIBOR Rate or other applicable rate,
as the case may be, over (b) the amount of
interest on the Class of Certificates
actually accrued in respect of such
Interest Period based on the Net Loan Rate
(such excess, together with the unpaid
portion of any such excess from prior
Interest Periods (and interest accrued
thereon calculated based on One-Month
LIBOR), is referred to as the
"Certificateholders' Interest Carryover")
will be paid on the dates and in the
priority set forth in the related
Prospectus Supplement under "--Collection
Account; Note Distribution Account;
Certificate Distribution Account; and
Expense Account." The rating of each Class
of Certificates does not address the
likelihood of the payment of any
Certificateholders' Interest Carryover.
B. Principal...............Principal of the Class of Certificates with the
earliest Final Maturity Date, or such other
Class set forth in the related Trust
Supplement, will be payable on each
Certificate Distribution Date on and after
which each Series of Notes has been paid in
full in an amount generally equal to (i)
the amount of principal paid with respect
to the Financed Student Loans (plus any
Realized Losses thereon), (ii) proceeds
realized upon the sale of Financed Student
Loans by the related Trust and (iii)
Additional Principal Payments, if any, or
such other amount as may be set forth in
the related Trust Agreement or a Trust
Supplement. Also, on the Final Maturity
Date for a Class of Certificates, the
Certificateholders' Principal Distribution
Amount also will include the then
outstanding principal balance of such Class
of Certificates. See "Description of the
Transfer and Servicing
Agreements--Distributions."
The outstanding principal amount of a Class
of Certificates will be payable in full on
the date set forth in the related Trust
Agreement or a related Trust Supplement
(each, a "Certificate Final Maturity
Date"). However, payment in full of the
Certificates is likely to occur sooner than
such Certificate Final Maturity Date as a
result of a variety of factors, including
the sale by the related Trust of Financed
Student Loans and borrowers leaving school
and commencing repayment of their Financed
Student Loans. Additionally, with the
consent of the applicable Surety Provider,
if any, Additional Principal Payments may
be made on the Certificates. See "The
Financed Student Loan Pool--Maturity and
Prepayment Assumptions."
If a Certificate Surety Bond has been
obtained, on the Certificate Final Maturity
Date for each Class of Certificates, the
applicable Surety Provider will be required
to provide for payment to the related Trust
pursuant to the related Certificate Surety
Bond of an amount generally equal to the
excess, if any, of the unpaid principal
balance of such Class of Certificates on
such Certificate Final Maturity Date over
amounts on deposit in the Certificate
Distribution Account, after taking into
account the required application of funds
in the remaining Trust Accounts, including
but not limited to the Reserve Account,
pursuant to the related Sale and Servicing
Agreement, to the payment of principal on
such Class of Certificates on such
Certificate Final Maturity Date, subject to
the exceptions described herein under
"Description of the Surety Bonds --
Certificate Surety Bonds." Any such amount
will be distributed to Certificateholders
of such Class of Certificates on the
related Certificate Final Maturity Date.
If, however, no required payments are made
under a Certificate Surety Bond, holders of
the Certificates of such Class would likely
incur losses.
C. Subordination of the
Certificates...........The rights of Certificateholders in the assets of
the Trust (other than with respect to the
related Certificate Surety Bond) to receive
payments of principal will be subordinated
to the rights of the Noteholders to the
extent described herein. See "Description
of the Transfer and Servicing Agreement-
-Credit Enhancement--Subordination of the
Certificates."
Final Maturity Date..........._______ with respect to the Class A-_ Notes; and
_______ with respect to the Class A-_ Notes.
.
Cut-off Date..................________, 199_.
Closing Date..................________, 199_.
Servicing Fee.................The Master Servicer will receive, subject to the
limitations set forth in the Prospectus
under the heading "Summary of Terms--Assets
of the Trust--Transfer and Servicing
Agreements," a monthly fee (the "Servicing
Fee") equal to the sum of (i) [0.35]% per
annum of the aggregate principal balance of
Financed Student Loans in the Deferral
Phase as of the last day of the preceding
calendar month, (ii) [1.00]% per annum of
the aggregate principal balance of Financed
Student Loans (other than Consolidation
Loans) in the Repayment Phase as of the
last day of the preceding calendar month,
(iii) with respect to each Consolidation
Loan, the greater of [0.65]% per annum of
the principal balance of each such
Consolidation Loan as of the last day of
the preceding calendar month and $[3.00]
per Consolidation Loan, and (iv) a one-time
fixed fee equal to $[15] for each Financed
Student Loan for which a guarantee claim
was filed, in each case subject to certain
adjustments, together with other
administrative fees and similar charges.
The Servicing Fee will be allocated monthly
out of Available funds and amounts on
deposit in the Reserve Account and will be
payable quarterly on the first Note
Distribution Date occurring in March, June,
September and December (or, if in any such
month a Certificate Distribution Date
occurs prior to such First Note
Distribution Date, on such Certificate
Distribution Date).
Notwithstanding the foregoing, if the fee
payable to the Master Servicer as described
above for any month would exceed 1.05% per
annum of the Pool Balance as of the last
day of the preceding calendar month (the
"Capped Amount"), then the "Servicing Fee"
for such month will instead be the Capped
Amount for such month. The remaining amount
in excess of such Servicing Fee, together
with any such excess amounts from prior
months that remain unpaid (the "Servicing
Fee Carryover"), will be payable to the
Master Servicer on the dates and in the
priority set forth below under
"--Collection Account; Note Distribution
Account; Certificate Distribution Account;
and Expense Account."
Administration Fee............[0.015]% per annum of the outstanding principal
amount of the Notes and the Certificates.
Net Loan Rate.................For any Interest Period, the Net Loan Rate will
equal the weighted average Effective
Interest Rate for the Collection Period
immediately preceding such Interest Period,
less [1.60]% per annum (or less [1.00]% per
annum for the first Interest Period for
each Class of Series 199_-_ Notes).
Pool Balance..................$______ as of the Cut-off Date. Additionally, as
of the Cut-off Date, approximately $_______
of accrued interest has been capitalized by
the Seller and will be added to the
principal balance of the Financed Student
Loans. These amounts include the Financed
Student Loans expected to be pledged to the
Indenture Trustee on the Closing Date,
along with all Financed Student Loans
previously pledged to the Indenture Trustee
in connection with the issuance by the
Trust of all previously issued Series of
Notes that are secured by the Financed
Student Loans.
Pool Characteristics...........A description as of the Cut-off Date of the
Financed Student Loans is attached hereto
as Annex A (such description includes the
Financed Student Loans expected to be
pledged to the Indenture Trustee on the
Closing Date, along with all Financed
Student Loans previously pledged to the
Indenture Trustee in connection with the
issuance by the Trust of all previously
issued Series of Notes that are secured by
the Financed Student Loans).
Pre-Funding Account...........Approximately $________ will be deposited in the
Pre-Funding Account on the Closing Date
(the "Pre-Funded Amount"). The Pre-Funded
Amount will remain in the Pre-Funding
Account during the period (the "Funding
Period") from Closing Date until the first
to occur of (i) the Note Distribution Date
on which the amount on deposit in the
Pre-Funding Account is less than $200,000,
(ii) an Event of Default occurring under
the Indenture, a Servicer Default occurring
under the Sale and Servicing Agreement or
an Administrator Default occurring under
the Sale and Servicing Agreement or the
Administration Agreement, (iii) certain
events of insolvency occurring with respect
to the Seller or (iv) the close of business
on ____, 199_, or such later date as may be
agreed to by the Rating Agencies. The
Pre-Funded Amount will be reduced from time
to time by the amount thereof used in
connection with the Trust obtaining
additional Financed Student Loans during
the Funding Period in accordance with the
Sale and Servicing Agreement (each, an
"Additional Funding"). Any Pre-Funded
Amount remaining at the end of the Funding
Period will be distributed to holders of
the Class of Notes with the earliest Final
Maturity Date as a payment of principal
(and, if such Class has been paid in full,
to the holders of the Class of Notes with
the next earliest Final Maturity Date). See
"Description of the Transfer and Servicing
Agreements -- Additional Fundings" in the
attached Prospectus.
Capitalized Interest Account....Approximately $_______ will be deposited in the
Capitalized Interest Account in the name of
the Indenture Trustee on behalf of the
Trust on the Closing Date. Additionally, on
the Closing Date approximately $______
already will be on deposit in the
Capitalized Interest Account. The amount
deposited therein will be used by the
Indenture Trustee on each Note Distribution
Date and Certificate Distribution Date to
make interest payments to Noteholders and
Certificateholders to the extent funds on
deposit in the Note Distribution Account
and Certificate Distribution Account,
respectively, are insufficient for such
purpose. Any amounts remaining in the
Capitalized Interest Account after the
period set forth in the applicable Terms
Supplement will be transferred to the
Reserve Account or, with the consent of the
Surety Provider, applied as an Additional
Principal Payment as described below under
"--Collection Account; Note Distribution
Account; Certificate Distribution Account;
and Expense Account." See also "Description
of the Transfer and Servicing Agreements --
Capitalized Interest Account and
Capitalized Pre-Funding Account" in the
attached Prospectus.
Collection Account;
Note Distribution
Account; Certificate
Distribution Account;
and Expense Account ........The Master Servicer will be required to remit all
collections received with respect to the
Financed Student Loans for which it is
acting as primary servicer (i) within one
Business Day after it has received an
aggregate of $30,000 during any month and
(ii) on the last Business Day of each
month, all other collections received
during such month to an account in the name
of the Indenture Trustee (the "Collection
Account"). The Master Servicer shall cause
each other Servicer to remit to the
Collection Account, within one Business Day
of receipt thereof, all collections
received with respect to the Financed
Student Loans for which it is acting as
primary servicer. A "Business Day" is any
day other than a Saturday, a Sunday, or a
day on which banking institutions or trust
companies in California, New York, New
Jersey or Pennsylvania are authorized or
obligated by law to be closed. The Eligible
Lender Trustee will be required to remit
Interest Subsidy Payments, Special
Allowance Payments and insurance payments
from the Secretary it receives within two
Business Days of receipt thereof to the
Collection Account. See "Description of the
Transfer and Servicing Agreements--Payments
on Financed Student Loans" in the attached
Prospectus.
Four Business Days prior to each Note
Distribution Date or Certificate
Distribution Date, as applicable (each, a
"Determination Date"), the Administrator
will advise the Indenture Trustee in
writing of the applicable Noteholders'
Interest Distribution Amount or
Certificateholders' Interest Distribution
Amount. Additionally, no later than 16 days
prior to each Note Distribution Date for
the Class of Notes then entitled to receive
payments of principal (or, after all Notes
have been paid in full, no later than 16
days prior to each Certificate Distribution
Date) the Administrator will advise the
Indenture Trustee in writing of the
applicable Noteholders' Principal
Distribution Amount (or, after all the
Notes have been paid in full, the
Certificateholders' Principal Distribution
Amount). Further, on the Determination Date
relating to the first Certificate
Distribution Date occurring each month (or
for each month in which a Note Distribution
Date occurs earlier than the Certificate
Distribution Date, on the Determination
Date relating to such earlier Note
Distribution Date), the Administrator will
advise the Indenture Trustee in writing of
the fees due to the Master Servicer, the
Administrator, the Auction Agent, the
Indenture Trustee, the Eligible Lender
Trustee and the Surety Provider (the
"Servicing Fee," "Administration Fee,"
"Auction Agent Fee," "Indenture Trustee
Fee," "Eligible Lender Trustee Fee" and
"Surety Provider Fee," respectively, and,
collectively, the "Transaction Fees") for
the preceding month.
On each Note Distribution Date (other than
those relating to Accrual Notes during the
period such notes are capitalizing interest
(the "Accrual Period")), the Indenture
Trustee will transfer from the Collection
Account to a separate account held with and
in the name of the Indenture Trustee for
the benefit of the Noteholders (the "Note
Distribution Account"), from payments
received on or with respect to the Financed
Student Loans during the three Collection
Period immediately preceding the month of
such Note Distribution Date (or, with
respect to a Class of Notes having Note
Distribution Dates occurring weekly,
monthly or such other period as may be set
forth in the related Prospectus Supplement,
from payments received on or with respect
to such Financed Student Loans during the
Collection Period immediately preceding the
month of the related Note Distribution Date
or for such or for such number of
Collection Period as may be set forth in
the related Prospectus Supplement) an
amount up to the related Noteholders'
Interest Distribution Amount. "Collection
Period" means, initially, the period
beginning on the Cutoff Date and ending on
_____, and thereafter, the Collection
Period means the calendar month immediately
following the end of the previous
Collection Period. For the Class of Notes
with the earliest Final Maturity Date, on
the first Note Distribution Date for such
Class occurring in January, April, July and
October (or, if a Class of Notes having
Distribution Dates occurring monthly or
such other period as may be set forth in
the related Prospectus Supplement has the
earliest Final Maturity Date, on each
related Note Distribution Date or such
other Note Distribution Dates as may be set
forth in the related Prospectus
Supplement), after making the transfer set
forth in the second prior sentence, the
Indenture Trustee will transfer from the
Collection Account to the Note Distribution
Account from payments received on or with
respect to the Financed Student Loans
during the three Collection Period
immediately preceding the month prior to
the month of such Note Distribution Date
(or, with respect to a Class of Notes
having Distribution Dates occurring weekly,
monthly or such other period as may be set
forth in the related prospectus Supplement,
from the Collection Period in the month
second preceding the month of the related
Note Distribution Date or for such
Collection Period as may be set forth in
the related Prospectus Supplement),
together with any Additional Principal
Payments to be made at the election of the
Master Servicer as described below, an
amount up to the Noteholders' Principal
Distribution Amount; provided, however,
that for each month in which the first Note
Distribution Date occurs prior to the
Certificate Distribution Date in such
month, prior to transferring amounts to the
Note Distribution Account, the Indenture
Trustee will transfer to a separate account
held with and in the name of the Indenture
Trustee (the "Expense Account"), from
payments received on or with respect to the
Financed Student Loans during the
immediately preceding Collection Period, an
amount up to the Transaction Fees for the
month preceding such Note Distribution Date
and all overdue Transaction Fees from prior
months.
On each Certificate Distribution Date, the
Indenture Trustee will transfer from the
Collection Account, from payments received
on or with respect to the Financed Student
Loans during the immediately preceding
Collection Period, (i) to the Expense
Account, an amount up to the excess, if
any, of the Transaction Fees for the month
preceding such Certificate Distribution
Date and all overdue Transaction Fees from
prior months over the amount, if any,
previously transferred to the Expense
Account during the month of such
Certificate Distribution Date and (ii) by
wire transfer no later than 11:00 a.m., New
York time, to a separate account held with
and in the name of the Eligible Lender
Trustee for the benefit of the
Certificateholders (the "Certificate
Distribution Account" and, together with
the Note Distribution Account, the
"Distribution Accounts"), an amount up to
the related Certificateholders' Interest
Distribution Amount. Additionally, after
each Class of Notes has been paid in full,
on each Certificate Distribution Date
relating to the Class of Certificates with
the earliest Final Maturity Date, the
Indenture Trustee will transfer from the
Collection Account to the Eligible Lender
Trustee, by wire transfer no later than
11:00 a.m., New York time, for deposit in
the Certificate Distribution Account, from
payments received on or with respect to the
Financed Student Loans during the
Collection Period immediately preceding the
month prior to such Certificate
Distribution Date, an amount up to the
applicable Certificateholders' Principal
Distribution Amount.
On the first Note Distribution Date
occurring in March, June, September and
December, or in the case of clause (iii)
below, on the first Note Distribution Date
occurring in each month (or if in any such
month a Certificate Distribution Date
occurs prior to such first Note
Distribution Date, on such Certificate
Distribution Date), the Indenture Trustee
will distribute from the Expense Account
(in addition to any amounts transferred
from the Reserve Account as described
herein) the following amounts in the
following order of priority: (i) to the
Master Servicer, the Servicing Fee and all
overdue Servicing Fees, (ii) to the
Administrator, the Administration Fee and
all overdue Administration Fees, (iii) to
the Auction Agent, the Auction Agent Fee
and all overdue Auction Agent Fees, (iv) to
the Indenture Trustee, the Indenture
Trustee Fee and all overdue Indenture
Trustee Fees, (v) to the Eligible Lender
Trustee, the Eligible Lender Trustee Fee
and all overdue Eligible Lender Trustee
Fees and (vi) to the Surety Provider, the
Surety Provider Fee and all overdue Surety
Provider Fees.
On each Note Distribution Date, the
Indenture Trustee will distribute to the
Noteholders of the applicable Class as of
the related Note Record Date all amounts
transferred to the Note Distribution
Account as set forth above (in addition to
any amounts transferred from the
Capitalized Interest Account, the
Pre-Funding Account, the Capitalized Pre-
Funding Account, the Reserve Account and
the Monthly Advance Account and amounts
drawn under the applicable Note Surety
Bond, each as described herein). On each
Certificate Distribution Date, the Eligible
Lender Trustee will distribute to the
Certificateholders of the applicable Class
as of the related Certificate Record Date
all amounts transferred to the Certificate
Distribution Account as set forth above (in
addition to any amounts transferred from
the Capitalized Interest Account, the
Reserve Account and the Monthly Advance
Account, and amounts drawn under the
Certificate Surety Bond, each as described
herein).
Notwithstanding the foregoing, principal
payments will be made to each Class of
Notes and the Certificates only in amounts
equal to $50,000 and integral multiples in
excess thereof. If the amount in the Note
Distribution Account or the Certificate
Distribution Account otherwise required to
be applied as a payment of principal either
(i) is less than $50,000 or (ii) exceeds an
even multiple of $50,000, then, in the case
of (i), such entire amount or, in the case
of (ii), such excess amount, will not be
paid as principal on the upcoming Note
Distribution Date or Certificate
Distribution Date, as the case may be, but
will be retained in the Note Distribution
Account or the Certificate Distribution
Account, as the case may be, until the
amount therein available for payment of
principal (including any amounts
transferred from the Reserve Account)
equals $50,000.
On the last Note Distribution Date
occurring in January, April, July and
October (or if in any such month a
Certificate Distribution Date occurs after
such last Note Distribution Date, on such
Certificate Distribution Date), after
making all required transfers to the Note
Distribution Account and, if applicable,
the Certificate Distribution Account and
the Expense Account, the Indenture Trustee
will transfer any amounts remaining in the
Collection Account (other than amounts
representing payments received during such
month or payments of or with respect to
principal received in the immediately
preceding month) in the following order of
priority: (i) to the Surety Provider, the
amount, if any, necessary to reimburse the
Surety Provider for prior Note and
Certificate Surety Bond Payments (which
will generally be equal to the aggregate
amount of draws under the Note Surety Bonds
and Certificate Surety Bond on prior Note
or Certificate Distribution Dates, as
applicable), together with interest
thereon, (ii) to the Reserve Account, the
amount, if any, necessary to increase the
balance thereof to the Specified Reserve
Account Balance, (iii) to the Master
Servicer, the aggregate unpaid amount of
the Servicing Fee Carryover, if any, (iv)
to the Note Distribution Account, the
aggregate unpaid amount of Noteholders'
Interest Carryover, if any, and (v) to the
Certificate Distribution Account, the
aggregate unpaid amount of
Certificateholders' Interest Carryover, if
any. Any amounts remaining in the
Collection Account after such transfers
(other than amounts representing payments
received during such current month or
payments of or with respect to principal
received in the immediately preceding
month) will be transferred to the Reserve
Account generally for distribution to
holders of the Originators' Interests and
then to Student Holdings. Amounts
transferred to the Note Distribution
Account or the Certificate Distribution
Account pursuant to clauses (iv) and (v)
above, respectively, will be paid to the
applicable Class of Notes or Certificates
on the next Note Distribution Date or
Certificate Distribution Date relating to
such Class of Notes or Certificates.
Notwithstanding the foregoing, with the
consent of the Surety Provider, amounts
otherwise required to be deposited into the
Reserve Account pursuant to clause (ii)
above may, instead, be applied as a payment
of principal on the next applicable Note
Distribution Date relating to the Class of
Notes with the earliest Final Maturity Date
(or, after all the Notes have been paid in
full, on the next Certificate Distribution
Date). Amounts so applied as principal
payments are referred to herein as
"Additional Principal Payments."
Notwithstanding the foregoing, if there has
been an Event of Default with respect to
payment of the Notes, the
Certificateholders will not be entitled to
any payments of principal or interest until
each outstanding Class of Notes has been
paid in full.
Reserve Account.................No additional funds will be deposited in the
Reserve Account on the Closing Date. The
Reserve Account Deposit will be augmented
on the last Note Distribution Date
occurring in January, April, July and
October (or, if in any such month a
Certificate Distribution Date occurs after
such last Note Distribution Date, on such
Certificate Distribution Date) by the
deposit into the Reserve Account of any
Available Funds remaining after making all
prior distributions on such date.
Additional Monthly
Payments......................After the amount on deposit in the Reserve
Account equals the greater of (i) 1% of the
then outstanding principal balance of the
Notes and the Certificates and (ii)
$1,500,000 (but in no event an amount
greater than the then outstanding principal
balance of the Notes and the Certificates),
amounts otherwise required to be deposited
into the Reserve Account may, at the option
of the Master Servicer, be applied as
Additional Principal Payments on the next
Note Distribution Date relating to the
Class of Notes with the earliest Final
Maturity Date (and, after all the Notes
have been paid in full, the Certificates).
With the consent of the Surety Provider,
Available Funds otherwise required to be
deposited in the Reserve Account may be
applied as Additional Principal Payments.
Notwithstanding the depletion of the
Reserve Account and shortfalls in Available
Funds, the Surety Provider will be
obligated to make Note Surety Bond payments
on each Note Distribution Date to cover any
shortfalls with respect to the Noteholders'
Interest Distribution Amount (but will have
no obligation with respect to any
Noteholders Interest Carryover) and, solely
for the benefit of Certificateholders, to
make Certificate Surety Bond Payments on
each Certificate Distribution Date to cover
any shortfalls with respect to the
Certificateholders' Interest Distribution
Amount (but will have no obligation with
respect to any Certificateholders' Interest
Carryover) after application of such
Available Funds and any amounts on deposit
in the Reserve Account.
Surety Bond....................A surety bond to be issued by the Surety
Provider will be obtained in connection
with the Series 199_-_ Notes (the "Series
199_-_ Note Surety Bond") in favor of the
Eligible Lender Trustee on behalf of the
Trust, will be pledged to the Indenture
Trustee and will provide for coverage of
timely payment of all interest and ultimate
payment of all principal on each Class of
Series 199_-_ Notes. "Note Surety Bond
Payment" means, with respect to any Class
of Notes (A) on each Note Distribution Date
the amount equal to the excess, if any, of
the Noteholders' Interest Distribution
Amount for the applicable Class of Notes
over the amount on deposit in the Note
Distribution Account, after taking into
account the required application of funds
in the remaining Trust Accounts (but
excluding any amounts on deposit in the
Monthly Advance Account if an automatic
stay has been imposed with respect to the
Representative under Section 362(a) of the
United States Bankruptcy Code of 1978 as
amended, 11 U.S.C. ss.ss. 101 et seq.),
including but not limited to the Reserve
Account, pursuant to the Sale and Servicing
Agreement, to the payment of the
Noteholders' Interest Distribution Amount
on such Note Distribution Date (an
"Interest Deficiency") and (B) the amount
equal to the excess, if any, of the unpaid
principal balance of Notes of a Class on
the Final Maturity Date for such Class over
amounts on deposit in the Note Distribution
Account, after taking into account the
required application of funds in the
remaining Trust Accounts, including but not
limited to the Reserve Account, pursuant to
the Sale and Servicing Agreement, to the
payment of principal of such Class of Notes
on such Final Maturity Date (a "Principal
Deficiency"); provided, however, that "Note
Surety Bond Payments" shall not include,
any Noteholders' Interest Carryover or any
portion of any Interest Deficiency or
Principal Deficiency arising as a result of
(i) any tax liability, including any tax
liability imposed on or assessed with
respect to the Trust, the Trust assets, any
Noteholder, or any Certificateholder, or
(ii) any tax withholding requirement
including any such requirement applicable
to Trust income or Trust distributions. See
"Description of the Surety Bonds."
In connection with the sale of each Class
of Certificates, a separate surety bond
(each, a "Certificate Surety Bond" and,
together with the Note Surety Bonds, the
"Surety Bonds"), which will be
noncancelable, may be obtained in favor of
the Eligible Lender Trustee solely on
behalf of the Certificateholders of such
Class and will provide for coverage of
timely payment of all interest and ultimate
payment of all principal, due on such
Certificates. The Noteholders will have no
right to or claim on any Certificate Surety
Bond or any amounts payable or paid
thereunder. "Certificate Surety Bond
Payment" means with respect to any Class of
Certificates, (A) on each Certificate
Distribution Date the amount equal to the
excess, if any, of the Certificateholders'
Interest Distribution Amount for the
applicable Class of Certificates over the
amount on deposit in the Certificate
Distribution Account, after taking into
account the required application of funds
in the remaining Trust Accounts (but
excluding any amounts on deposit in the
Monthly Advance Account if an automatic
stay has been imposed with respect to the
Representative under Section 362(a) of the
United States Bankruptcy Code of 1978, as
amended, 11 U.S.C. ss.ss. 101 et seq.),
including but not limited to the Reserve
Account, pursuant to the Sale and Servicing
Agreement, to the payment of the
Certificateholders' Interest Distribution
Amount on such Certificate Distribution
Date (an "Interest Deficiency") and (B) the
amount equal to the excess, if any, of the
unpaid principal balance of the
Certificates of such Class on the
Certificate Final Maturity Date for such
Class over amounts on deposit in the
Certificate Distribution Account, after
taking into account the required
application of funds in the remaining Trust
Accounts, including but not limited to the
Reserve Account, pursuant to the Sale and
Servicing Agreement, to the payment of
principal of such Class of Certificates on
such Certificate Final Maturity Date (a
"Principal Deficiency"); provided, however
that "Certificate Surety Bond Payment"
shall not include any Certificateholders'
Interest Carryover or any portion of any
Interest Deficiency or Principal Deficiency
arising as a result of (i) any tax
liability, including any tax liability
imposed on or assessed with respect to the
Trust, the Trust assets, any Noteholder, or
any Certificateholder, or (ii) any tax
withholding requirement, including any such
requirement applicable to Trust income or
Trust distributions. See "Description of
the Transfer and Servicing Agreements--
Distributions." See also "Descrip tion of
the Surety Bonds--Surety Provider" for a
brief description of the Surety Provider.
Principal Balance of Securities
Exceeds Aggregate Principal
Balance of Initial Financed Student
Loans and Pre-Funded Amounts....On the Closing Date, the aggregate initial
principal amount of the Series 199_-_ Notes
and the principal balance of the Class _
Certificates is ____ % of the sum of the
aggregate principal balance of the initial
Financed Student Loans as of the Cut-off
Date and the Pre-Funded Amount as of the
Closing Date. Each initial Financed Student
Loan will be purchased by the Trust for an
amount equal to ___% of the principal
balance there (including any accrued
interest thereon expected to be capitalized
upon repayment) as of the Cut-off Date. In
addition, each Additional Student Loan will
be purchased by the Trust for an amount
equal to ____% of the principal balance
thereof (including any accrued interest
thereon expected to be capitalized upon
repayment) as of the related Subsequent
Cut-off Date. As a result, if an Event of
Default should occur under the related
Indenture or an Insolvency Event should
occur and the Financed Student Loans were
liquidated at a time when the outstanding
principal amount of the Notes and the
Certificates exceeded the sum of the Pool
Balance, the Pre- Funded Amount and the
amounts in the Reserve Account and
Capitalized Pre-Funding Account, such
Financed Student Loans would likely have to
be liquidated at a premium for
Certificateholders and, in some
circumstances, Noteholders not to suffer a
loss.
Tax Considerations............In the opinion of special tax counsel for the
Trust, the Series 199_-_ Notes will be
characterized as debt for federal and
_______ state income tax purposes, although
there is no specific authority with respect
to the characterization for federal or
_______ income tax purposes of securities
having the same terms as the Series 199_-_
Notes.
In the opinion of special tax counsel for
the Trust, for federal income tax purposes
the Trust will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation. In
the opinion of special _____ tax counsel
for the Trust, the Trust will not be
taxable as a corporation for _______
purposes if it is taxed as a partnership
for federal income tax purposes and
Certificateholders other than individuals
not otherwise subject to ______ tax will
not become subject to taxation in _____
solely as a result of holding a
Certificate. However, there are no cases or
rulings on similar transactions involving a
trust that issues debt and equity interests
with terms similar to those of the Series
199_-_ Notes.
See "Certain Tax Consequences" herein and
in the attached Prospectus for additional
information concerning the application of
federal and _______ state tax laws with
respect to the Notes.
ERISA Considerations.........Assuming that each Class of Series 199_-_ Notes
should be treated as indebtedness without
substantial equity features under the Plan
Asset Regulations issued by the Department
of Labor, the Series 199_-_ Notes are
eligible for purchase by or on behalf of
employee benefit plans, retirement
arrangements, individual retirement
accounts and Keogh Plans, subject to the
considerations discussed under "ERISA --
Considerations -- The Notes" in the
attached Prospectus. Rating of the
Securities It is a condition to the
issuance and sale of the Class A-_ Notes
and the Class A-_ Notes that they be rated
"AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's") and
"Aaa" by Moody's Investors Service, Inc.
("Moody's"). Each of Standard & Poor's and
Moody's is also referred to herein as a
"Rating Agency" and collectively, as the
"Rating Agencies." A securities rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
Rating Agency.
<PAGE>
PREVIOUSLY ISSUED SECURITIES
Set forth below is certain information concerning each outstanding
Class of Notes and certain other securities issued previously by the Trust and
outstanding as of the Cut-off Date. The Financed Student Loans and other assets
pledged to the Indenture Trustee will serve as collateral for such outstanding
Notes and other securities as well as the Series 199_-_ Notes being offered by
means of this Prospectus Supplement and the attached Prospectus.
<TABLE>
<CAPTION>
Outstanding
Original Principal Amount Final
Principal (As of ______ Maturity
Series Class Date Issued Amount __, 199_) Date
<C> <C> <C> <C> <C> <C>
199_-_ Class A-_ ______, 199_ $__,000,000 $__,000,000
199_-_ Class A-_ ______, 199_ $__,000,000 $__,000,000
199_-_ Class A-_ ______, 199_ $__,000,000 $__,000,000
199_-_ Class A-_ ______, 199_ $__,000,000 $__,000,000
199_-_ Class A-_ ______, 199_ $__,000,000 $__,000,000
199_-_ Class A-_ ______, 199_ $__,000,000 $__,000,000
Certi- N/A ______, 199_ $__,000,000 $__,000,000
ficates
</TABLE>
<PAGE>
RISK FACTORS
Prospective Noteholders should consider, in addition to the factors
described under "Risk Factors" in the Prospectus, the following factors.
Repayment of Principal. Payments of principal will be distributed to
the Classes of Notes in order of their Final Maturity Date, regardless of Series
(and, after all Notes have been paid in full, the Certificates in order of their
Final Maturity Date). A subsequently issued Series of Notes may contain one or
more Classes of Notes with an earlier Final Maturity Date, than one or more
Classes of Notes of a previously issued Series. Also a subsequently issued Class
of Certificates may have an earlier Final Maturity Date than one or more
previously issued Classes of Certificates. In such event, the Classes of Notes
or Certificates of the earlier issued Classes will receive no payments of
principal until each of the subsequently issued Notes or Certificates, as a the
case may be, with an earlier Final Stated Maturity have been paid in full.
Certain Differences between Classes of Notes and Certificates. Because
the Classes of Notes with a later Final Maturity Date will receive no payment of
principal until the Classes of Notes with an earlier Final Maturity Date have
been paid in full, the Classes of Notes with an earlier Final Maturity Date bear
relatively greater risk than each Class with a later Final Maturity Date of an
increased rate of (i) principal repayments with respect to the Financed Student
Loans (whether as a result of voluntary prepayments, Consolidation Loans or
liquidations due to default or breach), or (ii) Financed Student Loans entering
the Repayment Phase. In addition, the Class of Notes with the earliest Final
Maturity Date will generally bear the risk of principal prepayments as a result
of any remaining Pre-Funded Amount at the end of each Funding Period. On the
other hand, absent the Surety Bonds, Certificateholders (particularly those with
a later Final Maturity Date) and, to a lesser extent, holders of Notes with a
later Final Maturity Date would bear a greater risk of loss of principal than do
holders of Notes with an earlier Final Maturity Date in the event of a shortfall
in Available Funds and amounts on deposit in the Reserve Account because the
Certificates do not receive principal distributions until each Class of Notes is
paid in full and no Class of Notes or certificates will receive principal
payments until each Class of Notes or Certificates, as the case may be, with an
earlier Final Maturity Date is paid in full.
THE SELLER AND THE MONEY STORE
Each of the Sellers is a wholly-owned subsidiary of The Money Store
Inc., a New Jersey corporation ("The Money Store"). The Money Store is a
financial services company engaged, through its subsidiaries, in the business of
originating, purchasing, selling and servicing consumer and commercial loans of
specified types and offering related services. Loans originated by The Money
Store and its subsidiaries primarily consist of home equity loans, loans (the
"SBA Loans") guaranteed in part by the United States Small Business
Administration (the "SBA") and government guaranteed student loans. Trans-World
Insurance Company, doing business as Educaid ("TWIC") began providing financing
for new and used vehicles in early 1995.
Since 1967, The Money Store and its subsidiaries have been active in
the development of the residential home equity lending industry in the United
States. In 1979, The Money Store and its subsidiaries began to originate SBA
Loans and, based upon statistics compiled by the SBA, The Money Store believes
that during each of the last 14 SBA fiscal years it originated a greater
principal amount of SBA Loans than any other originator of such loans in the
United States. In 1984, The Money Store and TWIC entered into the government
guaranteed student loan origination market.
In 1995, ClassNotes entered into the private student loan origination market.
For the year ended December 31, 1995, The Money Store and its
subsidiaries originated or purchased approximately $3.8 billion of loans. Of
those loans, approximately 75% by principal amount were home equity loans,
approximately 12% by principal amount were SBA Loans, approximately 10% by
principal amount were student loans and approximately 3% by principal amount
were auto loans. The business strategy of The Money Store has been to identify
and pursue niche lending opportunities which management believes have had
widespread unsatisfied demand.
At September 30, 1996, The Money Store and its subsidiaries operated
out of 206 locations and were doing business in 50 states, the District of
Columbia and the Commonwealth of Puerto Rico.
TWIC's executive offices are located at 3301 C Street, Suite 100-A,
Sacramento, California 95816. Its telephone number is (916) 446-5000.
ClassNotes' executive offices are located at 3301 C Street, Suite 201,
Sacramento, California 95816. Its telephone number is (916) 554-8550.
<PAGE>
[NAME OF SERVICER]
_____ is a public corporation and a government instrumentality of the
[State][Commonwealth] of _____. _____ was founded in 19__ and is located in
_____, ____. In addition to servicing student loans, _____ guarantees loans
under the federal Title IV programs, administers certain state scholarship and
financial aid programs, and issues tax-exempt and taxable notes to finance its
direct lending and secondary market purchases of student loan portfolios. As of
December 31, 1995, ____had total assets of approximately $___ billion. As of
that date, _____ serviced approximately __ million student loan borrower
accounts, with an aggregate principal balance of over $___ billion. ____ is one
of the largest servicers of education loans in the nation. _____ has
approximately ____ employees. The information included herein relating to _____
has been obtained from it and is not guaranteed as to accuracy or completeness
by the Sellers or The Money Store and is not to be construed as a representation
by the Sellers or The Money Store.
Pursuant to the Sub-Servicing Agreement and except as otherwise
expressly assumed by the Administrator, _____ has agreed to service, and perform
all other related tasks with respect to, all Financed Student Loans originated
by the Sellers and acquired by the Eligible Lender Trustee on behalf of the
Trust generally after they have entered the Repayment Phase. ______ is required
to perform all services and duties customary to the servicing of such Financed
Student Loans in the same manner as the Master Servicer has serviced Financed
Student Loans and otherwise in compliance with all applicable standards and
procedures. See "Description of the Transfer and Servicing Agreements--
Servicing Procedures" in the attached Prospectus.
The above information relating to _____ has been obtained from _____
and neither the Sellers nor The Money Store has conducted any independent
verification of such information. _____ has agreed that it will provide a copy
of its most recent audited financial statements to Noteholders upon receipt of a
written request directed to Mr. _____, [Title], [Address].
DESCRIPTION OF THE SECURITIES
General
Each Series of Notes will be issued pursuant to the terms of the Master
Indenture and the related Terms Supplement and each Class of Certificates will
be issued pursuant to the terms of the related Trust Agreement and, except for
an initial Class of Certificates, the related Trust Supplement. The following
summary describes certain terms of the Notes, the Certificates, a Master
Indenture, each Terms Supplement and a Trust Agreement. The summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of each Series of Notes, each Class of Certificates, the applicable
Master Indenture, each Terms Supplement and the applicable Trust Agreement.
It is expected that each Class of Notes and each Class of Certificates
(except for the Certificates being sold to Student Holdings) will initially be
represented by one or more Notes and Certificates, respectively, in each case
registered in the name of the nominee of DTC (together with any successor
depository selected by the Administrator, the "Depository") except as set forth
below. The Notes will be available for purchase in the denominations set forth
in the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Notes may be available in book-entry form only. As a result of
the Internal Revenue Service recently adopting regulations concerning publicly
traded partnerships, each Trust Agreement will provide that Certificates will be
available for purchase in denominations equal to the lesser of $1,000,000 or
1/24th of the Certificate Balance, and integral multiples of $50,000 in excess
thereof. Unless otherwise specified in the related Prospectus Supplement, DTC's
nominee will be Cede. Accordingly, Cede is expected to be the holder of record
of the Securities. If Notes are available in book-entry form only, unless and
until Definitive Notes or Definitive Certificates are issued under the limited
circumstances described herein, no Noteholder or Certificateholder will be
entitled to receive a physical certificate representing a Note or Certificate.
All references herein to actions by Noteholders or Certificateholders refer to
actions taken by DTC upon instructions from its participating organizations (the
"Participants") and all references herein to distributions, notices, reports and
statements to Noteholders or Certificateholders refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the Notes or
Certificates, as the case may be, for distribution to Noteholders or
Certificateholders in accordance with DTC's procedures with respect thereto. See
"--Book-Entry Registration" and "-- Definitive Securities."
The Notes
Distributions of Interest. Interest will accrue on the principal
balance of each Class of Notes at a rate per annum (calculated as provided below
or in the related Prospectus Supplement) equal to the related Class Interest
Rate. Interest may accrue initially from and including the Closing Date on which
the related Series was issued through and including the date set forth in the
related Prospectus Supplement and, thereafter, except as otherwise set forth in
the related Prospectus Supplement, for periods (each, an "Interest Period")
consisting of (i) with respect to Auction Rate Notes, as set forth in the
related Prospectus Supplement, (ii) with respect to LIBOR Rate Notes, the
one-month period beginning and ending on the dates set forth in the related
Prospectus Supplement or (iii) with respect to Notes accruing interest based on
some other method, the period set forth in the related Prospectus Supplement.
Interest on each Class of Notes will be payable (or with respect to Accrual
Notes during the related Accrual Period, added to the principal amount thereof)
on the related Note Distribution Date. Interest distributions due on any Class
of Notes for any Note Distribution Date but not distributed on such Note
Distribution Date will be due on the next Note Distribution Date for such Class,
increased by an amount equal to interest on such amount at the applicable Class
Interest Rate for the period from the Note Distribution Date for which such
interest was first due until the Note Distribution Date such interest is paid.
Interest payments on the Notes will generally be funded from Available Funds,
Monthly Advances and amounts, if any, on deposit in the Reserve Account (and,
when applicable, amounts on deposit in the Capitalized Interest Account and the
Capitalized Pre-Funding Account) remaining after the deposit of the Transaction
Fees in the Expense Account. Interest will be paid pro rata to the holders of
each Class of Notes outstanding. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "--Credit Enhancement." If insufficient funds
are available to pay the Noteholders' Interest Distribution Amount on a Note
Distribution Date, such shortfall will be paid from draws on the Note Surety
Bonds to the extent described herein under "Description of the Surety
Bonds--Note Surety Bonds."
Until the date of an Auction Period adjustment, if any, the interest
rate on each Class of Auction Rate Notes for each Interest Period will be the
Class Interest Rate based on an Auction Period, subject to adjustment as
described herein. The Class Interest Rate on each Class of Auction Rate Notes
for each Auction Period will be the lesser of (i) the Net Loan Rate in effect
for such Auction Period and (ii) the Auction Rate in effect for such Auction
Period, as determined by the Auction Agent pursuant to the Auction Procedures
described in Appendix I hereto and in the related Prospectus Supplement;
provided that if on any Rate Determination Date, an Auction for a Class of Notes
is not held for any reason, then the Class Interest Rate for such Class of Notes
will be the Net Loan Rate. The Class Interest Rate on each Class of LIBOR Rate
Notes for each Interest Period will be the lesser of (i) the Net Loan Rate in
effect for such Interest Period and (ii) LIBOR plus the margin set forth in the
applicable Prospectus Supplement (the "LIBOR Rate"). However, no Class Interest
Rate will exceed the rate per annum set forth in the related Prospectus
Supplement, and will be subject to other limitations described herein and
therein.
For each Class of Notes, the applicable Initial Rate, Initial Rate
Adjustment Date and last day of the Initial Period will be set forth in the
related Prospectus Supplement. Thereafter, interest will accrue as set forth
above.
Auction Period Adjustment. With respect to Auction Rate Notes, the
Administrator may, from time to time, change the length of one or more Auction
Periods to conform with then current market practice or accommodate other
economic or financial factors that may affect or be relevant to the length of
the Auction Period or any Class Interest Rate (an "Auction Period Adjustment").
An Auction Period Adjustment will not cause an Auction Period to be less than 7
days nor more than one year and will not be allowed unless certain conditions
described in the Auction Procedures in Appendix I are satisfied. If an Auction
Period Adjustment is made, the intervals between Note Distribution Dates will be
adjusted accordingly.
Noteholders' Interest Carryover. If, with respect to any Class of
Notes, for any Interest Period the Auction Rate or the LIBOR Rate, as
applicable, exceeds the Net Loan Rate, the applicable Class Interest Rate for
such Interest Period will be the Net Loan Rate, and the excess of the amount of
interest on such Class of Notes that would have accrued at a rate equal to the
Auction Rate or the LIBOR Rate, as applicable, over the amount of interest on
such Class actually accrued at the Net Loan Rate will accrue as the Noteholders'
Interest Carryover with respect to such Class of Notes. Such determination of
the Noteholders' Interest Carryover will be made separately for each Class of
Notes. The Noteholders' Interest Carryover on any Class of Notes will bear
interest at a rate equal to One-month LIBOR from the Note Distribution Date for
the Interest Period for which the Noteholders' Interest Carryover was calculated
until paid.
Any Noteholders' Interest Carryover that may exist on any Note
Distribution Date will be paid as described herein under "Description of the
Transfer and Servicing Agreements--Distributions."
Distributions of Principal. Principal payments will be made to the
Class of Notes with the earliest Final Maturity Date on each Note Distribution
Date for such Class (or such other Note Distribution Dates for such Class as may
be described in the applicable Prospectus Supplement) in an amount equal to the
Noteholders' Principal Distribution Amount for such Note Distribution Date
(provided, however, that principal payments will be made only in amounts equal
to $50,000 and integral multiples in excess thereof), until the principal
balance of the Notes of such Class is reduced to zero. Principal payments on a
Class of Notes will generally be derived from Available Funds and amounts, if
any, on deposit in the Reserve Account remaining after the Indenture Trustee has
deposited in the Expense Account the Transaction Fees for the month preceding
such Note Distribution Date and all overdue Transaction Fees from prior months,
deposited in the Note Distribution Account the Noteholders Interest Distribution
Amount, and, unless there has been an Event of Default under a Series of Notes,
deposited in the Certificateholder Distribution Account, the Certificateholders
Interest Distribution Amount. Additionally, with the consent of the Surety
Provider, amounts otherwise required to be deposited into the Reserve Account
may be applied as Additional Principal Payments. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Credit Enhancement." If
such sources are insufficient to pay the Noteholders' Principal Distribution
Amount for such Note Distribution Date, such shortfall will be added to the
principal payable to the Noteholders on subsequent Note Distribution Dates.
Principal payments on the Notes will be applied on each applicable Note
Distribution Date, first, to the principal balance of the Class of Notes with
the earliest Final Maturity Date until such principal balance is reduced to zero
and then to the principal balance of each other Class of Notes, in order of
Final Maturity Date, until the principal balance of each Class is reduced to
zero. The aggregate outstanding principal amount of each Class of Notes will be
payable in full on the Note Distribution Date identified in the related
Prospectus Supplement (the "Final Maturity Date"). The actual date on which the
aggregate outstanding principal and accrued interest of any Class of Notes are
paid may be earlier than its respective Final Maturity Date, based on a variety
of factors, including those described above under "Risk Factors--Maturity and
Prepayment Assumptions" and "The Financed Student Loan Pool--Maturity and
Prepayment Assumptions."
On the Final Maturity Date relating to a Class of Notes, the Surety
Provider will be required to provide for payment to the Trust pursuant to the
applicable Note Surety Bond of an amount equal to the excess, if any, of the
unpaid principal balance of the Notes of such Class on such Final Maturity Date
over amounts on deposit in the Note Distribution Account, after taking into
account the required application of funds in the remaining Trust Accounts,
including but not limited to the Reserve Account, pursuant to the Sale and
Servicing Agreement, to the payment of principal of such Class of Notes on such
final Note Distribution Date, subject to the exceptions described hereunder
"Discretion of the Surety Bonds--Note Surety Bonds." Any such amount will be
distributed to holders of the applicable Class of Notes on the related Final
Maturity Date.
Mandatory Redemption. The Class of Notes with the earliest Final
Maturity Date will be redeemed in part on the applicable Note Distribution Date
on or immediately following the last day of each Funding Period, in the event
that any amount remains on deposit in the Pre-Funding Account after giving
effect to all Additional Fundings on or prior to such date, in an aggregate
principal amount equal to the amount then on deposit in the Pre-Funding Account.
The Certificates
Distributions of Interest. On each Certificate Distribution Date,
Certificateholders of the related Class will be entitled to distributions in an
amount equal to the amount of interest accrued during the related Interest
Period on the principal amount of such Class at the applicable Certificate Rate.
Interest on the Certificates will accrue initially from and including the
Closing Date on which the related Class was issued through and including the
date set forth in the Trust Agreement or the related Trust Supplement and,
thereafter, except as otherwise provided in the related Trust Supplement, for
Interest Periods consisting of, (i) with respect to Auction Rate Certificates,
28 days, subject to adjustment as set forth in the Auction Procedures described
in Appendix I, (ii) with respect to LIBOR Rate Certificates, the one-month
period beginning and ending on the dates set forth in the related Trust
Supplement and (iii) with respect to Certificates accruing interest based on
some other method, the period set forth in the related Trust Supplement.
Interest distributions due for any Class of Certificates on any Certificate
Distribution Date but not distributed on such Certificate Distribution Date will
be due on the next Certificate Distribution Date for such Class increased by an
amount equal to interest on such amount at the applicable Certificate Rate for
the period from the Certificate Distribution Date for which such interest was
first due until the Certificate Distribution Date such interest is paid.
Interest distributions with respect to the Certificates will generally be funded
from Available Funds, Monthly Advances and the amounts, if
any, on deposit in the Reserve Account remaining after the Indenture Trustee has
transferred to the Expense Account an amount, up to the excess, if any, of the
Transaction Fees for the month preceding such Certificate Distribution Date and
all overdue Transaction Fees for the month preceding such Certificate
Distribution Date over the amount, if any, previously transferred to the Expense
Account during the month of such Certificate Distribution Date, provided,
however, that Certificateholders will not be entitled to any distributions if
there has been an Event of Default under any Series of Notes until each Class of
Notes has been paid in full. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Credit Enhancement--Reserve Account." If
insufficient funds are available to pay the Certificateholders' Interest
Distribution Amount for such Certificate Distribution Date, then amounts may be
drawn under the Certificate Surety Bonds to cover such shortfalls. See
"Description of the Surety Bonds--Certificate Surety Bonds."
Until the date of an Auction Period Adjustment, if any, the interest
rate on each Class of Auction Rate Certificates for each Interest Period will be
the Certificate Rate based on an Auction Period, subject to adjustment as
described herein. The Certificate Rate on each Class of Auction Rate
Certificates for each Auction Period will be the lesser of (i) the Net Loan Rate
in effect for such Auction Period and (ii) the Auction Rate in effect for such
Auction Period, as determined by the Auction Agent generally pursuant to the
Auction Procedures described in Appendix I hereto; provided that if on any Rate
Determination Date, an Auction for a Class of Auction Rate Certificates is not
held for any reason, then the Certificate Rate for such Certificates will be the
Net Loan Rate. The Certificate Rate on each Class of LIBOR Rate Notes for each
Interest Period will be the lesser of (i) the Net Loan Rate in effect for such
Interest Period and (ii) the applicable LIBOR Rate. However, no Certificate Rate
will exceed 18.0% per annum, or such other rate as may be set forth in a Trust
Supplement, and will be subject to other limitations described herein.
Auction Period Adjustment. With respect to Auction Rate Certificates,
the Administrator may, from time to time, change the length of one or more
Auction Periods to conform with then current market practice or to accommodate
other economic or financial factors that may affect or be relevant to the length
of the Auction Period or any Certificate Rate. An Auction Period Adjustment with
respect to the Certificates will not cause an Auction Period to be less than 7
days nor more than one year and will not be allowed unless certain conditions
described in the Auction Procedures in Appendix I are satisfied.
Certificateholders' Interest Carryover. If, with respect to any Class
of Certificates, for any Interest Period the Auction Rate or the LIBOR Rate (or
any other related rate), as applicable, exceeds the Net Loan Rate, the
applicable Certificate Rate for such Interest Period will be the Net Loan Rate,
and the excess of the amount of interest on such Class of Certificates that
would have accrued at a rate equal to the Auction Rate or the LIBOR Rate, as
applicable, over the amount of interest actually accrued at the Net Loan Rate
will accrue as the Certificateholders' Interest Carryover with respect to such
Class of Certificates. The Certificateholders' Interest Carryover on any Class
of Certificates will bear interest at a rate equal to One-Month LIBOR from the
Certificate Distribution Date for the Interest Period for which the
Certificateholders' Interest Carryover Amount was calculated until paid.
Any Certificateholders' Interest Carryover that may exist on any
Certificateholders' Distribution Date will be paid as described herein under
"Description of the Transfer and Servicing Agreement--Distributions."
Distributions of Principal. Certificateholders of the Class of
Certificates with the earliest Final Maturity Date will be entitled to
distributions on each Certificate Distribution Date on and after which each
Class of Notes has been paid in full in an amount generally equal to the
Principal Distribution Amount for such Certificate Distribution Date (provided,
however, that principal payments will be made only in amounts equal to $50,000
and integral multiples in excess thereof). Distributions with respect to
principal payments on the Certificates for such Certificate Distribution Date
will generally be funded from the portion of Available Funds and amounts, if
any, on deposit in the Reserve Account remaining after the transfer by the
Indenture Trustee to the Expense Account of the Transaction Fees and the
transfer to the Certificate Distribution Account of the Certificateholder
Interest Distribution Amount. Additionally, with the consent of the Surety
Provider, amounts otherwise required to be deposited into the Reserve Account
may be applied as Additional Principal Payments. See "Description of the
Transfer and Servicing Agreements--Distributions" and "--Credit
Enhancement--Reserve Account." If such sources are insufficient to pay the
Certificateholders' Principal Distribution Amount for such Certificate
Distribution Date, such shortfall will be added to the principal payable to
Certificateholders on subsequent Certificate Distribution Dates.
Principal payments on the Certificates will be applied on each
applicable Certificate Distribution Date, first, to the principal balance of the
Class of Certificates with the earliest Final Maturity Date until such principal
balance is reduced to zero and then to the principal balance of each other Class
of Certificates, in order of Final Maturity Date, until the principal balance of
each Class is reduced to zero. The aggregate outstanding principal amount of
each Class of Certificates will be payable in full on the Final Maturity Date
set forth in the Trust Agreement or the related Trust Supplement. The actual
date on which the aggregate outstanding principal and accrued interest of any
Class of Certificates will be paid may be earlier than its respective
Certificate Final Maturity Date, however, based on a variety of factors,
including those described above under "Risk Factors--Maturity and Prepayment
Assumptions" and "The Financed Student Loan Pool--Maturity and Prepayment
Assumptions."
On the Final Maturity Date related to a Class of Certificates, the
Surety Provider will be required to provide for payment to the Trust pursuant to
the applicable Certificate Surety Bond of an amount equal to the excess, if any,
of the unpaid principal balance of the Certificates of such Class on such
Certificate Final Maturity Date over amounts on deposit in the Certificate
Distribution Account, after taking into account the required application of
funds in the remaining Trust Accounts, including but not limited to the Reserve
Account, pursuant to the Sale and Servicing Agreement, to be applied to the
payment of principal on the Certificates of such Class on such Certificate Final
Maturity Dates, subject to the exceptions described herein under "Description of
the Surety Bonds--Certificate Surety Bonds." Any such amount will be distributed
to holders of the applicable Class of Certificates on the related Certificate
Final Maturity Date.
Subordination of the Certificates. No distributions in respect of
principal of any Class of Certificates will be made until the Certificate
Distribution Date on or after which each Class of Notes has been paid in full.
Determination of LIBOR
Pursuant to the Auction Agent Agreement, the Auction Agent will
determine One-Month LIBOR for purposes of calculating the interest due on the
LIBOR Rate Notes, the LIBOR Rate Certificates, the Noteholders' Interest
Carryover and the Certificateholder's Auction Rate Interest Carryover for each
given Interest Period on the second Business Day prior to the commencement of
each Interest Period (each, a "LIBOR Determination Date"). For purposes of
calculating One-Month LIBOR, a Business Day is any day on which banks in London
and New York City are open for the transaction of business. Interest due for any
Interest Period will be determined based on the actual number of days in such
Interest Period over a 360-day year.
"One-Month LIBOR" means the London interbank offered rate for deposits
in U.S. dollars having a maturity of one month commencing on the related LIBOR
Determination Date (the "Index Maturity") which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of the rates at which deposits in U.S. dollars, having the Index
Maturity and in a principal amount of not less than U.S. $1,000,000, are offered
at approximately 11:00 a.m., London time, on such LIBOR Determination Date to
prime banks in the London interbank market by the Reference Banks. The Auction
Agent will request the principal London office of each of such Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations.
If fewer than two quotations are provided, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Auction Agent, at approximately 11:00 a.m., New York City time, on such
LIBOR Determination Date for loans in the U.S. dollars to leading European banks
having the Index Maturity and in a principal amount equal to an amount of not
less than U.S. $1,000,000; provided that if the banks selected as aforesaid are
not quoting as mentioned in this sentence, One-Month LIBOR in effect for the
applicable LIBOR Reset Period will be One-Month LIBOR in effect for the previous
LIBOR Reset Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Bank" means a leading bank (i) engaged in transaction in
Eurodollar deposits in the international Eurocurrency market, (ii) not
controlling, controlled by or under common control with the Administrator or The
Money Store and (iii) having an established place of business in London.
The Indenture
Modification of the Master Indenture. With the consent of the Surety
Provider and the holders of a majority of the outstanding Notes (or, with
respect to any change affecting only certain Series of Notes, the holders of a
majority of the Notes of such Series), the Indenture Trustee and the Trust may
execute a supplemental indenture to add provisions to, or change in any manner
or eliminate any provisions of, the Master Indenture with respect to the Notes,
or to modify (except as provided below) in any manner the rights of the
Noteholders.
Modification of a Terms Supplement. With the consent of the Surety
Provider and the holders of a majority of outstanding Notes of the related
Series, the Indenture Trustee and the Trust may execute a supplemental indenture
to add provisions to, or change in any manner or eliminate any provisions of, a
Terms Supplement with respect to the related Series of Notes, or to modify
(except as provided below) in any manner the rights of the related Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplement to the Master Indenture or any Terms Supplement
will (i) change the due date of any installment of principal of or interest on
any Note or reduce the principal amount thereof or the interest rate specified
thereon, change the provisions relating to the application of collections on, or
the proceeds of the sale of, the assets of the Trust to payment of principal of
or interest on the Notes, or change any place of payment where, or the coin or
currency in which, any Note or any interest thereon is payable, (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment, (iii) reduce the percentage of the aggregate amount
of the outstanding Notes the consent of the holders of which is required for any
such supplemental indenture or the consent of the holders of which is required
for any waiver of compliance with certain provisions of the Master Indenture or
Terms Supplement, as the case may be, or of certain defaults thereunder and
their consequences as provided for in the Master Indenture, (iv) modify or alter
the provisions of the Master Indenture regarding the voting of Notes held by the
Trust, the Seller, an affiliate of either of them or any obligor on the Notes,
(v) reduce the percentage of the aggregate outstanding amount of the Notes the
consent of the holders of which is required to direct the Eligible Lender
Trustee on behalf of the Trust to sell or liquidate the Financed Student Loans
if the proceeds of such sale would be insufficient to pay the principal amount
and accrued but unpaid interest on the outstanding Notes, (vi) decrease the
percentage of the aggregate principal amount of the Notes required to amend the
sections of the Master Indenture which specify the applicable percentage of
aggregate principal amount of the Notes necessary to amend the Master Indenture
or certain other related agreements, (vii) modify any of the provisions of the
Master Indenture in such manner as to affect the calculation of the amount of
any payment of interest or principal due on any Note, or (viii) permit the
creation of any lien ranking prior to or on a parity with the lien of the Master
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Master Indenture, terminate the lien
of the Master Indenture on any such collateral or deprive the holder of any Note
of the security afforded by the lien of the Master Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, with the consent of the Surety Provider but without obtaining the
consent of Noteholders, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Master Indenture or of
modifying in any manner the rights of Noteholders so long as such action will
not, in the opinion of counsel satisfactory to the Indenture Trustee, materially
and adversely affect the interest of any Noteholder.
Events of Default; Rights Upon Event of Default. An "Event of Default"
with respect to the Notes is defined in the Master Indenture as consisting of
the following (except as described in the remaining sentences of this
paragraph): (i) a default for two business days or more in the payment of any
interest on any Note after the same becomes due and payable; (ii) a default for
two business days in the payment of the principal of or any installment of the
principal of any Note when the same becomes due and payable; (iii) a default in
the observance or performance of any covenant or agreement of the Trust made in
the Master Indenture and the continuation of any such default for a period of
thirty days after notice thereof is given to the Trust by the Indenture Trustee
or to the Trust and the Indenture Trustee by the holders of at least 25% in
principal amount of the Notes then outstanding; (iv) any representation or
warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a material
respect as of the time made, and such breach not having been cured within thirty
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in principal
amount of the Notes then outstanding or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust. However, the amount of
principal required to be distributed to Noteholders under the Master Indenture
on any Note Distribution Date is limited to the amount of Available Funds and
amounts on deposit in the Reserve Account after payment of the Transaction Fees,
the Noteholders' Interest Distribution Amount and the Certificateholder's
Interest Distribution Amount. Any such shortfalls on any Note Distribution Date
will be carried over as a Noteholders' Principal Carryover Shortfall to be paid
on succeeding Note Distribution Dates. Therefore, the failure to pay principal
on any Class of Notes may not result in the occurrence of an Event of Default
until the Final Maturity Date of such Class of Notes. In addition, the failure
to pay the aggregate amount of Noteholders' Interest Carryover as a result of
insufficient Available Funds will not result in the occurrence of an Event of
Default.
If an Event of Default should occur and be continuing with respect to
any Series of Notes, the Surety Provider may or, with the consent of the Surety
Provider, the Indenture Trustee or holders of a majority in principal amount of
the Notes then outstanding may, declare the principal of the Notes to be
immediately due and payable. With the consent of the Surety Provider, such
declaration may be rescinded by the holders of a majority in principal amount of
the Notes then outstanding at any time prior to the entry of judgment in a court
of competent jurisdiction for the payment of such amount if (i) the Trust has
paid to the Indenture Trustee a sum equal to all amounts then due with respect
to the Notes (without giving effect to such acceleration) and (ii) all Events of
Default (other than nonpayment of amounts due solely as a result of such
acceleration) have been cured or waived.
If the Notes have been declared to be due and payable following an
Event of Default with respect thereto, the Indenture Trustee may, in its
discretion, either require the Eligible Lender Trustee to sell the Financed
Student Loans or elect to have the Eligible Lender Trustee maintain possession
of the Financed Student Loans and continue to apply collections with respect to
such Financed Student Loans as if there had been no declaration of acceleration.
In addition, the Indenture Trustee is prohibited from directing the Eligible
Lender Trustee to sell the Financed Student Loans following an Event of Default,
other than a default in the payment of any principal or a default for five days
or more in the payment of any interest on any Note, unless (i) the Surety
Provider and the holders of all outstanding Notes consent to such sale, (ii) the
proceeds of such sale are sufficient to pay in full the principal of and the
accrued interest on the outstanding Notes at the date of such sale or (iii) the
Indenture Trustee determines that the collections on the Financed Student Loans
and other assets of the Trust would not be sufficient on an ongoing basis to
make all payments on the Notes as such payments would have become due if such
obligations had not been declared due and payable, and the Indenture Trustee
obtains the consent of the Surety Provider and the holders of 66-2/3% of the
aggregate principal amount of the Notes then outstanding.
Notwithstanding any declaration of the Notes to be due and payable, the
Surety Provider has no obligation to pay in full the principal of any Class of
outstanding Notes until the Final Maturity Date of such Class.
Subject to the provisions of the Master Indenture relating to the
duties of the Indenture Trustee, if an Event of Default should occur and be
continuing with respect to the Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of the Surety Provider or any of the holders of Notes, if
the Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the outstanding Notes, with the consent of the Surety
Provider, will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to the Indenture Trustee and the holders
of a majority in principal amount of the Notes then outstanding, with the
consent of the Surety Provider, may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all the holders of the outstanding
Notes.
No holder of any Note will have the right to institute any proceeding
with respect to the Master Indenture, unless (i) such holder previously has
given to the Indenture Trustee written notice of a continuing Event of Default,
(ii) the holders of not less than 25% in principal amount of the outstanding
Notes have requested in writing that the Indenture Trustee institute such
proceeding in its own name as Indenture Trustee, (iii) such holder or holders
have offered the Indenture Trustee reasonable indemnity, (iv) the Indenture
Trustee has for 60 days failed to institute such proceeding and (v) no direction
inconsistent with such written request has been given to the Indenture Trustee
during such 60-day period by the holders of a majority in principal amount of
the outstanding Notes.
In addition, the Indenture Trustee and the Noteholders will covenant
that they will not at any time institute against the Trust any bankruptcy,
reorganization or other proceeding under any Federal or state bankruptcy or
similar law.
None of the Indenture Trustee, the Seller, the Administrator, the
Master Servicer, the Servicer or the Eligible Lender Trustee in its individual
capacity, nor any holder of a Certificate representing an ownership interest in
the Trust, nor any of their respective owners, beneficiaries, agents, officers,
directors, employees, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the principal
of or interest on the Notes or for the agreements of the Trust contained in the
Master Indenture.
Certain Covenants. The Trust may not consolidate with or merge into any
other entity, unless (i) the entity formed by or surviving such consolidation or
merger is organized under the laws of the United States, any state or the
District of Columbia, (ii) such entity expressly assumes the Trust's obligation
to make due and punctual payments upon the Notes and the performance or
observance of every agreement and covenant of the Trust under the Master
Indenture and any Terms Supplement, (iii) no Event of Default has occurred and
is continuing immediately after such merger or consolidation, (iv) the Trust has
been advised that the rating of any Class or Series of Notes or Certificates
would not be reduced or withdrawn by the Rating Agencies as a result of such
merger or consolidation and (v) the Trust has received an opinion of counsel to
the effect that such consolidation or merger would have no material adverse
federal or Pennsylvania state tax consequence to the Trust or to any
Certificateholder or Noteholder.
The Trust will not, among other things, (i) except as expressly
permitted by the Master Indenture, the Transfer and Servicing Agreements or
certain related documents (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of the Trust, (ii)
claim any credit on or make any deduction from the principal and interest
payable in respect of any Class or Series of Notes (other than amounts withheld
under the Code or applicable state law) or assert any claim against any present
or former holder of Notes because of the payment of taxes levied or assessed
upon the Trust, (iii) except as contemplated by the Related Documents, dissolve
or liquidate in whole or in part, (iv) permit the validity or effectiveness of
the Master Indenture to be impaired, or permit the lien of the Master Indenture
to be amended, hypothecated, subordinated, terminated or discharged, or permit
any person to be released from any covenants or obligations with respect to any
Class or Series of Notes under the Master Indenture except as may be expressly
permitted thereby or (v) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Trust or any part thereof, or
any interest therein or the proceeds thereof, except as expressly permitted by
the Related Documents.
The Trust may not engage in any activity other than financing,
purchasing, owning, selling and managing the Financed Student Loans and the
other assets of the Trust and making Additional Fundings, in each case in the
manner contemplated by the Related Documents and activities incidental thereto.
After each Funding Period, the Trust may not make any Additional Fundings with
respect to the related Series of Notes.
The Trust will not incur, assume or guarantee any indebtedness other
than indebtedness incurred pursuant to the Notes and the Indenture or otherwise
in accordance with the Related Documents.
Annual Compliance Statement. The Administrator, on behalf of the Trust
will be required to file annually with the Indenture Trustee a written statement
as to the fulfillment of its obligations under the Indenture.
Satisfaction and Discharge of Indenture. The Indenture will be
discharged with respect to the collateral securing the Notes upon the delivery
to the Indenture Trustee for cancellation of all the Notes or, with certain
limitations, upon deposit with the Indenture Trustee of funds sufficient for the
payment in full of all the Notes.
The Indenture Trustee. Bankers Trust Company, a New York banking
corporation, will be the Indenture Trustee under the Indenture.
Book-Entry Registration
The Depository Trust Company ("DTC") is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York UCC
and a "clearing agency" registered pursuant to Section 17A of the Exchange Act.
DTC was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the Indenture Trustee or the Eligible Lender Trustee, as
applicable (the "Applicable Trustee"), through Participants and Indirect
Participants. Under a book-entry format, Securityholders may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Applicable Trustee to Cede, as nominee for DTC. DTC will forward such payments
to its Participants, which thereafter will forward them to Indirect Participants
or Securityholders. It is anticipated that the only "Securityholder,"
"Certificateholder" and "Noteholder" will be Cede, as nominee for DTC.
Securityholders will not be recognized by the Indenture Trustee or the Eligible
Lender Trustee as Noteholders or Certificateholders, as such terms are used in
the Indenture and the Trust Agreement, respectively, and Securityholders will be
permitted to exercise the rights of Securityholders only indirectly through DTC
and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Administrator that it will take any action
permitted to be taken by a Securityholder under the Indenture or the Trust
Agreement, as the case may be, only at the direction of one or more Participants
to whose accounts with DTC the Securities are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Except as required by law, neither the Administrator nor the Applicable
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Securities
held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Definitive Securities
The Notes and the Certificates (other than the Certificate being sold
to Student Holdings) will be issued in fully registered, certificated form
("Definitive Notes" and "Definitive Certificates," respectively, and
collectively referred to herein as "Definitive Securities") to Noteholders or
Certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (i) the Administrator advises the Applicable Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to the Securities and the Administrator is unable to
locate a qualified successor, (ii) the Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, a Servicer Default or an Administrator Default,
Securityholders representing at least a majority of the outstanding principal
amount of the Notes or the Certificates, as the case may be, advise the
Applicable Trustee through DTC in writing that the continuation of a book-entry
system through DTC (or a successor thereto) with respect to such Notes or
Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive security representing the
corresponding Securities and receipt of instructions for re-registration, the
Applicable Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance with
the procedures set forth in the Indenture or the Trust Agreement, as the case
may be, directly to holders of Definitive Securities in whose names the
Definitive Securities were registered at the close of business on the Record
Date. Such distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the Applicable Trustee. The
final payment on any such Definitive Security, however, will be made only upon
presentation and surrender of such Definitive Security at the office or agency
specified in the notice of final distribution to Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice delivered
to holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
List of Securityholders
Three or more Noteholders or one or more holders of Notes evidencing
not less than 25% of the aggregate outstanding principal balance of the Notes
may, by written request to the Indenture Trustee, obtain access to the list of
all Noteholders maintained by the Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
Indenture or the Notes. The Indenture Trustee may elect not to afford the
requesting Noteholders access to the list of Noteholders if it agrees to mail
the desired communication or proxy, on behalf and at the expense of the
requesting Noteholders, to all Noteholders.
Three or more Certificateholders, Student Holdings or one or more
holders of Certificates evidencing not less than 25% of the Certificate Balance
may, by written request to the Eligible Lender Trustee, obtain access to the
list of all Certificateholders for the purpose of communicating with other
Certificateholders with respect to their rights under the Trust Agreement or
under the Certificates.
Reports to Securityholders
On each Note Distribution Date, the Indenture Trustee will provide to
the applicable Noteholders of record as of the related Record Date, and on each
Certificate Distribution Date the Eligible Lender Trustee will provide to the
Certificateholders of the related Record Date, a statement setting forth
substantially the same information as is required to be provided on the report
provided to the Indenture Trustee and the Trust described under "Description of
Transfer and Servicing Agreements--Statements to Indenture Trustee and Trust."
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Indenture or the Trust
Agreement, as the case may be, the Applicable Trustee will mail to each person
who at any time during such calendar year was a Securityholder and received any
payment thereon, a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Certain
Tax Consequences."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
General
In addition to the provisions of the Sale and Servicing Agreement,
pursuant to which the Eligible Lender Trustee on behalf of the Trust will
obtain, the Master Servicer will service and the Administrator will perform
certain administrative functions with respect to the Financed Students Loans;
the Administration Agreement, pursuant to which the Administrator will undertake
certain other administrative duties with respect to the Trust, the Financed
Student Loans and the Trust Agreement, pursuant to which the Trust will be
created and the Certificates will be issued (collectively, the "Transfer and
Servicing Agreements") summarized elsewhere in this Prospectus Supplement and in
the Prospectus, set forth below is a summary of certain other provisions
thereof.
Accounts
The Indenture Trustee will establish and maintain the Collection
Account, the Pre-Funding Account, the Capitalized Interest Account, the
Capitalized Pre-Funding Account, the Note Distribution Account, the Expense
Account, the Reserve Account and the Monthly Advance Account. The Eligible
Lender Trustee will establish and maintain the Certificate Distribution Account
in the name of the Eligible Lender Trustee on behalf of the Certificateholders.
The foregoing accounts are referred to collectively as the "Trust Accounts" in
the name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders.
Funds in the Trust Accounts will be invested as provided in the Sale
and Servicing Agreement in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Surety Provider and the
Rating Agencies as being consistent with the rating of the Notes. Eligible
Investments are limited to obligations or securities that mature not later than
the Business Day immediately preceding the day on which funds in the applicable
Pledged Account may be required to be withdrawn. If the amount required to be
withdrawn from the Reserve Account to cover shortfalls in the amount of
Available Funds exceeds the amount of cash in the Reserve Account, a temporary
shortfall in the amounts distributed to the Noteholders or to the
Certificateholders could result. This could, in turn, increase the average life
of the Notes and the Certificates. Investment earnings on funds deposited in the
Trust Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be deposited in the Collection Account and will be treated as
collections of interest on the Financed Student Loans.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of 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), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible 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 a
long-term unsecured debt rating and/or a short-term unsecured debt rating
acceptable to Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("Standard & Poor's") and the
Surety Provider and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation.
Additional Fundings
The Trust will distribute funds on deposit in the Pre-Funding Account
from time to time during each Funding Period in an amount equal to the aggregate
principal balance (plus certain premiums) and accrued interest thereon of the
additional Financed Student Loans (the "Additional Student Loans') conveyed by
the Seller to the Trust during such Funding Period (the expenditures referred to
above being referred to herein as "Additional Fundings"). The Seller expects
that the amount of the Additional Fundings will approximate 100% of the
Pre-Funded Amount by the last day of the Funding Period identified in the
related Prospectus Supplement; however, there can be no assurance that a
sufficient amount of Additional Fundings will be made during such time.
Additional Student Loans may include Federal Loans, HEAL Loans and/or Private
Loans in such amounts as may be determined by the Seller and satisfying any
conditions imposed by the Surety Provider.
Pursuant to the Sale and Servicing Agreement, during each Funding
Period, the Seller may convey to the Eligible Lender Trustee on behalf of the
Trust, Additional Student Loans having an aggregate principal balance up to the
amount then on deposit in the Pre-Funding Account. The obligation to accept any
Additional Student Loan by the Eligible Lender Trustee on behalf of the Trust is
subject to the following conditions, among others: (i) such Additional Student
Loan must satisfy all applicable origination requirements and all other
requirements specified in the Sale and Servicing Agreement and the Insurance
Agreement and (ii) the Seller will not select such Additional Student Loan in a
manner that it believes is adverse to the interests of the Securityholders or
the Surety Provider. On such dates as may from time to time be designated by the
Seller during a Funding Period (each, a "Transfer Date"), the Seller may sell or
contribute and assign, without recourse, to the Eligible Lender Trustee on
behalf of the Trust, its entire interest in Additional Student Loans (each, a
"Subsequent Cut-off Date"). Subject to the satisfaction of the foregoing
conditions, the Seller will convey the Additional Student Loans to the Eligible
Lender Trustee on behalf of the Trust on each such Transfer Date pursuant to the
Sale and Servicing Agreement and the applicable Transfer Agreement (a "Transfer
Agreement") executed by the Seller, on such Transfer Date. Each such Transfer
Agreement will include as an exhibit a schedule identifying each Additional
Student Loan transferred on such Transfer Date. Upon such conveyance of
Additional Student Loans to the Eligible Lender Trustee on behalf of the Trust,
the Pool Balance will increase in an amount equal to the aggregate principal
balances of the Additional Student Loans and an amount equal to the aggregate
principal balance of such Additional Student Loans (plus certain premiums) and
accrued interest thereon will be withdrawn from the Pre-Funding Account on such
date and ultimately be transferred to the Seller.
Any amounts remaining in the Pre-Funding Account at the end of the
related Funding Period will be distributed on the next applicable Note
Distribution Date to the holders of the Class of Notes with the earliest Final
Maturity Date.
Capitalized Interest Account
On the Closing Date, the Seller will make a cash deposit of
approximately $_________ in the Capitalized Interest Account in the name of the
Indenture Trustee on behalf of the Trust. The amount deposited therein will be
used on each Note Distribution Date and Certificate Distribution Date to make
interest payments to Noteholders and Certificateholders to the extent amounts
deposited in the Note Distribution Account or the Certificate Distribution
Account, as the case may be, plus amounts in the Reserve Account, are
insufficient for such purpose. Any amounts remaining in the Capitalized Interest
Account after the period set forth in the applicable Terms Supplement will be
transferred to the Reserve Account or, with the consent of the Surety Provider,
applied as an Additional Principal Payment.
All funds in the Capitalized Interest Account are required to be held
(i) uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in Eligible Investments. Any investment earnings on
funds in the Capitalized Interest Account will be applied to payment of interest
on the Notes and the Certificates.
Servicing Compensation
The Master Servicer will be entitled to receive, subject to the
limitations set forth in the following paragraph, the Servicing Fee monthly in
the amount set forth in the related Prospectus Supplement. To the extent the
Master Servicer engages a sub-servicer, including but not limited to ______, the
Master Servicer will direct a portion of the Servicing Fee to the applicable
sub-servicer as compensation for its services. The Servicing Fee (together with
any portion of the Servicing Fee that remains unpaid from prior Note
Distribution Dates) will be allocated monthly out of Available Funds and amounts
on deposit in the Reserve Account and will be payable quarterly on the first
Note Distribution Date occurring in March, June, September and December (or, if
in any such month a Certificate Distribution Date occurs prior to such first
Note Distribution Date, on such Certificate Distribution Date).
Notwithstanding the foregoing, in the event that the fee payable to the
Master Servicer as defined above for any month would exceed 1.05% per annum (or
such other percentage as may be set forth in the related Prospectus Supplement)
of the Pool Balance as of the last day of the preceding calendar month (the
"Capped Amount"), then the "Servicing Fee" for such month will instead be the
Capped Amount for such month. The remaining amount in excess of such Servicing
Fee, together with any such excess amounts from prior months that remain unpaid
(the "Servicing Fee Carryover"), will be payable to the Master Servicer on each
succeeding Distribution Date out of Available Funds remaining, if any, after
payment or allocation on the dates and in the priority set forth below under
"Distributions-- Distributions from Collection Account."
The Servicing Fee and the Servicing Fee Carryover will compensate the
Master Servicer for performing the functions of a third party servicer of
student loans as an agent for their beneficial owner, including collecting and
posting all payments, responding to inquiries of borrowers on the Financed
Student Loans, investigating delinquencies, pursuing, filing and collecting any
Guarantee Payments and any insurance payments from the Secretary, accounting for
collections and furnishing monthly and annual statements to the Administrator.
The Servicing Fee and the Servicing Fee Carryover also will reimburse the Master
Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Financed Student Loans.
Distributions
Deposits to Collection Account. On or before the 16th day of each
month, the Administrator will provide the Indenture Trustee and the Eligible
Lender Trustee a report setting forth by component the Available Funds for the
immediately preceding Collection Period.
For purposes hereof, the term "Available Funds" means the sum of the
following amounts with respect to the related Collection Period: (i) all
collections received by the Master Servicer or any Servicer on the Financed
Student Loans (including any Guarantee Payments received with respect to the
Financed Student Loans); (ii) any payments, including without limitation
Interest Subsidy Payments, Special Allowance Payments and any insurance payments
from the Secretary received by the Eligible Lender Trustee during such
Collection Period with respect to the Financed Student Loans; (iii) all proceeds
of any sales of Financed Student Loans by the Trust during such Collection
Period; (iv) any payments of or with respect to interest received by the Master
Servicer or a Servicer during such Collection Period with respect to a Financed
Student Loan for which a Realized Loss was previously allocated; (v) that
portion of amounts released from the Pre-Funding Account at the end of a Funding
Period to be applied as a payment of principal; (vi) amounts released from the
Capitalized Interest Account and the Capitalized Pre-Funding Account to cover
shortfalls in interest; (vii) the aggregate Purchase Amounts received for those
Financed Student Loans repurchased by the Seller or purchased by the Master
Servicer or by or on behalf of The Money Store under an obligation which arose
during the related Collection Period; (viii) the aggregate amounts, if any,
received from the Seller, The Money Store or the Master Servicer as
reimbursement of non-guaranteed interest amounts, or lost Interest Subsidiary
Payments, Special Allowance Payments and insurance payments from the Secretary,
with respect to the Financed Student Loans pursuant to the Sale and Servicing
Agreement and (ix) Investments Earnings for such Collection Period; provided,
however, that Available Funds will exclude all payments and proceeds of any
Financed Student Loans the Purchase Amount of which has been included in
Available Funds for a prior Collection Period.
Distributions from Collection Account. On each Determination Date, the
Administrator will advise the Indenture Trustee in writing of the applicable
Noteholders' Interest Distribution Amount or Certificateholders' Interest
Distribution Amount. Additionally, no later than 16 days prior to each Note
Distribution Date for the Class of Notes then entitled to receive payments of
principal (or, after all Notes have been paid in full, no later than 16 days
prior to each Certificate Distribution Date) the Administrator will advise the
Indenture Trustee in writing of the applicable Noteholders' Principal
Distribution Amount (or, after all the Notes have been paid in full, the
Certificateholders' Principal Distribution Amount). Further, on the
Determination Date relating to the first Certificate Distribution Date occurring
each month (or for each month in which a Note Distribution Date occurs earlier
than the Certificate Distribution Date, on the Determination Date relating to
such earlier Note Distribution Date), the Administrator will advise the
Indenture Trustee in writing of the Servicing Fee, Administration Fee, Auction
Agent Fee, Indenture Trustee Fee, Eligible Lender Trustee Fee and Surety
Provider Fee (collectively, the "Transaction Fees") for the preceding month.
On each Note Distribution Date (other than those relating to Accrual
Notes during the related Accrual Period), the Indenture Trustee will transfer
from the Collection Account to the Note Distribution Account, from payments
received on or with respect to the Financed Student Loans during the three
Collection Periods immediately preceding the month of such Note Distribution
Date (or, with respect to a Class of Notes having Note Distribution Dates
occurring weekly, monthly or such other period as may be set forth in the
related Prospectus Supplement, from payments received on or with respect to such
Financed Student Loans during the Collection Period immediately preceding the
month of such Note Distribution Date or for such number of Collection Periods as
may be set forth in the related Prospectus Supplement), an amount up to the
related Noteholders' Interest Distribution Amount. For each Note Distribution
Date relating to a Class of Accrual Notes during the related Accrual Period, the
related Noteholders' Interest Distribution Amount will be added to the principal
amount of such Notes. For the Class of Notes with the earliest Final Maturity
Date, on the first Note Distribution Date for such Class occurring in January,
April, July and October (or, if a Class of Notes having Distribution Dates
occurring monthly or such other period as may be set forth in the related
Prospectus Supplement has the earliest Final Maturity Date, on each related Note
Distribution Date or such other Note Distribution Dates as may be set forth in
the related Prospectus Supplement), after making the transfer set forth in the
prior sentence, the Indenture Trustee will transfer from the Collection Account
to the Note Distribution Account from payments received on or with respect to
the Financed Student Loans during the three Collection Periods immediately
preceding the month prior to the month of such Note Distribution Date (or, with
respect to a Class of Notes having Distribution Dates occurring monthly or such
other period as may be set forth in the related Prospectus Supplement, from the
Collection Period in the month second preceding the month of the related Note
Distribution Date or for such Collection Periods as may be set forth in the
related Prospectus Supplement), together with any Additional Principal Payments
to be made at the election of the Master Servicer as described below, an amount
up to the Noteholders' Principal Distribution Amount; provided, however, that
for each month in which the first Note Distribution Date occurs prior to the
Certificate Distribution Date in such month, prior to transferring amounts to
the Note Distribution Account, the Indenture Trustee will transfer to the
Expense Account, from payments received on or with respect to the Financed
Student Loans during the immediately preceding Collection Period, an amount up
to the Transaction Fees for the month preceding such Note Distribution Date and
all overdue Transaction Fees from prior months.
On each Certificate Distribution Date, the Indenture Trustee will
transfer from the Collection Account, from payments received on or with respect
to the Financed Student Loans during the immediately preceding Collection
Period, (i) to the Expense Account, an amount up to the excess, if any, of the
Transaction Fees for the month preceding such Certificate Distribution Date and
all overdue Transaction Fees from prior months over the amount, if any,
previously transferred to the Expense Account during the month of such
Certificate Distribution Date and (ii) by wire transfer no later than 11:00
a.m., New York time, to the Certificate Distribution Account, an amount up to
the related Certificateholders' Interest Distribution Amount. Additionally,
after each Class of Notes has been paid in full, on each Certificate
Distribution Date the Indenture Trustee will transfer from the Collection
Account to the Eligible Lender Trustee, by wire transfer no later than 11:00
a.m., New York time, for deposit in the Certificate Distribution Account, from
payments received on or with respect to the Financed Student Loans during the
Collection Period immediately preceding the month prior to such Certificate
Distribution Date, an amount up to the applicable Certificateholders' Principal
Distribution Amount.
On the first Note Distribution Date occurring in March, June, September
and December, or in the case of clause (iii) below on the first Note
Distribution Date occurring in each month (or if in any such month a Certificate
Distribution Date occurs prior to such first Note Distribution Date, on such
Certificate Distribution Date), the Indenture Trustee will distribute from the
Expense Account (in addition to any amounts transferred from the Reserve
Account) the following amounts in the following order of priority: (i) to the
Master Servicer, the Servicing Fee and all overdue Servicing Fees, (ii) to the
Administrator, the Administration Fee and all overdue Administration Fees, (iii)
to the Auction Agent, the Auction Agent Fee and all overdue Auction Agent Fees,
(iv) to the Indenture Trustee, the Indenture Trustee Fee and all overdue
Indenture Trustee Fees, (v) to the Eligible Lender Trustee, the Eligible Lender
Trustee Fee and all overdue Eligible Lender Trustee Fees and (vi) to the Surety
Provider, the Surety Provider Fee and all overdue Surety Provider Fees.
On each Note Distribution Date, the Indenture Trustee will distribute
to the Noteholders of the applicable Class as of the related Note Record Date
all amounts transferred to the Note Distribution Account as set forth above (in
addition to any amounts transferred from the Capitalized Interest Account, the
Capitalized Pre-Funding Account, the Pre-Funding Account, the Reserve Account
and the Monthly Advance Account and amounts drawn under the applicable Note
Surety Bond). On each Certificate Distribution Date, the Eligible Lender Trustee
will distribute to the Certificateholders of the applicable Class as of the
related Certificate Record Date all amounts transferred to the Certificate
Distribution Account as set forth above (in addition to any amounts transferred
from the Capitalized Interest Account, the Reserve Account and the Monthly
Advance Account and amounts drawn under the Certificate Surety Bond).
Notwithstanding the foregoing, principal payments will be made to each
Class of Notes and the Certificates only in amounts equal to $50,000 and
integral multiples in excess thereof. If the amount in the Note Distribution
Account or the Certificate Distribution Account otherwise required to be applied
as a payment of principal either (i) is less than $50,000 or (ii) exceeds an
even multiple of $50,000, then, in the case of (i), such entire amount or, in
the case of (ii), such excess amount, will not be paid as principal on the
upcoming Note Distribution Date or Certificate Distribution Date, as the case
may be, but will be retained in the Note Distribution Account or the Certificate
Distribution Account, as the case may be, until the amount therein available for
payment of principal (including any amounts transferred from the Reserve
Account) equals $50,000.
With respect to the Class of Notes entitled to receive payments of
principal (or, after each Class of Notes has been paid in full, the Class of
Certificates entitled to receive payments of principal) the actual Notes or
Certificates of such Class, as the case may be, that will receive payments of
principal on each applicable Note Distribution Date or Certificate Distribution
Date will be selected no later than 15 days prior to the related Note
Distribution Date or Certificate Distribution Date, as the case may be, by the
Indenture Trustee (with respect to the Notes) or the Eligible Lender Trustee
(with respect to the Certificates) by lot in such manner as the Indenture
Trustee or the Eligible Lender Trustee, as the case may be, in its discretion
may determine and which may provide for the selection for payment of principal
in minimum denominations of $50,000, and integral multiples in excess thereof.
Notice of the specific Notes or Certificates, as the case may be, to
receive payments of principal is to be given by the Indenture Trustee or the
Eligible Lender Trustee, as the case may be, by first-class mail, postage
prepaid, mailed not less than 15 days but no more than 30 days before the
applicable Note Distribution Date or Certificate Distribution Date at the
address of the applicable Securityholder appearing on the registration books.
Any defect in or failure to give such mailed notice shall not affect the
validity of proceedings for the payment of any other Notes or Certificates not
affected by such failure or defect. All notices of payment are to state: (i) the
applicable Note Distribution Date or Certificate Distribution Date; (ii) the
amount of principal to be paid, and (iii) the Class of the Notes or Certificates
to be paid.
On the last Note Distribution Date occurring in January, April, July
and October (or if in any such month a Certificate Distribution Date occurs
after such last Note Distribution Date, on such Certificate Distribution Date),
after making all required transfers to the Note Distribution Account and, if
applicable, the Certificate Distribution Account and the Expense Account, the
Indenture Trustee will transfer any amounts remaining in the Collection Account
(other than amounts representing payments received during such month or payments
of or with respect to principal received in the immediately preceding month) in
the following order of priority: (i) to the Surety Provider, the amount, if any,
necessary to reimburse the Surety Provider for prior Note and Certificate Surety
Bond Payments (which will generally be equal to the aggregate amount of draws
under the Note Surety Bonds and Certificate Surety Bond on prior Note or
Certificate Distribution Dates, as applicable), together with interest thereon,
(ii) to the Reserve Account, the amount, if any, necessary to increase the
balance thereof to the Specified Reserve Account Balance, (iii) to the Master
Servicer, the aggregate unpaid amount of the Servicing Fee Carryover, if any,
(iv) to the Note Distribution Account, the aggregate unpaid amount of
Noteholders' Interest Carryover, if any, and (v) to the Certificate Distribution
Account, the aggregate unpaid amount of Certificateholders' Interest Carryover,
if any. Any amounts remaining in the Collection Account after such transfers
(other than amounts representing payments received during such current month or
payments of or with respect to principal received in the immediately preceding
month) will be transferred to the Reserve Account generally for distribution to
the holders of the Originators' Interests and then to Student Holdings. Amounts
transferred to the Note Distribution Account or the Certificate Distribution
Account pursuant to clauses (iv) and (v) above, respectively, will be paid to
the applicable Class of Notes or Certificates on the next Note Distribution Date
or Certificate Distribution Date relating to such Class of Notes or
Certificates. Notwithstanding the foregoing, with the consent of the Surety
Provider, amounts otherwise required to be deposited into the Reserve Account
pursuant to clause (ii) above may, instead, be applied as a payment of principal
on the next Note Distribution Date relating to the Class of Notes with the
earliest Final Maturity Date (or, after all the Notes have been paid in full, on
the next Certificate Distribution Date). Amounts so applied as principal
payments are referred to herein as "Additional Principal Payments."
Notwithstanding the foregoing, if there has been an Event of Default
with respect to payment of the Notes, the Certificateholders will not be
entitled to any payments of principal or interest until each outstanding Class
of Notes has been paid in full.
"Certificate Balance" equals the original principal balance of each
Class of Certificates issued reduced by all amounts allocable to principal
previously distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, as to any Class of
Certificates, with respect to any Certificate Distribution Date relating to such
Certificates, the Certificateholders' Interest Distribution Amount for such
Certificate Distribution Date plus, for each Certificate Distribution Date on
and after which the Notes have been paid in full, the Certificateholders'
Principal Distribution Amount for such Certificate Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, as to any
Class of Certificates, with respect to any Certificate Distribution Date
relating to such Certificates, the excess, if any, of (i) the sum of the related
Certificateholders' Interest Distribution Amount on the preceding Certificate
Distribution Date relating to such Certificates and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Certificate
Distribution Date over (ii) the amount of interest actually distributed to the
Certificateholders of such Class on such preceding Certificate Distribution
Date, plus interest on the amount of such excess interest due to the
Certificateholders of such Class, to the extent permitted by law, at the related
Certificate Rate from such preceding Certificate Distribution Date to the
current Certificate Distribution Date.
"Certificateholders' Interest Distribution Amount" means, as to any
Class of Certificates, with respect to any Certificate Distribution Date
relating to such Certificates, the sum of (i) the amount of interest accrued at
the related Certificate Rate for the related Interest Period on the outstanding
principal amount of such Certificates on the immediately preceding Certificate
Distribution Date relating to such Certificates, after giving effect to all
distributions of principal to Certificateholders of such Class on such
Certificate Distribution Date (or, in the case of the first Certificate
Distribution Date, on the Initial Closing Date) and (ii) the Certificateholders'
Interest Carryover Shortfall relating to such Certificates for such Certificate
Distribution Date; provided, however, that the Certificateholders' Interest
Distribution Amount will not include any Certificateholders' Interest Carryover.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Certificate Distribution Date relating to a Class of Certificates
on or after which the Notes have been paid in full, the excess, if any, of (i)
the sum of the Certificateholders' Principal Distribution Amount on such
Certificate Distribution Date and any outstanding Certificateholders' Principal
Carryover Shortfall for the preceding Certificate Distribution Date over (ii)
the amount of principal actually distributed to the Certificateholders on such
Certificate Distribution Date.
"Certificateholders' Principal Distribution Amount" means, on each
Certificate Distribution Date relating to the Class of Certificates with the
earliest Final Maturity Date on and after which the principal balance of the
Notes has been paid in full, the sum of (a) the Principal Distribution Amount
for the Collection Period in the month second preceding such Certificate
Distribution Date, (b) any Additional Principal Payments to be made on such
Certificate Distribution Date and (c) the Certificateholders' Principal
Carryover Shortfall as of the close of the preceding Certificate Distribution
Date; provided, however, that the Certificateholders' Principal Distribution
Amount will in no event exceed the outstanding principal balance of such Class
of Certificates. Further, on the first Certificate Distribution Date occurring
after the Note Distribution Date on which the principal balance of the Class of
Notes with the last Final Maturity Date is paid in full, the Certificateholders'
Principal Distribution Amount also will include the excess, if any, of the
amount of principal available to be distributed on such Note Distribution Date
over the amount of principal paid on the Notes on such date. In addition, with
respect to each Class of Certificates, on the related Final Maturity Date the
Certificateholders' Principal Distribution Amount will include the amount
required to reduce the outstanding principal balance of such Certificates to
zero.
"Noteholders' Distribution Amount" means, as to any Class of Notes,
with respect to any Distribution Date relating to such Notes, the sum of related
Noteholders' Interest Distribution Amount and the Noteholders' Principal
Distribution Amount for such Note Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, as to any Class of
Notes, with respect to any Note Distribution Date relating to such Notes, the
excess of (i) the sum of the related Noteholders' Interest Distribution Amount
on the preceding Note Distribution Date relating to such Notes and any
Noteholders' Interest Carryover Shortfall on such preceding Note Distribution
Date over (ii) the amount of interest actually allocated to such Noteholders on
such preceding Note Distribution Date, plus interest on the amount of such
excess interest due to the Noteholders, to the extent permitted by law, at the
related Class Interest Rate from such preceding Note Distribution Date to the
current Note Distribution Date.
"Noteholders' Interest Distribution Amount" means, as to any Class of
Notes, with respect to any Note Distribution Date, the sum of (i) the amount of
interest accrued at the respective Class Interest Rate for each related Interest
Period since the last Note Distribution Date relating to such Notes (or, in the
case of the first Note Distribution Date following the issuance of a Class of
Notes, the applicable Closing Date) on the outstanding principal balance of such
Class of Notes on the immediately preceding Note Distribution Date relating to
such Notes after giving effect to all principal distributions to holders of
Notes of such Class on such date (or, in the case of the first Note Distribution
Date for such Class, on the related Closing Date) and (ii) the Noteholders'
Interest Carryover Shortfall for such Class for such Note Distribution Date;
provided, however, that the Noteholders' Interest Distribution Amount will not
include any Noteholders' Interest Carryover.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Note Distribution Date relating to a Class of Notes, the excess of (i) the
sum of the Noteholders' Principal Distribution Amount on such Note Distribution
Date and any outstanding Noteholders' Principal Carryover Shortfall for the
preceding Note Distribution Date over (ii) the amount of principal actually
allocated to the Noteholders on such Note Distribution Date.
"Noteholders' Principal Distribution Amount" means, as to the Class of
Notes with the earliest Final Maturity Date on each applicable Note Distribution
Date, the sum of (i) the Principal Distribution Amount for the three Collection
Periods immediately preceding the month prior to the month of such Note
Distribution Date (or, with respect to a Class of Notes having Note Distribution
Dates occurring monthly or such other period as may be set forth in the related
Prospectus Supplement, from the Collection Period in the month second preceding
the month of the related Note Distribution Date or for such Collection Periods
as may be set forth in the related Prospectus Supplement), (ii) any Additional
Principal Payments to be made on such Note Distribution Date and (iii) the
Noteholders' Principal Carryover Shortfall as of the close of the preceding Note
Distribution Date relating to such Notes; provided, however, that the
Noteholders' Principal Distribution Amount will not exceed the outstanding
principal balance of such Class of Notes. In addition, with respect to each
Class of Notes, on the related Final Maturity Date the Noteholders' Principal
Distribution Amount will include the amount required to reduce the outstanding
principal balance of such Notes to zero.
"Principal Distribution Amount" means, with respect to any Collection
Period, the sum of the following amounts: (i) that portion of all collections
received by the Master Servicer or any Servicer on the Financed Student Loans
that is allocable to principal (including the portion of any Guarantee Payments
received that is allocable to principal of the Financed Student Loans); (ii) the
portion of the proceeds allocable to principal from the sale of Financed Student
Loans by the Trust during such Collection Period; (iii) all Realized Losses
incurred during the related Collection Period; (iv) to the extent attributable
to principal, the Purchase Amount received with respect to each Financed Student
Loan repurchased by the Seller or purchased by the Master Servicer or The Money
Store under an obligation which arose during the related Collection Period; and
(v) amounts, if any, transferred from the Pre-Funding Account at the end of the
applicable Funding Period; provided, however, that the Principal Distribution
Amount will exclude all payments and proceeds of any Financed Student Loans the
Purchase Amount of which has been included in Available Funds for a prior
Collection Period.
With respect to each Financed Student Loan submitted to a Guarantor for
a Guarantee Payment, a "Realized Loss" means the excess, if any, of (i) the
unpaid principal balance of such Financed Student Loan on the date it was first
submitted to a Guarantor for a Guarantee Payment over (ii) all amounts received
on or with respect to principal on such Financed Student Loan up through the
earlier to occur of (A) the date a related Guarantee Payment is made or (B) the
last day of the Collection Period occurring 7 months after the date the claim
for such Guarantee Payment is first denied.
Monthly Advances
If the Master Servicer has applied for a Guarantee Payment from a
Guarantor, an Interest Subsidy Payment or a Special Allowance Payment from the
Department or an insurance payment from the Secretary, and the Master Servicer
has not received the related payment prior to the end of the Collection Period
immediately preceding the Note Distribution Date or Certificate Distribution
Date on which such amount would be required to be distributed as a payment of
interest, the Representative may, no later than the Determination Date relating
to such Note Distribution Date or Certificate Distribution Date, as the case may
be, deposit into the Monthly Advance Account an amount up to the amount of such
payments applied for but not received (such deposits by the Master Servicer are
referred to herein as "Monthly Advances"). On each related Note Distribution
Date, the Indenture Trustee will distribute from the Monthly Advance Account to
the applicable Noteholders the Monthly Advance for such Note Distribution Date.
On each related Certificate Distribution Date, the Indenture Trustee will
transfer from the Monthly Advance Account to the Eligible Lender Trustee, by
wire transfer no later than 11:00 a.m. New York time, for distribution to the
Certificateholders, the Monthly Advance for such Certificate Distribution Date.
Such Monthly Advances are recoverable by the Representative from the source for
which such Monthly Advance was made.
Credit Enhancement
Reserve Account. Pursuant to the Sale and Servicing Agreement, the
Reserve Account will be created and on each Closing Date on which the Trust
sells a Series of Notes, the Seller will deposit cash or Eligible Investments in
an amount, if any, equal to the Reserve Account Deposit identified in the
related Prospectus Supplement. The Reserve Account will be augmented on the last
Note Distribution Date occurring in January, April, July and October (or, if in
any such month a Certificate Distribution Date occurs after such Note
Distribution Date, on such Certificate Distribution Date) by deposit therein of
the amount, if any, necessary to reinstate the balance of the Reserve Account to
the Specified Reserve Account Balance from the amount of Available Funds
remaining after making all prior distributions on such date as described above
under the heading "--Distributions--Distributions from the Collection Account";
provided, however, that with the consent of the Surety Provider such Available
Funds may be applied as an Additional Principal Payment. Also, if amounts were
transferred from the Reserve Account to cover a Realized Loss on a Financed
Student Loan, any subsequent payments of principal received on or with respect
to such Financed Student Loan will be deposited into the Reserve Account or
applied as an Additional Principal Payment. As described below, subject to
certain limitations, amounts on deposit in the Reserve Account will be released
to Student Holdings the extent that the amount on deposit in the Reserve Account
exceeds the Specified Reserve Account Balance.
If the amount, if any, on deposit in the Reserve Account on any Note or
Certificate Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Note or Certificate Distribution Date) is greater
than the Specified Reserve Account Balance, subject to certain limitations, the
Administrator will instruct the Indenture Trustee to distribute the amount of
the excess, after payment of any unpaid Excess Servicing Fee, Noteholders'
Interest Carryover, Certificateholders' Interest Carryover, and, if applicable,
certain amounts owing to the Surety Provider under the Insurance Agreement or to
purchase Financed Student Loans for which there has been an uncured breach of
certain representations and warranties, to the holders of the Originators'
Interests and then to Student Holdings. Upon any distribution to the holders of
the Originators' Interests or Student Holdings of amounts from the Reserve
Account, neither the Noteholders nor the Certificateholders will have any rights
in, or claims to, such amounts.
The Reserve Account is intended to enhance the likelihood of timely
receipt by the Noteholders and the Certificateholders of the full amount of
principal and interest due them and to decrease the likelihood that the
Noteholders or the Certificateholders will experience losses. In certain
circumstances, however, the Reserve Account could be depleted. Further, as
described above, amounts otherwise required to be deposited into the Reserve
Account may, with the consent of the Surety Provider, be applied as Additional
Principal Payments. If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in the amount of Available Funds exceeds the amount
of cash in the Reserve Account, a temporary shortfall in the amount of principal
and interest distributed to the Noteholders or the Certificateholders could
result. This could, in turn, increase the average life of the Notes and the
Certificates. Moreover, amounts on deposit in the Reserve Account (other than
amounts in excess of the Specified Reserve Account Balance) will not be
available to cover any aggregate unpaid Servicing Fee Carryovers, Noteholders'
Interest Carryover or Certificateholders' Interest Carryover.
Subordination of the Certificates. The rights of the holders of the
Certificates to receive distributions with respect to interest and principal
will be subordinated to such rights of the holders of the Notes to the extent
described herein. This subordination is intended to enhance the likelihood of
regular receipt by holders of Notes of the full amount of the Noteholders'
Interest Distribution Amount and, after distribution of the Certificateholders'
Interest Distribution Amount, the Noteholders' Principal Distribution Amount.
Surety Bonds. The Note Surety Bonds, issued by the Surety Provider,
will be obtained by the Seller in favor of the Eligible Lender Trustee solely on
behalf of the Noteholders of the related Series. The Note Surety Bonds will,
except as provided below, provide for coverage of timely payment of all interest
and ultimate payment of all principal due on the related Series of Notes;
provided, however, that the Note Surety Bonds will not ensure payment of any
Noteholders' Interest Carryover. See "Description of the Surety Bonds--Note
Surety Bonds."
The Certificate Surety Bonds will, except as provided below, provide
for coverage of timely payment of all interest and ultimate payment of all
principal due on the Certificates; provided, however, that the Certificate
Surety Bonds will not ensure payment of any Certificateholders' Interest
Carryover. The Certificate Surety Bonds will be obtained by the Seller in favor
of the Eligible Lender Trustee solely on behalf of the Certificateholders of the
related Class. See "Description of the Surety Bonds--Certificate Surety Bond."
Statements to Indenture Trustee and Trust
On each Determination Date preceding a Note Distribution Date and
Certificate Distribution Date, the Master Servicer or the Administrator will
provide to the Indenture Trustee for the Indenture Trustee to forward on each
succeeding Note Distribution Date to each Noteholder of the applicable Class,
and to the Eligible Lender Trustee for the Eligible Lender Trustee to forward on
such succeeding Certificate Distribution Date to each Certificateholder of the
applicable Class, a statement, which will include the following information with
respect to such Note Distribution Date and Certificate Distribution Date or the
preceding Collection Period, to the extent applicable (provided, however, that
with respect to each Note Distribution Date other than the first Note
Distribution Date occurring in each month, such statement need only contain the
information set forth in clauses (ii), (iii), (v), and (vii) below):
(i) the amount of the distribution allocable to principal of each
Class of Notes or Certificates, as the case may be;
(ii) the amount of the distribution allocable to interest on each
Class of Notes and Certificates (or in the case of any Accrual Notes during the
related Accrual Period, the amount of interest capitalized and added to
principal), together with the interest rates applicable with respect thereto
(indicating whether such interest rates are based on the Auction Rate, the LIBOR
Rate or other applicable rate as set forth in the related Prospectus Supplement,
as the case may be, or on the Net Loan Rate, with respect to each Class of Notes
and Certificates, and specifying what each such interest rate would have been if
it had been calculated using the alternate basis);
(iii) the amount of the distribution, if any, allocable to any
Noteholders' Interest Carryover and any Certificateholders' Interest Carryover,
together with the outstanding amount, if any, of each thereof after giving
effect to any such distribution;
(iv) the Pool Balance as of the close of business on the last day
of the preceding Collection Period;
(v) the aggregate outstanding principal balance of each Class of
Notes and Certificates as of such Note Distribution Date or Certificate
Distribution Date, after giving effect to payments allocated to principal
reported under clause (i) above;
(vi) the amount of the Servicing Fee and any Servicing Fee
Carryover allocated to the Master Servicer, the amount of the Administration Fee
allocated to the Administrator, the amount of the Auction Agent Fee allocated to
the Auction Agent, the amount of the Indenture Trustee Fee allocated to the
Indenture Trustee, the amount of the Eligible Lender Trustee Fee allocated to
the Eligible Lender Trustee and the amount of the Surety Provider Fee allocated
to the Surety Provider, respectively, with respect to such Collection Period,
and the amount, if any, of the Servicing Fee Carryover remaining unpaid after
giving effect to any such payment;
(vii) the amount of the distribution, if any, payable to the
Surety Provider as reimbursement for any unpaid Surety Bond Payments;
(viii) the amount of the aggregate Realized Losses, if any, for
such Collection Period and the aggregate amount, if any, received (stated
separately for interest and principal) with respect to Financed Student Loans
for which Realized Losses were allocated previously;
(ix) the amount of the distribution attributable to amounts in the
Reserve Account, the amount of any other withdrawals from the Reserve Account
for such Note Distribution Date or Certificate Distribution Date, the balance of
the Reserve Account on such Note Distribution Date or Certificate Distribution
Date, after giving effect to changes therein on such Note Distribution Date or
Certificate Distribution Date and the then applicable Parity Percentage;
(x) for Note Distribution Dates during each Funding Period, the
portion, if any, of the distribution attributable to amounts on deposit in the
Pre-Funding Account and the remaining Pre-Funded Amount on such Note
Distribution Date, after giving effect to changes therein during the related
Collection Period;
(xi) for the Note Distribution Dates during each Funding Period,
the aggregate amount, if any, paid by the Eligible Lender Trustee on behalf of
the Trust to purchase Additional Financed Student Loans during the preceding
Collection Period;
(xii) for the first Note Distribution Date on or following the end
of each Funding Period, the amount of any remaining Pre-Funded Amount that has
not been used to make Additional Fundings and is being paid out to Noteholders;
(xiii) the aggregate amount, if any, paid for Financed Student
Loans purchased from the Trust during the preceding Collection Period; and
(xiv) the number and principal amount of Financed Student Loans,
as of the preceding Collection Period, that are (i) 30 to 60 days delinquent,
(ii) 61 to 90 days delinquent, (iii) 91 to 120 days delinquent, (iv) more than
120 days delinquent and (v) for which claims have been filed with the
appropriate Guarantor and which are awaiting payment.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the Eligible Lender Trustee and
the Indenture Trustee annually a statement (based on the examination of certain
documents and records and on such accounting and auditing procedures considered
appropriate under the circumstances) as to compliance by the Master Servicer
during the preceding twelve months (or, in the case of the first such
certificate, the period from the Initial Closing Date to December 31, 199_) with
all applicable standards under the Sale and Servicing Agreement relating to the
servicing of the Financed Student Loans.
The Sale and Servicing Agreement will further provide that a firm of
independent public accountants (which may be the same firm referred to in the
immediately preceding paragraph) will furnish to the Eligible Lender Trustee and
the Indenture Trustee annually a statement (based on the examination of certain
documents and records and on such accounting and auditing procedures considered
appropriate under the circumstances) as to compliance by the Administrator
during the preceding twelve months (or, in the case of the first such
certificate, the period from the Initial Closing Date to December 31, 199_) with
all applicable standards under the Sale and Servicing Agreement and the
Administration Agreement relating to the administration of the Trust and the
Financed Student Loans.
The Sale and Servicing Agreement will also provide for delivery to the
Eligible Lender Trustee and the Indenture Trustee, concurrently with the
delivery of each statement of compliance referred to above, of a certificate
signed by an officer of the Master Servicer or the Administrator, as the case
may be, stating that, to his knowledge, the Master Servicer or the
Administrator, as the case may be, has fulfilled its obligations under the Sale
and Servicing Agreement throughout the preceding twelve months (or, in the case
of the first such certificate, the period from the Initial Closing Date to
December 31, 199_) or, if there has been a default in the fulfillment of any
such obligation, describing each such default. Each of the Master Servicer and
the Administrator has agreed to give the Indenture Trustee and the Eligible
Lender Trustee notice of certain Servicer Defaults and Administrator Defaults,
respectively, under the Sale and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
Liability of Student Holdings
Under the Trust Agreement, Student Holdings will agree to be liable
directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a Noteholder or a
Certificateholder in the capacity of an investor) arising out of or based on the
arrangement created by the Trust Agreement as though such arrangement created a
partnership under the Pennsylvania Revised Uniform Limited Partnership Act in
which the Seller were a general partner.
Termination
The obligations of the Master Servicer, the Seller, the Administrator,
the Auction Agent, the Eligible Lender Trustee and the Indenture Trustee
pursuant to the Transfer and Servicing Agreements will terminate upon (i) the
maturity or other liquidation of the last Financed Student Loan and the
disposition of any amount received upon liquidation of any remaining Financed
Student Loans and (ii) the payment to the Noteholders and the Certificateholders
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements. In order to avoid excessive administrative expense, the
Seller is permitted at its option and with the consent of the Surety Provider to
repurchase from the Eligible Lender Trustee, as of the end of any Collection
Period immediately preceding a Note Distribution Date or Certificate
Distribution Date, if the then outstanding Pool Balance is 10% or less of the
Aggregate Pool Balance, all remaining Financed Student Loans at a price equal to
the aggregate Purchase Amounts thereof as of the end of such Collection Period,
which amounts will be used to retire the Certificates concurrently therewith.
Upon termination of the Trust, all right, title and interest in the Financed
Student Loans and other funds of the Trust, after giving effect to any final
distributions to Noteholders and Certificateholders therefrom, will be conveyed
and transferred to the Seller.
Administrator
Trans-World Insurance Company, in its capacity as Administrator, will
enter into the Administration Agreement with the Trust and the Indenture
Trustee, pursuant to which the Administrator will agree, to the extent provided
therein, (i) to direct the Indenture Trustee to make the required distributions
from the Trust Accounts on each Note Distribution Date and Certificate
Distribution Date, (ii) to prepare (based on the reports received from the
Master Servicer) and provide periodic and annual statements to the Eligible
Lender Trustee and the Indenture Trustee with respect to distributions to
Noteholders and Certificateholders and any related federal income tax reporting
information and (iii) to provide the notices and to perform other administrative
obligations required by the Indenture and the Trust Agreement. As compensation
for the performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses related thereto, the
Administrator will be entitled to an administration fee equal to the amount set
forth in the related Prospectus Supplement (the "Administration Fee").
DESCRIPTION OF THE SURETY BONDS
The following summary describes certain provisions of the Surety Bonds.
The summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Surety Bonds.
Note Surety Bonds
Each Note Surety Bond, issued by the Surety Provider, will be obtained
by the Seller in favor of the Eligible Lender Trustee on behalf of the Trust and
will be pledged to the Indenture Trustee pursuant to the Indenture. Each Note
Surety Bond will, except as provided below, provide for coverage of timely
payment of all interest, and ultimate payment of all principal, due on the
related Class of Notes. In particular, funds may be drawn under a Note Surety
Bond on any Note Distribution Date and paid to Noteholders of the applicable
Class in an amount equal to the applicable Note Surety Bond Payment for such
Note Distribution Date. The Surety Provider will be required to make Note Surety
Bond Payments to the Indenture Trustee as paying agent on the later of such Note
Distribution Date or the second Business Day following the day on which the
Surety Provider receives a drawing request under the Note Surety Bond from the
Indenture Trustee as paying agent, stating the amount of a Note Surety Bond
Payment that is due.
"Note Surety Bond Payment" means, with respect to any Class of Notes
(A) on each Note Distribution Date the amount equal to the excess, if any, of
the Noteholders' Interest Distribution Amount for the applicable Class of Notes
over the amount on deposit in the Note Distribution Account, after taking into
account the required application of funds in the remaining Trust Accounts (but
excluding any amounts on deposit in the Monthly Advance Account if an automatic
stay has been imposed with respect to the Representative under Section 362(a) of
the United States Bankruptcy Code of 1978, as amended 11 U.S.C. ss. 101 et
seq.), including but not limited to the Reserve Account, pursuant to the Sale
and Servicing Agreement, to the payment of the Noteholders' Interest
Distribution Amount on such Note Distribution Date (an "Interest Deficiency")
and (B) the amount equal to the excess, if any, of the unpaid principal balance
of Notes of a Class on the Final Maturity Date for such Class over amounts on
deposit in the Note Distribution Account, after taking into account the required
application of funds in the remaining Trust Accounts, including but not limited
to the Reserve Account, pursuant to the Sale and Servicing Agreement to the
payment of principal of such Class of Notes on such Final Maturity Date (a
"Principal Deficiency"); provided, however, that "Note Surety Bond Payments"
shall not include any Noteholders' Interest Carryover or any portion of any
Interest Deficiency or Principal Deficiency arising as a result of (i) any tax
liability, including any tax liability imposed on or assessed with respect to
the Trust, the Trust assets, any Noteholder, or any Certificateholder, or (ii)
any tax withholding requirement including any such requirement applicable to
Trust income or Trust distributions.
Each Note Surety Bond is irrevocable and noncancelable.
Certificate Surety Bonds
Each Certificate Surety Bond, issued by the Surety Provider, will be
obtained by the Seller in favor of the Eligible Lender Trustee solely on behalf
of the Certificateholders. Each Certificate Surety Bond will, except as provided
below, provide for coverage of timely payment of all interest, and ultimate
payment of all principal, due on the related Class of Certificates. In
particular, funds may be drawn under a Certificate Surety Bond on any
Certificate Distribution Date and paid to Certificateholders of the applicable
Class in an amount equal to the applicable Certificate Surety Bond Payment for
such Certificate Distribution Date. The Surety Provider will be required to make
Certificate Surety Bond Payments to the Eligible Lender Trustee as paying agent
on the later of such Certificate Distribution Date or the second Business Day
following the day on which the Surety Provider receives a drawing request under
the Certificate Surety Bond from the Eligible Lender Trustee as paying agent,
stating the amount of a Certificate Surety Bond Payment that is due.
"Certificate Surety Bond Payment" means, with respect to any Class of
Certificates (A) on each Certificate Distribution Date the amount equal to the
excess, if any, of the Certificateholders' Interest Distribution Amount for the
applicable Class of Certificates over the amount on deposit in the Certificate
Distribution Account, after taking into account the required application of
funds in the remaining Trust Accounts (but excluding any amounts on deposit in
the Monthly Advance Account if an automatic stay has been imposed with respect
to the Representative under Section 362(a) of the United States Bankruptcy Code
of 1978, as amended 11 U.S.C. ss.101 et seq.), including but not limited to the
Reserve Account, pursuant to the Sale and Servicing Agreement, to the payment of
the Certificateholders' Interest Distribution Amount on such Certificate
Distribution Date (an "Interest Deficiency") and (B) the amount equal to the
excess, if any, of the unpaid principal balance of the Certificates of a Class
on the Final Maturity Date for such Class over amounts on deposit in the
Certificate Distribution Account, after taking into account the required
application of funds in the remaining Trust Accounts, including but not limited
to the Reserve Account, pursuant to the Sale and Servicing Agreement, to the
payment of principal of such Class of Certificates on such Final Maturity Date
(a "Principal Deficiency"); provided, however that "Certificate Surety Bond
Payment" shall not include any Certificateholders' Interest Carryover or any
portion of any Interest Deficiency or Principal Deficiency arising as a result
of (i) any tax liability, including any tax liability imposed on or assessed
with respect to the Trust, the Trust assets, any Noteholder, or any
Certificateholder, or (ii) any tax withholding requirement, including any such
requirement applicable to Trust income or Trust distributions.
Each Certificate Surety Bond is irrevocable and noncancelable.
Surety Provider
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance corporation regulated by the Office of the Commissioner of Insurance
of the State of Wisconsin and licensed to do business in 50 states, the District
of Columbia, and the Commonwealth of Puerto Rico and Guam. AMBAC primarily
insures newly issued municipal and structured finance obligations. AMBAC is a
wholly owned subsidiary of AMBAC Inc., a 100% publicly-held company. Moody's
Investors Service, Inc., Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies and Fitch Investors Service, Inc. have each assigned a
triple-A claims-paying ability rating to AMBAC.
AMBAC has entered into pro rata reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain municipal bond
insurance programs of AMBAC has been and will be assumed by a number of foreign
and domestic unaffiliated reinsurers.
The following table sets forth the capitalization of AMBAC as of
December 31, 1993, December 31, 1994 and December 31, 1995, respectively, in
conformity with generally accepted accounting principles. No material adverse
change in the capitalization of AMBAC has occurred since December 31, 1995.
<TABLE>
<CAPTION>
AMBAC Indemnity Corporation
Consolidated Capitalization Table
($ millions)
December 31, 1993 December 31, 1994 December 31, 1995
(audited) (audited) (audited)
----------------- ----------------- ---------
<S> <C> <C> <C>
Unearned $ 785 $ 840 $ 906
premiums
Other liabilities 192 137 296
Stockholder's
equity:
Common Stock 82 82 82
Additional paid-in 444 444 481
capital
Unrealized gains 68 (46) 87
(losses) on
investments, net of
tax
Retained earnings 668 782 907
------ ------ ------
Total stockholder's 1,262 1,262 1,557
------ ------ ------
equity
Total liabilities and $2,239 $2,238 $2,758
====== ====== ======
stockholder's equity
</TABLE>
Additional financial information concerning AMBAC is included as Annex
A hereto.
Effective December 31, 1993, AMBAC adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Debt and Equity
Securities" ("Statement 115") with all investments designated as available-
for-sale. As required under Statement 115, prior years' financial statements
have not been restated. The cumulative effect of adopting Statement 115 as of
December 31, 1993 was to increase AMBAC's stockholder's equity $63.6 million,
net of tax. The adoption of Statement 115 had no effect on earnings.
Neither any Certificate Surety Bond nor any Note Surety Bond is covered
by the property/casualty insurance certificate fund specified in Article 76 of
the New York Insurance Laws.
AMBAC makes no representation regarding the Notes and the Certificates
or the advisability of investing in the Notes and the Certificates and makes no
representation regarding, nor has it participated in the preparation of, this
Prospectus other than the information supplied by AMBAC and presented under the
heading "Description of the Surety Bonds."
CERTAIN TAX CONSEQUENCES
Certain Pennsylvania Tax Consequences with Respect to the Notes
There is no authority in Pennsylvania addressing the question of
whether the Notes will be treated as debt or equity for Pennsylvania tax
purposes. Nonetheless, subject to the foregoing uncertainty, Pennsylvania Tax
Counsel has advised the Trust that, assuming the Notes are classified as debt
for federal income tax purposes, the Notes will be treated as debt for
Pennsylvania corporate tax purposes. Assuming the Notes are treated as debt for
Pennsylvania corporate tax purposes, corporate Noteholders not otherwise subject
to tax in Pennsylvania would not become subject to Corporate Net Income or
Franchise Taxes in Pennsylvania solely because of a Noteholder's ownership of
Notes. For Pennsylvania tax purposes, the Trust will be treated as a
Pennsylvania business trust. A Pennsylvania Business Trust qualifying as a
partnership for Federal income tax purposes is exempt from Pennsylvania
Corporate Net Income and Capital Stock/Franchise Taxes.
Corporate Noteholders otherwise subject to tax in Pennsylvania will be
required to include the interest on the Notes as well as any gains on the
disposition of the Notes in the computation of the Pennsylvania corporate Net
Income Tax and Capital Stock/Franchise Tax.
Certain Noteholders otherwise subject to tax in certain Pennsylvania
counties which impose the tax on intangible personal property authorized by the
Act of June 17, 1913, P.L. 507 ' 1, as amended, 72 P.S. ' 4821, will be subject
to such Intangible Personal Property Tax on the Notes.
Certain Pennsylvania Tax Consequences with Respect to the Certificates
Because state and local income and franchise tax laws vary greatly, it
is impossible to predict the income and franchise tax consequences to the
Certificateholders in all of the state and local taxing jurisdictions in which
they are already subject to tax. Certificateholders are urged to consult their
own advisors with respect to state and local income and franchise taxes.
Since the Trust will be classified as a Pennsylvania Business Trust and
not as a partnership for purposes of Pennsylvania taxation, Certificateholders
other than individuals not otherwise subject to taxation in Pennsylvania will
not become subject to taxation in Pennsylvania solely because of such
Certificateholder's ownership of Certificates.
If Pennsylvania were to classify the Trust as a partnership for
purposes of taxation, Pennsylvania may take the position that such
Certificateholders not otherwise subject to taxation in Pennsylvania become
subject to tax in Pennsylvania. Certificateholders which are corporations
subject to tax in Pennsylvania would be required to separately take into account
such holder's allocated share of income, gains, losses, deductions and credits
of the Trust in computing Pennsylvania Corporate Net Income Tax and Capital
Stock/Franchise Tax.
There is no assurance that the foregoing conclusions with respect to
the characterization of the Trust and the Pennsylvania state tax consequences
with respect to the Certificates will not be challenged by the Pennsylvania
taxing authorities or, if challenged, that the taxing authorities will not be
successful. If the Trust were subject to an entity level tax in Pennsylvania,
any such tax could materially reduce or eliminate cash that would otherwise be
distributable with respect to the Certificates.
Certain Certificateholders otherwise subject to tax in certain
Pennsylvania counties which impose the tax on intangible personal property
authorized by the Act of June 17, 1913, P.L. 507 ' 1, as amended, 72 P.S. '
4821, will be subject to such Intangible Personal Property Tax on the
Certificates.
Pennsylvania Tax Characteristics of the Trust
The Trust Agreement contemplates that the Trust will qualify as a
Pennsylvania Business Trust pursuant to 15 Pa. C.S. ' 9501(a). Under existing
law, as a Pennsylvania Business Trust, if the Trust is classified as a
partnership for federal income tax purposes the Trust will not be subject to
Pennsylvania Corporate Net Income Tax, Capital Stock Tax, Personal Income Tax or
Corporate Loans Tax.
Assuming that the Trust is created in Cumberland County, Pennsylvania,
a county which does not presently impose the Intangible Personal Property Tax
authorized by the Act of June 17, 1913, P.L. 507 ' 1, as amended, 72 P.S. '
4821, the Trust will not be subject to such Intangible Personal Property Tax on
the Financed Student Loans or on other intangible personal property held by the
Trust.
Although the matter is not free from doubt, Pennsylvania Tax Counsel is
of the opinion, under existing law, that the Trust will not be classified as a
partnership for Pennsylvania corporate tax purposes. However, if the Trust were
to be classified as a partnership for Pennsylvania tax purposes, the Trust
itself would not be subject to any of the foregoing taxes, but the Pennsylvania
taxing authorities may take the position that the Certificateholders not
otherwise subject to tax in Pennsylvania have acquired a taxable nexus in
Pennsylvania by virtue of their ownership of the Certificates.
EXPERTS
The consolidated balance sheets of AMBAC Indemnity Corporation, at
December 31, 1994 and 1995, and the consolidated statements of operations,
stockholder's equity and cash flows of AMBAC Indemnity Corporation for each of
the years in the three year period ended December 31, 1995, appearing as Annex A
to this Prospectus have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick LLP refers to the adoption of the
Financial Accounting Standards Board's Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and No. 112,
"Employers' Account for Postemployment Benefits" in 1993.
LEGAL MATTERS
Certain legal matters relating to the Sellers, the Master Servicer and
the Administrator will be passed upon by Eric R. Elwin, Esq., Corporate Counsel
of the Sellers, and Squire, Sanders & Dempsey, Phoenix, Arizona, and certain
legal matters relating to the validity of the issuance of each Series of Notes
and the Certificates will be passed upon for the Underwriter by Stroock &
Stroock & Lavan, New York, New York. Stroock & Stroock & Lavan has performed
legal services for the Sellers and The Money Store Inc. and it is expected that
it will continue to perform such services in the future. Certain federal income
tax and other matters will be passed upon for a Trust by Stroock & Stroock &
Lavan, and certain state income tax and other matters will be passed upon for
the Trust by Rhoads & Sinon LLP, Harrisburg, Pennsylvania.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
for the sale of the Series 199_-_ Notes, dated _____, 199_, and a related Terms
Agreement dated ____, 199_ (collectively, the "Underwriting Agreement"), the
Representative and the Sellers have agreed on behalf of the Trust to sell and
the Underwriter has agreed to purchase all the Series 199_-_ Notes. The Series
199_-_ Notes will be offered by the Underwriter to the public in negotiated
transactions. After the Notes are released for sale to the public, the offering
price and other selling terms may be varied by the Underwriter. The Underwriter
and any dealers that participate with the Underwriter in the distribution of the
Series 199_-_ Notes may be deemed to be underwriters and any commissions
received by them and any profit on the resale of the Series 199_-_ Notes by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933, as amended.
The Representative has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933, as amended.
ANNEX A
CERTAIN CHARACTERISTICS OF THE
FINANCED STUDENT LOANS
Composition of the Financed Student Loans as of the Cut-off Date
Aggregate Outstanding Principal Balance........................... $_________
Accrued Interest to be Capitalized and
Added to Principal (approximately).............................. $________
Number of Borrowers............................................... __________
Average Outstanding Principal Balance Per Borrower................ $__________
Number of Loans................................................... __________
Average Outstanding Principal Balance Per Loan.................... $_________
Weighted Average Annual Interest Rate............................. _____%
Weighted Average Annual Effective Rate............................ _____%
<TABLE>
<CAPTION>
Distribution of the Financed Student Loans by Loan Type
Percent of
Loans by
Number of Number of Outstanding Outstanding
Loan Types Loans Borrowers Balance Balance
<S> <C> <C> <C> <C> <C>
Consolidated
Stafford
Unsubsidized Stafford
SLS
PLUS
Total $ 100.00%
============= =========== ================= =======
Distribution of the Financed Student Loans by Interest Rate
Percent of
Loans by
Number of Number of Outstanding Outstanding
Interest Rate Loans Borrowers Balance Balance
7.00%-7.99%
8.00%-8.99%
9.00%-9.99%
10.00%-10.99%
Total $ 100.00%
============== ============== ================ =======
Composition of the Financed Student Loans as of the Cut-off Date
Distribution of the Financed Student Loans by Outstanding Balance
Percent of
Loans by
Number of Number of Outstanding Outstanding
Outstanding Balance Loans Borrowers Balance Balance
Less than $1,000
$1,000-$1,999
$2,000-$2,999
$3,000-$3,999
$4,000-$4,999
$5,000-$5,999
$6,000-$6,999
$7,000-$7,999
$8,000-$8,999
Greater than $9,000
Total $ 100.00%
=========== =============== ================= =======
Distribution of the Financed Student
Loans by Borrower Payment Status
Percent of
Loans by
Number of Number of Outstanding Outstanding
Borrower Payment Status Loans Borrowers Balance Balance
Deferment
Forbearance
Grace
In-School
Repayment
Total $ 100.00%
=================== =============== ================ =======
</TABLE>
<TABLE>
<CAPTION>
Composition of the Financed Student Loans as of the Cut-off Date
Geographic Distribution of the
Financed Student Loans
Percent of
Loans by
Number of Number of Outstanding Outstanding
Location (1) Loans Borrowers Balance Balance
- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
FOREIGN
GA
GUAM
HI
ID
IL
IN
IA
KS
KY
LA
ME
MD
MA
MI
MN
MS
MO
MT
NE
NV
NH
NJ
NM
NY
NC
ND
OH
OK
OR
PA
PR
RI
SC
SD
TN
TX
UT
VT
V. ISLAND
VA
WA
WV
WI
WY
OTHER
TOTAL $ 100.00%
============ ============= ================ =======
- ------------------
</TABLE>
(1) Based on the permanent billing addresses of the borrowers of the
Financed Student Loans shown on the Servicer's records.
<TABLE>
Distribution of the Financed Student
Loans by Date of Disbursement
<CAPTION>
Percent of
Loans by
Number of Number of Outstanding Outstanding
Disbursement Date Loans Borrowers Balance Balance
<S> <C> <C> <C> <C>
Pre-October 1, 1993
October 1, 1993 and thereafter
Total $ 100.00%
=============== =============== ================ =======
Composition of the Financed Student Loans as of the Cut-off Date
Distribution of the Financed Student Loans by Guarantor
Percent of
Loans by
Number of Number of Outstanding Outstanding
Guarantors Loans Borrowers Balance Balance
Arizona Educational Loan Program
California Student Aid Commission
("CSAC")
Florida Office of Student Financial
Assistance ("FOSFA")
Georgia Higher Education Assistance
Corporation
Great Lakes Higher Education Corporation
("GLHEC")
Illinois Student Assistance Commission
Missouri Student Loan Program
Nebraska Student Loan Program
("NSLP")
New Jersey Higher Education Assistance
Authority ("NJHEAA")
New York State Higher Education Services
Corp. ("NYSHESC")
Northwest Education Loan Association
Pennsylvania Higher Education Assistance
Authority ("PHEAA")
Texas Guaranteed Student Loan
Corporation ("TGSLC")
United Student Aid Funds
("USAF")
Virginia State Education Assistance
Authority ("VSEAA")
Unknown/Unavailable
Total $ 100.00%
============ ============== ================= =======
Composition of the Financed Student Loans as of the Cut-off Date
Distribution of the Financed Student Loans by Years to Repayment
<CAPTION>
Number of Number of Outstanding Outstanding
Years Loans Borrowers Balance Balance
<S> <C> <C> <C> <C>
In Repayment
Less than 1 year
Less than 2 years
Less than 3 years
Less than 4 years
Less than 5 years
Greater than 5 years
Total $ 100.00%
============ =============== ================ =======
</TABLE>
The expected weighted average remaining term to maturity from the Cut-off Date
is ___ months. The expected weighted average remaining term to maturity after
the commencement of repayment is ___ months.
<PAGE>
ANNEX B
CERTAIN INFORMATION RELATING
TO THE GUARANTORS
Guarantors for the Federal Loans
Set forth below is certain historical information with respect to each
Guarantor of Federal Loans listed in Annex A above that is expected to guaranty
2% or more of the Financed Student Loans as of March 21, 1996 (the "Federal
Guarantors"). Except as otherwise indicated below, the information regarding
each Federal Guarantor has been obtained from the Department of Education's
Guaranteed Student Loan Programs Data Book for Federal Fiscal Years 1989 and
1991, and the Department of Education's Federal Fiscal Year 1993 Loan Programs
Data Books (each, a "DOE Data Book"). No independent verification has been or
will be made by the Seller or The Money Store Inc. of such information.
Guarantee Volume. For the Federal Fiscal Year ending September 30,
1993, of all the guarantors of student loans in the United States, CSAC, FOSFA,
NJHEAA, NYSHESC, PHEAA, TGSLC, USAF and VSEAA ranked 3rd, 11th, 19th, 4th, 2nd,
6th, 1st and 15th, respectively, as measured by volume of Federal Loans. The
following table sets forth the approximate aggregate principal amount of
federally reinsured education loans (excluding refinanced PLUS and SLS Loans)
that have first become committed to be guaranteed by each of the Federal
Guarantors and by all guarantors of Federal Loans in each of the five Federal
Fiscal Years 1989 through 1993.*
<TABLE>
<CAPTION>
Stafford, Unsubsidized Stafford, SLS, PLUS and Consolidated Loans Guaranteed
Dollars in Millions
Federal Fiscal Year CSAC FOSFA NJHEAA NYSHESC PHEAA TGSLC USAF VSEAA All Guarantors
- ------------------- ---- ------- ----- ----- ---- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 $ 1,244.4 $ 202.7 $ 206.3 $1,035.6 $1082.0 $ 838.1 $ 1,683.5 $ 177.7 $ 13,150.5
1990 1,146.1 175.2 216.2 977.0 1096.8 714.9 2,097.6 261.2 13,111.1
1991 1,193.4 250.8 250.2 1,068.4 1288.2 722.1 2,833.7 275.3 14,620.3
1992 1,333.7 314.1 268.0 1,186.0 1410.2 718.6 3,372.1 263.4 16,113.7
1993 1,507.4 437.9 289.3 1,338.2 1707.0 876.8 4,087.6 332.9 19,355.6
- ---------------------
</TABLE>
* The information set forth in the table above has been obtained from the
Federal Fiscal Years 1989, 1991 and 1993 DOE Data Books.
<PAGE>
Reserve Ratio. Each Federal Guarantor's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (i) sources of funds (including insurance
premiums, state appropriations, federal advances, federal reinsurance payments,
administrative cost allowances, collections on claims paid and investment
earnings) minus (ii) uses of funds (including claims paid to lenders, operating
expenses, lender fees, the Department's share of collections on claims paid,
returned advances and reinsurance fees). The "original principal amount of
outstanding loans" consists of the original principal amount of loans guaranteed
by such Federal Guarantor minus (i) the original principal amount of loans
canceled, claims paid, loans paid in full and loan guarantees transferred from
such Federal Guarantor to other guarantors, plus (ii) the original principal
amount of loan guarantees transferred to such Federal Guarantor from other
guarantors. The following table sets forth each Federal Guarantor's cumulative
cash reserves and their corresponding reserve ratios and the national average
reserve ratio for all guarantors for the five Federal Fiscal Years 1989 through
1993:*
<TABLE>
<CAPTION>
CSAC FOSFA NJHEAA NYSHESC
Federal Cumulative Cumulative Cumulative Cumulative
Fiscal Cash Reserve Cash Reserve Cash Reserve Cash Reserve
Year Reserves** Ratio Reserves** Ratio Reserves** Ratio Reserves** Ratio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 $ 84.4 1.6% $ 22.6 1.5% $ 26.8 1.1% $ 26.3 0.3%
1990 115.9 1.9 10.4 0.7 27.6 1.1 63.8 0.7
1991 130.5 2.0 25.1 1.5 24.7 1.0 26.8 0.3
1992 183.4 2.5 27.8 1.6 28.7 1.1 71.3 0.8
1993 185.5 2.3 44.1 2.2 18.3 0.7 71.4 0.7
PHEAA TGSLC USAF VSEAA
National
Federal Cumulative Cumulative Cumulative Cumulative Average
Fiscal Cash Reserve Cash Reserve Cash Reserve Cash Reserve Reserve
Year Reserves** Ratio Reserves** Ratio Reserves** Ratio Reserves** Ratio Ratio
1989 $ 74.1 1.3% $ 18.0 0.7% $ 24.6 0.5% $22.7 2.4% 0.7%
1990 77.1 1.2 14.5 0.5 13.8 0.2 17.4 1.6 1.0
1991 88.3 1.2 23.4 0.6 4.1 0.1 11.7 0.9 0.8
1992 162.6 2.1 41.8 1.0 100.1 1.0 12.6 0.9 1.5
1993 113.4 1.3 55.7 1.1 169.9 1.3 12.8 0.8 1.7
- -----------------
</TABLE>
* The information set forth in the table above has been obtained from the
Federal Fiscal Years 1991, 1992 and 1993 DOE Data Books. The cash reserves and
the reserve ratio increased substantially between Federal Fiscal Years 1991 and
1992. As described in the Federal Fiscal Year 1992 DOE Data Book, this
difference was caused, in part, because (i) approximately $300 million in
reinsurance claims pending during September 1991 (Federal Fiscal Year 1991) were
not paid by the Department until October 1991 (Federal Fiscal Year 1992) due to
the Department's computer systems modifications and (ii) default costs were
decreasing, while insurance premiums, administrative cost allowances, and
investment income were increasing. The cash reserves and the reserve ratio also
increased substantially between Federal Fiscal Years 1992 and 1993. As described
in the Federal Fiscal Year 1993 DOE Data Book, this difference was caused, in
part, because default costs were decreasing, while insurance premiums,
administrative costs allowances, and investment income were increasing.
According to the Department, available cash reserves may not always be an
accurate barometer of a guarantor's financial health.
** Dollars in millions.
Recovery Rates. A Federal Guarantor's recovery rate, which provides a
measure of the effectiveness of the collection efforts against defaulting
borrowers after the guarantee claim has been satisfied, is determined by
dividing the amount recovered from borrowers by such Federal Guarantor by the
aggregate amount of default claims paid by such Federal Guarantor during the
applicable Federal Fiscal Year with respect to borrowers. The table below sets
forth the recovery rates for each Federal Guarantor and the national average
recovery rates for all guarantors with respect to Stafford Loans (the only type
of Student Loan for which the DOE Data Book discloses recovery rates) for the
five Federal Fiscal Years 1989 through 1993:*
<TABLE>
<CAPTION>
Recovery Rate
Federal National
Fiscal Year CSAC FOSFA NJHEAA NYSHESC PHEAA TGSLC USAF VSEAA Average
----------- ---- ----- ------ ------- ----- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 26.8% 19.8% 43.6% 33.5% **% 13.5% 24.0% 33.2% 28.4%
1990 31.0 24.5 49.3 35.1 44.4 16.3 25.7 39.1 30.7
1991 30.7 29.3 51.1 36.5 44.4 17.7 26.0 38.9 31.9
1992 32.2 33.1 54.3 38.9 46.5 19.9 28.1 41.0 35.1
1993 33.3 39.0 56.0 44.1 49.5 27.6 30.7 43.6 38.1
- ----------------
</TABLE>
* The information set forth in the table above has been obtained from the
Federal Fiscal Year 1990 DOE Data Book (with respect to Federal Fiscal Years
1989 and 1990) and from the Department (with respect to Federal Fiscal Years
1991, 1992 and 1993).
** Data not available.
Loan Loss Reserve. The DOE Data Book does not disclose whether any
Federal Guarantor has established a segregated loan loss reserve with respect to
its student loan guarantee obligations. Accordingly, to the extent that a
Federal Guarantor has not established such a segregated loan loss reserve, in
the event that a Federal Guarantor receives less than full reimbursement of its
guarantee obligations from the Department, the Federal Guarantor would be forced
to look to its existing assets to satisfy any such guarantee obligations not so
reimbursed.
Claims Rate. For at least one of the five Federal Fiscal Years 1989
through 1993, CSAC, FOSFA, TGSLC and USAF experienced a claims rate in excess of
5%. For each Federal Fiscal Year that such Federal Guarantors' claims rate
exceeded 5%, the claims of such Federal Guarantors were not fully reimbursed by
the Department. No assurance can be made that any of the Federal Guarantors will
receive full reimbursement for reinsurance claims (or the full 98% maximum
reimbursement for loans first disbursed on or after October 1, 1993). The
following table sets forth the claims rate of each Federal Guarantor and the
national average for all guarantors of Federal Loans for the last five Federal
Fiscal Years 1989 through 1993:*
<TABLE>
<CAPTION>
Claims Rate
Federal National
Fiscal Year CSAC FOSFA NJHEAA NYSHESC PHEAA TGSLC USAF VSEAA Average
----------- ------ ------ ------- ----- ------- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 4.47% 2.60% 1.34% 3.47% **% 8.99% 8.37% 2.53% 4.78%
1990 5.31 5.02 1.25 4.15 2.0 11.13 4.98 2.09 5.06
1991 7.62 5.00 2.08 3.34 2.9 10.52 8.41 5.16 4.51
1992 5.93 4.93 2.01 3.71 2.8 8.85 5.00 6.28 4.15
1993 5.38 4.49 2.11 2.89 2.3 4.99 7.30 4.53 3.83
- ---------------
</TABLE>
* The information set forth in the table above has been obtained from the
Department.
** Data not available.
<PAGE>
Each Federal Guarantor has agreed that it will provide a copy of its
most recent financial statements to Noteholders, upon receipt of a written
request, directed: if to CSAC, to California Student Aid Commission, 1515 S
Street, Sacramento, CA 95814; if to FOSFA, to Florida Office of Student
Financial Assistance, 1344 Florida Education Center, Tallahassee, FL 32399; if
to NJHEAA, to New Jersey Higher Education Assistance Authority, 4 Quakerbridge
Plaza, Trenton, NJ 08625; if to NYSHESC, to New York State Higher Education
Services Corp., 99 Washington Avenue, Albany, NY 12256; if to PHEAA, to
Pennsylvania Higher Education Assistance Agency, 1200 N. 7th Street, Harrisburg,
PA 17102; if to TGSLC, to Texas Guaranteed Student Loan Corporation, Tower of
the Hills, 13809 N. Highway 183, Suite 400, Austin, TX 78730; if to USAF, to
United Student Aid Funds, P.O. Box 6180, Indianapolis, IN 46206; and if to
VSEAA, to Virginia State Education Assistance Authority, 411 E. Franklin Street,
Richmond VA 23219.
<PAGE>
No dealer, salesman or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Seller, The Money Store Inc. or the Underwriter. This
Prospectus Supplement and the accompanying Prospectus do not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the Notes
offered hereby nor an offer of such Notes to any person in any state or other
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus Supplement and the accompanying Prospectus at any time does not imply
that information herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Terms of the Series 199_-_ Notes ................. S-2
Previously Issued Securities...................... S-7
Underwriting ..................................... S-8
Annex A - Certain Characteristics of
the Financed Student Loans ..................... A-1
Annex B - Certain Information Relating
to the Guarantors............................... B-1
PROSPECTUS
Prospectus Supplement.............................. iv
Available Information.............................. iv
Reports to Securityholders......................... iv
Incorporation of Certain Documents of Reference.... v
Summary of Terms .................................. 1
Risk Factors ...................................... 29
Formation of Trust ................................ 37
Use of Proceeds ................................... 38
The Seller and the Money Store .................... 38
Pennsylvania Higher Education Assistance Agency ... 39
The Student Loan Financing Business ............... 39
The Financed Student Loan Pool .................... 57
Description of the Securities ..................... 63
Description of the Transfer and Servicing Agreements 74
Description of the Surety Bonds ................... 93
Certain Legal Aspects of the Financed Student Loans 96
Certain Tax Consequences .......................... 98
ERISA Considerations ............................. 105
Plan of Distribution.............................. 106
Experts .......................................... 106
Legal Matters .................................... 106
Financial Information ............................ 107
Rating............................................ 107
Index of Principal Terms ......................... 108
Appendix I - Auction Procedures
Appendix II - Settlement Procedures
Annex A - Financial Statements of the Surety Provider
[Name of Trust]
<PAGE>
Asset Backed Notes
Series 199_-_
$___,000,000 LIBOR Rate Class A-_
Notes
$___,000,000 Auction Rate Class A-_
Notes
TRANS-WORLD INSURANCE
COMPANY
D/B/A EDUCAID
(Seller)
CLASSNOTES INC.
(Seller)
THE MONEY STORE INC.
(Representative)
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[Name of Underwriter]
______, 1996
<PAGE>
PROSPECTUS
Student Loan Asset Backed Notes
(Issuable in Series)
Trans-World Insurance Company d/b/a
Educaid, a wholly-owned subsidiary of The Money Store
Inc.
Seller
ClassNotes Inc.,
a wholly-owned subsidiary of The Money Store Inc.
Seller
The Money Store Inc.
Representative
This Prospectus relates to Asset Backed Notes (the "Notes") to be
issued by one or more trusts (each, a "Trust") in one or more series (each, a
"Series") and one or more classes (each, a "Class") on terms determined at the
time of sale and described in the related prospectus supplement (each, a
"Prospectus Supplement"). In conjunction with the offering of Notes, a Trust
will offer Asset Backed Certificates (the "Certificates" and together with the
Notes, the "Securities") in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as Amended (the
"Securities Act"). The assets of a Trust will include (a) primarily a pool of
student loans as more fully described herein purchased and to be purchased by,
or to be contributed to, the eligible lender trustee set forth in the related
Prospectus Supplement on behalf of the related Trust (the "Eligible Lender
Trustee"), from Trans-World Insurance Company, doing business as Educaid ("TWIC"
or a "Seller") and/or ClassNotes Inc. ("ClassNotes" or a "Seller" and, together
with TWIC, the "Sellers") (such loans, together with any Additional Student
Loans (as defined herein) purchased from a Seller from time to time by, or
contributed by a Seller from time to time to, the Eligible Lender Trustee on
behalf of such Trust, the "Financed Student Loans"), (b) collections and other
payments with respect to the Financed Student Loans, (c) if specified in the
related Prospectus Supplement, monies on deposit in certain trust accounts to be
established, (d) if specified in the related Prospectus Supplement, one or more
surety bonds with respect to each Series of Notes (each, a "Note Surety Bond")
and, solely for the benefit of the Certificateholders, one or more surety bonds
with respect to the Certificates (each, a "Certificate Surety Bond") and (e)
letters of credit, insurance policies or other forms of credit support as
described herein and in the related Prospectus Supplement. Each Series of Notes
issued by a Trust will be collateralized by the assets of such Trust (other than
the Certificate Surety Bonds and the Note Surety Bonds relating to other Series
of Notes issued by a Trust). The interests of the Certificateholders in the
assets of the related Trust will be subordinated to payments of principal due on
the Notes issued by such Trust to the extent described herein. Funds on deposit
in a Pre-Funding Account established for a Trust will be used from time to time
during each Funding Period to make Additional Fundings with respect to the
Financed Student Loans. Certain of the Financed Student Loans will have been
originated by the Sellers and the remainder of the Financed Student Loans will
have been originated by independent third parties and subsequently sold to the
Sellers.
The per annum rate of interest for a Class of Notes for each Interest
Period will, subject to certain limitations described herein or in the
applicable Prospectus Supplement, equal the rate determined from time to time
for such Class pursuant to (i) the auction procedures described herein (such
Notes being referred to herein as "Auction Rate Notes"), (ii) the London
interbank offered rate for one-month U.S. dollar deposits ("LIBOR") plus the
amount set forth in the related Prospectus Supplement (such Notes being referred
to herein as "LIBOR Rate Notes"), (iii) the average bond equivalent rates of
weekly auctions of 91-day Treasury bills for each quarter (the "T-Bill Rate")
plus the amount set forth in the related Prospectus Supplement (such Notes being
referred to herein as "T-Bill Rate Notes") or (iv) such other procedures as may
be described in the applicable Prospectus Supplement. Interest on each Class of
Notes will be payable either (i) quarterly on the first Business Day following
the expiration of the first Interest Period for such Class ending in January,
April, July and October, commencing on the date set forth in the related
Prospectus Supplement, (ii) monthly or weekly on the first Business Day
following the expiration of each related Interest Period, or (iii) on such other
dates and for such other periods as may be set forth in the related Prospectus
Supplement. However, if provided in a Prospectus Supplement, interest accrued on
a Class of Notes may, instead of being paid currently, be capitalized and added
to the outstanding principal amount thereof until the date or event specified in
such Prospectus Supplement (such Notes are referred to herein as "Accrual
Notes"). The date on which a Class of Notes is entitled to receive a
distribution (or, for Accrual Notes, have accrued interest added to principal)
is referred to as the "Note Distribution Date" for such Class. Additionally, if
set forth in a Prospectus Supplement, for certain Note Distribution Dates
certain payments received on or with respect to the Financed Student Loans may
be applied to redeem some or all of certain Classes of Notes, without penalty or
premium. The unpaid principal of each Class of Notes is payable upon the related
Final Maturity Date. No principal payments with respect to any Class of Notes
will be made until each Class of Notes with an earlier Final Maturity Date is
paid in full.
The per annum rate of interest for the Certificates for each Interest
Period will, subject to certain limitations described herein, equal the rate
determined from time to time pursuant to (i) the auction procedures described
herein (such Certificates being referred to herein as the "Auction Rate
Certificates"), (ii) LIBOR plus an applicable margin, (iii) the T-Bill Rate plus
an applicable margin, or (iv) such other procedures as may be set forth at the
time of issuance of a Class of Certificates. Principal and interest on the Class
of Certificates with the earliest Final Maturity Date will be payable on the
first Business Day following the expiration of each Interest Period for the
Certificates of such Class (each, a "Certificate Distribution Date"); provided,
however, that no principal payments with respect to the Certificates will be
made until each Series of Notes is paid in full.
After the respective initial Interest Period, each Interest Period for
each Class of Auction Rate Notes, will consist of between 7 days to one year,
subject to adjustment as described herein or in the related Prospectus
Supplement. Each Interest Period for each Class of LIBOR Rate Notes will, unless
otherwise set forth in a Prospectus Supplement, consist of the period beginning
on the 15th day of each month and ending on the 14th day of the following month.
Each Interest Period for each Class of T-Bill Rate Notes will, unless otherwise
set forth in a Prospectus Supplement, consist of the period beginning on the
15th day of each month and ending on the 14th day of the following month. Each
Interest Period for each Class of Notes for which the interest rate is
determined in some other manner will be as set forth in the related Prospectus
Supplement. Each Interest Period for a Class of Certificates will be determined
at the time of issuance of each such Class.
On each date on which a Series of Notes is issued, (each, a "Closing
Date"), if set forth in the related Prospectus Supplement, a monoline insurance
company will issue a Note Surety Bond, and on each Closing Date on which a Class
of Certificates is issued a monoline insurance company will issue a Certificate
Surety Bond, each such Surety Bond to be available under the terms described
herein and in the related Prospectus Supplement. Noteholders will have no
interest in or benefit from the Certificate Surety Bonds and Certificateholders
will have no interest in or benefit from the Note Surety Bonds.
The Final Maturity Date for each Class of Notes will be the Note
Distribution Date identified in the related Prospectus Supplement but, in no
instance, later than the Final Maturity Date for the Certificates. On the Final
Maturity Date applicable to a Class of Notes or the Certificates, to the extent
funds are not available to reduce the principal balance of such Notes or
Certificates to zero (including amounts transferred from the Reserve Account as
described herein) the applicable Surety Bond, if available for such Class of
Notes or the Certificates, will be drawn upon as described herein. However,
payment in full of the Notes and the Certificates could occur earlier than such
dates as described herein. In addition, the Notes and Certificates will be
repaid on any Note Distribution Date or Certificate Distribution Date, as
applicable, on which the Seller exercises its option to purchase the Financed
Student Loans, exercisable when the aggregate principal balance of the Financed
Student Loans is reduced to 10% or less of the Aggregate Pool Balance.
By purchasing a Class of Auction Rate Notes or Certificates, whether in
an Auction or otherwise, each prospective purchaser will be deemed to have
agreed: (i) to participate in Auctions on the terms described herein and in the
related Prospectus Supplement; and (ii) so long as the beneficial ownership of
the Auction Rate Notes or Auction Rate Certificates is maintained in book-entry
form to sell, transfer or otherwise dispose of the Auction Rate Notes or Auction
Rate Certificates only pursuant to a Bid or a Sell Order in an Auction, or to or
through a Broker-Dealer (as defined herein), provided that in the case of all
transfers other than those pursuant to an Auction, the owner of the Auction Rate
Notes or Auction Rate Certificates so transferred, its Participant or
Broker-Dealer advises the Auction Agent of such transfer.
It is expected that certain of the Financed Student Loans will be
guaranteed by private, non-profit corporations or state agencies, and are and
will be reinsured by the United States Department of Education (the
"Department") subject to the limitations described herein or in the related
Prospectus Supplement (such Financed Student Loans, the "Federal Loans"). This
obligation of the Department is, subject to compliance with the Higher Education
Act of 1965, as amended, supported by the full faith and credit of the United
States. It is also expected that (i) certain of the Financed Student Loans,
while guaranteed, may not be reinsured by the Department (such Financed Student
Loans, the "Private Loans") and (ii) certain Financed Student Loans may be
insured, subject to the limitations described herein or in the related
Prospectus Supplement, by the Secretary of Health and Human Services (the
"Secretary") (such Financed Student Loans, the "HEAL Loans"). The obligation of
the Secretary to insure HEAL Loans is, subject to compliance with the Public
Health Service Act, supported by the full faith and credit of the United States.
SEE "RISK FACTORS" ON PAGE __ HEREIN FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES. IN ADDITION, SEE "RISK FACTORS" FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE FINANCED STUDENT LOANS AS TO THE LIKELIHOOD OF
REALIZED LOSSES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN THE
ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE OR THE SELLERS OR ANY OF THEIR
RESPECTIVE AFFILIATES, OTHER THAN THE TRUST, AND THE SECURITIES ARE NOT INSURED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR ANY OTHER PERSON OR ENTITY,
INCLUDING THE SELLERS, THE TRUST, THE ELIGIBLE LENDER TRUSTEE, THE INDENTURE
TRUSTEE OR ANY AFFILIATE OF ANY OF THE FOREGOING.
Offers of the Notes may be made through one or more different methods,
including offerings through underwriters, as more fully described under "Plan of
Distribution" herein and in the related Prospectus Supplement. The intention of
any underwriter to make a secondary market in the Notes will be set forth in the
related Prospectus Supplement. There can be no assurance that a secondary market
for the Notes will develop, or if it does develop, that it will continue. This
Prospectus may not be used to consummate sales of a Series of Notes unless
accompanied by a Prospectus Supplement.
----------------------------------
The date of this Prospectus is December __ 1996.
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Notes to be offered
hereunder, among other things, will set forth with respect to such Series of
Notes: (i) the aggregate principal amount, Class Interest Rate or Rates or other
applicable rate or rates (or the manner of determining such rate or rates) and
authorized denominations of each Class of such Series of Notes; (ii) the length
of each Interest Period and the frequency of Note Distribution Dates for each
Class of such Series of Notes; (iii) certain information concerning the Financed
Student Loans; (iv) the original principal amount and current principal amount
of each previously issued Class of Notes, along with the applicable Final
Maturity Date, and (v) additional information with respect to the plan of sale
of such Notes.
AVAILABLE INFORMATION
The Representative has filed a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with the Securities an
Exchange Commission (the "Commission") with respect to the Securities. The
Registration Statement and amendments thereof and to the exhibits thereto, as
well as such reports and other information, are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement and amendments thereof and exhibits thereto may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the Securities and the Trust
will be provided to the Securityholders. See "Description of the
Securities--Reports to Securityholders." Unless otherwise set forth in the
related Prospectus Supplement, each Series of Notes and each Class of
Certificates will be issued in book-entry form and registered in the name of
Cede & Co., the nominee of The Depository Trust Company. All reports will be
provided to Cede, which in turn will provide such reports to its Participants
and Indirect Participants (as defined herein). Such Participants and Indirect
Participants will then forward such reports to the beneficial owners of
Securities. See "Description of the Securities--Book-Entry Registration."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust referred to in the
accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering of the Notes issued by such Trust shall be deemed to
be incorporated by reference in this Prospectus and to be a part of this
Prospectus from the date of the filing of such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this Prospectus. The Representative will provide without
charge to each person to whom a copy of the Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to The Money Store
Inc., 3301 C Street, Suite 100-M, Sacramento, California 95816, Attention:
Investor Relations, Telephone: (916) 446-5000.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement prepared in connection with the offering of a series of
Notes (each, a "Prospectus Supplement") by a Trust. Certain capitalized terms
used in this Prospectus are defined elsewhere herein on the pages indicated in
the "Index of Principal Terms."
Issuer..........................One or more trusts to be established from time
to time as set forth in the related
Prospectus Supplement (each, a "Trust").
Securities Offered..............Asset Backed Notes (the "Notes") issuable in one
or more series (each, a "Series") and one
or more classes (each a "Class"), one or
more of which may be Accrual Notes,
planned amortization Notes, principal only
Notes, interest only Notes, senior Notes
or subordinate Notes. The Notes will be
available for purchase in the
denominations set forth in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement, the
Notes of certain Classes may be available
in book-entry form only. If the Notes are
available in book-entry form only, then
Noteholders will not be entitled to
receive a Definitive Security except in
the event that Definitive Securities are
issued in the limited circumstances
described herein. See "Description of the
Securities-- Definitive Securities."
Other Securities................In onjunction with the offering of the Notes,
a Trust will offer one or more Classes of
Certificates (the "Certificates" and
together with the Notes, the "Securities")
in one or more transactions exempt from
the registration requirements of the
Securities Act of 1933, as amended (the
"Securities Act"). Certain of the
originators of the Financed Student Loans
may receive, as part of the consideration
for such Financed Student Loans,
certificates in the related Trust
representing the right to receive certain
payments of interest (such certificates
are referred to herein as the
"Originators' Interests").
Neither Certificates nor Originators'
Interests are being offered hereby and any
information relating thereto in this
Prospectus and any Prospectus Supplement
is provided solely because of its
potential relevance to a prospective
purchase of Notes.
Sellers.........................Trans-World Insurance Company, an Arizona
corporation doing business as Educaid
("TWIC" or a "Seller") and ClassNotes
Inc., a Delaware corporation ("ClassNotes"
or a "Seller" and, together with TWIC, the
"Sellers"). Each Seller is a wholly-owned
subsidiary of The Money Store Inc., a New
Jersey corporation ("The Money Store" or
the "Representative"). The Money Store is
a financial services company headquartered
in Sacramento, California and Union, New
Jersey. Master Servicer and
Service
Each Seller or an affiliate thereof
identified in the related Prospectus
Supplement will act as Master Servicer
with respect to the Financed Student Loans
sold by it to the related Trust (in such
capacity, the "Master Servicer") and
generally will service the Financed
Student Loans originated by it during the
Deferral Phase. Pennsylvania Higher
Education Assistance Agency, an agency of
the Commonwealth of Pennsylvania
("PHEAA"), AFSA Data Corporation, Great
Lakes Higher Education Corporation or
UNIPAC Service Corporation, or such other
entity set forth in the related Prospectus
Supplement will service the Financed
Student Loans originated by the Sellers
during the Repayment Phase. With respect
to those Financed Student Loans originated
by third parties and subsequently
purchased by the Sellers (the "Purchased
Loans"), either the originators of the
Purchased Loans, the applicable Seller or
another party will service such Purchased
Loans during both the Deferral Phase and
the Repayment Phase. The applicable
Seller, PHEAA, AFSA Data Corporation,
Great Lakes Bancorp, UNIPAC Service
Corporation and each other party who may,
from time to time, be servicing the
Financed Student Loans are referred to
herein as a "Servicer" and collectively as
the "Servicers."
Eligible Lender Trustee.........The eligible lender trustee on behalf of a Trust
will be the entity named in the applicable
Prospectus Supplement and will act as
eligible lender trustee under the
applicable Trust Agreement and hold legal
title to the Financed Student Loans on
behalf of the Trust (the "Eligible Lender
Trustee"). See "Formation of the
Trust--Eligible Lender Trustee."
Indenture Trustee................The indenture trustee on behalf of a Series of
Securities will be the entity named in the
applicable Prospectus Supplement and will
act as trustee under the Indenture (the
"Indenture Trustee").
Auction Agent...................Bankers Trust Company, or such other entity as
may be named in the Prospectus Supplement,
will act as auction agent (in such
capacity, the "Auction Agent") under the
Auction Agent Agreement with respect to
each Class of Auction Rate Notes and the
Certificates.
Administrator...................TWIC or ClassNotes will act as administrator
(the "Administrator") on behalf of a Trust
pursuant to an Administration Agreement
(as amended and supplemented from time to
time, the "Administration Agreement"),
between the applicable Administrator,
Eligible Lender Trustee and Indenture
Trustee.
Surety Provider................If a Certificate Surety Bond or Note Surety
Bond is issued with respect to a Class of
Certificates or Notes, the monoline
insurance company which issued such
Certificate Surety Bond or Note Surety
Bond will be named in the related
Prospectus Supplement (the "Surety
Provider").
The Trust.....................The Trust for a Series of Securities will be a
business trust established as set forth in
the related Prospectus Supplement by a
Trust Agreement (as amended and
supplemented from time to time, the "Trust
Agreement"), between the applicable
Seller, as depositor, and the Eligible
Lender Trustee. The activities of the
Trust and the Eligible Lender Trustee are
limited by the terms of the Trust
Agreement to acquiring, owning, selling
and managing the Financed Student Loans
and the other assets of the Trust as
described herein, issuing the Securities
and the Originators' Interests, collecting
and making payments thereon and other
activities related thereto. Each Trust
will be treated as a partnership for
Federal income tax purposes. TMS Student
Holdings, Inc., a wholly-owned subsidiary
of The Money Store, which will hold 1% of
the Certificates and each of the
Originators' Interests, will serve as
general partner of each Trust ("Student
Holdings") unless provided otherwise in a
Prospectus Supplement.
Assets of a Trust...............The assets of a Trust may include some or all of
the following, along with such other assets
as may be set forth in the related
Prospectus Supplement:
A. Financed Student
Loans....................The "Financed Student Loans" will consist of
loans to, or on behalf of, students
enrolled in accredited institutions of
higher education or in private primary or
secondary schools and will include rights
to receive payments made with respect to
such Financed Student Loans and the
proceeds thereof. On the Initial Closing
Date and on each additional Closing Date,
the related Seller will sell or contribute
Financed Student Loans to the Eligible
Lender Trustee on behalf of the related
Trust pursuant to a Sale and Servicing
Agreement (as amended and supplemented
from time to time, the "Sale and Servicing
Agreement"), among the related Seller,
Master Servicer, Administrator, The Money
Store and the related Eligible Lender
Trustee.
Certain of the Financed Student Loans will
have been originated by the related Seller
and the remainder of the Financed Student
Loans will have been originated by
independent third parties and subsequently
sold to such Seller. The Financed Student
Loans constituting the assets of a Trust
will vary from time to time and may
include some or all of the following: (A)
(i) Supplemental Loans for Students ("SLS
Loans"), (ii) Parental Loans for
Undergraduate Students ("PLUS Loans"),
(iii) Stafford Loans (formerly known as
Guaranteed Student Loans), (iv)
Unsubsidized Stafford Loans and (v)
Consolidation Loans, all of which loans
(collectively, the "Federal Loans") are
part of the federal government's Federal
Family Education Loan Program (the
"Federal Program") (B) Health Education
Assistance Loans ("HEAL Loans") for
graduate students, which loans are part of
the program established under the Public
Health Service Act, as most recently
amended by the Health Professions
Education Extension Amendments of 1992
(collectively, the "Public Health Service
Act"), and (C) student loans (the "Private
Loans") originated under programs
established by banks, insurance companies,
private non-profit corporations, the
Sellers, and other non-governmental
entities.
It is expected that the Private Loans
primarily will be originated under one or
more of the following programs: (A) the
Option 4 Loan Program (the "Option 4
Program") established by United Student
Aid Funds, Inc., a private non-profit
corporation located in Indianapolis,
Indiana, (B) the TERI Alternative Loansm
program for undergraduate and graduate
study (the "TERI Alternative Program") and
the Professional Education Plan program
for graduate and professional study (the
"PEP Program") established by The
Education Resources Institute, a
Massachusetts non-profit corporation
("TERI"), (C) the Parent Loans for
Elementary and Secondary Education (the
"PLEASE Program") established by TERI and
(D) the Private Access Loan Program (the
"PAL Program") established by HEMAR
Insurance Company of America ("HICA"). The
Private Loans may, to a lesser extent, be
originated under other programs that will
be identified in the related Prospectus
Supplement. The various programs under
which the Private Loans may be originated
are referred to herein collectively as the
"Private Loan Programs." The Financed
Student Loans will be selected from the
student loans originated and purchased by
the related Seller based on the criteria
specified in the related Sale and
Servicing Agreement and described herein.
The payment of principal and interest on
all SLS Loans, PLUS Loans, Stafford Loans,
Unsubsidized Stafford Loans and
Consolidation Loans is guaranteed by
private, non-profit corporations or state
agencies and is reinsured by the United
States Department of Education (the
"Department"). The payment of principal
and interest on all HEAL Loans is insured
by the Secretary of Health and Human
Services (the "Secretary"). The payment of
principal and interest on all Private
Loans is guaranteed by non- governmental
agencies or private entities and is not
reinsured by the Department, the Secretary
or any other governmental agency. Each
entity guaranteeing payment of principal
and interest on a Financed Student Loan is
referred to herein as a "Guarantor." Each
Prospectus Supplement will identify each
Guarantor of more than 2% of the Financed
Student Loans then included in the related
Trust, or expected to be included as of
the related Closing Date.
With respect to Federal Loans originated
prior to October 1, 1993, the entire
principal amount of such loans and accrued
interest are fully guaranteed; with
respect to Federal Loans originated on or
after October 1, 1993, only 98% of the
principal amount of such loans and accrued
interest are guaranteed. Such Guarantors
are, in turn, reinsured by the Department.
The federal guarantee of Federal Loans is
contingent upon compliance with a variety
of due diligence regulations, as further
described herein. With respect to HEAL
Loans, insurance by the Secretary is
contingent upon compliance with relevant
provisions of the Public Health Service
Act as further described herein.
With respect to substantially all of the
Federal Loans and the HEAL Loans, during
the period in which the related borrower
is in school and for certain authorized
periods as described in the Higher
Education Act or the Public Health Service
Act, respectively (the "Deferral Phase"),
the borrower is not required to make
payments on his or her Financed Student
Loan. With respect to Federal Loans
constituting Stafford Loans, the
Department will make all interest payments
during the related Deferral Phase. For all
other Federal Loans (other than certain
PLUS Loans) and HEAL Loans, interest will
not be paid during the related Deferral
Phase but, instead, will be capitalized
and added to the principal balance of such
Financed Student Loan. With respect to the
Private Loans, monthly payments of
principal and interest generally will be
required to be made shortly after the loan
is disbursed. However, certain of the
Private Loans may contain provisions
permitting the obligor to pay only
interest while in school (and during
certain other periods) and defer
commencement of principal payments until
after graduation or withdrawal from
school. It is expected that the Trust will
consist of Financed Student Loans that are
in the Deferral Phase as well as Financed
Student Loans for which the related
borrower is required to make payments of
principal and interest (the "Repayment
Phase"). The proportions of such Financed
Student Loans will vary through the life
of the related Trust.
The "Pool Balance" at any time represents
the aggregate principal balance of the
Financed Student Loans at the end of the
preceding Collection Period (including
accrued interest thereon for such
Collection Period to the extent such
interest will be capitalized), after
giving effect to the following, without
duplication: (i) all payments in respect
of principal received by the related Trust
during such Collection Period from or on
behalf of borrowers and Guarantors and,
with respect to certain payments on
certain Financed Student Loans, the
Department or the Secretary (collectively,
"Obligors"), (ii) the principal portion of
all Purchase Amounts received by the
related Trust for such Collection Period
from the Sellers, The Money Store or the
Master Servicer, and (iii) the principal
portion of all Additional Fundings made
from the Pre-Funding Account with respect
to such Collection Period.
"Collection Period" means, initially, the
period set forth in the related Prospectus
Supplement and thereafter, the Collection
Period means the calendar month
immediately following the end of the
previous Collection Period, unless
provided otherwise in the Prospectus
Supplement.
B. Pre-Funding Account.........A Trust may include an account maintained in
the name of the related Indenture Trustee
(the "Pre-Funding Account") into which
will be deposited out of the net proceeds
of the sale of each Series of Notes the
amount set forth in the related Prospectus
Supplement. Subject to the following
sentence, such amount (the "Pre-Funded
Amount") will remain in the Pre-Funding
Account during the period of time
specified in the related Prospectus
Supplement (the "Funding Period"). The
Pre-Funded Amount will be reduced from
time to time by the amount thereof used in
connection with the related Trust
obtaining additional Financed Student
Loans during the related Funding Period in
accordance with the Sale and Servicing
Agreement (each, an "Additional Funding").
The Sellers expect that the amount of the
Additional Fundings will approximate 100%
of each Pre-Funded Amount by the last day
of the Collection Period preceding the
Note Distribution Date identified in the
related Prospectus Supplement. Any
Pre-Funded Amount remaining at the end of
a Funding Period will be distributed as
set forth in the related Prospectus
Supplement. See "Description of the
Transfer and Servicing
Agreements--Additional Fundings."
C. Capitalized Interest Account... On each Closing Date, to the extent set
forth in the related Prospectus
Supplement, the Sellers may make a cash
deposit in an account (the "Capitalized
Interest Account") in the name of the
Indenture Trustee on behalf of the related
Trust. The amount deposited therein will
generally be used by the Indenture Trustee
on each Note Distribution Date and
Certificate Distribution Date to make
interest payments to Noteholders and
Certificateholders to the extent funds on
deposit in the Note Distribution Account
and Certificate Distribution Account,
respectively, are insufficient for such
purpose. Any amounts remaining in the
Capitalized Interest Account after the
period set forth in the applicable Terms
Supplement will be applied as set forth in
the related Prospectus Supplement. See
"--Collection Account; Note Distribution
Account; Certificate Distribution Account;
and Expense Account." Herein.
D. Capitalized Pre-Funding
Account.................. On each Closing Date, to the extent set forth
in the related Prospectus Supplement, the
Sellers may make a cash deposit in an
account (the "Capitalized Pre-Funding
Account") in the name of the Indenture
Trustee on behalf of the related Trust. On
each Note Distribution Date during the
applicable Funding Period, the Indenture
Trustee generally will transfer from the
Capitalized Pre-Funding Account to the
Note Distribution Account an amount equal
to the pro rata portion (based upon
outstanding principal amount) of the
applicable Class of Notes of certain
amounts on deposit in the Pre-Funding
Account as of the first day of the prior
Collection Period, such amount being
referred to herein as the "Capitalized
Pre-Funding Requirement." Any amounts
remaining in the Capitalized Pre-Funding
Account on the last Note Distribution Date
of a Funding Period and not used for such
purposes will be distributed as set forth
in the related Prospectus Supplement.
E. Collection Account;
Note Distribution
Account; Certificate
Distribution Account;
and Expense Account .......The Master Servicer will be required to remit
all collections received during a month
with respect to the Financed Student Loans
for which it is acting as primary
servicer, and the Master Servicer shall
cause each other Servicer to remit to the
Collection Account all collections
received with respect to the Financed
Student Loans for which such other
Servicer is acting as primary servicer, in
the manner and at the times set forth in
the related Prospectus Supplement to an
account in the name of the Indenture
Trustee (the "Collection Account"). The
Eligible Lender Trustee will be required
to remit Interest Subsidy Payments,
Special Allowance Payments and insurance
payments from the Secretary it receives to
the Collection Account at the time set
forth in the related Prospectus
Supplement. See "Description of the
Transfer and Servicing
Agreements--Payments on Financed Student
Loans."
On each "Determination Date" (as defined
in the related Prospectus Supplement), the
Administrator will advise the Indenture
Trustee in writing of the applicable
Noteholders' Interest Distribution Amount
or Certificateholders' Interest
Distribution Amount. Additionally, at the
respective times set forth in the related
Prospectus Supplement, the Administrator
will advise the Indenture Trustee in
writing of the applicable Noteholders'
Principal Distribution Amount (or, after
all the Notes have been paid in full, the
Certificateholders' Principal Distribution
Amount) and the fees due to the Master
Servicer, the Administrator, the Auction
Agent, the Indenture Trustee, the Eligible
Lender Trustee and the Surety Provider, if
applicable (the "Servicing Fee,"
"Administration Fee," "Auction Agent Fee,"
"Indenture Trustee Fee," "Eligible Lender
Trustee Fee" and "Surety Provider Fee,"
respectively, and, collectively, the
"Transaction Fees") for the preceding
month.
On each Note Distribution Date (other than
those relating to Accrual Notes during the
period such Notes are capitalizing
interest (the "Accrual Period")), the
Indenture Trustee will transfer from the
Collection Account to a separate account
held with and in the name of the Indenture
Trustee for the benefit of the Noteholders
(the "Note Distribution Account"), from
payments received on or with respect to
the Financed Student Loans, as described
in the related Prospectus Supplement, an
amount up to the related Noteholders'
Interest Distribution Amount. For each
Note Distribution Date relating to a Class
of Accrual Notes during the related
Accrual Period, the related Noteholders'
Interest Distribution Amount will be
capitalized and added to the principal
amount of such Notes. As will be set forth
in the related Prospectus Supplement, on
certain Note Distribution Dates relating
to Classes of Notes then entitled to
receive payments of principal, after
making the transfer set forth in the
second immediately preceding sentence, the
Indenture Trustee will transfer from the
Collection Account to the Note
Distribution Account from payments
received on or with respect to the
Financed Student Loans, as described in
the related Prospectus Supplement,
together with any Additional Principal
Payments (as defined in the related
Prospectus Supplement) permitted to be
made as set forth below and in the
applicable Prospectus Supplement, an
amount up to the Noteholders' Principal
Distribution Amount; provided, however,
that for each month in which the first
Note Distribution Date occurs prior to the
Certificate Distribution Date in such
month, prior to transferring amounts to
the Note Distribution Account, the
Indenture Trustee will transfer to a
separate account held with and in the name
of the Indenture Trustee (the "Expense
Account"), from payments received on or
with respect to the Financed Student Loans
as set forth in the related Prospectus
Supplement, an amount up to the
Transaction Fees for the month preceding
such Note Distribution Date and all
overdue Transaction Fees from prior
months.
On each Certificate Distribution Date, the
Indenture Trustee will transfer from the
Collection Account, from payments received
on or with respect to the Financed Student
Loans during the immediately preceding
Collection Period, (i) to the Expense
Account, an amount up to the excess, if
any, of the Transaction Fees for the month
preceding such Certificate Distribution
Date and all overdue Transaction Fees from
prior months over the amount, if any,
previously transferred to the Expense
Account during the month of such
Certificate Distribution Date and (ii) to
a separate account held with and in the
name of the Eligible Lender Trustee for
the benefit of the Certificateholders (the
"Certificate Distribution Account" and,
together with the Note Distribution
Account, the "Distribution Accounts"), an
amount up to the related
Certificateholders' Interest Distribution
Amount. Additionally, on each Certificate
Distribution Date relating to the Class of
Certificates then entitled to receive
payments of principal, the Indenture
Trustee will transfer from the Collection
Account to the Eligible Lender Trustee, an
amount up to the applicable
Certificateholders' Principal Distribution
Amount.
On the Note Distribution Dates set forth
in the related Prospectus Supplement, the
Indenture Trustee will distribute from the
Expense Account (in addition to any
amounts transferred from the Reserve
Account as described herein) amounts to
pay the Master Servicer, the
Administrator, the Auction Agent, the
Indenture Trustee, the Eligible Lender
Trustee and the Surety Provider, if any,
in the priorities and in the amounts set
forth in the related in the related
Prospectus Supplement.
On each Note Distribution Date, the
Indenture Trustee will distribute to the
Noteholders of the applicable Class as of
the related Note Record Date all amounts
transferred to the Note Distribution
Account as set forth above (in addition to
any amounts transferred from the
Capitalized Interest Account, the Pre-
Funding Account, the Capitalized
Pre-Funding Account, the Reserve Account
and the Monthly Advance Account and
amounts drawn under the applicable Note
Surety Bond, if any, each as described
herein and in the related Prospectus
Supplement). On each Certificate
Distribution Date, the Eligible Lender
Trustee will distribute to the
Certificateholders of the applicable Class
as of the related Certificate Record Date
all amounts transferred to the Certificate
Distribution Account as set forth above
(in addition to any amounts transferred
from the Capitalized Interest Account, the
Reserve Account and the Monthly Advance
Account, and amounts drawn under the
Certificate Surety Bond, if any, each as
described herein and in the related
Prospectus Supplement).
Notwithstanding the foregoing, principal
payments will be made to each Class of
Notes and the Certificates only in the
denominations set forth in the related
Prospectus Supplement. If the amount in
the Note Distribution Account or the
Certificate Distribution Account otherwise
required to be applied as a payment of
principal either (i) is less than the
specified denomination or (ii) exceeds an
even multiple of such specified
denomination, then, in the case of (i),
such entire amount or, in the case of
(ii), such excess amount, will not be paid
as principal on the upcoming Note
Distribution Date or Certificate
Distribution Date, as the case may be, but
will be retained in the Note Distribution
Account or the Certificate Distribution
Account, as the case may be, until the
amount therein available for payment of
principal (including any amounts
transferred from the Reserve Account)
equals such specified denomination.
On the Note Distribution Date or
Certificate Distribution Date specified in
the related Prospectus Supplement, after
making all required transfers to the Note
Distribution Account and, if applicable,
the Certificate Distribution Account and
the Expense Account, the Indenture Trustee
will transfer any amounts remaining in the
Collection Account (other than amounts
representing payments received during such
month or payments of or with respect to
principal received in the immediately
preceding month) as set forth in the
related Prospectus Supplement.
Notwithstanding the foregoing, if there
has been an Event of Default with respect
to payment of the Notes, the related
Certificateholders will not be entitled to
any payments of principal or interest
until each outstanding Class of Notes has
been paid in full.
F. Reserve Account..............Pursuant to the related Sale and Servicing
Agreement, an account in the name of the
Indenture Trustee (the "Reserve Account")
may be established with and maintained by
the Indenture Trustee and, if established,
will be an asset of the related Trust. In
connection with the sale of each Series of
Notes, the related Sellers may be required
to make a deposit into the Reserve Account
on the related Closing Date of cash or
Eligible Investments equal to the amount
set forth in the related Prospectus
Supplement (the "Reserve Account
Deposit"). The Reserve Account Deposit may
be augmented on certain Note Distribution
Dates or Certificate Distribution Dates as
set forth in a Prospectus Supplement. If
and as set forth in the related Prospectus
Supplement, Available Funds may be applied
as Additional Principal Payments. See
"Description of the Transfer and Servicing
Agreements--Distributions".
Amounts, if any, on deposit in the Reserve
Account generally will be available on
each Note or Certificate Distribution Date
to cover any shortfalls in payments of the
Transaction Fees, the Noteholders'
Distribution Amount and the
Certificateholders' Distribution Amount
for such applicable Note or Certificate
Distribution Date for which Available
Funds are insufficient to make such
payments and distributions. Amounts, if
any, on deposit in the Reserve Account
(other than amounts in excess of the
Specified Reserve Account Balance)
generally will not be available to cover
any unpaid Servicing Fee Carryover,
Noteholders' Interest Carryover or
Certificateholders' Interest Carryover
unless provided otherwise in the related
Prospectus Supplement.
Amounts, if any, in the Reserve Account on
any Note or Certificate Distribution Date
(after giving effect to all distributions
to be made or allocated on such Note or
Certificate Distribution Date) in excess
of the then applicable Specified Reserve
Account Balance generally will be
distributed to the holders of the
Originators' Interests and then released
to Student Holdings. The "Specified
Reserve Account Balance" with respect to
any Note or Certificate Distribution Date
will be as set forth in the applicable
Terms Supplement and in no event will such
balance exceed the sum of the aggregate
outstanding principal amount of the Notes
and the Certificate Balance. See
"Description of the Transfer and Servicing
Agreements-Credit Enhancement--Reserve
Account".
The funding and maintenance of a Reserve
Account is intended to enhance the
likelihood of timely payment to the
Noteholders of the Noteholders'
Distribution Amount and to the
Certificateholders of the
Certificateholders' Distribution Amount.
In certain circumstances, however, a
Reserve Account could be depleted and
shortfalls in distributions to the
Noteholders or the Certificateholders
could result. Further, as described above
and as set forth in the related Prospectus
Supplement, amounts otherwise required to
be deposited into a Reserve Account may,
with the consent of the applicable Surety
Provider, if any, be applied, as
Additional Principal Payments. Unless
provided otherwise in the related
Prospectus Supplement, notwithstanding the
depletion of the Reserve Account and
shortfalls in Available Funds, the
applicable Surety Provider, if any,
generally will be obligated to make Note
Surety Bond payments on each Note
Distribution Date to cover any shortfalls
with respect to the Noteholders' Interest
Distribution Amount (but will have no
obligation with respect to any Noteholders
Interest Carryover) and, solely for the
benefit of Certificateholders, to make
Certificate Surety Bond Payments on each
Certificate Distribution Date to cover any
shortfalls with respect to the
Certificateholders' Interest Distribution
Amount (but will have no obligation with
respect to any Certificateholders'
Interest Carryover) after application of
such Available Funds and any amounts on
deposit in the Reserve Account. See
"Description of the Surety
Bonds--Certificate Surety Bond."
G. Credit Enhancement............One or
more surety bonds, which will be
noncancelable, may be obtained in
connection with each Series of Notes
(each, a "Note Surety Bond") in favor of
the Eligible Lender Trustee on behalf of
the related Trust. If obtained, the Note
Surety Bond will be pledged to the related
Indenture Trustee and will provide for
coverage of timely payment of all interest
and ultimate payment of all principal on
each Class of Notes of such Series. The
holders of a Series of Notes will have no
right to or claim on any Note Surety Bond
relating to a different Series of Notes or
any amounts paid or payable thereunder.
The Certificateholders will have no right
to or claim on any Note Surety Bond or any
amounts payable or paid thereunder. Unless
otherwise defined in the related
Prospectus Supplement, "Note Surety Bond
Payment" means, with respect to any Class
of Notes (A) on each Note Distribution
Date the amount equal to the excess, if
any, of the Noteholders' Interest
Distribution Amount for the applicable
Class of Notes over the amount on deposit
in the Note Distribution Account, after
taking into account the required
application of funds in the remaining
Trust Accounts (but excluding any amounts
on deposit in the Monthly Advance Account
if an automatic stay has been imposed with
respect to the Representative under
Section 362(a) of the United States
Bankruptcy Code of 1978 as amended, 11
U.S.C. ss.ss. 101 et seq.), including but
not limited to the Reserve Account,
pursuant to the related Sale and Servicing
Agreement, to the payment of the
Noteholders' Interest Distribution Amount
on such Note Distribution Date (an
"Interest Deficiency") and (B) the amount
equal to the excess, if any, of the unpaid
principal balance of Notes of a Class on
the Final Maturity Date for such Class
over amounts on deposit in the Note
Distribution Account, after taking into
account the required application of funds
in the remaining Trust Accounts, including
but not limited to the Reserve Account,
pursuant to the related Sale and Servicing
Agreement, to the payment of principal of
such Class of Notes on such Final Maturity
Date (a "Principal Deficiency"); provided,
however, that "Note Surety Bond Payments"
shall not include, unless provided
otherwise in the related Prospectus
Supplement, any Noteholders' Interest
Carryover or any portion of any Interest
Deficiency or Principal Deficiency arising
as a result of (i) any tax liability,
including any tax liability imposed on or
assessed with respect to the related
Trust, the Trust assets, any Noteholder,
or any Certificateholder, or (ii) any tax
withholding requirement including any such
requirement applicable to Trust income or
Trust distributions. See "Description of
the Surety Bonds."
In connection with the sale of each Class
of Certificates, a separate surety bond
(each, a "Certificate Surety Bond" and,
together with the Note Surety Bonds, the
"Surety Bonds"), which will be
noncancelable, may be obtained in favor of
the related Eligible Lender Trustee solely
on behalf of the Certificateholders of
such Class and will provide for coverage
of timely payment of all interest and
ultimate payment of all principal, due on
such Certificates. The Noteholders will
have no right to or claim on any
Certificate Surety Bond or any amounts
payable or paid thereunder. Unless
otherwise defined in the related
Prospectus Supplement, "Certificate Surety
Bond Payment" means with respect to any
Class of Certificates, (A) on each
Certificate Distribution Date the amount
equal to the excess, if any, of the
Certificateholders' Interest Distribution
Amount for the applicable Class of
Certificates over the amount on deposit in
the Certificate Distribution Account,
after taking into account the required
application of funds in the remaining
Trust Accounts (but excluding any amounts
on deposit in the Monthly Advance Account
if an automatic stay has been imposed with
respect to the Representative under
Section 362(a) of the United States
Bankruptcy Code of 1978, as amended, 11
U.S.C. ss.ss. 101 et seq.), including but
not limited to the Reserve Account,
pursuant to the related Sale and Servicing
Agreement, to the payment of the
Certificateholders' Interest Distribution
Amount on such Certificate Distribution
Date (an "Interest Deficiency") and (B)
the amount equal to the excess, if any, of
the unpaid principal balance of the
Certificates of such Class on the
Certificate Final Maturity Date for such
Class over amounts on deposit in the
Certificate Distribution Account, after
taking into account the required
application of funds in the remaining
Trust Accounts, including but not limited
to the Reserve Account, pursuant to the
related Sale and Servicing Agreement, to
the payment of principal of such Class of
Certificates on such Certificate Final
Maturity Date (a "Principal Deficiency");
provided, however that "Certificate Surety
Bond Payment" shall not include, unless
provided otherwise in the related
Prospectus Supplement, any
Certificateholders' Interest Carryover or
any portion of any Interest Deficiency or
Principal Deficiency arising as a result
of (i) any tax liability, including any
tax liability imposed on or assessed with
respect to the related Trust, the Trust
assets, any Noteholder, or any
Certificateholder, or (ii) any tax
withholding requirement, including any
such requirement applicable to Trust
income or Trust distributions. See
"Description of the Transfer and Servicing
Agreements-- Distributions." See also
"Description of the Surety Bonds--Surety
Provider" for a brief description of the
Surety Provider.
If and to the extent specified in the
related Prospectus Supplement, enhancement
with respect to a Series or any Class of
Securities may also include
overcollateralization, a letter of credit,
one or more Classes of subordinate
Securities, derivative products or other
forms of credit enhancement (collectively,
"Enhancement"). The Enhancement with
respect to any Series or Class of
Securities may be structured to provide
protection against delinquencies and/or
losses on the Financed Student Loans,
against changes in interest rates, or
other risks, to the extent and under the
conditions specified in the related
Prospectus Supplement. Any form of
Enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement..
H. Transfer and Servicing
Agreements.................Under a Sale and Servicing Agreement, the
Sellers will sell or contribute from time
to time Financed Student Loans to a Trust,
with the Eligible Lender Trustee holding
legal title thereto. In addition, the
Master Servicer will agree with the
related Trust to be responsible for
servicing, managing, maintaining custody
of and making collections on the Financed
Student Loans. The obligations of the
Sellers and the Master Servicer under a
Sale and Servicing Agreement may include
the following:
The applicable Seller and the Master
Servicer will be obligated to purchase
(which obligations also will be
obligations of The Money Store), any
Financed Student Loan if the interests of
the Noteholders, the Certificateholders or
a Surety Provider, if any, therein are
materially adversely affected by a breach
of any representation, warranty or
covenant (including the Master Servicer's
covenant to service all the Financed
Student Loans in accordance with
applicable laws, restrictions and
guidelines) made by a Seller or the Master
Servicer, as the case may be, with respect
to the Financed Student Loan, if the
breach has not been cured following the
discovery by or notice to the related
Seller or the Master Servicer, as the case
may be, of the breach (it being understood
that any such breach that does not affect
any Guarantor's or the Secretary's
obligation to guarantee payment of such
Financed Student Loan will not be
considered to have a material adverse
effect for this purpose). If a Seller is
obligated to purchase a Financed Student
Loan as a result of such Seller's or a
third party's failure to originate such
Financed Student Loan in accordance with
the Higher Education Act, the Public
Health Service Act or a Private Loan
Program, as the case may be, and the
applicable Guarantee Agreement, it will
reimburse the applicable Trust for the
remaining principal balance of such
Financed Student Loan (plus certain
unamortized premiums) and any accrued but
unpaid interest thereon (including
interest to be capitalized). If the Master
Servicer is obligated to purchase a
Financed Student Loan as a result of a
failure to service such Financed Student
Loan in accordance with the Higher
Education Act, the Public Health Service
Act or a Private Loan Program, as the case
may be, and the applicable Guarantee
Agreement, it will reimburse the
applicable Trust only up to the amount the
related Guarantor or the Secretary would
be obligated to pay if not for such
breach. In addition, with respect to
Federal Loans, a Seller or the Master
Servicer, as the case may be, will be
obligated to reimburse the applicable
Trust for any accrued interest amounts not
guaranteed by a Guarantor due to, or any
lost Interest Subsidy Payments or Special
Allowance Payments as a result of, a
breach of such Seller's representations
and warranties or the Master Servicer's
covenants, as the case may be; provided,
however, that such reimbursements shall
not exceed the amount that would have been
paid if not for such breach.
The Master Servicer will receive, subject
to the limitations set forth in the
following paragraph, a monthly fee (the
"Servicing Fee") equal to the amount set
forth in the related Prospectus
Supplement. The Servicing Fee generally
will be allocated monthly out of Available
Funds and amounts on deposit in the
Reserve Account and will be payable at the
time set forth in the related Prospectus
Supplement.
Notwithstanding the foregoing, if the fee
payable to the Master Servicer as
described above for any month would exceed
the percentage set forth in the related
Prospectus Supplement of the Pool Balance
as of the last day of the preceding
calendar month (the "Capped Amount"), then
the "Servicing Fee" for such month will
instead be the Capped Amount for such
month. The remaining amount in excess of
such Servicing Fee, together with any such
excess amounts from prior months that
remain unpaid (the "Servicing Fee
Carryover"), will be payable to the Master
Servicer on the dates and in the priority
set forth above under "--Collection
Account; Note Distribution Account;
Certificate Distribution Account; and
Expense Account" in the related Prospectus
Supplement.
Pursuant to a Sale and Servicing
Agreement, unless otherwise set forth in
the related Prospectus Supplement, the
Master Servicer will agree with the Trust
to be responsible for, among other things,
preparing and filing with the Department,
the Secretary and the Guarantors all
appropriate claims forms and other
documents and filings on behalf of the
Eligible Lender Trustee in order to claim
the Interest Subsidy Payments and Special
Allowance Payments from the Department,
the applicable insurance from the
Secretary and the Guarantee Payments from
the Guarantors, in respect of the Financed
Student Loans entitled thereto and
preparing and providing periodic and
annual statements to the Eligible Lender
Trustee and the Indenture Trustee with
respect to distributions to Noteholders
and Certificateholders.
The Notes....................Each Trust will issue each Series of Notes
pursuant to an Indenture (as amended and
supplemented from time to time, the
"Master Indenture") and a related Terms
Supplement authorizing such Series, (each
as amended from time to time, a "Terms
Supplement" and, together with the Master
Indenture and each other Terms Supplement,
the "Indenture") between the related Trust
and an Indenture Trustee. Each Series of
Notes will be secured by the assets of the
related Trust other than Certificate
Surety Bonds and Note Surety Bonds
relating to other Series of Notes issued
by such Trust.
A. Interest..................Each Class of
Notes will bear interest at the rate per
annum (the "Class Interest Rate") set
forth in the related Prospectus Supplement
until (i) with respect to Auction Rate
Notes, the first Auction Date for such
Class, at which time the related Class
Interest Rate will be reset pursuant to
the Auction Procedures described in
Appendix I, (ii) with respect to LIBOR
Rate Notes, the date set forth in the
related Prospectus Supplement at which
time the related Class Interest Rate will
be reset based upon One-Month LIBOR, or
(iii) with respect to T-Bill Rate Notes,
the date set forth in the related
Prospectus Supplement at which time the
related Class Interest Rate will be reset
based upon the T-Bill Rate. If a Class of
Notes bears interest based upon another
method, the related Prospectus Supplement
will describe such method. If provided in
a Prospectus Supplement, the Trust may
issue one or more Classes of Accrual
Notes, which Accrual Notes will not be
entitled to receive distributions of
interest during the related Accrual
Period. Instead, interest accrued on such
Accrual Notes will be capitalized and
added to the outstanding principal amount
thereof.
Interest on the outstanding principal
amount of each Class of Notes will accrue
initially from and including the related
Closing Date through and including the
date set forth in the related Prospectus
Supplement and, thereafter, except as
otherwise set forth in the related
Prospectus Supplement, for periods (each,
an "Interest Period") consisting of (i)
with respect to Auction Rate Notes,
between 7 days to one year, subject to
adjustment as set forth in the Auction
Procedures described in Appendix I or in
the related Prospectus Supplement, (ii)
with respect to LIBOR Rate Notes,
generally a one-month period beginning and
ending on the dates set forth in the
related Prospectus Supplement, (iii) with
respect to T-Bill Rate Notes, generally a
one-month period beginning and ending on
the dates set forth in the related
Prospectus Supplement, or (iv) with
respect to Notes accruing interest based
on some other method, the period set forth
in the related Prospectus Supplement.
Interest on each Class of Notes will be
payable either (i) quarterly on the first
Business Day following the expiration of
the first Interest Period for such Class
ending in January, April, July and
October, commencing on the date set forth
in the related Prospectus Supplement, (ii)
monthly or weekly on the first Business
Day following the expiration of each
related Interest Period, or (iii) on such
other dates and for such other periods as
may be set forth in the related Prospectus
Supplement. The date on which a Class of
Notes is entitled to receive a
distribution (or, for Accrual Notes, have
accrued interest added to principal) is
referred to as the "Note Distribution
Date" for such Class. Distributions will
be made to holders of record of the
related Class of Notes (the "Noteholders")
as of the second Business Day preceding
the related Note Distribution Date (such
day, the "Note Record Date"). Interest
will be calculated on the basis of the
actual number of days elapsed in each
Interest Period divided by 360.
Notwithstanding the foregoing, unless
provided otherwise in the related
Prospectus Supplement, if the Class
Interest Rate with respect to a Class of
Notes for an Interest Period is greater
than the Net Loan Rate, then such Class
Interest Rate for such Notes for such
Interest Period will be the Net Loan Rate.
However, in no event will the Class
Interest Rate exceed the rate set forth in
the related Prospectus Supplement. The
"Net Loan Rate" for any Interest Period
will equal the weighted average Effective
Interest Rate for the Collection Period
immediately preceding such Interest Period
less the amount set forth in the related
Prospectus Supplement. The "Effective
Interest Rate" means, for any Financed
Student Loan and any Collection Period,
the per annum rate at which such Financed
Student Loan accrues interest during such
Collection Period and, in the case of a
Federal Loan, after giving effect to all
applicable Interest Subsidy Payments and
Special Allowance Payments due with
respect to such Federal Loan.
Unless provided otherwise in the related
Prospectus Supplement, if the Class
Interest Rate for any Class of Notes for
any Interest Period is based on the Net
Loan Rate, the excess of (a) the amount of
interest on such Class of Notes that would
have accrued in respect of the related
Interest Period had interest been
calculated based on the applicable Auction
Rate, LIBOR Rate, T-Bill Rate or other
applicable rate, as the case may be, over
(b) the amount of interest on the Class of
Notes actually accrued in respect of such
Interest Period based on the Net Loan Rate
(such excess, together with the unpaid
portion of any such excess from prior
Interest Periods (and interest accrued
thereon calculated based on One-Month
LIBOR or the rate set forth in the related
Prospectus Supplement), is referred to as
the "Noteholders' Interest Carryover")
will be paid on the dates and in the
priority set forth in the related
Prospectus Supplement under "--Collection
Account; Note Distribution Account;
Certificate Distribution Account; and
Expense Account." The rating of each
Series or Class of Notes does not address
the likelihood of the payment of the
amount of any Noteholders' Interest
Carryover.
B. Principal................All payments of principal of a Series of Notes
will be made in an aggregate amount
determined as set forth in the related
Prospectus Supplement and will be paid at
the times and will be allocated among the
Classes of such Series in the order and
amounts, all as specified in the related
Prospectus Supplement.
C. Mandatory Redemption......If a Pre-Funding Account has been established
with respect to a Trust and a deposit
therein has been made in connection with
the issuance of a Series of Notes, the
Class of Notes then entitled to receive
payments of Principal will be redeemed in
part on the applicable Note Distribution
Date on or immediately following the last
day of each Funding Period in the event
that any amount remains on deposit in the
Pre-Funding Account after giving effect to
all Additional Fundings to be made on or
prior to such date. The aggregate
principal amount of Notes to be redeemed
will be an amount equal to the amount then
on deposit in the Pre-Funding Account.
The Certificates................Concurrently with the issuance of each Series of
Notes, a Trust may issue one or more
Classes of Certificates pursuant to a
Trust Agreement and, after the issuance of
the initial Class of Certificates, a
supplement thereto (each, a "Trust
Supplement"). The date of an initial
issuance of the Certificates is referred
to herein as the "Initial Closing Date."
The Certificates represent undivided
participation interests in the related
Trust. Student Holdings will purchase a
1.0% interest in the Certificates unless
provided otherwise in a Trust Agreement.
See "Formation of the Trust -- The Trust."
A. Interest...................Each Class
of Certificates will bear interest at the
rate per annum (the "Certificate Rate")
set forth in the related Trust Agreement
or the related Trust Supplement until (i)
with respect to Auction Rate Certificates,
the first Auction Date for such Class, at
which time the related Certificate Rate
will be reset pursuant to the Auction
Procedures described in Appendix I, (ii)
with respect to LIBOR Rate Certificates,
the date set forth in the related Trust
Supplement at which time the related
Certificate Rate will be reset based upon
One- Month LIBOR or (iii) with respect to
T-Bill Rate Certificates, the date set
forth in the related Trust Supplement at
which time the related Certificate Rate
will be reset based upon the T-Bill Rate.
If a Class of Certificates bears interest
based upon another method, the related
Trust Supplement will describe such
method.
Interest on the outstanding principal
balance of each Class of Certificates will
accrue initially from and including the
related Closing Date through and including
the date set forth in the related Trust
Agreement or the related Trust Supplement
and thereafter, except as otherwise set
forth in a Trust Supplement, for Interest
Periods consisting of (i) with respect to
Auction Rate Certificates, periods of 28
days, subject to adjustment as set forth
in the Auction Procedures described in
Appendix I, (ii) with respect to LIBOR
Rate Certificates, the one-month period
beginning and ending on the dates set
forth in the related Trust Supplement,
(iii) with respect to T-Bill Rate
Certificates, the one-month period
beginning and ending on the dates set
forth in the related Trust Supplement, and
(iv) with respect to Certificates accruing
interest based on some other method, the
period set forth in the related Trust
Supplement. Interest on the Certificates
will be payable on the first Business Day
following the expiration of each Interest
Period, or on such other dates and for
such other periods as may be set forth in
the related Trust Supplement (each, a
"Certificate Distribution Date") to
holders of record of the Certificates (the
"Certificateholders" and, together with
the Noteholders, the "Securityholders") as
of the second Business Day preceding the
related Certificate Distribution Date
(such day, the "Certificate Record Date").
Interest will be calculated on the basis
of the actual number of days elapsed in
each Interest Period divided by 360.
Notwithstanding the foregoing, if the
Certificate Rate with respect to a Class
of Certificates for an Interest Period is
greater than the Net Loan Rate, then the
Certificate Rate for such Class of
Certificates for such Interest Period will
be such Net Loan Rate. However, in no
event will the Certificate Rate exceed
18.0% per annum, or such other rate as may
be set forth in a Trust Supplement.
As used herein, the term "Distribution
Date" refers to either a Note Distribution
Date or a Certificate Distribution Date,
as the context requires.
If the Certificate Rate for any Class of
Certificates for any Certificate
Distribution Date is based on the Net Loan
Rate, the excess of (a) the amount of
interest on such Class of Certificates
that would have accrued in respect of the
related Interest Period had interest been
calculated based on the applicable Auction
Rate, LIBOR Rate or other applicable rate,
as the case may be, over (b) the amount of
interest on the Class of Certificates
actually accrued in respect of such
Interest Period based on the Net Loan Rate
(such excess, together with the unpaid
portion of any such excess from prior
Interest Periods (and interest accrued
thereon calculated based on One-Month
LIBOR), is referred to as the
"Certificateholders' Interest Carryover")
will be paid on the dates and in the
priority set forth in the related
Prospectus Supplement under "--Collection
Account; Note Distribution Account;
Certificate Distribution Account; and
Expense Account." The rating of each Class
of Certificates does not address the
likelihood of the payment of any
Certificateholders' Interest Carryover.
B. Principal..................Principal of
the Class of Certificates with the
earliest Final Maturity Date, or such
other Class set forth in the related Trust
Supplement, will be payable on each
Certificate Distribution Date on and after
which each Series of Notes has been paid
in full in an amount generally equal to
(i) the amount of principal paid with
respect to the Financed Student Loans
(plus any Realized Losses thereon), (ii)
proceeds realized upon the sale of
Financed Student Loans by the related
Trust and (iii) Additional Principal
Payments, if any, or such other amount as
may be set forth in the related Trust
Agreement or a Trust Supplement. Also, on
the Final Maturity Date for a Class of
Certificates, the Certificateholders'
Principal Distribution Amount also will
include the then outstanding principal
balance of such Class of Certificates. See
"Description of the Transfer and Servicing
Agreements--Distributions."
The outstanding principal amount of a
Class of Certificates will be payable in
full on the date set forth in the related
Trust Agreement or a related Trust
Supplement (each, a "Certificate Final
Maturity Date"). However, payment in full
of the Certificates is likely to occur
sooner than such Certificate Final
Maturity Date as a result of a variety of
factors, including the sale by the related
Trust of Financed Student Loans and
borrowers leaving school and commencing
repayment of their Financed Student Loans.
Additionally, with the consent of the
applicable Surety Provider, if any,
Additional Principal Payments may be made
on the Certificates. See "The Financed
Student Loan Pool--Maturity and Prepayment
Assumptions."
If a Certificate Surety Bond has been
obtained, on the Certificate Final
Maturity Date for each Class of
Certificates, the applicable Surety
Provider will be required to provide for
payment to the related Trust pursuant to
the related Certificate Surety Bond of an
amount generally equal to the excess, if
any, of the unpaid principal balance of
such Class of Certificates on such
Certificate Final Maturity Date over
amounts on deposit in the Certificate
Distribution Account, after taking into
account the required application of funds
in the remaining Trust Accounts, including
but not limited to the Reserve Account,
pursuant to the related Sale and Servicing
Agreement, to the payment of principal on
such Class of Certificates on such
Certificate Final Maturity Date, subject
to the exceptions described herein under
"Description of the Surety Bonds --
Certificate Surety Bonds." Any such amount
will be distributed to Certificateholders
of such Class of Certificates on the
related Certificate Final Maturity Date.
If, however, no required payments are made
under a Certificate Surety Bond, holders
of the Certificates of such Class would
likely incur losses.
C. Subordination of the
Certificates.............The rights of Certificateholders in the assets
of the Trust (other than with respect to
the related Certificate Surety Bond) to
receive payments of principal will be
subordinated to the rights of the
Noteholders to the extent described
herein. See "Description of the Transfer
and Servicing Agreement--Credit
Enhancement--Subordination of the
Certificates."
Monthly Advances................If the Master Servicer has applied for a
Guarantee Payment from a Guarantor, an
Interest Subsidy Payment or a Special
Allowance Payment from the Department or
an insurance payment from the Secretary,
and the Master Servicer has not received
the related payment prior to the end of
the Collection Period immediately
preceding the Note Distribution Date or
Certificate Distribution Date on which
such amount would be required to be
distributed as a payment of interest, the
Representative may, no later than the
Determination Date relating to such Note
Distribution Date or Certificate
Distribution Date, as the case may be,
deposit into an account in the name of the
Indenture Trustee (the "Monthly Advance
Account") an amount up to the amount of
such payments applied for but not received
(such deposits by the Representative are
referred to herein as "Monthly Advances").
Monthly Advances will be distributed to
the Noteholders or Certificateholders on
the upcoming Note Distribution Date or
Certificate Distribution Date, as the case
may be. Monthly Advances are recoverable
by the Representative from the source for
which such Monthly Advance was made.
Optional Purchase...............The applicable Sellers may, with the consent
of the Surety Provider, if any, repurchase
all remaining Financed Student Loans from
a Trust, and thus effect the early
retirement of the related Notes and
Certificates issued by such Trust, on any
Certificate Distribution Date on or after
which the Pool Balance is equal to 10% or
less of the Aggregate Pool Balance, or
such other percentage set forth in a
Prospectus Supplement, at a price equal
to, for each Financed Student Loan, the
outstanding principal balance of such
Financed Student Loan as of the end of the
preceding Collection Period, together with
all accrued interest thereon and certain
unamortized premiums. See "Description of
the Transfer and Servicing
Agreements--Termination." The "Aggregate
Pool Balance" will equal the Pool Balance
as of the date set forth in the related
Prospectus Supplement (each, a "Cut-off
Date") of each Series of Notes issued by
the related Trust plus the principal
balance of each Additional Student Loan
pledged to the Indenture Trustee on behalf
of the Issuer on each Transfer Date
through the last Funding Period.
Tax
Considerations...................In the opinion of special Federal tax counsel
for the applicable Trust and special tax
counsel for the Trust in the jurisdiction
in which such Trust is formed, each Series
of Notes will be characterized as debt for
Federal and state income tax purposes,
respectively, although there is no
specific authority with respect to the
characterization for Federal or state
income tax purposes of securities having
the same terms as the Notes.
In the opinion of special Federal tax
counsel for the applicable Trust, for
Federal income tax purposes the Trust will
not be characterized as an association (or
publicly traded partnership) taxable as a
corporation. The Certificateholders will
agree to treat the related Trust as a
partnership in which they are partners for
Federal income tax purposes. However,
there are no cases or rulings on similar
transactions involving a trust that issues
debt and equity interests with terms
similar to those of the Notes and the
Certificates.
Alternative characterizations are
possible, but would not result in
materially adverse Federal tax
consequences to Certificateholders.
Due to the method of allocation of Trust
income to the Certificateholders, cash
basis holders may, in effect, be required
to report income from the Certificates on
an accrual basis. In addition, because tax
allocations and tax reporting will be done
on a uniform basis, but Certificateholders
may be purchasing Certificates at
different times and at different prices,
Certificateholders may be required to
report on their tax returns taxable income
that is greater or less than the amount
reported to them by the related Trust.
See "Certain Tax Consequences" for
additional information concerning the
application of Federal and state tax laws
with respect to the Notes, the Trusts and
the Certificates.
ERISA Considerations..............Each Prospectus Supplement will set forth the
extent, if any, to which Notes may be
purchased by or on behalf of employee
benefit plans, retirement arrangements,
individual retirement accounts and Keogh
Plans. See "ERISA Considerations."
The Certificates may not be acquired by or
on behalf of any employee benefit plan,
retirement arrangement, individual
retirement account or Keogh Plan subject
to either Title I of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended.
See "ERISA Considerations--The
Certificates."
Registration of
Notes...........................Securities
may be represented by global certificates
registered in the name of Cede & Co.
("Cede"), as nominee of The Depository
Trust Company ("DTC"), or another nominee.
In such case, Securityholders will not be
entitled to receive definitive
certificates representing such Holders'
interests, except in certain circumstances
described in the related Prospectus
Supplement. See "Description of the
Securities-- Book-Entry Registration."
Rating of the
Securities........................It is a condition to the issuance and sale of
each Series and Class of Notes and each
Series of Certificates that they each be
rated by at least one nationally
recognized statistical rating organization
(a "Rating Agency") in one of its four
highest applicable rating categories. The
rating or ratings applicable to Securities
of each Series offered hereby and by the
related Prospectus Supplement will be as
set forth in the related Prospectus
Supplement. A securities rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating agency.
<PAGE>
RISK FACTORS
Prospective purchasers of the Securities should consider carefully the
following discussion of certain risk factors associated with an investment in
the Securities.
Limited Liquidity. There can be no assurance that a secondary market
for the Securities will develop or, if a secondary market does develop, that it
will provide Securityholders with liquidity of investment or that it will
continue for the life of the Securities.
Failure to Comply with Loan Origination and Servicing Procedures for
Federal Loans and HEAL Loans. The Higher Education Act and the Public Health
Service Act, including the respective implementing regulations thereunder,
require lenders and their assignees making and servicing Federal Loans or HEAL
Loans, as the case may be, and guarantors guaranteeing Federal Loans to follow
specified procedures, including due diligence procedures, to ensure that the
Federal Loans and HEAL Loans are properly made and disbursed to, and repaid on a
timely basis by or on behalf of, borrowers. Certain of those procedures, which
are specifically set forth in the Higher Education Act and the Public Health
Service Act, are summarized herein. See "The Student Loan Financing Business"
and "Description of the Transfer and Servicing Agreements--Servicing
Procedures". Generally, those procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower attending an eligible institution under the Higher Education
Act or Public Health Service Act, as the case may be, be made, the borrower's
responsibilities under the loan be explained to him or her, the promissory note
evidencing the loan be executed by the borrower and then that the loan proceeds
be disbursed in a specified manner by the lender. After the loan is made, the
lender must establish repayment terms with the borrower, properly administer
deferrals and forbearances and credit the borrower for payments made. If a
borrower becomes delinquent in repaying a loan, a lender must perform certain
collection procedures (primarily telephone calls and demand letters) which vary
depending upon the length of time a loan is delinquent. The Master Servicer will
agree pursuant to the related Sale and Servicing Agreement to perform (or
provide for third party servicers to perform) servicing and collection
procedures on behalf of the related Trust. However, failure to follow these
procedures or failure of the applicable Seller or any other originator of the
Purchased Loans to follow procedures relating to the origination of any Federal
Loans may result in the Department's refusal to make reinsurance payments to the
Guarantors or to make Interest Subsidy Payments and Special Allowance Payments
to the applicable Eligible Lender Trustee with respect to such Federal Loans or
in the Guarantors' refusal to honor their Guarantee Agreements with the
applicable Eligible Lender Trustee with respect to such Federal Loans. Failure
of the Guarantors to receive reinsurance payments from the Department could
adversely affect the Guarantors' ability or legal obligation to make payments
under the Guarantee Agreements ("Guarantee Payments") to the applicable Eligible
Lender Trustee. Similarly, the failure to follow required procedures in
originating or servicing HEAL Loans may result in the Secretary denying
insurance coverage for such HEAL Loans. Loss of any such Guarantee Payments,
Interest Subsidy Payments or Special Allowance Payments with respect to Federal
Loans, or insurance payments from the Secretary with respect to HEAL Loans,
could adversely affect the amount of Available Funds for any Collection Period
and the related Trust's ability to pay principal and interest on the Notes and
the Certificates. Under certain circumstances, pursuant to a Sale and Servicing
Agreement, the applicable Seller is obligated to purchase, or the Master
Servicer is obligated to purchase (which obligations also will be obligations of
The Money Store), any Financed Student Loan if a breach of the representations,
warranties or covenants of the applicable Seller or the Master Servicer, as the
case may be, with respect to such Financed Student Loan has a material adverse
effect on the interests of the Noteholders or the Certificateholders therein and
such breach is not cured within any applicable cure period (it being understood
that any such breach that does not affect any Guarantor's or the Secretary's
obligation to guarantee payment of such Financed Student Loans will not be
considered to have such a material adverse effect). In addition, under certain
circumstances pursuant to a Sale and Servicing Agreement, the applicable Seller
or the Master Servicer, as the case may be, is obligated to reimburse the
related Trust (which obligations also will be obligations of The Money Store)
for any accrued interest amounts not guaranteed by a Guarantor due to, or any
lost Interest Subsidy Payments or Special Allowance Payments as a result of, a
breach of the applicable Seller's representations and warranties or the Master
Servicer's covenants, as the case may be, with respect to a Federal Loan. These
purchase and reimbursement obligations also will apply with respect to the
Purchased Loans. If the applicable Seller is obligated to purchase a Financed
Student Loan as a result of such Seller's or a third party's failure to
originate such Financed Student Loan in accordance with the Higher Education Act
and the applicable Guarantee Agreement, the Public Health Service Act or the
applicable Private Loan Program, as the case may be, it will reimburse the
related Trust for the remaining principal balance of such Financed Student Loan
(plus certain unamortized premiums) and any accrued but unpaid interest thereon.
If the Master Servicer is obligated to purchase a Financed Student Loan as a
result of a failure to service such Financed Student Loan in accordance with the
Higher Education Act and the applicable Guarantee Agreement, the Public Health
Service Act or the applicable Private Loan Program, as the case may be, it will
reimburse the related Trust only up to the amount the related Guarantor or the
Secretary would be obligated to pay if not for such breach. See "Description of
the Transfer and Servicing Agreements--Sale of Financed Student Loans;
Representations and Warranties" and "--Servicer Covenants." There can be no
assurance, however, that the applicable Seller, the Master Servicer or The Money
Store will have the financial resources to do so. The failure of the applicable
Seller to so purchase or the Master Servicer to so purchase a Financed Student
Loan would constitute a breach of the related Sale and Servicing Agreement,
enforceable by the Eligible Lender Trustee on behalf of the related Trust or by
the Indenture Trustee on behalf of the Noteholders, but would not constitute an
Event of Default under the related Master Indenture or a Terms Supplement or
permit the exercise of remedies thereunder.
Failure to Comply with Loan Origination and Servicing Procedures for
Private Loans. Each Private Loan Program prescribes rules and procedures
applicable to originating and servicing Private Loans. Failure to make or
service properly a Private Loan pursuant to the applicable Private Loan Program
could adversely affect the Eligible Lender Trustee's ability to obtain a
Guarantee Payment from the applicable Guarantor. Loss of such Guarantee Payments
could adversely affect the amount of Available Funds for any Collection Period.
Commingling Risk of Consolidation of Federal Benefit billings and
Receipts with Other Trusts. Due to a recent change in Department policy limiting
the granting of new lender identification numbers, an Eligible Lender Trustee
will be allowed under a Trust Agreement to permit trusts, other than the related
Trust established by a Seller to securitize Financed Student Loans, to use the
Department lender identification number applicable to the related Trust. In that
event, the billings submitted to the Department for Interest Subsidy and Special
Allowance Payments on loans in the Trust would be consolidated with the billings
for such payments for Financed Student Loans in other trusts using the same
lender identification number and payments on such billings would be made by the
Department in lump sum form. Such lump sum payments would then be allocated
among the various trusts using the lender identification number.
In addition, the sharing of the lender identification number by a Trust
with other trusts may result in the receipt of claim payments by guarantors in
lump sum form. In that event, such payments would be allocated among the trusts
in a manner similar to the allocation process for Interest Subsidy and Special
Allowance Payments.
The Department regards an Eligible Lender Trustee as the party
primarily responsible to the Department for any liabilities owed to the
Department or guarantors resulting from an Eligible Lender Trustee's activities
in the Federal Program. As a result, if the Department or a guarantor were to
determine that an Eligible Lender Trustee owes a liability to the Department or
a guarantor on any Financed Student Loan for which such Eligible Lender Trustee
is or was legal titleholder, including loans held in a Trust or other trusts,
the Department or guarantor might seek to collect that liability by offset
against payments due the Eligible Lender Trustee under the Trust. In the event
that the Department or a guarantor determines such a liability exists in
connection with a trust using the shared lender identification number, the
Department or a guarantor would be likely to collect that liability by offset
against amounts due such Eligible Lender Trustee under the shared lender
identification number, including amounts owned in connection with a Trust.
In addition, other trusts using the shared lender identification number
may in a given quarter incur origination fees that exceed the Interest Subsidy
and Special Allowance Payments payable by the Department on the loans in such
other trusts, resulting in the consolidated payment from the Department received
by an Eligible Lender Trustee under such shared lender identification number for
that quarter equaling an amount that is less than the amount owed by the
Department on the loans in the Trust for that quarter.
The Trust Agreement for a Trust and the trust agreement for other
trusts established by the Sellers which share the lender identification number
to be used by a Trust (such Trust and such other trusts, collectively, the
"Seller Trusts") may require a Seller Trust (including a Trust) to indemnify the
other Seller Trusts for a shortfall or an offset by the Department or a
guarantor arising from the Financed Student Loans held by the Eligible Lender
Trustee on such Seller Trust's behalf.
Changing Assets of the Trusts. Upon each issuance of Notes, and during
the related Funding Periods, the related Trust will purchase Financed Student
Loans from the applicable Sellers. Each Financed Student Loan acquired by a
Trust will serve as collateral for each outstanding Series of Notes. Therefore,
the Financed Student Loans constituting the assets of the Trust will vary during
the term of the Trust. Likewise, the percentage of the Financed Student Loans
consisting of Federal Loans, HEAL Loans and Private Loans also will vary.
Repayment of Principal. With the consent of the applicable Surety
Provider, if any, amounts otherwise required to be deposited into the Reserve
Account may be applied as an Additional Principal Payment on the Class of Notes
specified in the related Prospectus Supplement (or, after all Notes have been
paid in full, the Certificates). Such Additional Principal Payments will result
in accelerated payments of principal on the Notes.
Principal Balance of Securities Exceeds Initial Pool Balance of the
Initial Financed Student Loans and Pre-Funded Amount. On each Closing Date, the
aggregate initial principal amount of the Notes and the principal balance of the
Certificates may be greater than the initial Pool Balance of the initial
Financed Student Loans as of the Cut-off Date and the Pre-Funded Amount as of
the Closing Date. Each initial Financed Student Loan may be purchased by the
applicable Trust for an amount greater than the principal balance thereof
(including any accrued interest thereon expected to be capitalized upon
repayment) as of the Cut-off Date. In addition, each Financed Student Loan
purchased during the Funding Period may be purchased for any amount greater than
the principal balance thereof. Because the actual rate and timing of any
accelerated payments of principal, if any, will depend on a number of factors,
including the rate and timing of the payments on the Financed Student Loans,
there can be no assurance of the actual rate or timing of such accelerated
payments of principal or when the aggregate principal amount of the Notes and
the principal balance of the Certificates will be equal to or less than the sum
of the Pool Balance, the Pre-Funded Amount and the amounts in the Reserve
Account and the Capitalized Pre-Funding Account. As a result, if an Event of
Default should occur under the related Indenture or an Insolvency Event should
occur and the Financed Student Loans were liquidated at a time when the
outstanding principal amount of the Notes and the Certificates exceeded the sum
of the Pool Balance, the Pre-Funded Amount and the amounts in the Reserve
Account and Capitalized Pre-Funding Account, such Financed Student Loans would
likely have to be liquidated at a premium for Certificateholders and, in some
circumstances, Noteholders not to suffer a loss.
Variability of Actual Cash Flows; Inability of Indenture Trustee to
Liquidate Financed Student Loans. Amounts received with respect to the Financed
Student Loans for a particular Collection Period may vary in both timing and
amount from the payments actually due on the Financed Student Loans as of such
Collection Period for a variety of economic, social and other factors, including
both individual factors, such as additional periods of deferral or forbearance
prior to or after a borrower's commencement of repayment, and general factors,
such as a general economic downturn which could increase the amount of defaulted
Financed Student Loans. Failures by borrowers to pay timely the principal and
interest on the Financed Student Loans will affect the amount of Available
Funds, which may reduce the amount of principal and interest paid to the
Securityholders. In addition, failures by borrowers of student loans generally
to pay timely the principal and interest due on such student loans could
obligate the Guarantors to make payments thereon, which could adversely affect
the solvency of the Guarantors and their ability to meet their guarantee
obligations (including with respect to the Financed Student Loans). The
inability of any Guarantor to meet its guarantee obligations could reduce the
amount of principal and interest paid to the Securityholders. The effect of such
factors, including the effect on a Guarantor's ability to meet its guarantee
obligations with respect to the Financed Student Loans or the Trust's ability to
pay principal and interest with respect to the Securities, is impossible to
predict. Pursuant to the 1992 Amendments, under Section 432(o) of the Higher
Education Act, if the Department has determined that a Guarantor of Federal
Loans is unable to meet its insurance obligations, the loan holder may submit
claims directly to the Department and the Department is required to pay the full
Guarantee Payment due with respect thereto in accordance with guarantee claim
processing standards no more stringent than those applied by a Guarantor of
Federal Loans. However, the Department's obligation to pay guarantee claims
directly in this fashion is contingent upon the Department making the
determination referred to above. There can be no assurance that the Department
would ever make such a determination with respect to a Guarantor or, if such a
determination was made, whether such determination or the ultimate payment of
such guarantee claims would be made in a timely manner.
If an Event of Default occurs under a Master Indenture or any
applicable Terms Supplement, subject to certain conditions, the related
Indenture Trustee, at the request of the Surety Provider, if applicable, is
authorized, without the consent of the Noteholders and the Certificateholders,
to sell the Financed Student Loans. There can be no assurance, however, that an
Indenture Trustee will be able to find a purchaser for the Financed Student
Loans in a timely manner or that the market value of such Financed Student Loans
would, at any time, be equal to the aggregate outstanding principal amount of
the Securities and accrued interest thereon. If the net proceeds of any such
sale, together with amounts then on deposit in the Reserve Account, do not
exceed the aggregate outstanding principal amount of Notes and accrued interest
thereon, holders of any Class of Notes not paid in full will not be entitled to
payments of principal under an applicable Note Surety Bond until the related
Final Maturity Date. In such circumstances, the Certificateholders would not be
entitled to receive any portion of such proceeds. Also, Certificateholders will
not be entitled to payments of principal under an applicable Certificate Surety
Bond until the Final Maturity Date of the applicable Class of Certificates. In
addition, the amount of principal required to be distributed to Noteholders
under an Indenture is generally limited to amounts available to be so
distributed. Therefore, the failure to pay principal on any Class or Series of
Notes may not result in the occurrence of an Event of Default until the Final
Maturity Date of such Class or Series of Notes. See "Description of the Transfer
and Servicing Agreements--Credit Enhancement."
Unsecured Nature of Financed Student Loans; Financial Status of
Guarantors. The Higher Education Act, the Public Health Service Act and each
Private Loan Program require all Financed Student Loans to be unsecured. As a
result, the only security for payment of the Financed Student Loans are the
Guarantee Agreements between the applicable Eligible Lender Trustee and the
Guarantors or, in the case of HEAL Loans, insurance payments from the Secretary.
A deterioration in the financial status of the Guarantors and their ability to
honor guarantee claims with respect to the Financed Student Loans could result
in a delay in making or a failure to make Guarantee Payments to the applicable
Eligible Lender Trustee. One of the primary causes of a possible deterioration
in a Guarantor's financial status is directly related to the amount and
percentage of defaulting Financed Student Loans guaranteed by a Guarantor.
Moreover, with respect to Federal Loans, to the extent that the Department pays
reimbursement claims submitted by a Guarantor for any fiscal year exceeding
certain specified levels, the Department's obligation to reimburse the Guarantor
for losses will be reduced on a sliding scale from 100% (98% for loans made on
or after October 1, 1993) to a minimum of 80% (78% for loans made on or after
October 1, 1993). The Private Loans will not be reinsured by the Department, the
Secretary or any other governmental agency. Therefore, the failure of a
Guarantor of a Private Loan to make a required Guarantee Payment could adversely
affect the amount of Available Funds for any Collection Period.
Changes in Legislation. There can be no assurance that the Higher
Education Act, the Public Health Service Act, the Private Programs or other
relevant federal or state laws, rules and regulations and the programs
implemented thereunder will not be amended or modified in the future in a manner
that will adversely impact the programs described herein and the loans made
thereunder, including the Financed Student Loans, or the Guarantors. In
addition, existing legislation and future measures to reduce the federal budget
deficit may adversely affect the amount and nature of federal financial
assistance available with respect to these programs. In recent years, federal
budget legislation has provided for the recovery of certain funds held by
guarantee agencies in order to achieve reductions in federal spending. There can
be no assurance that future federal budget legislation or administrative actions
will not adversely affect expenditures by the Department, the Secretary or the
financial condition of the Guarantors.
Under the Omnibus Budget Reconciliation Act of 1993, Congress made a
number of changes that may adversely affect the financial condition of the
Guarantors of Federal Loans, including reducing to 98% the maximum percentage of
Guarantee Payments the Department will reimburse for loans first disbursed on or
after October 1, 1993, reducing substantially the premiums and default
collections that Guarantors of Federal Loans are entitled to receive and/or
retain and giving the Department broad powers over Guarantors of Federal Loans
and their reserves. These powers include the authority to require a Guarantor of
Federal Loans to return all reserve funds to the Department if the Department
determines such action is necessary to ensure an orderly termination of such
Guarantor, to serve the best interests of the Federal Programs or to ensure the
proper maintenance of such Guarantor's funds or assets. The Department is also
now authorized to direct a Guarantor of Federal Loans to return a portion of its
reserve funds which the Department determines is unnecessary to pay the program
expenses and contingent liabilities of such Guarantor and/or to cease any
activities involving the use of such Guarantor's reserve funds or assets which
the Department determines is a misapplication or otherwise improper. The
Department may also terminate the reinsurance agreement of a Guarantor of
Federal Loans if the Department determines that such action is necessary to
protect the federal fiscal interest or to ensure an orderly transition to full
implementation of direct federal lending. In such event, however, the Department
is required to assume the functions of such Guarantor as described herein under
the heading "The Financed Student Loan Pool--Insurance of Student Loans;
Guarantors of Federal Loans." These various changes create a significant risk
that the resources available to the Guarantors of Federal Loans to meet their
guarantee obligations will be significantly reduced. In addition, this
legislation greatly expands the Federal Direct Student Loan Program volume to a
target of approximately 60% of student loan demand in academic year 1998-1999,
which could result in increasing reductions in the volume of loans made under
the Federal Programs. As the Federal Direct Student Loan Program expands, the
Servicer may experience increased costs due to reduced economies of scale to the
extent the volume of new loans serviced by the Servicer is reduced. Such cost
increases could affect the ability of the Servicer to satisfy its obligations to
service the Financed Student Loans or to purchase Financed Student Loans in the
event of certain breaches of covenants. See "Description of the Transfer and
Servicing Agreements--Servicer Covenants". Such volume reductions could further
reduce revenues received by the Guarantors of Federal Loans available to pay
claims on defaulted Federal Loans. Finally, the level of competition currently
in existence in the secondary market for loans made under the Federal Programs
could be reduced, resulting in fewer potential buyers of the Federal Loans and
lower prices available in the secondary market for those loans. Further, the
Department is implementing a direct consolidation loan program, which program
may further reduce the volume of loans made under the Federal Programs.
Proposed federal budget legislation being considered by Congress could
modify many of the provisions of the Higher Education Act and the Public Health
Service Act. Until final legislation is adopted, the impact on the Financed
Student Loans, if any, is impossible to determine. During the 105th session of
the United States Congress, the reauthorization of the Higher Education Act will
be considered. The potential impacts on the Financed Student Loans resulting
from the reauthorization process, if any, cannot be determined at this time.
Subordination; Limited Assets. The rights of Certificateholders to
receive payments of principal (other than with respect to an applicable
Certificate Surety Bond) will be subordinated to those of the Noteholders as
described herein. If amounts otherwise allocable to the Certificates are used to
fund payments of principal on the Notes, distributions with respect to the
Certificates may be delayed or reduced to the extent the applicable Surety
Provider fails for any reason to satisfy its obligation under a Certificate
Surety Bond, if any. Notwithstanding the foregoing, distributions to
Certificateholders of amounts representing the Certificateholders' Distribution
Amount will not be subordinated to the payment of any Noteholders' Interest
Carryover that may exist from time to time. The Certificateholders bear
directly, subject to the protection provided by the related Certificate Surety
Bond, the credit and other risks associated with an undivided interest in the
related Trust. See "Description of the Securities--The
Certificates--Subordination of the Certificates," "Description of the Transfer
and Servicing Agreements--Distributions" and "--Credit
Enhancement--Subordination of the Certificates."
Moreover, a Trust is not permitted or expected to have any significant
assets or sources of funds other than the Financed Student Loans (and the
related Guarantee Agreements to the extent assigned to the Trust by the
applicable Sellers ("Assigned Rights")), the Collection Account, the
Distribution Accounts, the Pre-Funding Account, the Capitalized Interest
Account, the Capitalized Pre-Funding Account, the Reserve Account, any Note
Surety Bonds and, solely for the benefit of Certificateholders, any Certificate
Surety Bonds. Each Series of Notes represents obligations solely of the related
Trust, and the Certificates represent interests solely in the related Trust and
its assets, and neither any Series of Notes nor the Certificates will be insured
or guaranteed by the Sellers, the Master Servicer, the Guarantors, the Eligible
Lender Trustee, any of their affiliates or the Department. Consequently, holders
of each Series of Notes and the Certificates must rely for repayment upon
proceeds realized upon the sale of, or payments with respect to, the Financed
Student Loans and, if and to the extent available under the circumstances
described herein, amounts on deposit in the Pre-Funding Account, the Capitalized
Interest Account, the Capitalized Pre-Funding Account, and the Reserve Account
and amounts available under any Note Surety Bonds and, with respect to
Certificateholders only, the related Certificate Surety Bond. The Pre-Funding
Account, the Capitalized Interest Account and the Capitalized Pre-Funding
Account will only be available to cover obligations of the related Trust
relating to Additional Fundings and interest payments, and are not intended to
cover losses on the Financed Student Loans. Similarly, amounts to be deposited
in the Reserve Account are limited in amount and will be reduced, subject to a
specified minimum, as the Pool Balance is reduced. If the Reserve Account is
exhausted, the related Trust will depend solely on payments with respect to the
Financed Student Loans and amounts made available under the applicable Surety
Bond to make payments on the Notes and the Certificates. See "Description of the
Sale and Servicing Agreements--Distributions" and "--Credit Enhancement."
The Financed Student Loans and the Pre-Funding Account. If a
Pre-Funding Account is included as part of a Trust, as set forth in the related
Prospectus Supplement, on each Closing Date, the related Eligible Lender Trustee
on behalf of such Trust will own the outstanding principal amount of Financed
Student Loans and the Pre-Funded Amount, as set forth in the related Prospectus
Supplement, on deposit in the Pre-Funding Account together with the outstanding
principal amount of Financed Student Loans previously obtained. If the aggregate
principal amount of eligible Financed Student Loans sold or contributed by the
applicable Sellers to the Trust during the related Funding Period, net of the
principal amount of the Financed Student Loans sold or contributed to the
Sellers during such Funding Period in connection with the Sellers' making of
Consolidation Loans, is less than the Pre-Funded Amount, the Trust will have
insufficient opportunities to make Additional Fundings, thereby resulting in a
prepayment of principal to Noteholders as described in the following paragraph.
In addition, any conveyance of Additional Student Loans is subject to the
following conditions, among others: (i) each such Additional Student Loan must
satisfy the eligibility criteria specified in the related Sale and Servicing
Agreement and the Insurance Agreement; and (ii) the Sellers will not select such
Additional Student Loans in a manner that it believes is adverse to the
interests of the Noteholders, the Certificateholders or, if applicable, the
Surety Provider.
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to Additional Fundings by the Trust by the end of the
related Funding Period, the holders of the Class of Notes with the earliest
Final Maturity Date will receive as a prepayment of principal an amount equal to
the Pre-Funded Amount remaining in the Pre-Funding Account following any
Additional Fundings on the last Distribution Date in the Funding Period. The
applicable Sellers expect that the amount of the Additional Fundings will
approximate 100% of each Pre-Funded Amount by the last day of the Collection
Period preceding the Distribution Date identified in the related Prospectus
Supplement. See also "--Maturity and Prepayment Assumptions" regarding the risk
to Noteholders and Certificateholders of prepayment in the event that
Consolidation Loans are made with respect to the Financed Student Loans by the
Sellers after the Funding Period or by another lender at any time.
Maturity and Prepayment Assumptions. Financed Student Loans may be
prepaid by borrowers at any time. (For this purpose the term "prepayments"
includes prepayments in full or in part (including pursuant to Consolidation
Loans or Serial Loans) and liquidations due to default (including receipt of
Guarantee Payments).) The rate of prepayments on the Financed Student Loans may
be influenced by a variety of economic, social and other factors affecting
borrowers, including interest rates, the availability of alternative financing
and the general job market for graduates of institutions of higher education. In
addition, under certain circumstances, the applicable Seller will be obligated
to repurchase, or the Master Servicer will be obligated to purchase, which
obligations also will be obligations of the Money Store, Financed Student Loans
from the applicable Trust pursuant to the related Sale and Servicing Agreement
as a result of breaches of their respective representations, warranties or
covenants. See "Description of the Transfer and Servicing Agreements--Sale of
Financed Student Loans; Representations and Warranties" and "--Servicer
Covenants." Moreover, to the extent borrowers of Financed Student Loans elect to
borrow money through Consolidation Loans with respect to such Financed Student
Loans from the applicable Seller or from another lender, or to the extent the
Trust sells a Financed Student Loan to serialize the ownership of such Financed
Student Loan and other loans to the same borrower (each, a "Serial Loan"),
holders of the Class of Notes then entitled to receive payments of principal
(and after each Class of Notes been paid in full, holders of the Certificates
then entitled to receive payments of principal) will collectively receive as a
prepayment of principal the aggregate principal amount of such Financed Student
Loans. There can be no assurance that borrowers with Financed Student Loans will
not seek to obtain Consolidation Loans with respect to such Financed Student
Loans or when Serial Loans will be sold. An agreement has been entered into with
a third party pursuant to which such third party has agreed to purchase all
Federal Loans entering the Repayment Phase that are serial to student loans
owned by such third party. However, the applicable Master Servicer is unable to
determine the amount or timing of any such purchases. See "The Student Loan
Financing Business" and "The Financed Student Loan Pool--Maturity and Prepayment
Assumptions."
Scheduled payments with respect to, and maturities of, the Financed
Student Loans may be extended, including pursuant to the applicable Deferral
Phase certain other grace periods authorized by the Higher Education Act, the
Public Health Service Act or the applicable Private Loan Program ("Grace
Periods") and, under certain circumstances, periods of forbearance ("Forbearance
Periods") or as a result of refinancings through Consolidation Loans having
longer maturities, which may lengthen the remaining term of the Financed Student
Loans and the average life of each Class of Notes and Certificates. See "The
Student Loan Financing Business" and "The Financed Student Loan Pool--Maturity
and Prepayment Assumptions". Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Financed Student Loans will be borne entirely
by the Noteholders and the Certificateholders. See also "Description of the
Transfer and Servicing Agreements--Additional Fundings" regarding the prepayment
of principal to Noteholders as a result of a Pre-Funded Amount remaining at the
end of the Funding Period, "--Insolvency Event" regarding the sale of the
Financed Student Loans if a Seller Insolvency Event occurs and "--Termination"
regarding the Sellers' option to purchase the Financed Student Loans.
Basis Risk. The Class Interest Rate for any Class of Auction Rate Notes
and the Certificate Rate for any Class of Auction Rate Certificates will be
based generally on the outcome of each Auction of such Notes or Certificates, as
the case may be, and the Class Interest Rate for any Class of LIBOR Rate Notes
and the Certificate Rate for any Class of LIBOR Rate Certificates will be based
generally on the level of LIBOR. The Class Interest Rate for other Classes of
Notes may be based on the index, formula or other method described in the
related Prospectus Supplement. Financed Student Loans, however, generally bear
interest at an effective rate (taking into account any Special Allowance
Payments) equal to the average bond equivalent rates of weekly auctions of
91-day Treasury bills for each quarter (the "T-Bill Rate") (or, in certain
circumstances, 52-week Treasury bills) plus margins specified for such Financed
Student Loans under "The Student Loan Financing Business." As a result, if in
respect of any Distribution Date, there does not exist a positive spread between
(a) the Net Loan Rate and (b) the Class Interest Rate or the Certificate Rate,
as the case may be, the Class Interest Rate or the Certificate Rate, as
applicable, for such Note Distribution Date or Certificate Distribution Date
will be the Net Loan Rate. See "Description of the Securities--The
Notes--Distributions of Interest" and "--The Certificates--Distributions of
Interest." Any Noteholders' Interest Carryover or Certificateholders' Interest
Carryover arising as a result of the applicable Class Interest Rate or
Certificate Rate being determined on the basis of the Net Loan Rate will be paid
on the following Note Distribution Date or Certificate Distribution Date, as
applicable, or on any succeeding Note Distribution Date or Certificate
Distribution Date to the extent funds are allocated and available therefor after
making all required prior distributions and deposits with respect to such date.
Payment of such amounts, however, will not be covered, in the case of the Notes,
by amounts on deposit in the related Reserve Account, if any (other than amounts
in excess of the Specified Reserve Account Balance), or by subordination of
distributions of the Certificateholders' Distribution Amount in respect of the
Certificates (although distributions of any Certificateholders' Interest
Carryover will be subordinated to payment of any Noteholders' Interest
Carryover) and, in the case of the Certificates, by amounts on deposit in the
related Reserve Account, if any (other than amounts in excess of the Specified
Reserve Account Balance), or by any applicable Certificate Surety Bonds. Any
applicable Note Surety Bonds will not cover payment of any Noteholders' Interest
Carryover. See "Description of the Transfer and Servicing Agreements-
- -Distributions."
Servicer Default; Administrator Default. In the event a Servicer
Default or an Administrator Default occurs, the Surety Provider, if applicable,
the related Indenture Trustee or Noteholders, as described under "Description of
the Transfer and Servicing Agreements--Rights upon Servicer Default and
Administrator Default," may remove the related Master Servicer or Administrator,
as the case may be, without the consent of the Eligible Lender Trustee or any of
the Certificateholders. Moreover, until such time as each Class of Notes has
been paid in full, only the Surety Provider, if applicable, the related
Indenture Trustee or Noteholders, and not the Eligible Lender Trustee or the
Certificateholders, have the ability to remove the related Master Servicer or
Administrator, as the case may be, if a Servicer Default or an Administrator
Default occurs. In addition, the Noteholders have the ability, with certain
specified exceptions, to waive defaults by the Master Servicer and the
Administrator, including defaults that could materially adversely affect the
Certificateholders. See "Description of the Transfer and Servicing
Agreements--Waiver of Past Defaults."
Certain Legal Aspects. The applicable Seller intends that the transfer
of the Financed Student Loans by it to the applicable Eligible Lender Trustee on
behalf of the related Trust under a Sale and Servicing Agreement constitutes a
valid sale or contribution and assignment of such Financed Student Loans.
However, a court could treat the transfer of the Financed Student Loans to the
Eligible Lender Trustee as an assignment of collateral as security for the
benefit of the Noteholders and the Certificateholders. If the transfer of the
Financed Student Loans to the Eligible Lender Trustee is deemed to create a
security interest therein, a tax or government lien on property of the
applicable Seller arising before the Financed Student Loans came into existence
may have priority over the Eligible Lender Trustee's interest in such Financed
Student Loans. If a Seller becomes subject to an insolvency proceeding under
applicable law, to the extent that the transfer of the Financed Student Loans is
deemed to create a security interest, and that interest was validly perfected
before such Seller's insolvency and was not taken in contemplation of insolvency
or with the intent to hinder, delay or defraud the Seller or its creditors, such
security interest should not be subject to avoidance and payments to the related
Trust with respect to the Financed Student Loans should not be subject to
recovery by the Seller's creditors. No assurance can be given, however, that
delays in receipt of funds with respect to the Financed Student Loans will occur
in such circumstances.
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. Also, some state laws impose finance charge ceilings and
other restrictions on certain consumer transactions and require contract
disclosures in addition to those required under federal law. Although these
state laws are, to a large part, pre-empted by the Higher Education Act and the
Public Health Service Act, they are applicable to the Private Loans. These
requirements impose specific statutory liability that would affect an assignee's
ability to enforce consumer finance contracts such as the Private Loans.
Ratings of the Securities. It is a condition to the issuance and sale
of each Series and Class of Notes and of each Class of Certificates that they
each be rated by at least one nationally recognized statistical rating
organization (a "Rating Agency") in one of its four highest applicable rating
categories. A rating is not a recommendation to purchase, hold or sell
Securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the Securities address the
likelihood of the ultimate payment of principal of and interest on the
Securities pursuant to their terms. However, the Rating Agencies do not
evaluate, and the ratings of the Securities do not address, the likelihood of
payment of any Noteholders' Interest Carryover or the Certificateholders'
Interest Carryover. There can be no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant.
Book-Entry Registration. It is expected that each Class of Notes and
the Certificates (except for the Certificates sold to Student Holdings) will
each be initially represented by one or more certificates registered in the name
of Cede & Co. ("Cede"), the nominee for DTC, and will not be registered in the
names of the holders of such Securities or their nominees. Because of this,
unless and until Definitive Securities are issued, holders of such Securities
will not be recognized by the applicable Indenture Trustee or Eligible Lender
Trustee as "Noteholders" or "Certificateholders," as the case may be (as such
terms are used in the related Indenture and Trust Agreement, respectively).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC
and its participating organizations. See "Description of the
Securities--Book-Entry Registration" and "--Definitive Securities."
FORMATION OF THE TRUSTS
The Trusts
Each trust will be a business trust formed under the laws of the
jurisdiction set forth in the related Prospectus Supplement pursuant to the
Trust Agreement for the transactions described in this Prospectus and each
Prospectus Supplement. After its formation, a Trust will not engage in any
activity other than (i) acquiring, holding, selling and managing the Financed
Student Loans and the other assets of the Trust and proceeds therefrom, (ii)
issuing the Certificates, Notes and the Originators' Interests, (iii) making
payments thereon and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
A Trust will initially be capitalized with equity, excluding amounts
deposited in any Reserve Account, Pre-Funding Account, Capitalized Investment
Account and Capitalized Pre-Funding Account on the Initial Closing Date,
representing the initial principal balance of the Certificates being issued on
the Initial Closing Date. Unless provided otherwise in the related Prospectus
Supplement, approximately 1% of the Certificates will be sold to Student
Holdings and the remaining Certificates will be offered for sale in transactions
exempt from the registration requirements of the Securities Act. The equity of a
Trust, together with the proceeds from the sale of each Series of Notes, will be
used by the related Eligible Lender Trustee in connection with its acquisition,
on behalf of the Trust, of the Financed Student Loans from the applicable
Sellers pursuant to a Sale and Servicing Agreement and to fund each deposit of
the Pre-Funding Account, if applicable. Generally, a portion of the net proceeds
received from each transfer of Financed Student Loans may be used to make a
Reserve Account Deposit. Upon the consummation of each such transaction, the
property of a Trust will consist of (a) a pool of Financed Student Loans, legal
title to which is held by the related Eligible Lender Trustee on behalf of the
Trust, (b) all funds collected in respect thereof on or after each Cut-off Date,
(c) if specified in the related Prospectus Supplement, all moneys and
investments on deposit in the Collection Account, the Pre-Funding Account, the
Capitalized Interest Account, the Capitalized Pre-Funding Account, the
Certificate Distribution Account, the Note Distribution Account, the Expense
Account, the Monthly Advance Account and the Reserve Account, (d) if specified
in the related Prospectus Supplement, the Note Surety Bonds, (e) if specified in
the related Prospectus Supplement, the Certificate Surety Bond issued solely for
the benefit of the Certificateholders and (f) letters of credit, insurance
policies or other forms of credit support as described in the related Prospectus
Supplement. The Notes will be collateralized by the property of the related
Trust (other than the Certificate Surety Bond, if applicable). The Collection
Account, the Pre-Funding Account, the Capitalized Interest Account, the
Capitalized Pre-Funding Account, the Note Distribution Account, the Expense
Account, the Reserve Account and the Monthly Advance Account, as applicable,
will be maintained with and in the name of the related Indenture Trustee. The
Certificate Distribution Account will be maintained with and in the name of the
related Eligible Lender Trustee. To facilitate servicing and to minimize
administrative burden and expense, either the related Master Servicer or the
related Servicer will be appointed custodian of the promissory notes
representing the Financed Student Loans by the Eligible Lender Trustee.
A Trust will use funds on deposit in a Pre-Funding Account established
for such Trust during each Funding Period to acquire Additional Student Loans,
which will constitute property of the Trust. See "Description of the Transfer
and Servicing Agreements--Additional Fundings." The Pool Balance will be
increased during each Funding Period by the principal amount of Additional
Student Loans conveyed to the applicable Eligible Lender Trustee on behalf of
the Trust, less the principal amount of Financed Student Loans sold. Any such
conveyance of Additional Student Loans is conditioned on compliance with the
procedures described in the related Sale and Servicing Agreement and Insurance
Agreement. The applicable Sellers expect that the amount of Additional Fundings
will approximate 100% of the Pre-Funded Amount by the last day of the Funding
Period identified in the related Prospectus Supplement; however, there can be no
assurance that a sufficient amount of Additional Fundings will be made by such
date. If the Pre-Funded Amount has not been reduced to zero by the end of the
Funding Period, the holders of the Class of Notes then entitled to receive
payments of principal will receive any amounts remaining in the Pre-Funding
Account as a payment of principal. See "Description of the Sale and Servicing
Agreements- -Additional Fundings."
A Trust's principal offices are located at the address of the
applicable Eligible Lender Trustee set forth in the related Prospectus
Supplement.
Eligible Lender Trustee
The Eligible Lender Trustee on behalf of a Trust will be the entity named in the
applicable Prospectus Supplement and will acquire on behalf of a Trust legal
title to all the Financed Student Loans acquired from time to time pursuant to a
Sale and Servicing Agreement. The Eligible Lender Trustee on behalf of a Trust
will enter into a Guarantee Agreement with each of the Guarantors with respect
to such Financed Student Loans. The Eligible Lender Trustee qualifies, or prior
to taking title to Financed Student Loans for which additional qualifications
are necessary, will qualify, as an eligible lender and owner of all Financed
Student Loans for all purposes under the Higher Education Act, the Public Health
Service Act, the applicable Private Loan Programs and the Guarantee Agreements.
Failure of the Financed Student Loans to be owned by an eligible lender would
result in the loss of Guarantee Payments, Federal Assistance and insurance
payments from the Secretary, as the case may be, with respect to such Financed
Student Loans. See "The Financed Student Loan Pool--Insurance of Student Loans;
Guarantors of Student Loans."
USE OF PROCEEDS
After making the deposit of the Pre-Funded Amount to the Pre-Funding
Account, if established for the related Trust, the balance of the net proceeds
from the sale of Certificates and each Series of Notes ultimately will be paid
to the applicable Sellers on the related Closing Date as consideration for the
Financed Student Loans being sold or conveyed on such date. A Seller will use
such proceeds paid to it
generally to make each Reserve Account Deposit, deposits into certain other
Trust Accounts, for general corporate purposes, including the origination and/or
purchase of Additional Financed Student Loans or to repay debt.
THE SERVICERS
Pursuant to a Sub-Servicing Agreement and except as otherwise expressly
assumed by the Administrator, the entities set forth in the related Prospectus
Supplement have agreed to service, and perform all other related tasks with
respect to, all Financed Student Loans originated by the Sellers and acquired by
the applicable Eligible Lender Trustee on behalf of a Trust generally after they
have entered the Repayment Phase. Such Servicers are required to perform all
services and duties customary to the servicing of such Financed Student Loans in
the same manner as the applicable Master Servicer has serviced Financed Student
Loans and otherwise in compliance with all applicable standards and procedures.
See "Description of the Transfer and Servicing Agreements--Servicing
Procedures."
THE STUDENT LOAN FINANCING BUSINESS
General
The Financed Student Loans to be sold or contributed by the Sellers to
the related Eligible Lender Trustee on behalf of a Trust pursuant to a Sale and
Servicing Agreement will be selected from Financed Student Loans originated or
purchased by the Sellers and made to students enrolled in or recently graduated
from accredited institutions of higher education within the meaning of the
Higher Education Act, the Public Health Service Act and the applicable Private
Loan Programs, or, with respect to the PLEASE Program described herein, made to
students enrolled in private primary or secondary schools. The proceeds of these
loans are used by students to finance a portion of the costs of school and, in
the case of certain of the Private Loan Programs, specified related costs.
Generally, TWIC originates or purchases Federal Loans and HEAL Loans and
generally ClassNotes will be originating or purchasing Private Loans.
Federal Loans. Payment of principal and interest with respect to the
Federal Loans is guaranteed against default, death, bankruptcy or disability of
the applicable borrower by a Guarantor pursuant to a guarantee agreement between
the applicable Guarantor and an Eligible Lender Trustee (such agreements, each
as amended or supplemented from time to time, the "Federal Guarantee
Agreements"). Each Guarantor of Federal Loans is entitled, subject to certain
conditions, to be reimbursed for all or substantially all Federal Guarantee
Payments it makes by the Department pursuant to a program of federal reinsurance
under the Higher Education Act of 1965, as amended (such Act, together with all
rules and regulations promulgated thereunder by the Department and/or the
Guarantors, the "Higher Education Act"). In addition, an Eligible Lender
Trustee, as a holder of the Federal Loans on behalf of a Trust, is entitled to
receive from the Department certain Interest Subsidy Payments and Special
Allowance Payments with respect to certain of such Federal Loans as described
herein. See "--Types of Federal Loans Under the Program" and "The Financed
Student Loan Pool--Insurance of Student Loans; Guarantors of Student Loans."
HEAL Loans. The Public Health Service Act provides that the Secretary
may issue a certificate of comprehensive insurance coverage to any eligible
lender who so applies, which will insure all insurable HEAL Loans made by that
eligible lender after the date the certificate is issued until a specified
cut-off date and within limits of an aggregate maximum amount stated in the
certificate. The rights of an eligible lender under a certificate of insurance
may be assigned to another eligible lender under the Public Health Service Act
(including a public entity in the business of purchasing student loans). See "--
The HEAL Program."
Private Loans. Payment of principal and interest with respect to the
Private Loans is guaranteed against default, death, bankruptcy or disability of
the applicable borrower by a Guarantor pursuant to a guarantee agreement between
the applicable Guarantor and the applicable Eligible Lender Trustee (such
agreements, as amended or supplemented from time to time, together with the
Federal Guarantee Agreements, the "Guarantee Agreements"). The Guarantors of the
Private Loans are not entitled to reimbursement from, and the Private Loans are
not insured by, the Department, the Secretary or any other governmental agency.
See "The Private Loan Programs."
Legal title to all the Financed Student Loans that from time to time
comprise assets of a Trust will be held by the applicable Eligible Lender
Trustee, as trustee on behalf of the Trust. See "Formation of the
Trust--Eligible Lender Trustee."
The description and summaries of the Higher Education Act, the Federal
Programs, the Public Health Service Act, the Private Loan Programs, the
Guarantee Agreements and the other statutes, regulations and documents referred
to in this Prospectus do not purport to be comprehensive, and are qualified in
their entirety by reference to each such statute, regulation or document. There
can be no assurance that future amendments or modifications will not materially
change any of the terms or provisions of the programs described in this
Prospectus or of the statutes and regulations implementing these programs.
However, any such amendments or modifications will be described in each
Prospectus Supplement relating to a Series of Notes to be offered after the
dates of such amendments or modifications.
See "Risk Factors--Possible Changes in Legislation."
The Federal Loan Program
General. TWIC's loan program for Federal Loans (the "Program"),
provides educational financing to students (or their parents) enrolled in or
recently graduated from accredited institutions of higher education. TWIC has
been originating loans under the Program since 1984 and has, as of September 30,
1996, originated loans under the Program in an aggregate principal amount of
approximately $2.064 billion.
The Program consists of certain Federal Loans which are guaranteed by a
Guarantor and are reinsured by the Department. As described below, Federal Loans
include "Stafford Loans," "SLS Loans," "PLUS Loans", "Unsubsidized Stafford
Loans" and "Consolidation Loans." The loan programs under which the Purchased
Loans constituting Federal Loans will be originated are substantially similar to
TWIC's Program.
Eligibility. To be eligible to obtain a loan under the Program, a
student must, among other things, (i)(a) be enrolled in, or be admitted for
enrollment in, a school that is an accredited institution of higher education
and be enrolled in, or enroll in, an undergraduate or graduate degree program,
be attending at least half-time and be making satisfactory progress toward the
completion of such program according to the standards of the school, or (b) be
enrolled in, or admitted for enrollment in, a Proprietary School (i.e., a
privately-owned school offering post-secondary education and operating on a for
profit basis), (ii) be a U.S.
citizen, U.S. national or eligible noncitizen, (iii) not have borrowed, together
with the loan being requested, more than the applicable annual and aggregate
limits specified from time to time under the Program, (iv) meet the applicable
"needs" requirements and agree to notify promptly the holder of the loan of any
address change and (v) not be in default on any education loan or owe a refund
on an educational grant (each such student, an "Eligible Student").
Origination Process. The Higher Education Act specifies rules regarding
loan origination practices, which lenders must comply with in order for their
loans to be guaranteed and to be eligible to receive Federal assistance. Lenders
are prohibited from offering points, premiums, payments or other inducements,
directly or indirectly, to any educational institution, guarantee agency or
individual in order to secure loan applications, and no lender may conduct
unsolicited mailings of student loan applications to students who have not
previously received student loans from that lender.
With respect to all Federal Loans made under the Program (other than
Consolidation Loans discussed below), TWIC or its agent receives from a borrower
an application for a Federal Loan (which includes an executed promissory note).
TWIC reviews or causes to be reviewed each application to confirm its
completeness, to confirm that the applicant is an Eligible Student and that such
loan complies with certain other conditions of the Program. TWIC forwards or
causes to be forwarded a copy of each application (or electronically transmits
the data from such application) that satisfies the foregoing reviews to the
respective Guarantor, who reviews such application to determine that such
application satisfies all applicable conditions, including the foregoing, for
the loan to be eligible to receive Guarantee Payments, subject to compliance
with the terms of the respective Guarantee Agreements, including the proper
servicing of the loan. Upon approval of an application by both TWIC and the
respective Guarantor and receipt of evidence from such Guarantor that the
applicable loan is guaranteed, TWIC causes the proceeds of such loan to be
disbursed in one or more installments. For each loan that is made, TWIC forwards
or causes to be forwarded the completed loan application and executed promissory
note to the applicable Master Servicer, which serves as custodian for such
materials.
With respect to borrower inquiries concerning Consolidation Loans, the
applicable Servicer will contact the borrower and prepare and send to the
borrower an application (which includes a promissory note) for a Consolidation
Loan for the borrower's review and signature. Although the borrower is permitted
to choose any lender from whom he or she currently has federally guaranteed
education loans (including undergraduate loans) to make such Consolidation Loan,
borrowers typically express no preference as to the identity of the lender. In
that event, the Servicer will choose a lender based on various considerations,
which may include the lender that has the highest balance of the loans to be
consolidated or, if there is no such lender, the lender that has made the most
recent loan to the borrower to be consolidated. Pursuant to the Program, the
Servicer will be required to obtain certifications from the lenders of the loans
to be consolidated and to review the loan application and the certifications to
confirm that the borrower is eligible for a Consolidation Loan. Upon approval of
an application for a Consolidation Loan, the applicable lender will cause the
proceeds of such Consolidation Loan to be disbursed to each lender of the loans
being consolidated in amounts sufficient to retire each of such loans. For each
Consolidation Loan that is made by TWIC, the Servicer will retain the completed
loan application and executed promissory note as custodian.
Servicing and Collections Process. The Higher Education Act, the
Federal Program and the applicable Guarantee Agreements require the holder of
Federal Loans to cause specified procedures, including due diligence procedures
and the taking of specific steps at specific intervals, to be performed with
respect to the servicing of the Federal Loans that are designed to ensure that
such Federal Loans are repaid on a timely basis by or on behalf of borrowers.
The Master Servicer will perform such procedures and agrees, pursuant to a Sale
and Servicing Agreement, to perform, or cause to be performed, specified and
detailed servicing and collection procedures with respect to the Federal Loans
on behalf of a Trust. Such procedures generally include periodic attempts to
contact any delinquent borrower by telephone and by mail, commencing with a
written notice at the tenth day of delinquency and including multiple written
notices and telephone calls to the borrower thereafter at specified times during
any such delinquency. All telephone calls and letters are automatically
registered, and a synopsis of each call or the mailing of each letter is noted
in the Master Servicer's loan file for the borrower. The Master Servicer is also
required to perform, or cause to be performed, skip tracing procedures on
delinquent borrowers whose current location is unknown, including contacting
such borrowers' schools and references. Failure to comply with the established
procedures could adversely affect the ability of the related Eligible Lender
Trustee, as holder of legal title to the Federal Loans on behalf of a Trust, to
realize the benefits of any Guarantee Agreement or to receive the benefits of
Federal assistance from the Department with respect thereto. Failure to comply
with certain of the established procedures with respect to a Federal Loan may
also result in the denial of coverage under a Guarantee Agreement for certain
accrued interest amounts, in circumstances where such failure has not caused the
loss of the guarantee of the principal of such Federal Loan. See "Risk Factors--
Failure to Comply with Loan Origination and Servicing Procedures for Federal
Loans".
At prescribed times prior to submitting a claim for payment under a
Guarantee Agreement for a delinquent Federal Loan, the Master Servicer is
required to notify the applicable Guarantor of the existence of such
delinquency. These requests notify the Guarantors of seriously delinquent
accounts and allow the Guarantors to make additional attempts to collect on such
loans prior to the filing of claims. If a loan is delinquent for 180 days, the
Master Servicer is required to file a default claim with the respective
Guarantor. Failure to file a claim within 270 days (or 225 days once certain
final regulations take effect) of delinquency may result in denial of the
guarantee claim with respect to such Federal Loan. The failure by the Master
Servicer to file a guarantee claim in a timely fashion would constitute a breach
of its covenants and create an obligation of the Master Servicer to purchase the
applicable Federal Loan. See "Description of the Transfer and Servicing
Agreements--Servicer Covenants."
Types of Federal Loans Under the Program
General. The following descriptions of the Stafford Student Loan
Program, the Unsubsidized Stafford Loan Program, the Supplemental Loans for
Students Program, the Parental Loans for Undergraduate Students Program and the
Consolidation Loan Program (such programs being collectively referred to herein
as the "Federal Programs") as authorized under the Higher Education Act are
qualified in their entirety by reference to the Higher Education Act. Since its
original enactment in 1965, the Higher Education Act has been amended and
reauthorized several times, including by the Higher Education Amendments of 1992
(the "1992 Amendments"), the Student Loan Reform Act of 1993 (the "1993
Amendments") and the Higher Education Technical Amendments Act of 1993 (the
"1993 Technical Amendments"). The 1992 Amendments extended the principal
provisions of the Federal Programs through October 1, 1998 (or, in the case of
borrowers who have received Federal Loans prior to that date, September 30,
2002).
There can be no assurance that the Higher Education Act or other
relevant federal or state laws, rules and regulations and the programs
implemented thereunder will not be amended or modified in the future in a manner
that will adversely impact the programs described in this Prospectus and the
Federal Loans made thereunder, or the Guarantors. In addition, existing
legislation and future measures to reduce the federal budget deficit may
adversely affect the amount and nature of federal financial assistance available
with respect to these programs. In recent years, federal budget legislation has
provided for the recovery of certain funds held by guarantee agencies in order
to achieve reductions in federal spending. There can be no assurance that future
federal budget legislation or administrative actions will not adversely affect
expenditures by the Department or the financial condition of the Guarantors.
Stafford Loans. "Stafford Loans" are loans made by eligible lenders in
accordance with the Higher Education Act to Eligible Students, based on
financial need, to finance a portion of the costs of attending an eligible
institution of higher education or a vocational school. The Higher Education Act
limits the amount of Stafford Loans that may be made to a student in any given
academic year and the amount of Stafford Loans that a student may have
outstanding in the aggregate and specifies certain payment terms, including the
interest rates that may be charged on Stafford Loans. Holders of Stafford Loans
complying with these limitations and the other conditions specified in the
Higher Education Act will be entitled to the benefits of: (i) a guarantee of the
payment of principal and interest with respect to such Stafford Loans by a
guarantee agency, which guarantee will be supported by federal reinsurance of
all or most of such guaranteed amounts as described herein; (ii) federal
interest subsidy payments equal to the interest payable on such Stafford Loans
prior to the time the borrower begins repayment of such Stafford Loans and
during any applicable Deferral Periods, together with interest on any such
amounts not paid by the Department when due ("Interest Subsidy Payments"), and
(iii) federal special allowance payments, together with interest on any such
amounts not paid by the Department when due ("Special Allowance Payments"),
during the term of such Stafford Loans in varying amounts to ensure that
interest payable on such Stafford Loans, together with these payments,
approximates current market interest rates (such federal reinsurance
obligations, together with those obligations referred to in clauses (ii) and
(iii) above, being collectively referred to herein as "Federal Assistance").
(1) Eligibility Requirements. Subject to the annual and aggregate
limits on the amount of Stafford Loans that a student can borrow discussed
below, Stafford Loans are available to eligible students in amounts not
exceeding their unmet need for financing as determined in accordance with the
provisions of the Higher Education Act.
In addition to complying with the borrower's eligibility requirements
set forth above under the caption "--The Loan Program," each Stafford Loan (i)
must be unsecured, (ii) must provide for deferral of the obligation of the
borrower to make (x) interest payments for as long as the Department makes
Interest Subsidy Payments and (y) principal payments so long as the borrower
remains an Eligible Student and thereafter during any applicable Grace Periods,
Deferral Periods or Forbearance Periods and (iii) must provide for repayment
over a period generally not to exceed 10 years (excluding any Deferral Periods
or Forbearance Periods) from the date repayment commences.
(2) Loan Limits. In order to qualify for Federal Assistance under the
Stafford Federal Student Loan Program, the Higher Education Act imposes an
annual limit on the amount of Stafford Loans and other Federal Loans that may be
made to any single student and an aggregate limit on the amount of such Federal
Loans such student may have outstanding. Under the 1992 Amendments, the annual
Stafford limit for first year students is $2,625 (except that lower limits apply
to certain short-term courses of study), increasing to $3,500 for second year
students, $5,500 for third and fourth year students, and $8,500 for graduate and
professional students. The aggregate limit is $23,000 for undergraduates and
$65,600 for graduate and professional students.
(3) Interest. Stafford Loans made to students with respect to periods
of enrollment in school commencing prior to July 1, 1988 (or thereafter to
students who had Federal Loans outstanding on such date), bear interest at
either 7%, 8% or 9% per annum, depending on the date of issuance and the
interest rate applicable to such student's outstanding Federal Loans. For the
time periods applicable to the Financed Student Loans, Stafford Loans made on or
after July l, 1988, to students with no outstanding Federal Loans on the date
such Stafford Loan is made ("new borrowers"), bear interest at rates of 8% per
annum from disbursement through four years after repayment commences and 10% per
annum thereafter, subject to a provision requiring annual discharge of principal
or rebate to the borrower to the extent that, for each quarter, the interest due
at the 10% rate (or, for Stafford Loans to such borrowers which are first
disbursed after July 23, 1992, the interest rate then applicable thereto)
exceeds the interest that would be payable at a rate per annum equal to the sum
of the average of the bond equivalent rates of 91-day Treasury bills auctioned
for that quarter (the "T-Bill Rate") plus 3.25% (or, for Stafford Loans to such
borrowers which are first disbursed after July 23, 1992, and from the date of
disbursement, 3.10%). Notwithstanding the foregoing, no such discharge of
principal or rebate to a borrower will be payable if such borrower is more than
30 days delinquent in making payments on such Stafford Loan. However, under the
1993 Technical Amendments, lenders must convert all loans subject to this
provision to a variable rate equal to the 91-day Treasury bill rate plus 3.25%
or, in the case of a loan made to a borrower with outstanding Federal Loans
under the Federal Programs after October 1, 1993, the 91-day Treasury bill rate
plus 3.1%, such conversion to take place before January 1, 1995. The converted
loans will not thereafter be subject to the rebate requirements described above.
A Stafford Loan made on or after October 1, 1992, to a student with no
outstanding Federal Loans on the date such Stafford Loan is made, bears interest
at a variable rate based on 91-day Treasury bills plus 3.10%. A Stafford Loan
made on or after July 1, 1994 (regardless of whether the student has outstanding
Federal Loans on the date such Stafford Loan is made) will bear interest at a
variable rate equal to the sum of the T-Bill Rate plus 3.10%, or 8.25%,
whichever is less.
Interest is payable on each Stafford Loan monthly in arrears until the
principal amount thereof is paid in full. However, prior to the date the
borrower begins repaying the principal of such Stafford Loan and during any
applicable Deferral Period or Grace Period, the borrower has no obligation to
make interest payments. Instead, the Department makes quarterly Interest Subsidy
Payments to the holder of the Stafford Loan on behalf of the borrower during
such periods, in amounts equal to the accrued and unpaid interest for the
previous quarter with respect to such Stafford Loan. During a Forbearance
Period, the Department will not make any Interest Subsidy Payments; instead, at
the borrower's option, interest on each Stafford Loan may be paid currently or
capitalized and added to the outstanding principal balance of such Stafford Loan
at the end of such Forbearance Period. See "--(6) Interest Subsidy Payments."
(4) Repayment. No principal and/or interest payments with respect to a
Stafford Loan are required to be made during the time a borrower remains an
Eligible Student and during the existence of an applicable Grace Period,
Deferral Period or Forbearance Period. In general, a borrower must repay each
Stafford Loan in monthly installments over a period generally not to exceed 10
years (excluding any Deferral Period or Forbearance Period) after commencement
of repayment. Any borrower may voluntarily prepay without premium or penalty any
Federal Loan and in connection therewith may waive any Grace Period or Deferral
Period. The Higher Education Act presently requires a minimum annual principal
and interest payment with respect to a Stafford Loan of $600 in the aggregate
(but in no event less than accrued interest), unless the borrower and the lender
agree to a lesser amount. The 1992 Amendments adopted several provisions that
affect loan terms. These include, among others, provisions to grant new
borrowers with respect to loans for which the first disbursement is on or after
July 1, 1993, the right to receive income- sensitive repayment schedules.
(5) Grace Periods, Deferral Periods, Forbearance Periods. Borrowers of
Stafford Loans must generally commence repaying the loans following a period of
(a) not less than 9 months nor more than 12 months (with respect to loans for
which the applicable interest rate is 7% per annum) and (b) not more than 6
months (with respect to loans for which the applicable interest rate is in
excess of 7% per annum and for loans to first time borrowers on or after July 1,
1988) (a "Grace Period") after the borrower ceases to be an Eligible Student.
However, subject to certain conditions, no principal repayments need be made
with respect to Stafford Loans during periods when the borrower has returned to
an eligible educational institution on at least a half-time basis or is pursuing
studies pursuant to an approved graduate fellowship program and during certain
other periods (varying from six months to three years) when the borrower has
joined the military or certain volunteer organizations (for all loans made after
July 1, 1993, or loans made after such date to borrowers with loans already
outstanding on such date), for periods when the borrower is unable to secure
employment (up to three years) or for periods during which the borrower is
experiencing economic hardship (for loans made after July 1, 1993, to borrowers
with no outstanding loans on such date) (each a "Deferral Period"). The lender
may also allow, in accordance with standards and guidelines approved by the
applicable guarantor and the Department, periods of forbearance during which the
borrower may defer principal and/or interest payments because of temporary
financial hardship (a "Forbearance Period").
(6) Interest Subsidy Payments. Interest Subsidy Payments are payments
made quarterly to the holder of a qualifying Stafford Loan by the Department
with respect to those Stafford Loans as to which the applicable conditions of
the Higher Education Act have been satisfied, in an amount equal to the accrued
and unpaid interest on the outstanding principal amount of each Stafford Loan
for such quarter, commencing from the date such Stafford Loan is made until the
end of the applicable Grace Period after the borrower ceases to be an eligible
student and during any applicable Deferral Period. The Department will not make
Interest Subsidy Payments during any Forbearance Period. The Higher Education
Act provides that the holder of such a qualifying Stafford Loan has a
contractual right, as against the United States, to receive Interest Subsidy
Payments from the Department (including the right to receive interest on any
Interest Subsidy Payments not timely paid). Receipt of Interest Subsidy Payments
is conditioned on compliance with the requirements of the Higher Education Act,
including satisfaction of certain need-based criteria (and the delivery of
sufficient information by the borrower and the lender to the Department to
confirm the foregoing) and continued eligibility of the Stafford Loan for
federal reinsurance. Such eligibility may be lost, however, if the loans are not
originated and serviced, or are not held by an eligible lender, in accordance
with the requirements of the Higher Education Act and the applicable guarantee
agreements. See "--(1) Eligibility Requirements"; "Risk Factors--Failure to
Comply With Loan Origination and Servicing Procedures for Federal Loans";
"Formation of the Trust--Eligible Lender Trustee" and "Description of the
Transfer and Servicing Agreements--Servicing Procedures." TWIC expects that each
of the Stafford Loans that are part of the pool of Financed Student Loans will
be eligible to receive Interest Subsidy Payments.
(7) Special Allowance Payments. The Higher Education Act requires,
subject to certain conditions, the Department to make quarterly Special
Allowance Payments to holders of qualifying Federal Loans (including Stafford
Loans) in an amount equal to a specified percentage of the average outstanding
principal amount of each such Federal Loan during each quarter.
The percentage or rate used to determine the Special Allowance Payments
for a particular loan varies based on a number of factors, including when the
loan was disbursed and the period of enrollment with respect to which it was
made. Generally, the Special Allowance Payment with respect to a loan such as
any Federal Loan for a quarter will be equal to the excess, if any, of (i) the
amount of interest that would be payable on such loan at a rate per annum equal
to the T-Bill Rate plus 3.10% (3.25% for loans first disbursed before October 1,
1992 and 2.50% while the borrower is in school, grace or deferment status for
loans made on or after July 1, 1995) over (ii) the stated amount of interest
payable on such loan. The rate of Special Allowance Payments is subject to
reduction by the amount of certain origination fees charged to borrowers and may
be reduced as a result of certain federal budget deficit reduction measures.
The Higher Education Act provides that a holder of a qualifying loan
who is entitled to receive Special Allowance Payments has a contractual right
against the United States to receive those Special Allowance Payments (including
the right to receive interest on any Special Allowance Payments not timely
paid). Receipt of Special Allowance Payments, however, is conditioned on
compliance with the requirements of the Higher Education Act, including
satisfaction of certain need-based criteria (and the delivery of sufficient
information by the borrower and the lender to the Department to confirm the
foregoing) and continued eligibility for federal reinsurance. Such eligibility
may be lost, however, if the loans are not originated and serviced, or are not
held by an eligible lender, in accordance with the requirements of the Higher
Education Act and the applicable guarantee agreement. See "--(1) Eligibility
Requirements"; "Risk Factors --Failure to Comply With Loan Origination and
Servicing Procedures for Federal Loans"; "Formation of the Trust--Eligible
Lender Trustee" and "Description of the Transfer and Servicing
Agreements--Servicing Procedures." TWIC expects that each of the Stafford Loans
that are part of the pool of Financed Student Loans will be eligible to receive
Special Allowance Payments, if any are payable from time to time.
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 to 60 days after submission to the Department of the
applicable claims forms for any given calendar quarter, although there can be no
assurance that such payments will in fact be received from the Department within
that period. See "Risk Factors--Variability of Actual Cash Flows; Inability of
Indenture Trustee to Liquidate Financed Student Loans." The Administrator will
agree to prepare and file with the Department all such claims forms and any
other required documents or filings on behalf of the applicable Eligible Lender
Trustee as owner of the Financed Student Loans on behalf of a Trust. The
Administrator will also agree to assist an Eligible Lender Trustee in
monitoring, pursuing and obtaining such Interest Subsidy Payments and Special
Allowance Payments, if any, with respect to such Federal Loans. Except under
certain conditions described herein, the Eligible Lender Trustee will be
required to remit to the Indenture Trustee, for deposit in the Collection
Account, Interest Subsidy Payments and Special Allowance Payments it receives
with respect to the Federal Loans within two Business Days of receipt thereof.
Unsubsidized Stafford Loans. The Federal Loans also may include
Stafford Loans that do not qualify for Interest Subsidy Payments but otherwise
qualify for all other forms of Federal Assistance ("Unsubsidized Stafford
Loans"). These loans are identical to Stafford Loans in all material respects,
except that interest accruing thereon during periods when the borrower is in
school or in a Deferral Period or Grace Period is either paid periodically by
the borrower during such periods or added periodically to the principal balance
of the loan by the holder thereof. A borrower qualifies for an Unsubsidized
Stafford Loan if, and to the extent that, the borrower's need for a Stafford
Loan, as calculated pursuant to the Higher Education Act, is less than the
maximum Stafford Loan authorized by statute due to the borrower's expected
family contribution as calculated thereunder. As discussed below, no SLS Loans
may be made on or after July 1, 1994. As a result of this change, on July 1,
1994, the maximum amount a single borrower may receive under the Unsubsidized
Stafford Loan program will be increased by the amount such borrower could have
obtained under the SLS Program.
SLS Loans. In addition to the Stafford Student Loan Program, the Higher
Education Act provides a separate program to facilitate additional loans to
graduate and professional students and independent undergraduate students. This
program is referred to as the "Supplemental Loans for Students Program" (the
"SLS Program"). The basic framework and principal provisions of the Stafford
Student Loan Program as described above are similar in many respects to those
that are applicable to loans under the SLS Program, ("SLS Loans"). In
particular, SLS Loans are subject to similar eligibility requirements and,
provided that such requirements are satisfied, are entitled to the same
guarantee and federal reinsurance arrangements. SLS Loans differ significantly
from Stafford Loans, however, in the context of the Interest Subsidy Payments
and Special Allowance Payments discussed above.
The annual and aggregate limitations that are applicable to SLS Loans
are as follows: SLS Loans to a single borrower cannot exceed $4,000 per academic
year for first year and second year students, increasing to $5,000 for third
year and fourth year students, and to $10,000 for graduate and professional
students, with aggregate limits of $23,000 for undergraduate students ($20,000
for loans first disbursed on or before July 1, 1993) and $73,000 for graduate
and professional students (exclusive of any capitalized interest) at any one
time outstanding. SLS Loans are also limited, generally, to the cost of
attendance minus other financial aid for which the borrower is eligible. A
determination of a borrower's eligibility for the Stafford Student Loan Program,
among other programs, is a condition to the making of an SLS Loan.
As specified by the Higher Education Act, the applicable interest rate
for an SLS Loan depends upon the date of issuance of the loan and the period of
enrollment for which the loan is made. The interest rate per annum for SLS Loans
made and disbursed on or after July 1, 1987 is fixed each July 1 for each
succeeding 12-month period at a rate equal to the sum of (i) the bond equivalent
rate of 52-week Treasury bills auctioned at the final auction held prior to the
preceding June 1 and (ii) 3.10% (3.25% for loans first disbursed before October
1, 1992), with a maximum rate of 11% per annum (12% for loans first disbursed
before October 1, 1992).
Although holders of SLS Loans are not entitled to receive Interest
Subsidy Payments with respect thereto, interest on such SLS Loans accrues from
the date each such SLS Loan is made and may either be paid currently by a
borrower or may be capitalized and added to the outstanding principal amount of
such SLS Loan at the time the borrower begins repayment. SLS Loans are eligible
for Special Allowance Payments only if and to the extent that the interest rate
for such SLS Loans calculated based on the 52-week Treasury bill rate referred
to above would exceed 12% per annum. Because the basis for determining the
amount, if any, of Special Allowance Payments due to lenders is based on the
91-day T-Bill Rate while the interest rate for SLS Loans is based on the 52-week
Treasury bill rate (which may differ from the 91-day T- Bill Rate), there can be
no assurance that any Special Allowance Payments will be due and payable with
respect to SLS Loans even though such SLS Loans are deemed to be eligible
therefor. See "--(7) Special Allowance Payments."
A borrower of an SLS Loan is required to begin repayment of the
principal of such SLS Loan within 60 days after the date the last installment of
such SLS Loan is advanced, subject to deferral so long as such borrower remains
an Eligible Student or as a result of any applicable Deferral Period or
Forbearance Period. In addition, any borrower of an SLS Loan made and advanced
after July 23, 1992, who also has Stafford Loans outstanding may defer
commencing repayment of such SLS Loan for the Grace Period applicable to such
Stafford Loans. Pursuant to the Omnibus Budget Reconciliation Act of 1993, no
SLS Loans may be made on or after July 1, 1994.
PLUS Loans. The Higher Education Act authorizes PLUS Loans to be made
to parents of eligible dependent students. The basic provisions applicable to
PLUS Loans are similar to those of Stafford Loans with respect to the
involvement of guaranty agencies and the Department in providing federal
insurance on the loans. However, PLUS Loans differ significantly from Stafford
Loans, particularly because Interest Subsidy Payments are not available and
Special Allowance Payments are more restricted.
Parents of dependent students are eligible to receive PLUS Loans and
may borrow up to $4,000 per academic year per student with a maximum aggregate
amount of $20,000 per student. Pursuant to the 1992 Amendments, with respect to
PLUS Loans originated after July 1, 1993, there are no annual loan limits for
PLUS Loans. PLUS Loans, however, are limited by a formula whereby the amount
borrowed annually, when combined with the student's other loans and grants for
that year, may not exceed the student's estimated educational costs. The 1992
Amendments prohibit origination of PLUS Loans to borrowers determined, pursuant
to regulations of the Department, to have adverse credit histories for loans
with first disbursement on or after July 1, 1993.
The interest rates on a PLUS Loan depend upon the date of issuance of
the loan and the period of enrollment for which the loan is to apply. PLUS Loans
disbursed or refinanced on or after July 1, 1987 bear interest at a variable
rate which is in effect from each July 1 through June 30, which is determined on
the June 1 preceding the commencement of the interest rate period and which is
equal to the bond equivalent rate of 52-week Treasury bills auctioned at the
final auction held prior to such June 1 plus 3.10% (3.25% for PLUS Loans
disbursed before October 1, 1992), except that such rate cannot exceed 10% (or
12% for PLUS Loans disbursed before October 1, 1992). The 1993 Amendments reduce
this interest rate ceiling to 9% for PLUS Loans made to new borrowers on or
after July 1, 1994. PLUS Loans made on or after July 1, 1998 are to bear a rate
equal to the bond equivalent rate of the U.S. Treasury security with a
comparable maturity, as established by the Department, plus 2.1% (not to exceed
9%).
Lenders are required to charge a 5% origination fee, payable to the
Department, to any borrower of a PLUS Loan made on or after October 1, 1992.
Repayment of the principal of PLUS Loans is required to commence no
later than 60 days after the date of final disbursement of such loan, subject to
certain deferment provisions. A parent borrower may defer principal payments for
periods during which the borrower has a dependent student for whom the parent
borrowed a PLUS Loan, if such student is engaged in a qualifying educational
program, graduate fellowship program or rehabilitation training program and the
PLUS Loan was originated before July 1, 1993; a parent borrower of a PLUS Loan
made thereafter may defer principal payments only if such parent borrower is
engaged in a qualifying educational program, graduate fellowship program or
rehabilitation training program.
Interest Subsidy Payments are not available with respect to PLUS Loans.
However, the capitalization of interest is allowed during deferral periods.
Thus, the borrower and lender may agree either to capitalize interest or to have
the borrower make the interest payments during an authorized period. The annual
loan limits are not violated by any decision to capitalize interest.
Consolidation Loans. The Higher Education Act established a program to
facilitate the ability of eligible borrowers of Stafford Loans, SLS Loans and
PLUS Loans (each an "Underlying Federal Loan") to consolidate such Federal
Loans, together with such borrowers' other education loans that are made or
guaranteed by the federal government (including HEAL Loans), into a single loan
(a "Consolidation Loan"). Subject to the satisfaction of certain conditions set
forth in the Higher Education Act, including limitations on the timing and
payment of principal and interest with respect to Consolidation Loans and a
requirement that the proceeds of Consolidation Loans are to be used to repay the
respective Underlying Federal Loans (and any other loans consolidated
thereunder) of any borrower, each holder of a Consolidation Loan will be
entitled to the same guarantee and federal reinsurance arrangements as are
available on Stafford Loans, SLS Loans and PLUS Loans. Consolidation Loans, like
Stafford Loans, are also eligible for Interest Subsidy Payments and Special
Allowance Payments; however, for Consolidation Loan applications received by
lenders on or after August 10, 1993, the Department will no longer make Interest
Subsidy Payments on Consolidation Loans other than those loans which consolidate
only subsidized Stafford Loans. Also, as described below under "--The HEAL
Program--Consolidation of HEAL Loans," any HEAL Loan consolidated pursuant to
the provisions of the Higher Education Act will not be eligible for Special
Allowance Payments or Interest Subsidy Payments. Under this program, an eligible
borrower of Consolidation Loans means a borrower who has begun repaying, who is
in a grace period preceding repayment of, or who is a delinquent or defaulted
borrower who will, through such loan consolidation, recommence repayment of such
Underlying Federal Loans. A married couple, each of whom has outstanding
Underlying Federal Loans, may apply for and obtain a single Consolidation Loan
so long as both individuals agree to be held jointly and severally liable on
such Consolidation Loan.
Under this program, a lender may make a Consolidation Loan to an
eligible borrower at the request of the borrower if the lender holds an
outstanding Underlying Federal Loan of the borrower or the borrower certifies
that he or she has been unable to obtain a Consolidation Loan from any of the
holders of the outstanding Underlying Federal Loans of the borrower. The lender
making any Consolidation Loan will pay the amount thereof to the various lenders
of the respective Underlying Federal Loans and other loans being consolidated
thereby.
A Trust may be affected by Consolidation Loans in the following way. A
Trust may own Underlying Federal Loans with respect to which an institution
other than TWIC (or TWIC, if the Pre-Funded Amount has been reduced to less than
the amount of the Consolidation Loan) makes the Consolidation Loan, in which
case such Underlying Federal Loans will be prepaid in full and such prepayment
amount will constitute Available Funds for the applicable Collection Period. See
"Description of the Transfer and Servicing Agreements--Distributions."
In accordance with the Higher Education Act, Consolidation Loans may
bear interest at a rate per annum equal to the weighted average of the interest
rates on the Underlying Federal Loans (rounded up to the nearest whole percent).
In general, a borrower must repay each Consolidation Loan in scheduled monthly
installments over a period of not more than 10 to 30 years (excluding any
Deferral Period and any Forbearance Period), depending on the original principal
amount of such Consolidation Loan. The repayment schedules for Consolidation
Loans will not exceed: 12 years for loans greater than or equal to $7,500, but
less than $10,000; 15 years for loans greater than or equal to $10,000, but less
than $20,000; 20 years for loans greater than or equal to $20,000, but less than
$40,000; 25 years for loans greater than or equal to $40,000, but less than
$60,000; and not more than 30 years for loans in excess of $60,000. Effective
July 1, 1994, Consolidation Loans for less than $7,500 will have a repayment
schedule of not more than 10 years. Borrowers may voluntarily prepay all or a
portion of any Consolidation Loan without premium or penalty. Repayment of a
Consolidation Loan must commence within 60 days after all holders of Underlying
Federal Loans have discharged the liability of the borrower thereon; provided,
however, that such repayment obligation is deferred for as long as the borrower
remains an Eligible Student and during any applicable Deferral Phase and
Forbearance Phase.
The 1993 Amendments made a number of changes to the Consolidation Loan
Program, including requiring holders of Consolidation Loans made on or after
October 1, 1993, to pay to the Department a monthly fee equal to 1.05% per
annum.
Proposed federal budget legislation being considered by Congress could
modify many of the provisions of the Higher Education Act. Until final
legislation is adopted, the impact on the Financed Student Loans, if any, is
impossible to determine.
The HEAL Program
General. The Public Health Service Act sets forth provisions
establishing a program to provide insured health education assistance loans
("HEAL Loans") for eligible graduate students in schools of medicine,
osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health,
pharmacy, chiropractic medicine or in programs in health administration,
clinical psychology or allied health. The Public Health Service Act provides for
direct federal insurance, backed by the full faith and credit of the United
States, to holders of HEAL Loans (the "HEAL Program").
The maximum amount of new loans made under the HEAL Program during
fiscal years 1993, 1994, and 1995 may not exceed $350,000,000, $375,000,000 and
$425,000,000, respectively. Any unused ceiling during a fiscal year carries over
and is added to the ceiling established for the following fiscal year. After
fiscal year 1995, unless the HEAL Program is otherwise extended by federal law,
only those students who have previously received a HEAL Loan may receive
additional HEAL Loans for purposes of continuing or completing their educational
program or to pay interest on prior HEAL Loans received by the borrower, and the
Secretary may not insure any HEAL Loan made or installment paid after September
30, 1998. Students who had not received a HEAL Loan prior to October 1, 1995 are
not eligible to borrow under the HEAL Program. Such students may be eligible for
an increased loan limited with respect to the amount of Unsubsidized Stafford
Loans they may receive.
The Public Health Service Act is found at 42 U.S.C. Section 201, et
seq. Most provisions relating to the HEAL Program are found at 42 U.S.C.
Sections 292 through 292p. Regulations relating to the HEAL Program are found at
42 CFR Sections 60.1 through 60.61 (the "Regulations").
Proposed federal budget legislation being considered by Congress could
modify many of the provisions of the Public Health Service Act. Until final
legislation is adopted, the impact on the Financed Student Loans, if any, is
impossible to determine.
Eligible Borrowers. A student loan is eligible for insurance by the
Secretary under the Public Health Service Act if it is made to a student who (i)
is a citizen, national, or lawful permanent resident of the United States or
permanent resident of certain territories of the United States, (ii) has been
accepted for enrollment or is enrolled in good standing at an "eligible
institution" (defined in the Public Health Service Act as a school of medicine,
osteopathic medicine, dentistry, veterinary medicine, optometry, podiatric
medicine, pharmacy, public health, allied health or chiropractic, or a graduate
program in health administration or clinical psychology), (iii) is or will be a
full-time student, (iv) has agreed that all loan proceeds received shall be used
solely for tuition, other reasonable educational expenses, including fees,
books, supplies and equipment, and laboratory expenses, and reasonable living
and transportation expenses, (v) has presented himself and submitted to
registration under the Military Selective Service Act, if required by such act,
(vi) needs the loan to pursue his or her course of study at the eligible
institution, and (vii) in the case of a pharmacy student, has satisfactorily
completed three years of training. HEAL Loans also may be made to certain
nonstudents (such as doctors who are serving as interns or residents) who (A)
previously had a HEAL Loan, (B) is in a period of deferment (as described herein
under "--Deferment Periods") during which no principal is required to be paid,
(C) has agreed that all funds received under the proposed HEAL Loan will be used
solely to repay interest due on a previous HEAL Loan, and (D) has presented
himself and submitted to registration under the Military Selective Service Act,
if required by such act. Beginning on January 1, 1996, a student is not eligible
to obtain a HEAL Loan for attendance at an institution that has a default rate
in excess of 20 percent. (See "--Risk-Based Premiums" below.)
Eligible Institutions. In order to participate in the HEAL Program, a
school must enter into a written agreement with the Secretary in which the
school agrees to comply with the provisions of the Public Health Service Act and
the Regulations. The school must be legally authorized within a State, the
District of Columbia or certain territories of the United States to conduct a
course of study leading to one of the following degrees: (i) doctor of medicine,
osteopathic medicine, dentistry, optometry, veterinary medicine, podiatric
medicine, chiropractic, or clinical psychology, (ii) Bachelor or Master of
Science in pharmacy, (iii) Masters or doctoral degree in health administration,
or (iv) graduate or equivalent degree in public health. The school must also be
accredited by a recognized agency approved for that course of study by the
Secretary of Education, except where a school is not eligible for accreditation
solely because it is too new. A new school is eligible if the Secretary of
Education determines that it can reasonably expect to be accredited before the
beginning of the academic year following the normal graduation date of its first
entering class.
Eligible Lenders. The following types of organizations are eligible to
apply to the Secretary to be eligible lenders of HEAL Loans: (i) a financial or
credit institution (including a bank, savings and loan association, credit
union, or insurance company) which is subject to examination and supervision in
its capacity as a lender by an agency of the United States or of the State in
which it has its principal place of business; (ii) a pension fund approved by
the Secretary; (iii) an agency or instrumentality of a State; (iv) an eligible
institution under the HEAL Program; and (v) a private nonprofit entity,
designated by the State, regulated by the State, and approved by the Secretary.
In addition, the following types of organizations are eligible to apply to the
Secretary to be holders of HEAL Loans: (i) public entities in the business of
purchasing student loans; (ii) the Student Loan Marketing Association; and (iii)
other eligible lenders. If an application is approved by the Secretary, eligible
lenders enter into a comprehensive contract (as described further in the
following subsections) with the Secretary pursuant to which the lender agrees to
comply with all of the laws, regulations and other requirements applicable to
its participation in the HEAL Program and the Secretary agrees to insure each
HEAL Loan held by the lender.
Certificate of Loan Insurance. The Public Health Service Act provides
that the Secretary may issue a certificate of comprehensive insurance coverage
to any eligible lender who so applies, which will insure all insurable loans
made by that eligible lender after the date the certificate is issued until a
specified cutoff date and within the limits of an aggregate maximum amount
stated in the certificate. If the Secretary determines that the eligible lender
has failed to (i) exercise reasonable care and diligence in the making and
collection of loans, (ii) make reports and statements required by the Public
Health Service Act, or (iii) pay required federal loan insurance premiums, the
Secretary is required to disqualify that lender from obtaining further insurance
on HEAL Loans until the Secretary is satisfied that such failure has ceased and
the eligible lender will comply with such requirements. The rights of an
eligible lender under a certificate of insurance may be assigned to another
eligible lender (including a public entity in the business of purchasing student
loans) or the Student Loan Marketing Association.
Annual and Aggregate Loan Limits. The total principal amount of HEAL
Loans which may be made to a student enrolled in a school of medicine,
osteopathic medicine, dentistry, veterinary medicine, optometry, or podiatric
medicine may not exceed $20,000 during any academic year and may not at any time
exceed $80,000 in the aggregate. The total principal amount of HEAL Loans which
may be made to a student enrolled in a school of pharmacy, public health, allied
health, or chiropractic, or a graduate program in health administration or
clinical psychology may not exceed $12,500 during any academic year and may not
at any time exceed $50,000 in the aggregate. Checks for the proceeds of HEAL
Loans are made payable jointly to the borrower and the eligible institution in
which the borrower is enrolled.
Interest Rate. The interest rate on HEAL Loans may be calculated on a
fixed rate or variable rate basis. Whichever method is selected must continue
over the life of the loan unless the loan is consolidated (see "Consolidation of
HEAL Loans" herein). The interest rate may not exceed an annual rate equal to
the average of the bond equivalent rates of the 91-day Treasury bills auctioned
for the previous quarter plus 3%, rounded to the next higher one-eighth of 1%.
Interest that is calculated on a fixed rate basis is determined for the life of
the loan during the calendar quarter in which the loan is executed, but the rate
may not exceed the maximum rate described in the preceding sentence as
determined by the Secretary for such calendar quarter. Interest that is
calculated on a variable rate basis may change every calendar quarter as the
market price of U.S. Treasury bills changes, but the rate may not exceed the
maximum rate described above.
Interest accrues from the date the loan is disbursed until the loan is
paid in full. Unpaid accrued interest may be compounded not more frequently than
semiannually and added to principal; however, a lender may postpone the
compounding of interest before the beginning of the repayment period or during
periods of deferment or forbearance and add interest to principal at the time
repayment of principal begins or resumes.
The interest rate on HEAL Loans is not subject to any federal or state
usury laws that limit the rate or amount of interest payable on loans.
Repayment Terms. HEAL Loans must provide for repayment of the principal
amount, except during a deferment period described in the following subsection,
in installments over a period of not less than 10 years (unless sooner repaid at
the borrower's option) nor more than 25 years beginning not earlier than 9
months nor later than 12 months after (i)(a) the date on which the borrower
ceases to be a participant in an accredited internship or residency program of
not more than four years in duration, (b) the borrower completes the fourth year
of an accredited internship or residency program of more than four years in
duration, or (c) the borrower, if not a participant in a program described in
clause (a) or (b) above, ceases to carry the normal full-time academic workload
as determined by the eligible institution, or (ii) the date on which a borrower
who is a graduate of an eligible institution ceases to be a participant in a
fellowship training program not in excess of two years or a participant in a
full-time educational activity not in excess of two years, which (a) is directly
related to the health profession for which the borrower prepared at an eligible
institution, as determined by the Secretary, and (b) may be engaged in by the
borrower during such a two-year period which begins within 12 months after the
completion of the borrower's participation in a program described in clauses
(i)(a) or (b) above or prior to the completion of the borrower's participation
in such program. Except for deferment periods (as described in the following
subsection), the payments made on all outstanding HEAL Loans by a borrower
during any year must be at least equal to the annual interest on the outstanding
principal (unless the borrower agrees in writing to make payments during any
year or any repayment period in a lesser amount), and lenders and holders of
HEAL Loans must offer borrowers graduated loan repayment schedules that, during
the first five years of loan repayment, are based on the borrower's
debt-to-income ratio.
Any deferment period (as described in the following subsection) is not
included in the maximum 25 year total loan repayment period, but in no event may
the period of the loan exceed 33 years from the date of execution of the note or
written agreement evidencing the loan.
Deferment Periods. All HEAL Loans must provide that periodic
installments of principal and interest need not be paid, but interest will
accrue and be added to principal if not paid, during any "deferment period"
which is described in the Public Health Service Act as any period (i) during
which the borrower is pursuing a full-time course of study at an eligible
institution under the Public Health Service Act (or at an institution defined by
section 481(a) of the Higher Education Act); (ii) not in excess of four years
during which the borrower is a participant in an accredited internship or
residency program (including any period in such program in which the borrower
ceases to be a participant or the borrower completes the fourth year of such
program which has a duration of greater than four years); (iii) not in excess of
three years during which the borrower is (a) a member of the Armed Forces of the
United States, (b) in service as a volunteer under the Peace Corps Act, (c) a
member of the National Health Service Corps, (d) in service as a full-time
volunteer under Title I of the Domestic Volunteer Service Act of 1973, or (c)
practicing primary care and has completed an accredited internship or residency
training program in osteopathic general practice, family medicine, general
internal medicine, preventive medicine, or general pediatrics; (iv) not in
excess of one year for borrowers who are graduates of chiropractic schools; (v)
any period not in excess of two years which is described in clause (ii) of the
first paragraph of the preceding subsection.
Forbearance. Forbearance is defined in the Regulations as "an extension
of time for making loan payments or the acceptance of smaller payments than were
previously scheduled to prevent a borrower from defaulting on his or her payment
obligations". Provided that the borrower and the lender execute a written
agreement of forbearance, a lender or holder must grant forbearance whenever the
borrower is temporarily unable to make scheduled payments on a HEAL Loan and the
borrower continues to repay the loan in an amount commensurate with his or her
ability to repay the loan. Each forbearance period may not exceed six months,
and the total period of forbearance (with or without interruption) may not
exceed two years (except under certain circumstances approved by the Secretary).
No Endorsement or Security Permitted. All HEAL Loans are made directly
to the student without security and without endorsement (unless the student is a
minor and applicable law requires an endorsement to create a binding
obligation). Endorsement is defined in the Regulations to mean the signature of
anyone other than the borrower who is to assume either primary or secondary
liability on the note.
Consolidation of HEAL Loans. HEAL Loans may be consolidated, but the
lender or holder must first inform the borrower of the effect of the
consolidation on the interest rate (as described in the following sentence) and
explain to the borrower that he or she is not required to agree to the
consolidation. The maximum interest rate on a consolidation loan may not exceed
the maximum rate as determined by the Secretary (and described herein under
"--Interest Rate") for the calendar quarter during which the consolidation loan
is made. HEAL Loans also may be consolidated with a borrower's outstanding
Federal Loans; however, unlike most Federal Loans, HEAL Loans consolidated
pursuant to the provisions of the Higher Education Act will not be eligible for
Special Allowance Payments or Interest Subsidy Payments.
Default of Borrower. Upon default by the borrower of a HEAL Loan and
after substantial collection efforts (including the commencement and prosecution
of an action against the borrower unless the amount of such loan was made in an
amount less than $2,500 or the Secretary determines that the eligible lender or
holder of the loan has made reasonable efforts to serve process on the borrower
and has been unsuccessful with respect to such efforts or the prosecution of
such an action would be fruitless because of the financial or other
circumstances of the borrower), the Secretary is required to pay to the
beneficiary the amount of the loss sustained by the insured. The United States
is subrogated for all of the rights of the holder of the defaulted obligation
and is entitled to an assignment of the note or other evidence of the insured
loan by the beneficiary. Any federal or state statutes of limitations do not
apply to any HEAL Loan which has been assigned to the Secretary.
The Regulations define default as "the persistent failure of the
borrower to make a payment when due or to comply with other terms of the note or
other written agreement evidencing a loan under circumstances where the
Secretary finds it reasonable to conclude that the borrower no longer intends to
honor the obligation to repay the loan." In the case of loans payable in monthly
installments, such failure to pay must have persisted for at least 120 days. In
the case of loans payable in less frequent installments, such failure to pay
must have persisted for at least 180 days. If the lender or holder determines
that it is not appropriate to commence and prosecute an action against a default
borrower, it must file a default claim with the Secretary within 30 days after a
loan has been determined to be in default. The lender must also have requested
preclaim assistance from the Public Health Service before the Secretary will pay
a default claim.
In an effort to collect on defaulted HEAL Loans, payments to a borrower
under any federal law (i.e. Medicare and Medicaid) for health services rendered
by a borrower in default on an outstanding HEAL Loan are required to be reduced,
after notice and opportunity for a hearing, up to the amount of the remaining
balance on such defaulted HEAL Loans.
Death or Disability of Borrower. The Secretary will pay the outstanding
balance on any HEAL Loan of a borrower who dies or becomes permanently and
totally disabled. The Regulations state that a borrower is permanently and
totally disabled if the borrower is "unable to engage in any substantial gainful
activity because of a medically determinable impairment which the Secretary
expects to continue for a long and indefinite period of time or to result in
death". A lender or holder must file a death or disability claim with the
Secretary within 30 days after such lender or holder receives documentation of
the borrower's death or 30 days after the lender or holder has been notified
that the Secretary has determined the borrower to be permanently and totally
disabled.
Discharge in Bankruptcy. A HEAL Loan may be released by a discharge in
bankruptcy under the U.S. Bankruptcy Code but only if such discharge is granted
(i) after the expiration of the seven-year period beginning on the first date
the borrower of the HEAL Loan is required to commence repayment, (ii) upon a
finding of the Bankruptcy Court that not discharging such debt would be
unconscionable, and (iii) upon the condition that the Secretary has not waived
his rights to reduce payments made to a borrower for health services rendered
under any federal law as further described in the second paragraph of the
subsection entitled "Default of Borrower".
Risk-Based Premiums. The Secretary assesses a risk-based premium to an
eligible borrower and, in certain circumstances, an eligible institution, on all
HEAL Loans based on the "default rate" (as defined below) of the eligible
institution the eligible borrower attends. The Public Health Service Act
establishes three rate levels known as the "low-risk rate", the "medium-risk
rate", and the "high-risk rate" which are further described as follows:
Low-Risk Rate: Applies to an eligible borrower
seeking a HEAL Loan for attendance at an
eligible institution with a default rate of
not greater than five percent. The premium
assessed to such eligible borrower is equal
to six percent of the principal amount of
the loan. No premium is assessed to the
eligible institution.
Medium-Risk Rate: Applies to an eligible borrower seeking a HEAL
Loan for attendance at an eligible institution
with a default rate grater than five percent but
not greater than ten percent. The premium assessed
to such eligible borrower is equal to eight
percent of the principal amount of the loan, and
the premium assessed to the eligible institution
is equal to five percent of the principal amount
of the loan.
High-Risk Rate: Applies to an eligible borrower seeking a HEAL
Loan for attendance at an eligible institution
with a default rate greater than ten percent but
not greater than 20 percent. The premium assessed
to such eligible borrower is equal to eight
percent of the principal amount of the loan, and
the premium assessed to the eligible institution
is equal to ten percent of the principal amount of
the loan.
The risk-based premium to any eligible borrower is reduced by 50 percent if a
credit worthy parent or other responsible party co-signs the loan note.
Any eligible institution in which the medium-risk rate or the high-risk
rate applies is required to submit to the Secretary for approval an annual
default management plan that specifies the short-term and long-term procedures
the institution will incorporate to minimize defaults on HEAL Loans. Students
attending eligible institutions with a default rate greater than 20 percent are
not eligible to receive a HEAL Loan. The Secretary may consider mitigating
circumstances prior to making such institution ineligible for the HEAL Program.
The "default rate" is defined in the Public Health Service Act to mean
the percentage determined by the ratio of (i) the principal amount of HEAL Loans
(A) that are made with respect to such eligible institution and that entered
repayment status after April 7, 1987; and (B) for which amounts have been paid
to insurance beneficiaries due to the default of the borrower, excluding any
loan which has been discharged in bankruptcy or for which the borrower begins
payments to the Secretary after the loan has been assigned to the Secretary as a
result of the Secretary making an insurance payment on such loan, by (ii) the
total principal amount of HEAL Loans that are made with respect to such eligible
institution and that entered repayment status after April 7, 1987.
Insurance Account. The Public Health Service Act established an
insurance account, which is available without fiscal year limitation to the
Secretary for making payments in connection with the collection and default of
HEAL Loans. All amounts received by the Secretary as premium charges for
insurance and as receipts, earning, or proceeds derived from any claim or other
assets acquired by the Secretary in connection with the HEAL Program are
deposited in such account. All payments in connection with the default of HEAL
Loans are paid from such account. The Public Health Service Act also provides
that in the event moneys in such account are insufficient to make payments in
connection with the collection or default of any HEAL Loan, the Secretary of the
Treasury may lend such amounts as may be necessary to make the payments in such
insurance account, subject to the Federal Credit Reform Act of 1990.
The Private Loan Programs
General. It is expected that the Private Loans primarily will be
originated under one or more of the following Private Loan Programs: (i) the
Option 4 Program, (ii) the TERI Alternative Program and the PEP Program, (iii)
the PLEASE Program and (iv) the PAL Program. The Private Loans may, to a lesser
extent, be originated under other Private Loan Programs that will be identified
in the related Prospectus Supplement. As of the date of this Prospectus,
ClassNotes does not originate loans under a Private Loan Program. Therefore,
until such time, if any, as ClassNotes originates loans under one or more
Private Loan Programs, all Private Loans sold to a Trust by ClassNotes will be
Purchased Loans. The following is a brief description of the Private Loan
Programs identified above.
Option 4 Program. The Option 4 Program is a private loan program
established by United Student Aid Funds, Inc. ("USAF") and designed to help full
time students from families who are not eligible for Federal Loans, HEAL Loans
or other federal grants or loans or, if eligible, need to borrow additional
funds to finance their college educations. USAF is a private non-profit
corporation located in Indianapolis, Indiana.
Parents of full-time students enrolled or accepted for enrollment at an
accredited college or university are eligible to apply for a loan under the
Option 4 Program ("Option 4 Loans"). In general, applicants are required to have
an annual income of at least $15,000 and a monthly debt burden, including the
Option 4 Loan, of no greater than 40% of all monthly income. Eligible borrowers
of an Option 4 Loan may borrow from $2,000 up to $10,000 per academic year for
up to five years. However, the amount of the Option 4 Loan plus other financial
aid received by a student may not exceed the cost of education, as determined by
the school. A 4% guarantee fee is deducted from the loan proceeds.
The interest rate on Option 4 Loans varies and is indexed to the
average quarterly bond equivalent rate of the 91 day U.S. Treasury Bills plus
3.50%, subject to a maximum rate of 18%. The interest rate is adjusted on the
first day of February, May, August and November of each year.
Borrowers of Option 4 Loans may elect between two repayment plans.
Under the standard plan, borrowers begin repayment of principal and interest
within 45 days of disbursement of the loan. Under the deferred principal
repayment plan, borrowers may defer principal payments and make interest only
payments while the student is in school. Principal and interest payments will
begin 45 days after the student graduates or leaves school, or earlier if
requested by the borrower. Borrowers may take up to 15 years to repay. The
minimum monthly payment, once principal and interest payments begin, is the
greater of $50 or the amount that will result in loan repayment within the 15
year limit. Option 4 Loans may be prepaid at any time without penalty.
Each Option 4 Loan is funded by a lender selected by USAF and is
guaranteed by USAF. Currently, all Option 4 Loans are serviced by Educational
Loan Servicing Center, Inc., an affiliate of USAF.
TERI Alternative Program. The TERI Alternative Program is a private
loan program established by The Education Resources Institute ("TERI") and
designed to offer loans to students enrolled in nationally or regionally
accredited 2- to 4-year degree-granting institutions in the United States and
Canada. TERI is a private non-profit corporation headquartered in Boston,
Massachusetts. To be eligible for a loan under the TERI Alternative Program
("TERI Alternative Loans"), a student must be deemed creditworthy or provide a
creditworthy co-borrower with a two-year credit history and a debt-to-income
ratio not to exceed 40%. Also at least one applicant must be a U.S. citizen or a
certified permanent resident of the United States.
In determining whether a student or co-borrower is creditworthy, a
credit bureau report is obtained for each applicant, including the student. A
satisfactory credit history is defined as making continuous and prompt payment
on all credit obligations such as mortgages, personal loans, credit cards, auto
loans, and especially, education loans. There should be no record of charged off
loans within the past five years nor a record of foreclosure, repossession, open
judgment or suit, unpaid tax lien, unpaid prior education loan defaults or other
negative public record items in the past seven years. There should not be a
record of bankruptcy within the past 10 years (exceptions may be granted where
the applicant provides written documentation demonstrating that the
circumstances leading up to the bankruptcy were beyond the applicant's control).
Eligible borrowers of a TERI Alternative Loan may borrow from $2,000 up
to the cost of education, less any financial aid received per academic year. A
5% guarantee fee is deducted from the loan proceeds.
The interest rate on TERI Alternative Loans varies depending upon the
lender. Several lenders currently offer a fixed rate. The remaining lenders
offer variable rates ranging from the prime rate plus 1.5% to the prime rate
plus 2.0%.
The TERI Alternative loan may be repaid in up to 25 years, depending on
the total amount borrowed. Repayment of the TERI Alternative Loan begins within
45 days after the disbursement date. However, deferment of principal is allowed
for up to four years, with only interest being paid, while the student is in
school. Payment of principal and interest begins within 45 days of graduation or
withdrawal from school. Once principal payments commence, the monthly principal
and interest payment remains fixed throughout the life of the loan. Therefore,
for variable rate loans fluctuations in the interest rate are reflected in the
length of the repayment term, not the monthly amount, unless an increase in the
monthly amount is needed to keep the repayment period within 25 years. TERI
Alternative Loans may be prepaid at any time without penalty.
Each TERI Alternative Loan is funded by one of the banks participating
in the TERI Alternative Program and is guaranteed by TERI. TERI guarantees
payment of 100% of the principal (including any interest or fees capitalized
from time to time) and accrued interest for each TERI Alternative Loan as to
which any one of the following events has occurred:
(a) failure by the borrower thereof to make monthly principal
or interest payments on such TERI Alternative Loan when due,
provided such failure continues for a period of 120 days;
(b) any filing by or against the borrower thereof of a petition in
bankruptcy pursuant to any chapter of the Federal bankruptcy code, as
amended;
(c) the death of the borrower thereof; or
(d) the total and permanent disability of the borrower thereof
to be employed on a full-time basis, as certified by two
qualified physicians.
TERI's guarantee obligations with respect to any TERI Alternative Loan
is conditioned upon certain conditions, including, but not limited to, the
following: (i) the origination and servicing of the such TERI Alternative Loans
being performed in accordance with the TERI Alternative Program and other
applicable requirements, (ii) the timely payment to TERI of all guarantee fees
payable with respect to such TERI Alternative Loan, (iii) the timely submission
to TERI of all required pre-claim delinquency status notifications and of the
claim with respect to such TERI Alternative Loan and (iv) the transfer and
endorsement of the promissory note evidencing such TERI Alternative Loan to TERI
upon and in connection with making a claim to receive guarantee payments
thereon. Failure to comply with any of the applicable conditions, including the
foregoing, may result in the refusal of TERI to honor its guarantee obligations
with respect to such TERI Alternative Loan. In addition, in the event that any
TERI Alternative Loan is determined to be unenforceable because the terms of
such TERI Alternative Loan or the forms of the application or promissory note
related thereto violate any provisions of applicable state law, TERI's guarantee
obligation is reduced to 50% of principal (including capitalized interest and
fees) and accrued interest with respect to such TERI Alternative Loan. Under a
Sale and Servicing Agreement, such failure to comply or such unenforceability
would constitute a breach of ClassNotes' covenants, representation and/or
warranties, as the case may be, and would create an obligation of ClassNotes to
purchase such TERI Alternative Loan. See "Description of the Transfer and
Servicing Agreements -- Sale of Financed Student Loans; Representations and
Warranties" and "--Master Servicer Covenants".
TERI, as a guarantor of Private Loans, is not entitled to any federal
reinsurance or assistance from the Department. Although TERI maintains a loan
loss reserve intended to absorb losses arising from its guarantee commitments,
there can be no assurance that the amount of such reserve will be sufficient to
cover the obligations of TERI over the term of the TERI Alternative Loans.
PEP Program. The PEP Program is a private loan program established by
TERI and designed to offer loans ("PEP Loans") to graduate and professional
school students enrolled at least half-time in an accredited 2- to 4-year
degree-granting institution in the United States and Canada. The underwriting
standards for the PEP Program are substantially the same as described above for
the TERI Alternative Program.
Eligible borrowers of PEP Loans may borrow up to $7,500 or $20,000 on a
student's good credit history, or up to $20,000 with a creditworthy co-borrower.
Law students can borrow up to $12,000 on their own signature. The aggregate
total amount of borrowings is based on future income projections, with an
aggregate total of $80,000 with a co-borrower. A 9% guarantee fee (6% with a
co-borrower) is deducted from the loan proceeds.
The interest rates on PEP Loans vary by lender, but under current
guidelines cannot exceed the prime rate plus 2.0%. PEP loans may be repaid in up
to 20 years, depending on the total amount borrowed. Repayment of the PEP Loan
begins within 45 days after the disbursement date. Further, both principal and
interest may be deferred for up to 4 1/2 years while the student is in school
(any such deferred interest will be capitalized and added to principal). Medical
students may request a second deferment on the new principal balance while
completing their internship or residency (with a maximum deferment of 8 1/2
years). Once principal payments commence, the monthly principal and interest
payment remains fixed throughout the life of the loan. Therefore, for variable
rate loans fluctuations in the interest rate are reflected in the length of the
repayment term, not the monthly amount, unless an increase in the monthly amount
is needed to keep the repayment period within 20 years. PEP Alternative Loans
may be prepaid at any time without penalty.
Each PEP Loan is funded by one of the banks participating in the PEP
Program and is guaranteed by TERI. TERI's guarantee obligations under the PEP
Program are substantially the same as its guarantee obligations described above
for the TERI Alternative Program.
PLEASE Program. Parent Loans for Elementary and Secondary Education is
a private loan program established by TERI and designed to offer loans ("PLEASE
Loans") to borrowers interested in financing the education expense of a student
associated with attendance at a private primary or secondary school. The
underwriting standards for the PLEASE Program are substantially the same as
described for the TERI Alternative Program.
Eligible borrowers of PLEASE Loans may borrow up to the cost of
education less any financial aid with a maximum amount borrowed of $20,000 per
school year. The minimum amount borrowed is $1,000. The aggregate total amount
of borrowings is $80,000. A 6% guarantee fee is deducted from the loan proceeds.
Application fees and interest rates on PLEASE Loans vary by lender, but
the interest rate cannot under current guidelines exceed the prime rate plus
2.0%. PLEASE loans may be repaid in up to 10 years, depending on the total
amount borrowed. Immediate repayment of principal and interest payments on the
PLEASE Loan begins within 45 days after the disbursement date. Variable rate
loan fluctuations in the interest rate are reflected in the length of the
repayment term, not the monthly amount, unless an increase in the monthly amount
is needed to keep the repayment period within 10 years. PLEASE Loans may be
prepaid at any time without penalty.
Each PLEASE Loan is funded by one of the lenders participating in the
PLEASE Program and is guaranteed by TERI. TERI's guarantee obligations under the
PLEASE Program are substantially the same as its guarantee obligations described
for the TERI Alternative Program.
PAL Program. The PAL Program is a private loan program established by
HEMAR Insurance Corporation of America ("HICA") designed to offer loans ("PAL
Loans") to meet the educational financing needs of students enrolled in a
four-year collegiate or graduate degree granting educational institution which
has been approved for participation in the PAL Program by HICA. The underwriting
standards for the PAL Program are substantially the same as described above for
the TERI Alternative Program.
Eligible borrowers of PAL Loans may borrow from $1,000 up to a maximum
annual limit of the lesser of (i) the student's estimated cost of attendance for
the loan period less the estimated amount of assistance that a school is aware a
student has been or will be awarded in federal, state or private scholarships or
loan programs and (ii) the amount of allowable debt after a credit analysis is
performed. A 6% guarantee fee is deducted from the loan proceeds.
The interest rate on PAL Loans varies depending on the lender. PAL
Loans may be repaid in up to 20 years. Repayment of the PAL Loan may begin
immediately after the disbursement date. Both principal and interest may be
deferred for up to the earlier of (i) six months after the date the borrower
ceases to be at least a half-time student or (ii) 5 years after the borrower's
first disbursement of a PAL Loan (any such deferred interest will be capitalized
and added to principal). PAL Loans may be prepaid at any time without penalty.
Each PAL Loan is funded by one of the banks participating in the PAL
Program and is guaranteed by HICA. If a borrower defaults on a PAL Loan, HICA
will pay the lender 100% of the unpaid principal (including any interest or fees
capitalized from time to time) and accrued interest. However, HICA's guarantee
obligations with respect to any PAL Loan is conditioned upon certain conditions,
including, but not limited to, the following: (i) the timely payment to HICA of
all guarantee fees payable with respect to such PAL Loan, (ii) the origination,
servicing and collection of such PAL Loan being performed in accordance with the
PAL Program, (iii) the timely submission to HICA of the executed surety
certificate, a complete payment history and a complete collection efforts
history, and (iv) the transfer and endorsement of the original executed note
evidencing such PAL Loan. Failure to comply with any of the applicable
conditions, including the foregoing, may result in the refusal of HICA to honor
its guarantee obligations with respect to such PAL Loan.
THE FINANCED STUDENT LOAN POOL
The pool of Financed Student Loans will include the Financed Student
Loans acquired by the applicable Eligible Lender Trustee on behalf of a Trust
from time to time as of the applicable Cut-off Date and, if set forth in the
related Prospectus Supplement, any Additional Student Loans acquired by the
applicable Eligible Lender Trustee on behalf of a Trust from the Sellers during
the applicable Funding Period.
The Financed Student Loans will be selected from TWIC's portfolio of
Federal Loans and HEAL Loans and ClassNotes' portfolio of Private Loans (both
including Purchased Loans) by several criteria, including the following: each
Financed Student Loan (i) was or will be originated in the United States or its
territories or possessions under and in accordance with the Federal Program, the
HEAL Program or the applicable Private Loan Program, as the case may be, to, or
on behalf of, a student who has graduated or is expected to graduate from an
accredited institution of higher education within the meaning of the Higher
Education Act, a Proprietary School or, with respect to PLEASE Loans, to, or on
behalf of, a student who is enrolled in private primary or secondary schools,
(ii) contains terms in accordance with those required by the applicable Program,
the Guarantee Agreements and other applicable requirements, and (iii) is not
more than 90 days past due as of the related Cut-off Date. The relative
percentages of each type of Financed Student Loan, as well as the relative
percentages of Financed Student Loans originated by a Seller and Purchased
Loans, to be included in the pool of Financed Student Loans will be determined
from time to time by the Sellers. No selection procedures believed by the
Sellers to be adverse to the Securityholders will be used in selecting the
Financed Student Loans.
The Additional Student Loans to be conveyed to the applicable Eligible
Lender Trustee on behalf of a Trust during each Funding Period are required to
comply with the criteria set forth above. See "Description of the Transfer and
Servicing Agreements--Additional Fundings."
In addition to the criteria described in the preceding paragraphs, an
applicable Surety Provider may require certain other characteristics for the
Additional Student Loans. However, following each transfer of Additional Student
Loans to the Eligible Lender Trustee on behalf of a Trust, the aggregate
characteristics of the entire pool of Financed Student Loans, including the
composition and type of the Financed Student Loans, the distribution by weighted
average interest rate and the distribution by principal amount to be described
in tables included in each Prospectus Supplement, may vary significantly from
those of the Financed Student Loans, if any, previously transferred to the
Trust. In addition, the distribution by weighted average interest rate
applicable to the Financed Student Loans on any date following the related
Cut-off Date may vary significantly from that set forth in the tables included
in the related Prospectus Supplement as a result of variations in the effective
rates of interest applicable to the Financed Student Loans. Moreover, the
information included in the related Prospectus Supplement with respect to the
original term to maturity and remaining term to maturity of Financed Student
Loans as of the related Cutoff Date may vary significantly from the actual term
to maturity of any of the Financed Student Loans as a result of the granting of
deferral and forbearance periods with respect thereto.
Each Prospectus Supplement will set forth, as of the related Cut-off
Date, with respect to the Pool Balance upon the issuance of the related Series
of Notes, the composition of the Financed Student Loans, the distribution by
loan type, the distribution by interest rates, the distribution by outstanding
principal balance, the distribution by remaining term to scheduled maturity and
the distribution by borrower payment status.
Each of the Federal Loans and HEAL Loans provides or will provide for
the amortization of the outstanding principal balance of such Financed Student
Loan over a series of regular payments. Each regular payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of such Financed Student Loan multiplied by the applicable
interest rate and further multiplied by the period elapsed (as a fraction of a
calendar year) since the preceding payment of interest was made. As payments are
received in respect of such Financed Student Loan, the amount received is
applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if a borrower pays
a regular installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if a borrower pays a monthly installment
after its scheduled due date, the portion of the payment allocable to interest
for the period since the preceding payment was made will be greater than it
would have been had the payment been made as scheduled, and the portion of the
payment applied to reduce the unpaid principal balance will be correspondingly
less. In either case, subject to any applicable Deferral Periods or Forbearance
Periods, the borrower pays a regular installment until the final scheduled
payment date, at which time the amount of the final installment is increased or
decreased as necessary to repay the then outstanding principal balance of such
Financed Student Loan. The Private Loans may contain different amortization
provisions.
Maturity and Prepayment Assumptions
The rate of payment of principal of the Notes and the Certificates and
the yield on the Notes and the Certificates will be affected by (i) prepayments
of the Financed Student Loans that may occur as described below, (ii) the sale
by the Trust of Financed Student Loans and (iii) the application of Additional
Principal Payments, if any. All the Financed Student Loans are prepayable in
whole or in part by the borrowers at any time (including by means of
Consolidation Loans as discussed below) and may be prepaid as a result of a
borrower default, death, disability or bankruptcy and subsequent liquidation or
collection of Guarantee Payments with respect thereto. The rate of such
prepayments cannot be predicted and may be influenced by a variety of economic,
social and other factors, including those described below. In general, the rate
of prepayments may tend to increase to the extent that alternative financing
becomes available at prevailing interest rates which fall significantly below
the interest rates applicable to the Financed Student Loans. However, because
many of the Financed Student Loans bear interest at a rate that either actually
or effectively is floating, it is impossible to determine whether changes in
prevailing interest rates will be similar to or vary from changes in the
interest rates on the Financed Student Loans. To the extent borrowers of
Financed Student Loans elect to borrow Consolidation Loans, or the Trust sells
Serial Loans, such Financed Student Loans will be prepaid; provided, however,
that if the related Seller makes any such Consolidation Loan during the Funding
Period, if applicable (in which event such Seller will then sell that
Consolidation Loan to the applicable Eligible Lender Trustee, to the extent that
funds are available in the Pre-Funding Account for the purchase thereof), the
aggregate outstanding principal balance of Financed Student Loans (after giving
effect to the addition of such Consolidation Loan) will be at least equal to and
in most cases greater than such balance prior to such prepayment. See "The
Student Loan Financing Business--Federal Loans Under the Program--Consolidation
Loans." There can be no assurance that the applicable Seller rather than another
institution will make any particular Consolidation Loan with respect to
borrowers with Financed Student Loans. In addition, a Seller is obligated to
purchase any Financed Student Loan pursuant to a Sale and Servicing Agreement as
a result of a breach of any of its representations and warranties, and the
applicable Master Servicer is obligated to purchase any Financed Student Loan
pursuant to a Sale and Servicing Agreement as a result of a breach of certain
covenants with respect to such Financed Student Loan, in each case where such
breach materially adversely affects the interests of the Certificateholders or
the Noteholders in that Financed Student Loan and is not cured within the
applicable cure period (it being understood that any such breach that does not
affect any Guarantor's obligation to guarantee payment of such Financed Student
Loan will not be considered to have a material adverse effect for this purpose).
See "Description of the Transfer and Servicing Agreements--Sale of Financed
Student Loans; Representations and Warranties" and "--Servicer Covenants." See
also "--Termination" regarding the Seller's option to purchase the Financed
Student Loans when the aggregate Pool Balance is less than or equal to 10% of
the Maximum Pool Balance and "--Insolvency Event" regarding the sale of Financed
Student Loans if a Seller Insolvency Event occurs.
Scheduled payments with respect to, and maturities of, the Financed
Student Loans may be extended, including pursuant to Grace Periods, Deferral
Periods and, under certain circumstances, Forbearance Periods or as a result of
refinancings through Consolidation Loans to the extent such Consolidation Loans
are sold to the applicable Eligible Lender Trustee on behalf of a Trust as
described above. In that event, the fact that such Consolidation Loans will
likely have longer maturities than the Financed Student Loans they are replacing
may lengthen the remaining term of the Financed Student Loans and the average
life of the Notes and the Certificates. The rate of payment of principal of the
Notes and the Certificates and the yield on the Notes and the Certificates may
also be affected by the rate of defaults resulting in losses on Financed Student
Loans, by the severity of those losses and by the timing of those losses, which
may affect the ability of the Guarantors to make Guarantee Payments with respect
thereto.
If consented to by an applicable Surety Provider, amounts otherwise
required to be deposited into the Reserve Account, if established, may be
applied as an Additional Principal Payment to the Class of Notes then entitled
to receive payments of principal (or, after all Classes of Notes have been paid
in full, the Certificates).
If a Note Surety Bond or Certificate Surety Bond has been issued with
respect to a Class of Notes or the Certificates, the related Surety Provider
will generally be required on the Final Maturity Date relating to a Class of
Notes or the Certificates (after giving effect to all distributions to be made
on each such date), pursuant to the applicable Note Surety Bond or Certificate
Surety Bond, to provide an amount equal to all unpaid principal and interest
payable in respect of the related Class of Notes or the Certificates (other than
Noteholders' Interest Carryover and Certificateholders' Interest Carryover). If
the Surety Provider fails to satisfy such obligations, the affected
Securityholders would likely incur losses. In addition, the maturity of many of
the Financed Student Loans will extend well beyond the final Maturity Date of
certain Classes of Notes.
The rate of prepayment on the Financed Student Loans cannot be
predicted, and any reinvestment risks resulting from a faster or slower
incidence of prepayment of Financed Student Loans or a faster or slower
incidence of sales by the Trust will be borne entirely by the Securityholders.
Such reinvestment risks may include the risk that interest rates and the
relevant spreads above particular interest rate bases are lower at the time
Securityholders receive payments from the related Trust than such interest rates
and such spreads would otherwise have been had such prepayments not been made or
had such prepayments been made at a different time.
Insurance of Student Loans; Guarantors of Federal Loans
General. Each Federal Loan is required to be guaranteed as to principal
and interest by a Guarantor and reinsured by the Department under the Higher
Education Act and must be eligible for Special Allowance Payments and, with
respect to each Financed Student Loan that is not an SLS Loan, PLUS Loan or
Unsubsidized Stafford Loan, Interest Subsidy Payments paid by the Department.
Federal Reinsurance. Under the Higher Education Act, each Guarantor is
reimbursed by the Department pursuant to certain agreements between the
Department and such Guarantor for amounts paid under its Guarantee Agreement.
The amount of reimbursement by the Department for Federal Loans for each fiscal
year commencing October 1 varies for each Guarantor depending on the annual
claims rate for that Guarantor (i.e., the dollar amount of reimbursement claims
filed by that Guarantor during that fiscal year as a percentage of the
outstanding aggregate principal amount at the end of the preceding fiscal year
of those Federal Loans it guarantees whose borrowers were repaying such Federal
Loans at the end of the preceding fiscal year) as follows:
Claims Rate Reimbursement to Guarantor by the
of Guarantor Department of Education (1)
0% to and including 5% 100%
Greater than 5% to and including 9% 100% of claims to and including 5%; 90%
of claims greater than 5%
Greater than 9% 100% of claims to and including 5%; 90%
of of claims greater than 5% to and
including 9%; and 80% of claims greater
than 9%
(1) Each of the reimbursement percentages listed above is reduced
by two percentage points for a loan made on or after October
1, 1993.
The claims experience for any Guarantor is not accumulated from year to
year for purposes of this test but is determined solely on the basis of claims
filed in any one federal fiscal year. The Higher Education Act provides that the
obligation of the Department to reimburse each such Guarantor as described above
is, subject to compliance with the Higher Education Act, supported by the full
faith and credit of the United States and that Guarantors are deemed to have a
contractual right against the United States to receive reinsurance in accordance
with its provisions.
Under the 1993 Amendments, Congress made a number of changes that may
adversely affect the financial condition of the Guarantors, including reducing
to 98% the maximum percentage of Guarantee Payments the Department will
reimburse for loans first disbursed on or after October 1, 1993, reducing
substantially the premiums and default collections that Guarantors are entitled
to receive and/or retain and giving the Department broad powers over Guarantors
and their reserves. The 1993 Amendments also reduced Guarantors default
collection retention rate from 30% to 27%, reduced the maximum insurance premium
charged by a Guarantor from 3% to 1% and authorized the Secretary to terminate a
Guarantor's reinsurance agreement if the Secretary determines such action is
necessary to protect federal fiscal interests or ensure an orderly transition to
full implementation of the FDSLP. The Administrative Cost Allowance ("ACA") was
eliminated; however, legislative history suggests that Congress intended that
Guarantors will continue to receive a 1% ACA. For Stafford Loans disbursed on or
after July 1, 1995, the Lender yield on student loans during in school, grace
and deferment periods is reduced from the 91-day Treasury bill rate plus 3.1% to
91-day Treasury bill rate plus 2.5% (not to exceed 8.25%, before giving effect
to any applicable Special Allowance Payments). Lenders will also be required to
pay a 1.05% annual fee to the Secretary on the principal plus accrued but unpaid
interest of all Consolidation Loans made on or after October 1, 1993 and such
loans bear interest at the 91-day Treasury bill rate plus 3.1% with no floor
applicable. Also, effective for student loans first disbursed after October 1,
1993, Lenders will be assessed an up-front, user/origination fee equal to .5% of
the principal amount of the student loan. The Department's powers over
Guarantors include the authority to require a Guarantor to return all reserve
funds to the Department if the Department determines such action is necessary to
ensure an orderly termination of the Guarantor, to serve the best interests of
the Federal Programs or to ensure the proper maintenance of such Guarantor's
funds or assets. The Department is also now authorized to direct a Guarantor to
return a portion of its reserve funds which the Department determines is
unnecessary to pay the program expenses and contingent liabilities of the
Guarantor and/or to cease any activities involving the use of the Guarantor's
reserve funds or assets which the Department determines is a misapplication or
otherwise improper. Subject to the requirements described in the following
paragraphs, the Department may also terminate a Guarantor's reinsurance
agreement if the Department determines that such action is necessary to protect
the federal fiscal interest or to ensure an orderly transition to full
implementation of direct federal lending. These various changes create a
significant risk that the resources available to the Guarantors to meet their
guarantee obligations will be significantly reduced. In addition, this
legislation greatly expands the Federal Direct Student Loan Program volume to a
target of approximately 60% of student loan demand in academic year 1998-1999,
which could result in increasing reductions in the volume of loans made under
the Program. Such changes could have an adverse effect on the financial
condition of the Guarantors and on the ability of a Guarantor to satisfy its
obligations under its Guarantee Agreement with respect to the Federal Loans. See
"Risk Factors--Changes in Legislation."
In issuing guarantees with respect to Federal Loans, each Guarantor is
required by the Higher Education Act to review loan applications to verify the
completion of required information and to make a determination that the
applicant has not borrowed amounts in excess of any applicable annual and
aggregate limits imposed by the Higher Education Act.
Pursuant to the 1992 Amendments, each Guarantor is required to maintain
a current minimum reserve level of at least 0.5% of the aggregate principal
amount of all outstanding Federal Loans guaranteed by such Guarantor for the
fiscal year that begins in 1993, with such minimum increasing to 0.7% and 0.9%
for fiscal years beginning in 1994 and 1995, respectively, and 1.1% for fiscal
years beginning on or after January 1, 1996. Annually, the Department will
collect information from each Guarantor to determine the amount of such
Guarantor's reserves and other information regarding its solvency. If a
Guarantor's current reserve level falls below the required minimum for any two
consecutive years, that Guarantor's annual claims rate exceeds 9% or the
Department determines that a Guarantor's administrative or financial condition
jeopardizes that Guarantor's continued ability to perform its responsibilities,
then that Guarantor must submit and implement a management plan acceptable to
the Department. The 1992 Amendments also provide that under certain
circumstances the Department is authorized, on terms and conditions satisfactory
to the Department, but is not obligated, to terminate its reimbursement
agreement with any Guarantor. In that event, however, the Department is required
to assume the functions of such Guarantor and in connection therewith is
authorized to do one or more of the following: to assume the guarantee
obligations of, to assign to other guarantors the guarantee obligations of, or
to make advances to, a Guarantor in order to assist such Guarantor in meeting
its immediate cash needs and to ensure uninterrupted payment of default claims
to lenders or to take any other action the Department deems necessary to ensure
the continued availability of student loans and the full honoring of guarantee
claims thereunder. In addition, the 1992 Amendments provide that if the
Department determines that a Guarantor is unable to meet its guarantee
obligations, holders of Federal Loans covered thereby may submit guarantee
claims directly to the Department until such time as such guarantee obligations
are transferred to a new guarantor capable of meeting such obligations or until
a successor guarantor assumes such obligations. There can be no assurance,
however, that the Department would under any given circumstances assume such
obligation to ensure satisfaction of a guarantee obligation by exercising its
right to terminate a reimbursement agreement with a Guarantor or by making a
determination that such Guarantor is unable to meet its guarantee obligations.
Amounts received or receivable from the Department for reimbursement
for claims paid are subject to periodic audit and adjustment by the Department.
Any disallowed claims, including amounts already collected, may constitute a
liability of the respective Guarantor. Although federal audit reports as of this
date have raised several compliance issues relating to the California Student
Aid Commission, one of the Guarantors, the Seller and The Money Store believe
that it is not possible to determine as of the date of this Prospectus the
number of claims, if any, which might ultimately be disallowed by the
Department.
Guarantors for the Financed Student Loans. The Higher Education Act
requires every state to designate a guarantee agency, either by establishing its
own or by designating another guarantee agency. A Guarantor who has been
designated by a particular state is obligated to guarantee loans for students
who reside or attend school in such state and must agree to provide loans to any
such students who are otherwise unable to obtain a loan from any other lender.
Guarantee agencies may guarantee a loan made to any eligible borrower and are
not limited to guaranteeing loans for students attending institutions in their
particular state or region or for their residents attending schools in another
state or region. Each Eligible Lender Trustee has entered, or will enter, into a
Guarantee Agreement with each Guarantor guaranteeing the Federal Loans acquired,
or to be acquired, by the related Trust.
Pursuant to its respective Guarantee Agreement, each Guarantor
guarantees payment of 98% (except that such guarantee against defaults will be
100% of principal and accrued interest for loans first disbursed prior to
October 1, 1993); of the principal (including any interest capitalized from time
to time) and accrued interest for each Federal Loan guaranteed by it as to which
any one of the following events has occurred:
(a) failure by the borrower thereof to make monthly principal
or interest payments on such Federal Loan when due, provided such
failure continues for a period of 180 days;
(b) any filing by or against the borrower thereof of a
petition in bankruptcy pursuant to any chapter of the Federal
bankruptcy code, as amended;
(c) the death of the borrower thereof; or
(d) the total and permanent disability of the borrower thereof
to work and earn money or attend school, as certified by a qualified
physician.
When these conditions are satisfied, the Higher Education Act requires
the Guarantor generally to pay the claim within 90 days of its submission by the
lender. The obligations of the Guarantors pursuant to their respective Guarantee
Agreements are obligations solely of the applicable Guarantor, and are not
supported by the full faith and credit of any state government, except loans
guaranteed by the New York State Higher Education Services Corporation.
Each Guarantor's guarantee obligations with respect to any Federal Loan
are conditioned upon the satisfaction of all the conditions set forth in the
applicable Guarantee Agreement. These conditions include, but are not limited
to, the following: (i) the origination and servicing of such Federal Loan being
performed in accordance with the Program, the Higher Education Act and other
applicable requirements, (ii) the timely payment to the applicable Guarantor of
the guarantee fee payable with respect to such Federal Loan, (iii) the timely
submission to the applicable Guarantor of all required preclaim delinquency
status notifications and of the claim with respect to such Federal Loan and (iv)
the transfer and endorsement of the promissory note evidencing such Federal Loan
to the applicable Guarantor upon and in connection with making a claim to
receive Guarantee Payments thereon. Failure to comply with any of the applicable
conditions, including the foregoing, may result in the refusal of the applicable
Guarantor to honor its Guarantee Agreement with respect to such Federal Loan, in
the denial of guarantee coverage with respect to certain accrued interest
amounts with respect thereto or in the loss of certain Interest Subsidy Payments
and Special Allowance Payments with respect thereto. Under a Sale and Servicing
Agreement, such failure to comply would constitute a breach of the applicable
Master Servicer's covenants or TWIC's representations and warranties, as the
case may be, and would create an obligation of TWIC or the Master Servicer, as
the case may be, to repurchase or purchase such Federal Loan or to reimburse the
related Trust for such non-guaranteed interest amounts or such lost Interest
Subsidy Payments and Special Allowance Payments with respect thereto. See
"Description of the Transfer and Servicing Agreements--Sale of Financed Student
Loans; Representations and Warranties" and "--Servicer Covenants."
Certain historical information concerning the Guarantors guaranteeing
the Federal Loans will be set forth in the related Prospectus Supplement. Such
information will include for the periods presented the related Guarantor's
guarantee volume, reserve ratios, recovery rates, loan loss reserves and claims
rate. It is expected that such information will be obtained from the Department
of Education's Guaranteed Student Loan Program Books or from the applicable
Guarantor. Neither the Sellers nor The Money Store will independently verify
such information.
DESCRIPTION OF THE SECURITIES
General
Each Series of Notes will be issued pursuant to the terms of a Master
Indenture and a related Terms Supplement and each Class of Certificates will be
issued pursuant to the terms of the related Trust Agreement and, except for an
initial Class of Certificates, the related Trust Supplement. The following
summary describes certain terms of the Notes, the Certificates, a Master
Indenture, each Terms Supplement and a Trust Agreement. The summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of each Series of Notes, each Class of Certificates, the applicable
Master Indenture, each Terms Supplement and the applicable Trust Agreement.
It is expected that each Class of Notes and each Class of Certificates
(except for the Certificates being sold to Student Holdings) will initially be
represented by one or more Notes and Certificates, respectively, in each case
registered in the name of the nominee of DTC (together with any successor
depository selected by the Administrator, the "Depository") except as set forth
below. The Notes will be available for purchase in the denominations set forth
in the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Notes may be available in book-entry form only. As a result of
the Internal Revenue Service recently adopting regulations concerning publicly
traded partnerships, each Trust Agreement will provide that Certificates will be
available for purchase in denominations equal to the lesser of $1,000,000 or
1/24th of the Certificate Balance, and integral multiples of $50,000 in excess
thereof. Unless otherwise specified in the related Prospectus Supplement, DTC's
nominee will be Cede. Accordingly, Cede is expected to be the holder of record
of the Securities. If Notes are available in book-entry form only, unless and
until Definitive Notes or Definitive Certificates are issued under the limited
circumstances described herein, no Noteholder or Certificateholder will be
entitled to receive a physical certificate representing a Note or Certificate.
All references herein to actions by Noteholders or Certificateholders refer to
actions taken by DTC upon instructions from its participating organizations (the
"Participants") and all references herein to distributions, notices, reports and
statements to Noteholders or Certificateholders refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the Notes or
Certificates, as the case may be, for distribution to Noteholders or
Certificateholders in accordance with DTC's procedures with respect thereto. See
"--Book-Entry Registration" and "-- Definitive Securities."
The Notes
Distributions of Interest. Interest will accrue on the principal
balance of each Class of Notes at a rate per annum (calculated as provided below
or in the related Prospectus Supplement) equal to the related Class Interest
Rate. Interest may accrue initially from and including the Closing Date on which
the related Series was issued through and including the date set forth in the
related Prospectus Supplement and, thereafter, except as otherwise set forth in
the related Prospectus Supplement, for periods (each, an "Interest Period")
consisting of (i) with respect to Auction Rate Notes, as set forth in the
related Prospectus Supplement, (ii) with respect to LIBOR Rate Notes, generally
a one-month period beginning and ending on the dates set forth in the related
Prospectus Supplement, (iii) with respect to T-Bill Rate Notes, generally a
one-month period beginning and ending on the dates set forth in the related
Prospectus Supplement or (iv) with respect to Notes accruing interest based on
some other method, the period set forth in the related Prospectus Supplement.
Interest on each Class of Notes will be payable (or with respect to Accrual
Notes during the related Accrual Period, added to the principal amount thereof)
on the related Note Distribution Date. Interest distributions due on any Class
of Notes for any Note Distribution Date but not distributed on such Note
Distribution Date will be due on the next Note Distribution Date for such Class,
increased by an amount equal to interest on such amount at the applicable Class
Interest Rate for the period from the Note Distribution Date for which such
interest was first due until the Note Distribution Date such interest is paid.
Interest payments on the Notes will generally be funded from Available Funds and
Monthly Advances (and, when applicable, amounts on deposit in the Reserve
Account, Capitalized Interest Account and the Capitalized Pre-Funding Account)
remaining after the deposit of the Transaction Fees in the Expense Account.
Interest will be paid pro rata to the holders of each Class of Notes
outstanding. See "Description of the Transfer and Servicing Agreements
Distributions" and "--Credit Enhancement." If insufficient funds are available
to pay the Noteholders' Interest Distribution Amount on a Note Distribution
Date, such shortfall will be paid from draws on the applicable Note Surety
Bonds, if any, to the extent described in the related Prospectus Supplement
under "Description of the Surety Bonds--Note Surety Bonds."
Until the date of an Auction Period adjustment, if any, the interest
rate on each Class of Auction Rate Notes for each Interest Period will be the
Class Interest Rate based on an Auction Period, subject to adjustment as
described herein. The Class Interest Rate on each Class of Auction Rate Notes
for each Auction Period will be the lesser of (i) the Net Loan Rate in effect
for such Auction Period and (ii) the Auction Rate in effect for such Auction
Period, as determined by the Auction Agent pursuant to the Auction Procedures
described in Appendix I hereto and in the related Prospectus Supplement;
provided that if on any Rate Determination Date, an Auction for a Class of Notes
is not held for any reason, then the Class Interest Rate for such Class of Notes
will be the Net Loan Rate. The Class Interest Rate on each Class of LIBOR Rate
Notes for each Interest Period will be the lesser of (i) the Net Loan Rate in
effect for such Interest Period and (ii) LIBOR plus the margin set forth in the
applicable Prospectus Supplement (the "LIBOR Rate"). The Class Interest Rate on
each Class of T-Bill Rate Notes for each Interest Period will be the lesser of
(i) the Net Loan Rate in effect for such Interest Period and (ii) the T-Bill
Rate plus the margin set forth in the applicable Prospectus Supplement. However,
no Class Interest Rate will exceed the rate per annum set forth in the related
Prospectus Supplement, and will be subject to other limitations described herein
and therein.
For each Class of Notes, the applicable Initial Rate, Initial Rate
Adjustment Date and last day of the Initial Period will be set forth in the
related Prospectus Supplement. Thereafter, interest will accrue as set forth
above.
Auction Period Adjustment. With respect to Auction Rate Notes, the
Administrator may, from time to time, change the length of one or more Auction
Periods to conform with then current market practice or accommodate other
economic or financial factors that may affect or be relevant to the length of
the Auction Period or any Class Interest Rate (an "Auction Period Adjustment").
An Auction Period Adjustment will not cause an Auction Period to be less than 7
days nor more than one year and will not be allowed unless certain conditions
described in the Auction Procedures in Appendix I are satisfied. If an Auction
Period Adjustment is made, the intervals between Note Distribution Dates will be
adjusted accordingly.
Noteholders' Interest Carryover. If, with respect to any Class of
Notes, for any Interest Period the Auction Rate, the LIBOR Rate or the T-Bill
Rate plus the applicable margin, as applicable, exceeds the Net Loan Rate, the
applicable Class Interest Rate for such Interest Period will be the Net Loan
Rate, and the excess of the amount of interest on such Class of Notes that would
have accrued at a rate equal to the Auction Rate, the LIBOR Rate or the T-Bill
Rate plus the applicable margin, as applicable, over the amount of interest on
such Class actually accrued at the Net Loan Rate will accrue as the Noteholders'
Interest Carryover with respect to such Class of Notes. Such determination of
the Noteholders' Interest Carryover will be made separately for each Class of
Notes. The Noteholders' Interest Carryover on any Class of Notes will bear
interest at a rate equal to One-month LIBOR, or the rate set forth in the
related Prospectus Supplement, from the Note Distribution Date for the Interest
Period for which the Noteholders' Interest Carryover was calculated until paid.
Any Noteholders' Interest Carryover that may exist on any Note
Distribution Date will be paid as described herein under "Description of the
Transfer and Servicing Agreements--Distributions."
Distributions of Principal. All payments of principal of a Series of
Notes will be made in an aggregate amount determined as set forth in the related
Prospectus Supplement and will be paid at the times and will be allocated amount
the Classes of Notes of such Series in the order and amounts, all as specified
in the related Prospectus Supplement. Principal payments on a Class of Notes
will generally be derived from Available Funds and amounts, if any, on deposit
in the applicable Reserve Account, if any, remaining after the Indenture Trustee
has deposited in the Expense Account the Transaction Fees for the month
preceding such Note Distribution Date and all overdue Transaction Fees from
prior months, deposited in the Note Distribution Account the Noteholders
Interest Distribution Amount, and, unless there has been an Event of Default
under a Series of Notes, deposited in the Certificateholder Distribution
Account, the Certificateholders Interest Distribution Amount. Additionally, with
the consent of the Surety Provider, if applicable, amounts otherwise required to
be deposited into the Reserve Account may be applied as Additional Principal
Payments. See "Description of the Transfer and Servicing Agreements--
Distributions" and "--Credit Enhancement." If such sources are insufficient to
pay the Noteholders' Principal Distribution Amount for such Note Distribution
Date, such shortfall will be added to the principal payable to the Noteholders
on subsequent Note Distribution Dates.
The aggregate outstanding principal amount of each Class of Notes will
be payable in full on the Note Distribution Date identified in the related
Prospectus Supplement (the "Final Maturity Date"). The actual date on which the
aggregate outstanding principal and accrued interest of any Class of Notes are
paid may be earlier than its respective Final Maturity Date, based on a variety
of factors, including those described above under "Risk Factors--Maturity and
Prepayment Assumptions" and "The Financed Student Loan Pool--Maturity and
Prepayment Assumptions."
Mandatory Redemption. If a Pre-Funding Account has been established
with respect to a Trust and a deposit therein has been made in connection with
the issuance of a Series of Notes, the Class of Notes then entitled to receive
payments of principal will be redeemed in part on the applicable Note
Distribution Date on or immediately following the last day of each Funding
Period, in the event that any amount remains on deposit in the Pre-Funding
Account after giving effect to all Additional Fundings on or prior to such date,
in an aggregate principal amount equal to the amount then on deposit in the
Pre-Funding Account.
The Certificates
Distributions of Interest. On each Certificate Distribution Date,
Certificateholders of the related Class will be entitled to distributions in an
amount equal to the amount of interest accrued during the related Interest
Period on the principal amount of such Class at the applicable Certificate Rate.
Interest on the Certificates will accrue initially from and including the
Closing Date on which the related Class was issued through and including the
date set forth in the related Trust Agreement or the related Trust Supplement
and, thereafter, except as otherwise provided in the related Trust Supplement,
for Interest Periods consisting of, (i) with respect to Auction Rate
Certificates, 28 days, subject to adjustment as set forth in the Auction
Procedures described in Appendix I, (ii) with respect to LIBOR Rate
Certificates, the one-month period beginning and ending on the dates set forth
in the related Trust Supplement, (iii) with respect to T-Bill Rate Certificates,
the one-month period beginning and ending on the dates set forth in the related
Trust Supplement , and (iv) with respect to Certificates accruing interest based
on some other method, the period set forth in the related Trust Supplement.
Interest distributions due for any Class of Certificates on any Certificate
Distribution Date but not distributed on such Certificate Distribution Date will
be due on the next Certificate Distribution Date for such Class increased by an
amount equal to interest on such amount at the applicable Certificate Rate for
the period from the Certificate Distribution Date for which such interest was
first due until the Certificate Distribution Date such interest is paid.
Interest distributions with respect to the Certificates will generally be funded
from Available Funds, Monthly Advances and the amounts, if any, on deposit in
the Reserve Account, if applicable, remaining after the Indenture Trustee has
transferred to the Expense Account an amount, up to the excess, if any, of the
Transaction Fees for the month preceding such Certificate Distribution Date and
all overdue Transaction Fees for the month preceding such Certificate
Distribution Date over the amount, if any, previously transferred to the Expense
Account during the month of such Certificate Distribution Date, provided,
however, that Certificateholders will not be entitled to any distributions if
there has been an Event of Default under any Series of Notes until each Class of
Notes has been paid in full. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Credit Enhancement--Reserve Account." If
insufficient funds are available to pay the Certificateholders' Interest
Distribution Amount for such Certificate Distribution Date, then amounts may be
drawn under the applicable Certificate Surety Bonds, if any, to cover such
shortfalls. See "Description of the Surety Bonds--Certificate Surety Bonds" in
the related Prospectus Supplement.
Until the date of an Auction Period Adjustment, if any, the interest
rate on each Class of Auction Rate Certificates for each Interest Period will be
the Certificate Rate based on an Auction Period, subject to adjustment as
described herein. The Certificate Rate on each Class of Auction Rate
Certificates for each Auction Period will be the lesser of (i) the Net Loan Rate
in effect for such Auction Period and (ii) the Auction Rate in effect for such
Auction Period, as determined by the Auction Agent generally pursuant to the
Auction Procedures described in Appendix I hereto; provided that if on any Rate
Determination Date, an Auction for a Class of Auction Rate Certificates is not
held for any reason, then the Certificate Rate for such Certificates will be the
Net Loan Rate. The Certificate Rate on each Class of LIBOR Rate Notes for each
Interest Period will be the lesser of (i) the Net Loan Rate in effect for such
Interest Period and (ii) the applicable LIBOR Rate. However, no Certificate Rate
will exceed 18.0% per annum, or such other rate as may be set forth in a Trust
Supplement, and will be subject to other limitations described herein.
Auction Period Adjustment. With respect to Auction Rate Certificates,
the Administrator may, from time to time, change the length of one or more
Auction Periods to conform with then current market practice or to accommodate
other economic or financial factors that may affect or be relevant to the length
of the Auction Period or any Certificate Rate. An Auction Period Adjustment with
respect to the Certificates will not cause an Auction Period to be less than 7
days nor more than one year and will not be allowed unless certain conditions
described in the Auction Procedures in Appendix I are satisfied.
Certificateholders' Interest Carryover. If, with respect to any Class
of Certificates, for any Interest Period the Auction Rate, the LIBOR Rate or the
T-Bill Rate (or any other related rate), as applicable, exceeds the Net Loan
Rate, the applicable Certificate Rate for such Interest Period will be the Net
Loan Rate, and the excess of the amount of interest on such Class of
Certificates that would have accrued at a rate equal to the Auction Rate, the
LIBOR Rate or the T-Bill Rate, as applicable, over the amount of interest
actually accrued at the Net Loan Rate will accrue as the Certificateholders'
Interest Carryover with respect to such Class of Certificates. The
Certificateholders' Interest Carryover on any Class of Certificates will bear
interest at a rate equal to One-Month LIBOR or such other date set forth in the
related Trust Supplement from the Certificate Distribution Date for the Interest
Period for which the Certificateholders' Interest Carryover Amount was
calculated until paid.
Any Certificateholders' Interest Carryover that may exist on any
Certificateholders' Distribution Date will be paid as described in the related
Prospectus Supplement under "Description of the Transfer and Servicing
Agreement--Distributions."
Distributions of Principal. Certificateholders of the Class of
Certificates with the earliest Final Maturity Date, or such other Class set
forth in the related Trust Supplement, will be entitled to distributions on each
Certificate Distribution Date on and after which each Class of Notes has been
paid in full in an amount generally equal to the Principal Distribution Amount
for such Certificate Distribution Date (provided, however, that principal
payments will be made only in the denominations set forth in the related
Prospectus Supplement). Distributions with respect to principal payments on the
Certificates for such Certificate Distribution Date will generally be funded
from the portion of Available Funds and amounts, if any, on deposit in the
applicable Reserve Account, if any, remaining after the transfer by the
Indenture Trustee to the Expense Account of the Transaction Fees and the
transfer to the Certificate Distribution Account of the Certificateholder
Interest Distribution Amount. Additionally, with the consent of the applicable
Surety Provider, if any, amounts otherwise required to be deposited into the
Reserve Account may be applied as Additional Principal Payments. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Credit Enhancement--Reserve Account" herein and in the related Prospectus
Supplement. If such sources are insufficient to pay the Certificateholders'
Principal Distribution Amount for such Certificate Distribution Date, such
shortfall will be added to the principal payable to Certificateholders on
subsequent Certificate Distribution Dates.
Principal payments on the Certificates will be applied on each
applicable Certificate Distribution Date, first, to the principal balance of the
Class of Certificates with the earliest Final Maturity Date, or such other Class
set forth in the related Trust Supplement, until such principal balance is
reduced to zero and then to the principal balance of each other Class of
Certificates, in order of Final Maturity Date, until the principal balance of
each Class is reduced to zero. The aggregate outstanding principal amount of
each Class of Certificates will be payable in full on the Final Maturity Date
set forth in the Trust Agreement or the related Trust Supplement. The actual
date on which the aggregate outstanding principal and accrued interest of any
Class of Certificates will be paid may be earlier than its respective
Certificate Final Maturity Date, however, based on a variety of factors,
including those described above under "Risk Factors--Maturity and Prepayment
Assumptions" and "The Financed Student Loan Pool--Maturity and Prepayment
Assumptions."
If a Certificate Surety Bond has been obtained, on the Final Maturity
Date related to a Class of Certificates, the applicable Surety Provider will be
required to provide for payment to the related Trust pursuant to the applicable
Certificate Surety Bond of an amount generally equal to the excess, if any, of
the unpaid principal balance of the Certificates of such Class on such
Certificate Final Maturity Date over amounts on deposit in the Certificate
Distribution Account, after taking into account the required application of
funds in the remaining Trust Accounts, including but not limited to the Reserve
Account, if any, pursuant to the related Sale and Servicing Agreement, to be
applied to the payment of principal on the Certificates of such Class on such
Certificate Final Maturity Dates, subject to the exceptions described under
"Description of the Surety Bonds--Certificate Surety Bonds" in the related
Prospectus Supplement. Any such amount will be distributed to holders of the
applicable Class of Certificates on the related Certificate Final Maturity Date.
Subordination of the Certificates. No distributions in respect of
principal of any Class of Certificates will be made until the Certificate
Distribution Date on or after which each Class of Notes has been paid in full.
Summary of Auction Procedures
The following summarizes certain procedures that will be used in
determining the interest rates on the Auction Rate Notes. Annex I hereto
contains a more detailed description of these procedures. Prospective investors
in the Auction Rate Notes should read carefully the following summary, along
with the more detailed description in Annex I.
The interest rate on each Class of Auction Rate Notes will be
determined periodically (generally, for periods ranging from 7 days to one year)
by means of a "Dutch Auction." In this Dutch Auction, investors and potential
investors submit orders through an eligible broker/dealer as to the principal
amount of Auction Rate Notes such investors wish to buy, hold or sell at various
interest rates. The broker/dealers submit their clients' orders to the auction
agent, who processes all orders submitted by all eligible broker/dealers and
determines the interest rate for the upcoming interest period. The
broker/dealers are notified by the auction agent of the interest rate for the
upcoming interest period and are provided with settlement instructions relating
to purchases and sales of Auction Rate Notes.
In the auction procedures, the following types of orders may be
submitted:
(i) Bid/Hold Orders - the minimum interest rate that a
current investor is willing to accept in order to
continue to hold some or all of its Auction Rate
Notes for the upcoming interest period;
(ii) Sell Orders - an order by a current investor to sell
a specified principal amount of Auction Rate Notes,
regardless of the upcoming interest rate; and
(iii) Potential Bid Orders - the minimum interest
rate that a potential investor (or a current investor
wishing to purchase additional Auction Rate Notes) is
willing to accept in order to buy a specified
principal amount of Auction Rate Notes.
If an existing investor does not submit orders with respect to all its
Auction Rate Notes of the applicable Class, the investor will be deemed to have
submitted a Hold Order at the new interest rate for that portion of the Auction
Rate Notes for which no order was received.
In connection with each auction, Auction Rate Notes will be purchased
and sold between investors and potential investors at a price equal to their
then outstanding principal balance (i.e., par) plus any accrued interest. The
following example helps illustrate how the above-described procedures are used
in determining the interest rate on the Auction Rate Notes.
(a) Assumptions:
1. Denominations (Units) = $100,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
(b) Summary of All Orders Received For The Auction
Bid/Hold Orders Sell Orders Potential Bid Orders
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
--------------
100 Units at 3.10% 200 Units 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
- ------------------
300 Units 50 Units at 3.14%
100 Units at 3.15%
350 Units
Total units under existing Bid/Hold Orders and Sell Orders always equal
issue size (in this case 500 units).
(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative
Number of Units Total (Units) % Number of Units Total (Units) %
------ -------- ------------- -- ------ -------- ------------- -
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 50(W) 140 3.05% 11 50(L) 3.14%
6 60(W) 200 3.05% 12 100(L) 3.15%
(W) Winning Order (L) Losing Order
</TABLE>
Order #10 is the order that clears the market of all available units.
All winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next Interest Period, when another auction will be held.
Multiple orders at the winning rate are allocated units on a pro rata basis.
Notwithstanding the foregoing, in no event will the interest rate exceed the
lesser of the Net Loan Rate or the Maximum Auction Rate (each as described
below).
The above example assumes that a successful auction has occurred (i.e.,
all Sell Orders and all Bid/Hold Orders below the new interest rate were
fulfilled). In certain circumstances, there may be insufficient Potential Bid
Orders to purchase all the Auction Rate Notes offered for sale. In such
circumstances, the interest rate for the upcoming Interest Period will equal the
lesser of the Net Loan Rate and the Maximum Auction Rate. Also, if all the
Auction Rate Notes are subject to Hold Orders (i.e., each holder of Auction Rate
Notes wishes to continue holding its Auction Rate Notes, regardless of the
interest rate) the interest rate for the upcoming Interest Period will equal the
lesser of the Net Loan Rate and the All Hold Rate (as defined below).
As stated above, the foregoing is only a summary of the auction
procedures. The following is a more detailed description of these procedures.
Determination of LIBOR
Pursuant to an Auction Agent Agreement, the Auction Agent will
determine One-Month LIBOR for purposes of calculating the interest due on the
LIBOR Rate Notes, the LIBOR Rate Certificates, the Noteholders' Interest
Carryover and the Certificateholder's Auction Rate Interest Carryover for each
given Interest Period on the second Business Day prior to the commencement of
each Interest Period (each, a "LIBOR Determination Date"). For purposes of
calculating One-Month LIBOR, a Business Day is any day on which banks in London
and New York City are open for the transaction of business. Interest due for any
Interest Period will be determined based on the actual number of days in such
Interest Period over a 360-day year.
"One-Month LIBOR" means the London interbank offered rate for deposits
in U.S. dollars having a maturity of one month commencing on the related LIBOR
Determination Date (the "Index Maturity") which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of
the rates at which deposits in U.S. dollars, having the Index Maturity and in a
principal amount of not less than U.S. $1,000,000, are offered at approximately
11:00 a.m., London time, on such LIBOR Determination Date to prime banks in the
London interbank market by the Reference Banks. The Auction Agent will request
the principal London office of each of such Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that day will be the arithmetic mean of the quotations. If fewer than two
quotations are provided, the rate for that day will be the arithmetic mean of
the rates quoted by major banks in New York City, selected by the Auction Agent,
at approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in the U.S. dollars to leading European banks having the Index
Maturity and in a principal amount equal to an amount of not less than U.S.
$1,000,000; provided that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, One-Month LIBOR in effect for the applicable LIBOR
Reset Period will be One-Month LIBOR in effect for the previous LIBOR Reset
Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Bank" means a leading bank (i) engaged in transaction in
Eurodollar deposits in the international Eurocurrency market, (ii) not
controlling, controlled by or under common control with the Administrator or The
Money Store and (iii) having an established place of business in London.
The Indenture
Modification of a Master Indenture. Generally, with the consent of the
applicable Surety Provider, if any, and the holders of a majority of the
outstanding Notes (or, with respect to any change affecting only certain Series
of Notes, the holders of a majority of the Notes of such Series), the applicable
Indenture Trustee and the related Trust may execute a supplemental indenture to
add provisions to, or change in any manner or eliminate any provisions of, a
Master Indenture with respect to the Notes, or to modify (except as provided
below) in any manner the rights of the Noteholders.
Modification of a Terms Supplement. Generally, with the consent of the
applicable Surety Provider, if any, and the holders of a majority of outstanding
Notes of the related Series, the applicable Indenture Trustee and the related
Trust may execute a supplemental indenture to add provisions to, or change in
any manner or eliminate any provisions of, a Terms Supplement with respect to
the related Series of Notes, or to modify (except as provided below) in any
manner the rights of the related Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplement to a Master Indenture or any Terms Supplement
will (i) change the due date of any installment of principal of or interest on
any Note or reduce the principal amount thereof or the interest rate specified
thereon, change the provisions relating to the application of collections on, or
the proceeds of the sale of, the assets of the applicable Trust to payment of
principal of or interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or any interest thereon is payable, (ii)
impair the right to institute suit for the enforcement of certain provisions of
the Indenture regarding payment, (iii) reduce the percentage of the aggregate
amount of the outstanding Notes the consent of the holders of which is required
for any such supplemental indenture or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the Master
Indenture or Terms Supplement, as the case may be, or of certain defaults
thereunder and their consequences as provided for in the Master Indenture, (iv)
modify or alter the provisions of the Master Indenture regarding the voting of
Notes held by the applicable Trust, the Sellers, an affiliate of either of them
or any obligor on the Notes, (v) reduce the percentage of the aggregate
outstanding amount of the Notes the consent of the holders of which is required
to direct the applicable Eligible Lender Trustee on behalf of the applicable
Trust to sell or liquidate the Financed Student Loans if the proceeds of such
sale would be insufficient to pay the principal amount and accrued but unpaid
interest on the outstanding Notes, (vi) decrease the percentage of the aggregate
principal amount of the Notes required to amend the sections of the Master
Indenture which specify the applicable percentage of aggregate principal amount
of the Notes necessary to amend the Master Indenture or certain other related
agreements, (vii) modify any of the provisions of the Master Indenture in such
manner as to affect the calculation of the amount of any payment of interest or
principal due on any Note, or (viii) permit the creation of any lien ranking
prior to or on a parity with the lien of the Master Indenture with respect to
any of the collateral for the Notes or, except as otherwise permitted or
contemplated in the Master Indenture, terminate the lien of the Master Indenture
on any such collateral or deprive the holder of any Note of the security
afforded by the lien of the Master Indenture.
Generally, a Trust and the related Indenture Trustee may also enter
into supplemental indentures, with the consent of the Surety Provider, if
applicable, but without obtaining the consent of Noteholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Master Indenture or of modifying in any manner the rights of
Noteholders so long as such action will not, in the opinion of counsel
satisfactory to the Indenture Trustee, materially and adversely affect the
interest of any Noteholder.
Events of Default; Rights Upon Event of Default. Unless provided
otherwise in the related Prospectus Supplement, an "Event of Default" with
respect to the Notes is defined in a Master Indenture as consisting of the
following (except as described in the remaining sentences of this paragraph):
(i) a default for two business days or more in the payment of any interest on
any Note after the same becomes due and payable; (ii) a default for two business
days in the payment of the principal of or any installment of the principal of
any Note when the same becomes due and payable; (iii) a default in the
observance or performance of any covenant or agreement of the applicable Trust
made in the Master Indenture and the continuation of any such default for a
period of thirty days after notice thereof is given to the Trust by the
applicable Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25% in principal amount of the Notes then outstanding; (iv)
any representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within thirty days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of at
least 25% in principal amount of the Notes then outstanding or (v) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust.
However, the amount of principal required to be distributed to Noteholders under
a Master Indenture on any Note Distribution Date is generally limited to the
amount of Available Funds and amounts on deposit in the applicable Reserve
Account, if any, after payment of the Transaction Fees, the Noteholders'
Interest Distribution Amount and the Certificateholder's Interest Distribution
Amount. Any such shortfalls on any Note Distribution Date will be carried over
as a Noteholders' Principal Carryover Shortfall to be paid on succeeding Note
Distribution Dates, unless provided otherwise in the related Prospectus
Supplement. Therefore, the failure to pay principal on any Class of Notes may
not result in the occurrence of an Event of Default until the Final Maturity
Date of such Class of Notes. In addition, unless provided otherwise in the
related Prospectus Supplement, the failure to pay the aggregate amount of
Noteholders' Interest Carryover as a result of insufficient Available Funds will
not result in the occurrence of an Event of Default.
If a Note Surety Bond has been obtained and an Event of Default should
occur and be continuing with respect to any Series of Notes, unless provided
otherwise in the related Prospectus Supplement, the applicable Surety Provider
may or, with the consent of the Surety Provider, the applicable Indenture
Trustee or holders of a majority in principal amount of the Notes then
outstanding may, declare the principal of the Notes to be immediately due and
payable. If specified in the related Prospectus Supplement, with the consent of
the Surety Provider, such declaration may be rescinded by the holders of a
majority in principal amount of the Notes then outstanding at any time prior to
the entry of judgment in a court of competent jurisdiction for the payment of
such amount if (i) the related Trust has paid to the Indenture Trustee a sum
equal to all amounts then due with respect to the Notes (without giving effect
to such acceleration) and (ii) all Events of Default (other than nonpayment of
amounts due solely as a result of such acceleration) have been cured or waived.
If the Notes have been declared to be due and payable following an
Event of Default with respect thereto, the applicable Indenture Trustee may, in
its discretion, either require the applicable Eligible Lender Trustee to sell
the Financed Student Loans or elect to have the Eligible Lender Trustee maintain
possession of the Financed Student Loans and continue to apply collections with
respect to such Financed Student Loans as if there had been no declaration of
acceleration. In addition, unless provided otherwise in the related Prospectus
Supplement, the Indenture Trustee is prohibited from directing the Eligible
Lender Trustee to sell the Financed Student Loans following an Event of Default,
other than a default in the payment of any principal or a default for five days
or more in the payment of any interest on any Note, unless (i) the Surety
Provider, if applicable, and the holders of all outstanding Notes consent to
such sale, (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding Notes at the date of
such sale or (iii) the Indenture Trustee determines that the collections on the
Financed Student Loans and other assets of the applicable Trust would not be
sufficient on an ongoing basis to make all payments on the Notes as such
payments would have become due if such obligations had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Surety Provider,
if applicable, and the holders of 66-2/3% of the aggregate principal amount of
the Notes then outstanding.
Notwithstanding any declaration of the Notes to be due and payable, the
applicable Surety Provider, if specified in the related Prospectus Supplement,
has no obligation to pay in full the principal of any Class of outstanding Notes
until the Final Maturity Date of such Class.
Subject to the provisions of a Master Indenture relating to the duties
of the applicable Indenture Trustee otherwise provided in the related Prospectus
Supplement, if an Event of Default should occur and be continuing with respect
to the Notes, the applicable Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of the applicable Surety Provider, if any, or any of the holders of
Notes, if the Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be incurred
by it in complying with such request. Subject to such provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority in principal amount of the outstanding Notes, with the consent of
the Surety Provider, if specified in the related Prospectus Supplement, will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the Indenture Trustee and the holders of a majority
in principal amount of the Notes then outstanding, with the consent of the
Surety Provider, if any, may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver or consent of all the holders of the outstanding Notes.
No holder of any Note will have the right to institute any proceeding
with respect to a Master Indenture, unless provided otherwise in the related
Prospectus Supplement, unless (i) such holder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% in principal amount of the outstanding Notes have
requested in writing that the Indenture Trustee institute such proceeding in its
own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days failed to institute such proceeding and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during such 60-day
period by the holders of a majority in principal amount of the outstanding
Notes.
In addition, the Indenture Trustee and the Noteholders will covenant
that they will not at any time institute against the applicable Trust any
bankruptcy, reorganization or other proceeding under any Federal or state
bankruptcy or similar law.
None of the Indenture Trustee, the Sellers, the Administrator, the
Master Servicer, the Servicer or the Eligible Lender Trustee in its individual
capacity, nor any holder of a Certificate representing an ownership interest in
the applicable Trust, nor any of their respective owners, beneficiaries, agents,
officers, directors, employees, successors or assigns will, in the absence of an
express agreement to the contrary, be personally liable for the payment of the
principal of or interest on the Notes or for the agreements of the related Trust
contained in the related Master Indenture.
Certain Covenants. Unless provided otherwise in the related Prospectus
Supplement, a Trust may not consolidate with or merge into any other entity,
unless (i) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state or the District of
Columbia, (ii) such entity expressly assumes the Trust's obligation to make due
and punctual payments upon the Notes and the performance or observance of every
agreement and covenant of the Trust under the related Master Indenture and any
Terms Supplement, (iii) no Event of Default has occurred and is continuing
immediately after such merger or consolidation, (iv) the Trust has been advised
that the rating of any Class or Series of Notes or Certificates would not be
reduced or withdrawn by the Rating Agencies as a result of such merger or
consolidation and (v) the Trust has received an opinion of counsel to the effect
that such consolidation or merger would have no material adverse federal or
Pennsylvania state tax consequence to the Trust or to any Certificateholder or
Noteholder.
A Trust will not, unless provided otherwise in the related Prospectus
Supplement, among other things, (i) except as expressly permitted by the related
Master Indenture, the Transfer and Servicing Agreements or certain related
documents (collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of the Trust, (ii) claim any credit on or
make any deduction from the principal and interest payable in respect of any
Class or Series of Notes (other than amounts withheld under the Code or
applicable state law) or assert any claim against any present or former holder
of Notes because of the payment of taxes levied or assessed upon the Trust,
(iii) except as contemplated by the Related Documents, dissolve or liquidate in
whole or in part, (iv) permit the validity or effectiveness of the Master
Indenture to be impaired, or permit the lien of the Master Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or permit any
person to be released from any covenants or obligations with respect to any
Class or Series of Notes under the Master Indenture except as may be expressly
permitted thereby or (v) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Trust or any part thereof, or
any interest therein or the proceeds thereof, except as expressly permitted by
the Related Documents.
A Trust may not, unless provided otherwise in the related Prospectus
Supplement, engage in any activity other than financing, purchasing, owning,
selling and managing the Financed Student Loans and the other assets of the
Trust and making Additional Fundings, in each case in the manner contemplated by
the Related Documents and activities incidental thereto. After each Funding
Period, the Trust may not make any Additional Fundings with respect to the
related Series of Notes.
A Trust will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes and the Indenture or otherwise in
accordance with the Related Documents.
Annual Compliance Statement. The Administrator, on behalf of the
related Trust will be required to file annually with the applicable Indenture
Trustee a written statement as to the fulfillment of its obligations under the
related Indenture.
Satisfaction and Discharge of Indenture. An Indenture will be
discharged with respect to the collateral securing the Notes upon the delivery
to the applicable Indenture Trustee for cancellation of all the Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds sufficient
for the payment in full of all the Notes.
The Indenture Trustee. The Indenture Trustee on behalf of a Series of
Securities will be the entity named in the related Prospectus Supplement.
Book-Entry Registration
The Depository Trust Company ("DTC") is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York UCC
and a "clearing agency" registered pursuant to Section 17A of the Exchange Act.
DTC was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the Indenture Trustee or the Eligible Lender Trustee, as
applicable (the "Applicable Trustee"), through Participants and Indirect
Participants. Under a book-entry format, Securityholders may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Applicable Trustee to Cede, as nominee for DTC. DTC will forward such payments
to its Participants, which thereafter will forward them to Indirect Participants
or Securityholders. It is anticipated that the only "Securityholder,"
"Certificateholder" and "Noteholder" will be Cede, as nominee for DTC.
Securityholders will not be recognized by the Indenture Trustee or the Eligible
Lender Trustee as Noteholders or Certificateholders, as such terms are used in
the Indenture and the Trust Agreement, respectively, and Securityholders will be
permitted to exercise the rights of Securityholders only indirectly through DTC
and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC will take any action permitted to be taken by a Securityholder
under an Indenture or the related Trust Agreement, as the case may be, only at
the direction of one or more Participants to whose accounts with DTC the
Securities are credited. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Except as required by law, neither the applicable Administrator nor the
Applicable Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
Securities held by Cede, as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Definitive Securities
The Notes and the Certificates (other than the Certificate being sold
to Student Holdings) will be issued in fully registered, certificated form
("Definitive Notes" and "Definitive Certificates," respectively, and
collectively referred to herein as "Definitive Securities") to Noteholders or
Certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (i) the Administrator advises the Applicable Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to the Securities and the Administrator is unable to
locate a qualified successor, (ii) the Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, a Servicer Default or an Administrator Default,
Securityholders representing at least a majority of the outstanding principal
amount of the Notes or the Certificates, as the case may be, advise the
Applicable Trustee through DTC in writing that the continuation of a book-entry
system through DTC (or a successor thereto) with respect to such Notes or
Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive security representing the
corresponding Securities and receipt of instructions for re-registration, the
Applicable Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance with
the procedures set forth in the Indenture or the Trust Agreement, as the case
may be, directly to holders of Definitive Securities in whose names the
Definitive Securities were registered at the close of business on the Record
Date. Such distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the Applicable Trustee. The
final payment on any such Definitive Security, however, will be made only upon
presentation and surrender of such Definitive Security at the office or agency
specified in the notice of final distribution to Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice delivered
to holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
List of Securityholders
Three or more Noteholders or one or more holders of Notes evidencing
not less than 25% of the aggregate outstanding principal balance of the Notes
may, unless provided otherwise in the related Prospectus Supplement, by written
request to the applicable Indenture Trustee, obtain access to the list of all
Noteholders maintained by the Indenture Trustee for the purpose of communicating
with other Noteholders with respect to their rights under the related Indenture
or the Notes. The Indenture Trustee may elect not to afford the requesting
Noteholders access to the list of Noteholders if it agrees to mail the desired
communication or proxy, on behalf and at the expense of the requesting
Noteholders, to all Noteholders.
Three or more Certificateholders, Student Holdings or one or more
holders of Certificates evidencing not less than 25% of the Certificate Balance
may, unless provided otherwise in the related Prospectus Supplement, by written
request to the applicable Eligible Lender Trustee, obtain access to the list of
all Certificateholders for the purpose of communicating with other
Certificateholders with respect to their rights under the related Trust
Agreement or under the Certificates.
Reports to Securityholders
On each Note Distribution Date, the applicable Indenture Trustee will
provide to the applicable Noteholders of record as of the related Record Date,
and on each Certificate Distribution Date the applicable Eligible Lender Trustee
will provide to the Certificateholders of the related Record Date, a statement
setting forth substantially the same information as is required to be provided
on the report provided to the Indenture Trustee and the related Trust described
under "Description of Transfer and Servicing Agreements--Statements to Indenture
Trustee and Trust."
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the applicable Indenture or
Trust Agreement, as the case may be, the Applicable Trustee will mail to each
person who at any time during such calendar year was a Securityholder and
received any payment thereon, a statement containing certain information for the
purposes of such Securityholder's preparation of federal income tax returns. See
"Certain Tax Consequences."
<PAGE>
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
General
The following is a summary of certain terms of each Sale and Servicing
Agreement, pursuant to which the applicable Eligible Lender Trustee on behalf of
the related Trust will obtain, the applicable Master Servicer will service and
the applicable Administrator will perform certain administrative functions with
respect to the Financed Students Loans; each Administration Agreement, pursuant
to which the applicable Administrator will undertake certain other
administrative duties with respect to the related Trust, the Financed Student
Loans and each Trust Agreement, pursuant to which a Trust will be created and
the Certificates will be issued (collectively, the "Transfer and Servicing
Agreements"). However, the summary does not purport to be complete and is
qualified in its entirety by reference to the provisions of the Transfer and
Servicing Agreements.
Conveyance of Financed Student Loans; Representations and Warranties
On each Closing Date for the sale of a Series of Notes issued by a
Trust, the applicable Sellers will sell or contribute and assign to the
applicable Eligible Lender Trustee on behalf of the applicable Trust, without
recourse, its entire interest in the Financed Student Loans described in the
related Sale and Servicing Agreement, all collections received and to be
received with respect thereto for the period on and after the related Cut-off
Date for such Financed Student Loans and all the Assigned Rights pursuant to the
Sale and Servicing Agreement. Each Financed Student Loan will be identified in
schedules appearing as an exhibit to the related supplement to the Sale and
Servicing Agreement. The Eligible Lender Trustee will, concurrently with such
sale or contribution and assignment, execute, authenticate and deliver the
related Series of Notes and, on the Initial Closing Date, the Certificates. The
net proceeds received from the sale of the Notes and the Certificates will be
applied in connection with the Trust's acquisition of the Financed Student Loans
and, if specified in the related Prospectus Supplement, to the deposit of the
Pre-Funded Amount in the Pre-Funding Account. See "--Additional Fundings" for a
description of the application of funds on deposit in the Pre-Funding Account
during the Funding Period.
In each Sale and Servicing Agreement, the Sellers and The Money Store
will make certain representations and warranties with respect to the Financed
Student Loans to the related Trust for the benefit of the Certificateholders and
the Noteholders, including, among other things, that (i) each Financed Student
Loan, at the time of transfer to the Trust, is free and clear of all security
interests, liens, charges and encumbrances and no offsets, defenses or
counterclaims have been asserted or threatened; (ii) the information provided
with respect to the Financed Student Loans is true and correct as of the related
Cut-off Date and Closing Date and (iii) each Financed Student Loan, at the time
it was originated, complied and, at the applicable Closing Date, complies in all
material respects with applicable federal and state laws (including, without
limitation, the Higher Education Act or the Public Health Service Act, if
applicable, consumer credit, truth-in-lending, equal credit opportunity and
disclosure laws) and applicable restrictions imposed by the applicable Program
or under any Guarantee Agreement.
Following the discovery by or notice to the applicable Seller or The
Money Store of a breach of any such representation or warranty with respect to
any Financed Student Loan that materially and adversely affects the interests of
the Certificateholders, the Noteholders or, if specified in the related
Prospectus Supplement, the Surety Provider in such Financed Student Loan (it
being understood that any such breach that does not affect any Guarantor's or
the Secretary's obligation to guarantee payment of such Financed Student Loan
will not be considered to have such a material adverse effect), the applicable
Seller will, unless such breach is cured within 60 days or such other time as
may set forth in the related Prospectus Supplement, purchase such Financed
Student Loan from the applicable Eligible Lender Trustee, as of the first day
following the end of such 60-day period that is the last day of a Collection
Period, at a price equal to the applicable Purchase Amount (as defined below).
If the Seller fails to purchase within the above-described time period any
Financed Student Loan it is required to purchase, The Money Store will remit, or
cause to be remitted, to the Collection Account no later than the date the
Seller would be required to remit such amount, the Purchase Amount for such
Financed Student Loan. In addition, the Seller will reimburse the related Trust
for any accrued interest amounts that a Guarantor refuses to pay pursuant to its
Guarantee Agreement, or for any Interest Subsidy Payments and Special Allowance
Payments that are lost or that must be repaid to the Department, or any
insurance payments that the Secretary refuses to pay, with respect to a Financed
Student Loan as a result of a breach of any such representation or warranty by
the Seller. If the Seller fails to reimburse the Trust such amount, The Money
Store will reimburse the Trust such amount no later than the date the Seller
would be required to remit such amount. The purchase and reimbursement
obligations of the Seller and The Money Store will constitute, together with the
right to receive certain amounts from the applicable Reserve Account, if any,
the sole remedy available to or on behalf of the Trust, the Certificateholders,
the Noteholders or the applicable Surety Provider, if any, for any such uncured
breach. The Seller's purchase and reimbursement obligations are contractual
obligations pursuant to a Sale and Servicing Agreement that may be enforced
against the Seller, but the breach of which will not constitute an Event of
Default.
"Purchase Amount" means, unless provided otherwise in the related
Prospectus Supplement, as to any Financed Student Loan on any date of
determination, the sum of (i) the amount required to prepay in full the
outstanding principal balance of such Financed Student Loan as of the last day
of the most recently completed Collection Period, including all accrued but
unpaid interest thereon (including interest to be capitalized) through the last
day of the Collection Period in which such Financed Student Loan is being
purchased (or, with respect to certain Serial Loans, through the last day of the
Collection Period in which such Serial Loan is transferred to the Seller's
designee) plus (ii) certain unamortized premiums, if any; provided, however,
that with respect to any Financed Student Loan required to be purchased due to a
breach by the Master Servicer of certain representations and warranties
concerning the servicing of such Financed Student Loan, the Purchase Amount will
not exceed the amount the related Guarantor would have been obligated to pay the
related Trust but for such breach.
Accounts
An Indenture Trustee may establish and maintain on behalf of a Trust as
set forth in the related Prospectus Supplement a Collection Account, Pre-Funding
Account, Capitalized Interest Account, Capitalized Pre-Funding Account, Note
Distribution Account, Expense Account, Reserve Account and Monthly Advance
Account. The Eligible Lender Trustee will establish and maintain the Certificate
Distribution Account in the name of the Eligible Lender Trustee on behalf of the
Certificateholders. The foregoing accounts are referred to collectively as the
"Trust Accounts" in the name of the Indenture Trustee on behalf of the
Noteholders and the Certificateholders.
Funds in the Trust Accounts will be invested as provided in the Sale
and Servicing Agreement in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to an applicable Surety Provider, if
any, and the applicable Rating Agencies as being consistent with the rating of
the Notes. Eligible Investments are limited to obligations or securities that
mature not later than the Business Day immediately preceding the day on which
funds in the applicable Pledged Account may be required to be withdrawn. If the
amount required to be withdrawn from the Reserve Account, if established, to
cover shortfalls in the amount of Available Funds exceeds the amount of cash in
the Reserve Account, a temporary shortfall in the amounts distributed to the
Noteholders or to the Certificateholders could result. This could, in turn,
increase the average life of the Notes and the Certificates. Investment earnings
on funds deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "Investment Earnings"), will be deposited in the Collection
Account and will be treated as collections of interest on the Financed Student
Loans.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of 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), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible 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 a
long-term unsecured debt rating and/or a short-term unsecured debt rating
acceptable to the applicable Rating Agencies and the Surety Provider and (ii)
whose deposits are insured by the Federal Deposit Insurance Corporation.
Additional Fundings
If a Pre-Funding Account has been established with respect to a Trust
and a Pre-Funded Amount has been deposited therein with respect to a Series of
Notes, the Trust will distribute funds on deposit in the Pre-Funding Account
from time to time during each Funding Period in an amount equal to the aggregate
principal balance (plus certain premiums) and accrued interest thereon of the
additional Financed Student Loans (the "Additional Student Loans') conveyed by
the applicable Seller to the Trust during such Funding Period (the expenditures
referred to above being referred to herein as "Additional Fundings"). The
Sellers expects that the amount of the Additional Fundings will approximate 100%
of the Pre-Funded Amount by the last day of the Funding Period identified in the
related Prospectus Supplement; however, there can be no assurance that a
sufficient amount of Additional Fundings will be made during such time.
Additional Student Loans may include Federal Loans, HEAL Loans and/or Private
Loans in such amounts as may be determined by the Sellers and satisfying any
conditions imposed by a Surety Provider, if applicable.
Pursuant to a Sale and Servicing Agreement, during each Funding Period,
the applicable Sellers may convey to the related Eligible Lender Trustee on
behalf of the related Trust, Additional Student Loans having an aggregate
principal balance up to the amount then on deposit in the Pre-Funding Account.
The obligation to accept any Additional Student Loan by the Eligible Lender
Trustee on behalf of the Trust is subject to the following conditions, among
others as may be set forth in the related Prospectus Supplement: (i) such
Additional Student Loan must satisfy all applicable origination requirements and
all other requirements specified in the Sale and Servicing Agreement and the
Insurance Agreement and (ii) the applicable Seller will not select such
Additional Student Loan in a manner that it believes is adverse to the interests
of the Securityholders or the Surety Provider. On such dates as may from time to
time be designated by the applicable Seller during a Funding Period (each, a
"Transfer Date"), the Seller may sell or contribute and assign, without
recourse, to the Eligible Lender Trustee on behalf of the Trust, its entire
interest in Additional Student Loans (each, a "Subsequent Cut-off Date").
Subject to the satisfaction of the foregoing conditions, such Seller will convey
the Additional Student Loans to the Eligible Lender Trustee on behalf of the
Trust on each such Transfer Date pursuant to the Sale and Servicing Agreement
and the applicable Transfer Agreement (a "Transfer Agreement") executed by the
Seller, on such Transfer Date. Each such Transfer Agreement will include as an
exhibit a schedule identifying each Additional Student Loan transferred on such
Transfer Date. Upon such conveyance of Additional Student Loans to the Eligible
Lender Trustee on behalf of the Trust, the Pool Balance will increase in an
amount equal to the aggregate principal balances of the Additional Student Loans
and an amount equal to the aggregate principal balance of such Additional
Student Loans (plus certain premiums) and accrued interest thereon will be
withdrawn from the Pre-Funding Account on such date and ultimately be
transferred to the Seller.
Any amounts remaining in the Pre-Funding Account at the end of the
related Funding Period will be distributed as set forth in the related
Prospectus Supplement.
Capitalized Interest Account and Capitalized Pre-Funding Account
On each Closing Date, to the extent set forth in the related Prospectus
Supplement, the Sellers may make a cash deposit in the Capitalized Interest
Account in the name of the Indenture Trustee on behalf of the related Trust. The
amount deposited therein will generally be used on each Note Distribution Date
and Certificate Distribution Date to make interest payments to Noteholders and
Certificateholders to the extent amounts deposited in the Note Distribution
Account or the Certificate Distribution Account, as the case may be, plus
amounts in the applicable Reserve Account, if any, and, in the case of the
Notes, the Capitalized Pre-Funding Account, are insufficient for such purpose.
Any amounts remaining in the Capitalized Interest Account after the period set
forth in the applicable Terms Supplement will be applied as set forth in the
related Prospectus Supplement.
On each Closing Date, to the extent set forth in the related Prospectus
Supplement, the Sellers may make a cash deposit in the Capitalized Pre-Funding
Account in the name of the Indenture Trustee on behalf of the related Trust. The
amount deposited therein will be used by the Indenture Trustee on each Note
Distribution Date during the applicable Funding Period to fund the excess, if
any, of (i) the amount of interest accrued for each such Note Distribution Date
at the Class Interest Rate of the applicable Class of Notes on its pro rata
portion of the amount on deposit in the Pre-Funding Account over (ii) the amount
of any earnings on funds in the Pre-Funding Account that are available to pay
interest on the Notes of such Class on each such Note Distribution Date. Any
amounts remaining in the Capitalized Pre-Funding Account on the last Note
Distribution Date of a Funding Period and not used for such purposes will be
distributed as set forth in the related Prospectus Supplement.
All funds in the Capitalized Interest Account and the Capitalized
Pre-Funding Account are required to be held (i) uninvested, up to the limits
insured by the Federal Deposit Insurance Corporation, (ii) invested in Eligible
Investments or (iii) as otherwise set forth in the related Prospectus
Supplement. Any investment earnings on funds in the Capitalized Interest Account
and the Capitalized Pre-Funding Account will generally be applied to payment of
interest on the Notes and the Certificates or as otherwise set forth in the
related Prospectus Supplement.
Servicing Procedures
Pursuant to a Sale and Servicing Agreement, the Master Servicer will
agree to service, and perform all other related tasks with respect to, all the
Financed Student Loans acquired from time to time. The Master Servicer is
required pursuant to a Sale and Servicing Agreement to perform all services and
duties customary to the servicing of Financed Student Loans (including all
collection practices), and to do so in the same manner as the Master Servicer
has serviced student loans on its own behalf and in compliance with all
standards and procedures provided for in the Higher Education Act, the Public
Health Service Act, the Guarantee Agreements, the Private Loan Programs, and all
other applicable federal and state laws.
Without limiting the foregoing, the duties of the Master Servicer under
a Sale and Servicing Agreement may include, but are not limited to, the
following: collecting and depositing into the Collection Account all payments
with respect to the Financed Student Loans, including claiming and obtaining any
Guarantee Payments with respect thereto and with respect to Interest Subsidy
Payments and Special Allowance Payments, claiming and obtaining insurance
payments from the Secretary with respect to HEAL Loans, responding to inquiries
from borrowers on the Financed Student Loans, investigating delinquencies and
sending out statements, payment coupons and tax reporting information to
borrowers. In addition, the Master Servicer will keep ongoing records with
respect to such Financed Student Loans and collections thereon and will furnish
monthly and annual statements to the Administrator with respect to such
information, in accordance with the Master Servicer's customary practices and as
otherwise required in the Sale and Servicing Agreement.
The Master Servicer may enter into sub-servicing agreements with
sub-servicers pursuant to which some or all of the Financed Student Loans may be
serviced on behalf of the Master Servicer. No such sub-servicing arrangement
will relieve the Master Servicer of its duties and obligations under the related
Sale and Servicing Agreement. Generally, PHEAA, AFSA Data Corporation, Great
Lakes Higher Education Corporation, UNIPAC Service Corporation, or such other
entity set forth in the related Prospectus Supplement, will sub-service Financed
Student Loans originated by the Sellers in the Repayment Phase. It is
anticipated that the Purchased Loans will be serviced during both the Deferral
Phase and the Repayment Phase either by the originators of such Purchased Loans,
the Sellers or another party.
Payments on Financed Student Loans
The Master Servicer will deposit all payments on Financed Student Loans
for which it is acting as primary servicer (from whatever source), and the
Master Servicier shall cause each other Servicer to deposit into the Collection
Account all payments on such Financed Student Loans collected by such other
Servicers for which such other Servicers are acting as primary servicer (from
whatever source), in the manner and at the times set forth in the related
Prospectus Supplement. The Eligible Lender Trustee will deposit all Interest
Subsidy Payments, all Special Allowance Payments and all insurance payments from
the Secretary with respect to the Financed Student Loans received by it during
each Collection Period into the Collection Account within two Business Days of
receipt thereof.
Master Servicer Covenants
In a Sale and Servicing Agreement, the Master Servicer covenants that:
(a) it will duly satisfy or cause to be duly satisfied all obligations on its
part to be fulfilled under or in connection with the Financed Student Loans,
maintain in effect all qualifications required in order to service the Financed
Student Loans and comply in all material respects with all requirements of law
in connection with servicing the Financed Student Loans, the failure to comply
with which would have a materially adverse effect on the Certificateholders or
the Noteholders; (b) it will not permit any rescission or cancellation of a
Financed Student Loan except as ordered by a court of competent jurisdiction or
other government authority or as otherwise consented to by the Eligible Lender
Trustee and the Indenture Trustee; (c) it will do nothing to impair the rights
of the Certificateholders and the Noteholders in the Financed Student Loans and
(d) it will not reschedule, revise, defer or otherwise compromise with respect
to payments due on any Financed Student Loan except pursuant to any applicable
deferral or forbearance periods or otherwise in accordance with its guidelines
with respect to the servicing of the Financed Student Loans (notwithstanding the
foregoing, the Master Servicer may, in its sole discretion, without having to
obtain the consent or approval of any other party, waive amounts owing under a
Financed Student Loan up to and including $50.00, or such other amount as may be
set forth in the related Sale and Servicing Agreement); provided, however, that
the Master Servicer may agree to a decrease of the interest rate of a Financed
Student Loan in accordance with the terms of its interest reduction program for
borrowers with a steady history of timely payments of interest and principal.
Under the terms of a Sale and Servicing Agreement, if The Money Store
or the Master Servicer discovers, or receives written notice, that any covenant
of the Master Servicer set forth above has not been complied with in all
material respects and such noncompliance has not been cured within 60 days
thereafter, or such other period as may be set forth in the related Prospectus
Supplement, and has a materially adverse effect on the interest of the
Certificateholders, the Noteholders or the applicable Surety Provider, if
applicable, in any Financed Student Loan (it being understood that any such
breach that does not affect any Guarantor's or the Secretary's obligation to
guarantee payment of such Financed Student Loan will not be considered to have
such a material adverse effect), unless such breach is cured, the Master
Servicer will purchase such Financed Student Loan as of the first day following
the end of such 60-day period (or such other period) that is the last day of a
Collection Period. In that event, the Master Servicer will be obligated to
deposit into the Collection Account an amount equal to the Purchase Amount of
such Financed Student Loan and the related Trust's interest in any such
purchased Financed Student Loan will be automatically assigned to the Master
Servicer. If the Master Servicer fails to purchase within the above-described
time period any Financed Student Loan it is required to purchase, The Money
Store will remit, or cause to be remitted, no later than the date the Master
Servicer would be required to remit such amount, the Purchase Amount for such
Financed Student Loan. Notwithstanding the above, if the Master Servicer is
obligated to purchase a Financed Student Loan as a result of a failure to
service such Financed Student Loan in accordance with the Higher Education Act,
the Public Health Service Act, the applicable Private Loan Program and the
applicable Guarantee Agreement, the Purchase Amount will not exceed the amount
the related Guarantor or the Secretary would be obligated to pay if not for such
breach. In addition, the Master Servicer or The Money Store will reimburse the
related Trust for any accrued interest amounts that a Guarantor refuses to pay
pursuant to its Guarantee Agreement, or for any Interest Subsidy Payments and
Special Allowance Payments that are lost or that must be repaid to the
Department or for any insurance payments that the Secretary refuses to pay, with
respect to a Financed Student Loan as a result of a breach of any such covenant
of the Master Servicer; provided, however, that such reimbursements shall not
exceed the amount the Guarantor or the Secretary would have paid if not for such
breach. Notwithstanding the above, with respect to any purchase obligation
arising as a result of a Guarantor denying a Guarantee Payment on a Financed
Student Loan, neither the Master Servicer nor The Money Store will be required
to purchase such Financed Student Loan until the last day of the Collection
Period following the date a Realized Loss on such Financed Student Loan is
allocated.
Servicing Compensation
The Master Servicer will be entitled to receive, subject to the
limitations set forth in the following paragraph, the Servicing Fee monthly in
the amount set forth in the related Prospectus Supplement. To the extent the
Master Servicer engages a sub-servicer, including but not limited to PHEAA, AFSA
Data Corporation, Great Lakes Higher Education Corporation or UNIPAC Service
Corporation, the Master Servicer will direct a portion of the Servicing Fee to
the applicable sub-servicer as compensation for its services. The Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Note Distribution Dates) will be allocated and payable as set forth in the
related Prospectus Supplement.
Notwithstanding the foregoing, in the event that the fee payable to the
Master Servicer as defined above for any month would exceed 1.05% per annum (or
such other percentage as may be set forth in the related Prospectus Supplement)
of the Pool Balance as of the last day of the preceding calendar month (the
"Capped Amount"), then the "Servicing Fee" for such month will instead be the
Capped Amount for such month. The remaining amount in excess of such Servicing
Fee, together with any such excess amounts from prior months that remain unpaid
(the "Servicing Fee Carryover"), will be payable to the Master Servicer on each
succeeding Distribution Date out of Available Funds remaining, if any, after
payment or allocation on the dates and in the priority set forth below under
"Distributions--Distributions from Collection Account."
The Servicing Fee and the Servicing Fee Carryover will compensate the
Master Servicer for performing the functions of a third party servicer of
student loans as an agent for their beneficial owner, including collecting and
posting all payments, responding to inquiries of borrowers on the Financed
Student Loans, investigating delinquencies, pursuing, filing and collecting any
Guarantee Payments and any insurance payments from the Secretary, accounting for
collections and furnishing monthly and annual statements to the Administrator.
The Servicing Fee and the Servicing Fee Carryover also will reimburse the Master
Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Financed Student Loans.
Distributions
Deposits to Collection Account. On or before the 16th day of each
month, or such other day set forth in the related Prospectus Supplement, the
Administrator will provide the applicable Indenture Trustee and Eligible Lender
Trustee a report setting forth by component the Available Funds for the
immediately preceding Collection Period.
For purposes hereof, the term "Available Funds" means the sum of the
following amounts with respect to the related Collection Period: (i) all
collections received by the Master Servicer or any Servicer on the Financed
Student Loans (including any Guarantee Payments received with respect to the
Financed Student Loans); (ii) any payments, including without limitation
Interest Subsidy Payments, Special Allowance Payments and any insurance payments
from the Secretary received by the Eligible Lender Trustee during such
Collection Period with respect to the Financed Student Loans; (iii) all proceeds
of any sales of Financed Student Loans by the Trust during such Collection
Period; (iv) any payments of or with respect to interest received by the Master
Servicer or a Servicer during such Collection Period with respect to a Financed
Student Loan for which a Realized Loss was previously allocated; (v) that
portion of amounts released from the Pre-Funding Account at the end of a Funding
Period to be applied as a payment of principal; (vi) amounts released from the
Capitalized Interest Account and the Capitalized Pre-Funding Account to cover
shortfalls in interest; (vii) the aggregate Purchase Amounts received for those
Financed Student Loans repurchased by the Seller or purchased by the Master
Servicer or by or on behalf of The Money Store under an obligation which arose
during the related Collection Period; (viii) the aggregate amounts, if any,
received from the Seller, The Money Store or the Master Servicer as
reimbursement of non-guaranteed interest amounts, or lost Interest Subsidiary
Payments, Special Allowance Payments and insurance payments from the Secretary,
with respect to the Financed Student Loans pursuant to the Sale and Servicing
Agreement and (ix) Investments Earnings for such Collection Period; provided,
however, that Available Funds will exclude all payments and proceeds of any
Financed Student Loans the Purchase Amount of which has been included in
Available Funds for a prior Collection Period.
Distributions from Collection Account. On each Determination Date, the
Administrator will advise the Indenture Trustee in writing of the applicable
Noteholders' Interest Distribution Amount or Certificateholders' Interest
Distribution Amount. Additionally, at the respective times sets forth in the
related prospectus Supplement, the Administrator will advise the Indenture
Trustee in writing of the applicable Noteholders' Principal Distribution Amount
(or, after all the Notes have been paid in full, the Certificateholders'
Principal Distribution Amount) and the Servicing Fee, Administration Fee,
Auction Agent Fee, Indenture Trustee Fee, Eligible Lender Trustee Fee and Surety
Provider Fee (collectively, the "Transaction Fees") for the preceding month.
On each Note Distribution Date (other than those relating to Accrual
Notes during the related Accrual Period), the Indenture Trustee will transfer
from the Collection Account to the Note Distribution Account, from payments
received on or with respect to the Financed Student Loans, as described in the
related Prospectus Supplement, an amount up to the related Noteholders' Interest
Distribution Amount. For each Note Distribution Date relating to a Class of
Accrual Notes during the related Accrual Period, the related Noteholders'
Interest Distribution Amount will be added to the principal amount of such
Notes. As will be set forth in the related Prospectus Supplement, on certain
Note Distribution Dates relating to Clases of Notes then entitled to receive
payments of principal, after making the transfer set forth in the second
immediately preceding sentence, the Indenture Trustee will transfer from the
Collection Account to the Note Distribution Account from payments received on or
with respect to the Financed Student Loans, as described in the related
Prospectus Supplement, together with any Additional Principal Payments (as
defined in the related Prospectus Supplement), an amount up to the Noteholders'
Principal Distribution Amount; provided, however, that for each month in which
the first Note Distribution Date occurs prior to the Certificate Distribution
Date in such month, prior to transferring amounts to the Note Distribution
Account, the Indenture Trustee will transfer to the Expense Account, from
payments received on or with respect to the Financed Student Loans as set forth
in the related Prospectus Supplement, an amount up to the Transaction Fees for
the month preceding such Note Distribution Date and all overdue Transaction Fees
from prior months.
On each Certificate Distribution Date, the Indenture Trustee will
transfer from the Collection Account, from payments received on or with respect
to the Financed Student Loans during the immediately preceding Collection
Period, (i) to the Expense Account, an amount up to the excess, if any, of the
Transaction Fees for the month preceding such Certificate Distribution Date and
all overdue Transaction Fees from prior months over the amount, if any,
previously transferred to the Expense Account during the month of such
Certificate Distribution Date and (ii) to the Certificate Distribution Account,
an amount up to the related Certificateholders' Interest Distribution Amount.
Additionally, on each Certificate Distribution Date the Indenture Trustee will
transfer from the Collection Account to the Eligible Lender Trustee, for deposit
in the Certificate Distribution Account, an amount up to the applicable
Certificateholders' Principal Distribution Amount.
On the Note Distribution Dates set forth in the related Prospectus
Supplement, the Indenture Trustee will distribute from the Expense Account (in
addition to any amounts transferred from the Reserve Account) amounts to pay the
Master Servicer, the Administrator, the Auction Agent, the Indenture Trustee,
the Eligible Lender Trustee and the Surety Provider, in the priorities and in
the amounts set forth in the related Prospectus Supplement.
On each Note Distribution Date, the Indenture Trustee will distribute
to the Noteholders of the applicable Class as of the related Note Record Date
all amounts transferred to the Note Distribution Account as set forth above (in
addition to any amounts transferred from the Capitalized Interest Account, the
Capitalized Pre-Funding Account, the Pre-Funding Account, the Reserve Account
and the Monthly Advance Account and amounts drawn under the applicable Note
Surety Bond, if any). On each Certificate Distribution Date, the Eligible Lender
Trustee will distribute to the Certificateholders of the applicable Class as of
the related Certificate Record Date all amounts transferred to the Certificate
Distribution Account as set forth above (in addition to any amounts transferred
from the Capitalized Interest Account, the Reserve Account and the Monthly
Advance Account and amounts drawn under the Certificate Surety Bond, if any).
Notwithstanding the foregoing, principal payments will be made to each
Class of Notes and the Certificates only in the denominations set forth in the
related Prospectus Supplment. If the amount in the Note Distribution Account or
the Certificate Distribution Account otherwise required to be applied as a
payment of principal either (i) is less than the specified denomination or (ii)
exceeds an even multiple of such specified denomination, then, in the case of
(i), such entire amount or, in the case of (ii), such excess amount, will not be
paid as principal on the upcoming Note Distribution Date or Certificate
Distribution Date, as the case may be, but will be retained in the Note
Distribution Account or the Certificate Distribution Account, as the case may
be, until the amount therein available for payment of principal (including any
amounts transferred from the Reserve Account) equals the specified
denominations.
With respect to the Class of Notes entitled to receive payments of
principal (or, after each Class of Notes has been paid in full, the Class of
Certificates entitled to receive payments of principal) the actual Notes or
Certificates of such Class, as the case may be, that will receive payments of
principal on each applicable Note Distribution Date or Certificate Distribution
Date will be selected, no later than 15 days prior to the related Note
Distribution Date or Certificate Distribution Date, as the case may be, by the
Indenture Trustee (with respect to the Notes) or the Eligible Lender Trustee
(with respect to the Certificates) by lot in such manner as the Indenture
Trustee or the Eligible Lender Trustee, as the case may be, in its discretion
may determine and which may provide for the selection for payment of principal
in the minimum denominations specified in the related Prospectus Supplement, and
integral multiples in excess thereof.
Notice of the specific Notes or Certificates, as the case may be, to
receive payments of principal is to be given by the Indenture Trustee or the
Eligible Lender Trustee, as the case may be, by first-class mail, postage
prepaid, mailed not less than 15 days but no more than 30 days, or such other
time period as may be specified in the related Prospectus Supplement, before the
applicable Note Distribution Date or Certificate Distribution Date at the
address of the applicable Securityholder appearing on the registration books.
Any defect in or failure to give such mailed notice shall not affect the
validity of proceedings for the payment of any other Notes or Certificates not
affected by such failure or defect. All notices of payment are to state: (i) the
applicable Note Distribution Date or Certificate Distribution Date; (ii) the
amount of principal to be paid, and (iii) the Class of the Notes or Certificates
to be paid.
On the Note Distribution Date or Certificate Distribution Date
specified in the related Prospectus Supplement, after making all required
transfers to the Note Distribution Account and, if applicable, the Certificate
Distribution Account and the Expense Account, the Indenture Trustee will
transfer any amounts remaining in the Collection Account (other than amounts
representing payments received during such month or payments of or with respect
to principal received in the immediately preceding month) as set forth in the
related Prospectus Supplement.
Notwithstanding the foregoing, if there has been an Event of Default
with respect to payment of the Notes, the Certificateholders will not be
entitled to any payments of principal or interest until each outstanding Class
of Notes has been paid in full.
"Certificate Balance" equals the original principal balance of each
Class of Certificates issued reduced by all amounts allocable to principal
previously distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, as to any Class of
Certificates, with respect to any Certificate Distribution Date relating to such
Certificates, the Certificateholders' Interest Distribution Amount for such
Certificate Distribution Date plus, for each Certificate Distribution Date on
and after which the Notes have been paid in full, the Certificateholders'
Principal Distribution Amount for such Certificate Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, as to any
Class of Certificates, with respect to any Certificate Distribution Date
relating to such Certificates, the excess, if any, of (i) the sum of the related
Certificateholders' Interest Distribution Amount on the preceding Certificate
Distribution Date relating to such Certificates and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Certificate
Distribution Date over (ii) the amount of interest actually distributed to the
Certificateholders of such Class on such preceding Certificate Distribution
Date, plus interest on the amount of such excess interest due to the
Certificateholders of such Class, to the extent permitted by law, at the related
Certificate Rate from such preceding Certificate Distribution Date to the
current Certificate Distribution Date.
"Certificateholders' Interest Distribution Amount" means, as to any
Class of Certificates, with respect to any Certificate Distribution Date
relating to such Certificates, the sum of (i) the amount of interest accrued at
the related Certificate Rate for the related Interest Period on the outstanding
principal amount of such Certificates on the immediately preceding Certificate
Distribution Date relating to such Certificates, after giving effect to all
distributions of principal to Certificateholders of such Class on such
Certificate Distribution Date (or, in the case of the first Certificate
Distribution Date, on the Initial Closing Date) and (ii) the Certificateholders'
Interest Carryover Shortfall relating to such Certificates for such Certificate
Distribution Date; provided, however, that the Certificateholders' Interest
Distribution Amount will not include any Certificateholders' Interest Carryover.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Certificate Distribution Date relating to a Class of Certificates
on or after which the Notes have been paid in full, the excess, if any, of (i)
the sum of the Certificateholders' Principal Distribution Amount on such
Certificate Distribution Date and any outstanding Certificateholders' Principal
Carryover Shortfall for the preceding Certificate Distribution Date over (ii)
the amount of principal actually distributed to the Certificateholders on such
Certificate Distribution Date.
"Certificateholders' Principal Distribution Amount" means, on each
Certificate Distribution Date relating to the Class of Certificates then
entitled to receive payments of principal, on and after which the principal
balance of the Notes has been paid in full, the sum of (a) the Principal
Distribution Amount for the Collection Periods specified in the related
Prospectus Supplement , (b) any Additional Principal Payments to be made on such
Certificate Distribution Date and (c) the Certificateholders' Principal
Carryover Shortfall as of the close of the preceding Certificate Distribution
Date; provided, however, that the Certificateholders' Principal Distribution
Amount will in no event exceed the outstanding principal balance of such Class
of Certificates. Further, on the first Certificate Distribution Date occurring
after the Note Distribution Date on which the principal balance of the Notes is
paid in full, the Certificateholders' Principal Distribution Amount also will
include the excess, if any, of the amount of principal available to be
distributed on such Note Distribution Date over the amount of principal paid on
the Notes on such date. In addition, with respect to each Class of Certificates,
on the related Final Maturity Date the Certificateholders' Principal
Distribution Amount will include the amount required to reduce the outstanding
principal balance of such Certificates to zero.
"Noteholders' Distribution Amount" means, as to any Class of Notes,
with respect to any Distribution Date relating to such Notes, the sum of related
Noteholders' Interest Distribution Amount and the Noteholders' Principal
Distribution Amount for such Note Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, as to any Class of
Notes, with respect to any Note Distribution Date relating to such Notes, the
excess of (i) the sum of the related Noteholders' Interest Distribution Amount
on the preceding Note Distribution Date relating to such Notes and any
Noteholders' Interest Carryover Shortfall on such preceding Note Distribution
Date over (ii) the amount of interest actually allocated to such Noteholders on
such preceding Note Distribution Date, plus interest on the amount of such
excess interest due to the Noteholders, to the extent permitted by law, at the
related Class Interest Rate from such preceding Note Distribution Date to the
current Note Distribution Date.
"Noteholders' Interest Distribution Amount" means, as to any Class of
Notes, with respect to any Note Distribution Date, the sum of (i) the amount of
interest accrued at the respective Class Interest Rate for each related Interest
Period since the last Note Distribution Date relating to such Notes (or, in the
case of the first Note Distribution Date following the issuance of a Class of
Notes, the applicable Closing Date) on the outstanding principal balance of such
Class of Notes on the immediately preceding Note Distribution Date relating to
such Notes after giving effect to all principal distributions to holders of
Notes of such Class on such date (or, in the case of the first Note Distribution
Date for such Class, on the related Closing Date) and (ii) the Noteholders'
Interest Carryover Shortfall for such Class for such Note Distribution Date;
provided, however, that the Noteholders' Interest Distribution Amount will not
include any Noteholders' Interest Carryover.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Note Distribution Date relating to a Class of Notes, the excess of (i) the
sum of the Noteholders' Principal Distribution Amount on such Note Distribution
Date and any outstanding Noteholders' Principal Carryover Shortfall for the
preceding Note Distribution Date over (ii) the amount of principal actually
allocated to the Noteholders on such Note Distribution Date.
"Noteholders' Principal Distribution Amount" means, as to the Class of
Notes then entitled to receive payments of principal on each applicable Note
Distribution Date, the sum of (i) the Principal Distribution Amount for such
Collection Periods as may be set forth in the related Prospectus Supplement,
(ii) any Additional Principal Payments to be made on such Note Distribution Date
and (iii) the Noteholders' Principal Carryover Shortfall as of the close of the
preceding Note Distribution Date relating to such Notes; provided, however, that
the Noteholders' Principal Distribution Amount will not exceed the outstanding
principal balance of such Class of Notes. In addition, with respect to each
Class of Notes, on the related Final Maturity Date the Noteholders' Principal
Distribution Amount will include the amount required to reduce the outstanding
principal balance of such Notes to zero.
"Principal Distribution Amount" means, generally, unless provided
otherwise in the related Prospectus Supplement, with respect to any Collection
Period, the sum of the following amounts: (i) that portion of all collections
received by the Master Servicer or any Servicer on the Financed Student Loans
that is allocable to principal (including the portion of any Guarantee Payments
received that is allocable to principal of the Financed Student Loans); (ii) the
portion of the proceeds allocable to principal from the sale of Financed Student
Loans by the Trust during such Collection Period; (iii) all Realized Losses
incurred during the related Collection Period; (iv) to the extent attributable
to principal, the Purchase Amount received with respect to each Financed Student
Loan repurchased by the Seller or purchased by the Master Servicer or The Money
Store under an obligation which arose during the related Collection Period; and
(v) amounts, if any, transferred from the Pre-Funding Account at the end of the
applicable Funding Period; provided, however, that the Principal Distribution
Amount will exclude all payments and proceeds of any Financed Student Loans the
Purchase Amount of which has been included in Available Funds for a prior
Collection Period.
With respect to each Financed Student Loan submitted to a Guarantor for
a Guarantee Payment, a "Realized Loss" generally means the excess, if any, of
(i) the unpaid principal balance of such Financed Student Loan on the date it
was first submitted to a Guarantor for a Guarantee Payment over (ii) all amounts
received on or with respect to principal on such Financed Student Loan up
through the earlier to occur of (A) the date a related Guarantee Payment is made
or (B) the last day of the Collection Period occurring 7 months after the date
the claim for such Guarantee Payment is first denied.
Monthly Advances
If the Master Servicer has applied for a Guarantee Payment from a
Guarantor, an Interest Subsidy Payment or a Special Allowance Payment from the
Department or an insurance payment from the Secretary, and the Master Servicer
has not received the related payment prior to the end of the Collection Period
immediately preceding the Note Distribution Date or Certificate Distribution
Date on which such amount would be required to be distributed as a payment of
interest, the Representative may, no later than the Determination Date relating
to such Note Distribution Date or Certificate Distribution Date, as the case may
be, deposit into the Monthly Advance Account an amount up to the amount of such
payments applied for but not received (such deposits by the Master Servicer are
referred to herein as "Monthly Advances"). On each related Note Distribution
Date, the Indenture Trustee will distribute from the Monthly Advance Account to
the applicable Noteholders the Monthly Advance for such Note Distribution Date.
On each related Certificate Distribution Date, the Indenture Trustee will
transfer from the Monthly Advance Account to the Eligible Lender Trustee for
distribution to the Certificateholders, the Monthly Advance for such Certificate
Distribution Date. Such Monthly Advances are recoverable by the Representative
from the source for which such Monthly Advance was made.
Credit Enhancement
The amounts and types of credit enhancement arrangements and the
provider thereof, if applicable, with respect to a Series or any Class of
Securities will be set forth in the related Prospectus Supplement. If specified
in the applicable Prospectus Supplement, credit enhancement for any Series of
Securities may cover one or more Classes of Notes or Certificates, and
accordingly may be exhausted for the benefit of a particular Class of Notes or
Certificates and thereafter be unavailable to such other Classes of Notes or
Certificates. Further information regarding any provider of credit enhancement,
including finanacial information when material, will be included in the related
Prospectus Supplement.
If an to the extent provided in the related Prospectus Supplement,
credit enhancement mayu include one or more of the following or any combination
thereof:
Reserve Account. Pursuant to a Sale and Servicing Agreement, a Reserve
Account may be created and on each Closing Date on which the related Trust sells
a Series of Notes, the Sellers may deposit cash or Eligible Investments in an
amount, if any, equal to the Reserve Account Deposit identified in the related
Prospectus Supplement. The Reserve Account may be augmented on certain Note
Distribution Dates or Certificate Distribution Dates, as set forth in the
related Prospectus Supplement, by deposit therein of the amount, if any,
necessary to reinstate the balance of the Reserve Account to the Specified
Reserve Account Balance from the amount of Available Funds remaining after
making all prior distributions on such date as described above under the heading
"--Distributions--Distributions from the Collection Account"; provided, however,
that, if and as set forth in the related Prospectus Supplement, such Available
Funds may be applied as an Additional Principal Payment. Also, if amounts were
transferred from the Reserve Account to cover a Realized Loss on a Financed
Student Loan, any subsequent payments of principal received on or with respect
to such Financed Student Loan will be deposited into the Reserve Account or,
unless otherwise provided in the related Prospectus Supplment, applied as an
Additional Principal Payment. As described below, subject to certain
limitations, amounts on deposit in the Reserve Account will be released to
Student Holdings the extent that the amount on deposit in the Reserve Account
exceeds the Specified Reserve Account Balance.
If the amount, if any, on deposit in the Reserve Account on any Note or
Certificate Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Note or Certificate Distribution Date) is greater
than the Specified Reserve Account Balance, subject to certain limitations, the
Administrator will instruct the Indenture Trustee to distribute the amount of
the excess, after payment of any unpaid Excess Servicing Fee, Noteholders'
Interest Carryover, Certificateholders' Interest Carryover, and, if applicable,
certain amounts owing to the Surety Provider under the Insurance Agreement or to
purchase Financed Student Loans for which there has been an uncured breach of
certain representations and warranties, to the holders of the Originators'
Interests and then to Student Holdings. Upon any distribution to the holders of
the Originators' Interests or Student Holdings of amounts from the Reserve
Account, neither the Noteholders nor the Certificateholders will have any rights
in, or claims to, such amounts.
A Reserve Account is intended to enhance the likelihood of timely
receipt by the Noteholders and the Certificateholders of the full amount of
principal and interest due them and to decrease the likelihood that the
Noteholders or the Certificateholders will experience losses. In certain
circumstances, however, a Reserve Account could be depleted. Further, as
described above, amounts otherwise required to be deposited into the Reserve
Account may, with the consent of the applicable Surety Provider, if any, be
applied as Additional Principal Payments. If the amount required to be withdrawn
from the Reserve Account to cover shortfalls in the amount of Available Funds
exceeds the amount of cash in the Reserve Account, a temporary shortfall in the
amount of principal and interest distributed to the Noteholders or the
Certificateholders could result. This could, in turn, increase the average life
of the Notes and the Certificates. Moreover, amounts on deposit in the Reserve
Account (other than amounts in excess of the Specified Reserve Account Balance)
will not be available to cover any aggregate unpaid Servicing Fee Carryovers,
Noteholders' Interest Carryover or Certificateholders' Interest Carryover.
Subordination of the Certificates. The rights of the holders of the
Certificates to receive distributions with respect to interest and principal
will be subordinated to such rights of the holders of the Notes to the extent
described herein. This subordination is intended to enhance the likelihood of
regular receipt by holders of Notes of the full amount of the Noteholders'
Interest Distribution Amount and, after distribution of the Certificateholders'
Interest Distribution Amount, the Noteholders' Principal Distribution Amount.
Surety Bonds. Note Surety Bonds, issued by a Surety Provider, may be
obtained by the Sellers in favor of the Eligible Lender Trustee solely on behalf
of the Noteholders of the related Series. Note Surety Bonds will, if obtained,
except as provided below, provide for coverage of timely payment of all interest
and ultimate payment of all principal due on the related Series of Notes;
provided, however, that Note Surety Bonds will not ensure payment of any
Noteholders' Interest Carryover. See "Description of the Surety Bonds--Note
Surety Bonds" in the Prospectus Supplement.
Certificate Surety Bonds will, if obtained, except as provided below,
provide for coverage of timely payment of all interest and ultimate payment of
all principal due on the Certificates; provided, however, that the Certificate
Surety Bonds will not ensure payment of any Certificateholders' Interest
Carryover. Certificate Surety Bonds may be obtained by the Sellers in favor of
the Eligible Lender Trustee solely on behalf of the Certificateholders of the
related Class. See "Description of the Surety Bonds--Certificate Surety Bond" in
the Prospectus Supplement.
Other Forms of Credit Enhancement. If and to the extent specified in
the related Prospectus Supplement, enhancement with respect to a Series or any
Class of Securities may also include overcollateralization, a letter of credit,
one or more Classes of subordinate Securities, derivative products or other
forms of credit enhancement (collectively, "Enhancement"). The Enhancement with
respect to any Series or Class of Securities may be structured to provide
protection against delinquencies and/or losses on the Financed Student Loans,
against changes in interest rates, or other risks, to the extent and under the
conditions specified in the related Prospectus Supplement. Any form of
Enhancement will have certain limitations and exclusions from coverage
thereunder, which will be described in the related Prospectus Supplement..
Statements to Indenture Trustee and Trust
On each Determination Date preceding a Note Distribution Date and
Certificate Distribution Date, the Master Servicer or the Administrator will
provide to the Indenture Trustee for the Indenture Trustee to forward on each
succeeding Note Distribution Date to each Noteholder of the applicable Class,
and to the Eligible Lender Trustee for the Eligible Lender Trustee to forward on
such succeeding Certificate Distribution Date to each Certificateholder of the
applicable Class, a statement, which may include the following information with
respect to such Note Distribution Date and Certificate Distribution Date or the
preceding Collection Period, to the extent applicable (provided, however, that
with respect to each Note Distribution Date other than the first Note
Distribution Date occurring in each month, such statement need only contain the
information set forth in clauses (ii), (iii), (v), and (vii) below) and such
other information as may be set forth in the related Prospectus Supplement:
(i) the amount of the distribution allocable to principal of each Class
of Notes or Certificates, as the case may be;
(ii) the amount of the distribution allocable to interest on each Class
of Notes and Certificates (or in the case of any Accrual Notes during
the related Accrual Period, the amount of interest capitalized and
added to principal), together with the interest rates applicable with
respect thereto (indicating whether such interest rates are based on
the Auction Rate, the LIBOR Rate, the T-Bill Rate or other applicable
rate as set forth in the related Prospectus Supplement, as the case may
be, or on the Net Loan Rate, with respect to each Class of Notes and
Certificates, and specifying what each such interest rate would have
been if it had been calculated using the alternate basis);
(iii) the amount of the distribution, if any, allocable to any
Noteholders' Interest Carryover and any Certificateholders' Interest
Carryover, together with the outstanding amount, if any, of each
thereof after giving effect to any such distribution;
(iv) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(v) the aggregate outstanding principal balance of each Class of Notes
and Certificates as of such Note Distribution Date or Certificate
Distribution Date, after giving effect to payments allocated to
principal reported under clause (i) above;
(vi) the amount of the Servicing Fee and any Servicing Fee Carryover
allocated to the Master Servicer, the amount of the Administration Fee
allocated to the Administrator, the amount of the Auction Agent Fee
allocated to the Auction Agent, the amount of the Indenture Trustee Fee
allocated to the Indenture Trustee, the amount of the Eligible Lender
Trustee Fee allocated to the Eligible Lender Trustee and, if
applicable, the amount of the Surety Provider Fee allocated to the
Surety Provider, respectively, with respect to such Collection Period,
and the amount, if any, of the Servicing Fee Carryover remaining unpaid
after giving effect to any such payment;
(vii) if applicable, the amount of the distribution, if any, payable to
the Surety Provider as reimbursement for any unpaid Surety Bond
Payments;
(viii) the amount of the aggregate Realized Losses, if any, for such
Collection Period and the aggregate amount, if any, received (stated
separately for interest and principal) with respect to Financed Student
Loans for which Realized Losses were allocated previously;
(ix) the amount of the distribution attributable to amounts in the
Reserve Account, the amount of any other withdrawals from the Reserve
Account for such Note Distribution Date or Certificate Distribution
Date, the balance of the Reserve Account on such Note Distribution Date
or Certificate Distribution Date, after giving effect to changes
therein on such Note Distribution Date or Certificate Distribution Date
and the then applicable Parity Percentage;
(x) for Note Distribution Dates during each Funding Period, the
portion, if any, of the distribution attributable to amounts on deposit
in the Pre-Funding Account and the remaining Pre-Funded Amount on such
Note Distribution Date, after giving effect to changes therein during
the related Collection Period;
(xi) for the Note Distribution Dates during each Funding Period, the
aggregate amount, if any, paid by the Eligible Lender Trustee on behalf
of the Trust to purchase Additional Financed Student Loans during the
preceding Collection Period;
(xii) for the first Note Distribution Date on or following the end of
each Funding Period, the amount of any remaining Pre-Funded Amount that
has not been used to make Additional Fundings and is being paid out to
Noteholders;
(xiii) the aggregate amount, if any, paid for Financed Student Loans
purchased from the Trust during the preceding Collection Period; and
(xiv) the number and principal amount of Financed Student Loans, as of
the preceding Collection Period, that are (i) 30 to 60 days delinquent,
(ii) 61 to 90 days delinquent, (iii) 91 to 120 days delinquent, (iv)
more than 120 days delinquent and (v) for which claims have been filed
with the appropriate Guarantor and which are awaiting payment.
Evidence as to Compliance
A Sale and Servicing Agreement will provide that a firm of independent
public accountants will furnish to the related Eligible Lender Trustee and
Indenture Trustee annually a statement (based on the examination of certain
documents and records and on such accounting and auditing procedures considered
appropriate under the circumstances) as to compliance by the Master Servicer
during the preceding calendar year (or, in the case of the first such
certificate, the period from the Initial Closing Date to the end of the calendar
year) with all applicable standards under the Sale and Servicing Agreement
relating to the servicing of the Financed Student Loans.
A Sale and Servicing Agreement will further provide that a firm of
independent public accountants (which may be the same firm referred to in the
immediately preceding paragraph) will furnish to the related Eligible Lender
Trustee and Indenture Trustee annually a statement (based on the examination of
certain documents and records and on such accounting and auditing procedures
considered appropriate under the circumstances) as to compliance by the
Administrator during the preceding calendar year (or, in the case of the first
such certificate, the period from the Initial Closing Date to the end of the
calendar year) with all applicable standards under the Sale and Servicing
Agreement and the Administration Agreement relating to the administration of the
related Trust and the Financed Student Loans.
A Sale and Servicing Agreement will also provide for delivery to the
related Eligible Lender Trustee and Indenture Trustee, concurrently with the
delivery of each statement of compliance referred to above, of a certificate
signed by an officer of the Master Servicer or the Administrator, as the case
may be, stating that, to his knowledge, the Master Servicer or the
Administrator, as the case may be, has fulfilled its obligations under the Sale
and Servicing Agreement throughout the preceding calendar year (or, in the case
of the first such certificate, the period from the Initial Closing Date to end
of the calendar year) or, if there has been a default in the fulfillment of any
such obligation, describing each such default. Each of the Master Servicer and
the Administrator will agree to give the Indenture Trustee and the Eligible
Lender Trustee notice of certain Servicer Defaults and Administrator Defaults,
respectively, under the Sale and
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
Certain Matters Regarding the Servicer
A Sale and Servicing Agreement will provide that the related Master
Servicer may not resign from its obligations and duties as Master Servicer
thereunder, except upon determination that the Master Servicer's performance of
such duties is no longer permissible under applicable law. No such resignation
will become effective until the related Indenture Trustee or a successor
servicer has assumed the Master Servicer's servicing obligations and duties
under the Sale and Servicing Agreement.
A Sale and Servicing Agreement will further provide that neither the
related Master Servicer nor any of its directors, officers, employees or agents
will be under any liability to the related Trust, the Surety Provider, if any,
the Noteholders or the Certificateholders, the Indenture Trustee or the Eligible
Lender Trustee for taking any action or for refraining from taking any action
pursuant to the Sale and Servicing Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of its duties
thereunder or by reason of reckless disregard of obligations and its duties
thereunder. In addition, the Sale and Servicing Agreement will provide that the
Master Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement,
any entity into which the Master Servicer may be merged or consolidated, or any
entity resulting from any merger or consolidation to which the Master Servicer
is a party, or any entity succeeding to the business of the Master Servicer,
which corporation or other entity in each of the foregoing cases assumes the
obligations of the Master Servicer, will be the successor of the Master Servicer
under the Sale and Servicing Agreement.
Master Servicer Default; Administrator Default
"Master Servicer Default" under a Sale and Servicing Agreement
generally will consist of (i) any failure by the Master Servicer to deliver to
the Indenture Trustee for deposit in any of the Trust Accounts any collections,
Guarantee Payments or other amounts received with respect to the Financed
Student Loans, which failure continues unremedied for two Business Days after
written notice from the Indenture Trustee, the Surety Provider, if any, or the
Eligible Lender Trustee is received by the Master Servicer or after discovery by
the Master Servicer; (ii) any failure by the Master Servicer or The Money Store
duly to observe or perform in any material respect any other covenant or
agreement in the Sale and Servicing Agreement which failure materially and
adversely affects the rights of Noteholders, Certificateholders or the Surety
Provider, if any, and which continues unremedied for 60 days after the giving of
written notice of such failure (A) to the Master Servicer or The Money Store, as
the case may be, by the Indenture Trustee, the Eligible Lender Trustee, the
Surety Provider, if any, or the Administrator or (B) to the Master Servicer or
The Money Store, as the case may be, and to the Indenture Trustee and the
Eligible Lender Trustee by holders of Notes or Certificates, as applicable,
evidencing not less than 25% in principal amount of the outstanding Notes or
Certificates; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings with respect to
the Master Servicer and certain actions by the Master Servicer indicating its
insolvency, reorganization pursuant to bankruptcy proceedings or inability to
pay its obligations.
"Administrator Default" under a Sale and Servicing Agreement or the
Administration Agreement will consist of (i) any failure by the Administrator to
direct the Indenture Trustee or the Eligible Lender Trustee, as applicable, to
make any required distributions from any of the Trust Accounts, which failure
continues unremedied for two Business Days after written notice from the
Indenture Trustee, the Surety Provider, if any, or the Eligible Lender Trustee
is received by the Administrator or after discovery of such failure by the
Administrator; (ii) any failure by the Administrator duly to observe or perform
in any material respect any other covenant or agreement in the Administration
Agreement or the Sale and Servicing Agreement which failure materially and
adversely affects the rights of Noteholders, Certificateholders or the Surety
Provider, if any, and which continues unremedied for 60 days after the giving of
written notice of such failure (l) to the Administrator by the Surety Provider,
if any, the Indenture Trustee or the Eligible Lender Trustee or (2) to the
Administrator and to the Indenture Trustee and the Eligible Lender Trustee by
holders of Notes or Certificates, as applicable, evidencing not less than 25% in
principal amount of the outstanding Notes or Certificates; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Administrator and
certain actions by the Administrator indicating its insolvency or inability to
pay its obligations.
Rights Upon Servicer Default and Administrator Default
As long as a Servicer Default under a Sale and Servicing Agreement or
an Administrator Default under a Sale and Servicing Agreement or the
Administration Agreement remains unremedied, the Surety Provider, if any, may
or, with the consent of the Surety Provider, if any, the Indenture Trustee or
holders of Notes evidencing not less than 25% in principal amount of then
outstanding Notes may, terminate all the rights and obligations of the Master
Servicer under the Sale and Servicing Agreement, or the Administrator under the
Sale and Servicing Agreement and the Administration Agreement, as the case may
be, whereupon a successor servicer or administrator appointed by the Indenture
Trustee and approved by the Surety Provider, if any, or the Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Master
Servicer under the Sale and Servicing Agreement, or the Administrator under the
Sale and Servicing Agreement and the Administration Agreement, as the case may
be, and will be entitled to similar compensation arrangements. If, however, a
bankruptcy trustee or similar official has been appointed for the Master
Servicer or the Administrator, and no Servicer Default or Administrator Default
other than such appointment has occurred, such trustee or official may have the
power to prevent the Surety Provider, if any, the Indenture Trustee or the
Noteholders from effecting such a transfer. In the event that the Indenture
Trustee is unwilling or unable to so act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor whose regular
business includes the servicing of student loans. The Indenture Trustee may make
such arrangements for compensation to be paid, which in no event may be greater
than the compensation to the Master Servicer under the Sale and Servicing
Agreement or the Administrator under the Sale and Servicing Agreement and the
Administration Agreement, as the case may be, unless such compensation
arrangements will not result in a downgrading of the Notes and the Certificates
by any Rating Agency. In the event a Servicer Default or an Administrator
Default occurs and is continuing, the Surety Provider, if any, the Indenture
Trustee or the Noteholders, as described above, may remove the Master Servicer
or the Administrator, as the case may be, without the consent of the Eligible
Lender Trustee or any of the Certificateholders. Moreover, only the Surety
Provider, if any, or, with the consent of the Surety Provider, if any, the
Indenture Trustee or the Noteholders, and not the Eligible Lender Trustee or the
Certificateholders, have the ability to remove the Master Servicer or the
Administrator, as the case may be, if a Servicer Default or an Administrator
Default occurs and is continuing.
Waiver of Past Defaults
The Surety Provider, if any, or, with the consent of the Surety
Provider, if any, the holders of Notes evidencing at least a majority in
principal amount of the then outstanding Notes (or the holders of Certificates
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any default which does not adversely affect the Indenture Trustee or
the Noteholders) may, on behalf of all Noteholders and Certificateholders, waive
any default by the Master Servicer in the performance of its obligations under a
Sale and Servicing Agreement, or any default by the Administrator of its
obligations under the Sale and Servicing Agreement and the Administration
Agreement, as the case may be, and their respective consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts or giving instructions regarding the same in accordance with the Sale
and Servicing Agreement. Therefore, the Surety Provider, if any, and the
Noteholders have the ability, except as noted above, to waive defaults by the
Master Servicer and the Administrator which could materially adversely affect
the Certificateholders. No such waiver will impair the Noteholders' or the
Certificateholders' rights with respect to subsequent defaults.
Amendment
The Transfer and Servicing Agreements may be amended by the parties
thereto, with the consent of the Surety Provider, if any, but without the
consent of the Noteholders or the Certificateholders, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Transfer and Servicing Agreements or of modifying in any manner the
rights of Noteholders or Certificateholders; provided that such action will not,
in the opinion of counsel satisfactory to the Indenture Trustee and the Eligible
Lender Trustee, materially and adversely affect the interest of any Noteholder
or Certificateholder. The Transfer and Servicing Agreements may also be amended
by the Sellers, the Administrator, the Master Servicer, the Eligible Lender
Trustee and the Indenture Trustee, as applicable, with the consent of the Surety
Provider, if any, and the holders of Notes evidencing at least a majority in
principal amount of the then outstanding Notes and the holders of Certificates
evidencing at least a majority of the Certificate Balance for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Transfer and Servicing Agreements or of modifying in any
manner the rights of Noteholders or the Certificateholders; provided, however,
that no such amendment may (i) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments (including any
Guarantee Payments) with respect to the Financed Student Loans or distributions
that are required to be made for the benefit of the Noteholders or the
Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates which are required to consent to any such amendment, without the
consent of the holders of all the outstanding Notes and Certificates.
Insolvency Event
If any of certain events of insolvency or receivership, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings with respect
to Student Holdings or certain actions by Student Holdings indicating its
insolvency or inability to pay its obligations (each, an "Insolvency Event")
occurs, the Financed Student Loans will be liquidated and each Trust will be
terminated 90 days after the date of such Insolvency Event, unless, before the
end of such 90-day period, the related Eligible Lender Trustee shall have
received written instructions from the applicable Surety Provider, if any, and
the holders of the Certificates (other than Student Holdings) representing more
than 50% of the aggregate unpaid principal amount of the Certificates (not
including the principal amount of Certificates held by Student Holdings) of the
related Trust to the effect that such group disapproves of the liquidation of
the Financed Student Loans and termination of the related Trust. Promptly after
the occurrence of any Student Holdings Insolvency Event, notice thereof is
required to be given to Noteholders and Certificateholders and the Surety
Provider, if any; provided, however, that any failure to give such required
notice will not prevent or delay termination of the related Trust. Upon
termination of a Trust, the Eligible Lender Trustee will direct the Indenture
Trustee promptly to sell the assets of the Trust (other than the Trust Accounts
and, if applicable, the Surety Bonds) in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from any such sale, disposition or
liquidation of the Financed Student Loans will be treated as collections thereon
and deposited in the Collection Account. If the proceeds from the liquidation of
the Financed Student Loans and any amounts on deposit in the Reserve Account are
not sufficient to pay the Notes in full, the amount of principal returned to the
Noteholders will be reduced and the Noteholders will incur a loss to the extent
not covered by applicable Note Surety Bonds,. If such amounts are not sufficient
to pay the Notes and the Certificates in full, the amount of principal returned
to the Certificateholders will be reduced and the Certificateholders will incur
a loss to the extent not covered by a Certificate Surety Bond. A Surety Provider
has no obligation to pay in full the principal of the Certificates until the
Certificate Final Maturity Date.
A Trust Agreement provides that the Eligible Lender Trustee does not
have the power to commence a voluntary proceeding in bankruptcy relating to the
Trust without the unanimous prior approval of all Certificateholders and the
delivery to the Eligible Lender Trustee by each Certificateholder of a
certificate certifying that such Certificateholder reasonably believes that the
Trust is insolvent.
Payment of Notes
Upon the payment in full of all outstanding Notes and the satisfaction
and discharge of the Indenture, the Eligible Lender Trustee will succeed to all
the rights of the Indenture Trustee, and the Certificateholders will succeed to
all the rights of the Noteholders, under the Sale and Servicing Agreement,
except as otherwise provided therein.
Liability of Student Holdings
Under a Trust Agreement, Student Holdings will agree to be liable
directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a Noteholder or a
Certificateholder in the capacity of an investor) arising out of or based on the
arrangement created by the Trust Agreement as though such arrangement created a
partnership under the partnership laws of the jurisdiction in which the Trust
was established in which the Sellers were general partners.
Termination
The obligations of the Master Servicer, the Sellers, the Administrator,
the Auction Agent, the Eligible Lender Trustee and the Indenture Trustee
pursuant to the Transfer and Servicing Agreements will terminate upon (i) the
maturity or other liquidation of the last Financed Student Loan and the
disposition of any amount received upon liquidation of any remaining Financed
Student Loans and (ii) the payment to the Noteholders and the Certificateholders
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements. In order to avoid excessive administrative expense, the
Sellers are permitted at their option and, if applicable, with the consent of a
Surety Provider, to repurchase from the Eligible Lender Trustee, as of the end
of any Collection Period immediately preceding a Note Distribution Date or
Certificate Distribution Date, if the then outstanding Pool Balance is 10% or
less of the Aggregate Pool Balance, all remaining Financed Student Loans at a
price equal to the aggregate Purchase Amounts thereof as of the end of such
Collection Period, which amounts will be used to retire the Certificates
concurrently therewith. Upon termination of a Trust, all right, title and
interest in the Financed Student Loans and other funds of the Trust, after
giving effect to any final distributions to Noteholders and Certificateholders
therefrom, will be conveyed and transferred to the Sellers.
Administrator
Either Trans-World Insurance Company or ClassNotes Inc., in its
capacity as Administrator, will enter into the Administration Agreement with a
Trust and the related Indenture Trustee, pursuant to which the Administrator
will agree, to the extent provided therein, (i) to direct the Indenture Trustee
to make the required distributions from the Trust Accounts on each Note
Distribution Date and Certificate Distribution Date, (ii) to prepare (based on
the reports received from the Master Servicer) and provide periodic and annual
statements to the Eligible Lender Trustee and the Indenture Trustee with respect
to distributions to Noteholders and Certificateholders and any related federal
income tax reporting information and (iii) to provide the notices and to perform
other administrative obligations required by the Indenture and the Trust
Agreement. As compensation for the performance of the Administrator's
obligations under the Administration Agreement and as reimbursement for its
expenses related thereto, the Administrator will be entitled to an
administration fee equal to the amount set forth in the related Prospectus
Supplement (the "Administration Fee").
CERTAIN LEGAL ASPECTS OF THE FINANCED STUDENT LOANS
Transfer of Financed Student Loans
Each Seller intends that the transfer of the Financed Student Loans by
it to the Eligible Lender Trustee on behalf of a Trust constitutes a valid sale
or contribution and assignment of such Financed Student Loans. In addition, each
of the Seller has taken and will take all actions that are required under
applicable state law to perfect the Eligible Lender Trustee's ownership interest
in the Financed Student Loans and the collections with respect thereto.
Notwithstanding the foregoing, if the transfer of the Financed Student Loans is
deemed to be an assignment of collateral as security for the benefit of a Trust,
the Financed Student Loans would be considered general intangibles for purposes
of the applicable Uniform Commercial Code (the "UCC"). If a transfer of general
intangibles is deemed to be a sale or contribution, then the UCC is not
applicable and no further action under the UCC is required to protect the
Eligible Lender Trustee's interest from third parties.
If the transfer of the Financed Student Loans is deemed to be an
assignment as security for the benefit of a Trust, there are certain limited
circumstances under the UCC in which prior or subsequent transferees of Financed
Student Loans coming into existence after the Closing Date could have an
interest in such Financed Student Loans with priority over the related Eligible
Lender Trustee's interest. A tax or other government lien on property of a
Seller arising prior to the time a Financed Student Loan comes into existence
may also have priority over the interest of the Eligible Lender Trustee in such
Financed Student Loan. Under a Sale and Servicing Agreement, however, each
Seller will warrant that it has transferred the Financed Student Loans to the
Eligible Lender Trustee on behalf of the related Trust free and clear of the
lien of any third party. In addition, each Seller will covenant that it will not
sell, pledge, assign, transfer or grant any lien on any Financed Student Loan
(or any interest therein) other than to the Eligible Lender Trustee on behalf of
the related Trust, except as provided below.
Pursuant to a Sale and Servicing Agreement, either the Master Servicer,
a sub-servicer or another independent party as custodian on behalf of the
related Trust will have custody of the promissory notes evidencing the Financed
Student Loans following the conveyance of the Financed Student Loans to the
Eligible Lender Trustee and the pledge thereof to the Indenture Trustee.
Although the accounts of the applicable Seller will be marked to indicate the
conveyance and the applicable Seller will cause UCC financing statements to be
filed with the appropriate authorities, the Financed Student Loans will not be
physically segregated in the Master Servicer's or such sub-servicer's offices.
If, through inadvertence or otherwise, any of the Financed Student Loans were
sold to another party, or a security interest therein were granted to another
party, that purchased (or took such security interest in) any of such Financed
Student Loans in the ordinary course of its business and took possession of such
Financed Student Loans, then the purchaser (or secured party) would acquire an
interest in the Financed Student Loans superior to the interest of the Eligible
Lender Trustee and the Indenture Trustee if the purchaser (or secured party)
acquired (or took a security interest in) the Financed Student Loans for new
value and without actual knowledge of the Eligible Lender Trustee's and the
Indenture Trustee's respective interests. See "Description of the Transfer and
Servicing Agreements--Sale of Financed Student Loans; Representations and
Warranties" and "-- Servicer Covenants." Under certain circumstances, a
Guarantor in the Federal Program will retain custody of the promissory notes
evidencing the related Financed Student Loans.
Certain Matters Relating to Insolvency
To the extent that the transfer of the Financed Student Loans from a
Seller to a Trust is deemed to create a security interest, and (i) the interest
was validly perfected prior to the Seller's insolvency and at the time the
Seller received consideration for the Financed Student Loans, (ii) such transfer
does not constitute a fraudulent conveyance or transfer, and (iii) the value of
the Financed Student Loans is equal to or greater than the consideration
received by the Seller, such security interest should not be subject to
avoidance and payments to the Trust made prior to the Seller's insolvency
proceeding should not be subject to recovery by the Seller, any receiver of the
Seller in its insolvency proceeding or any of the Seller's creditors. To the
extent, however, that payment is not made to the Trust prior to the insolvency
proceeding, then the timely transfer to the Trust of such collection may cease.
For example, the Seller may be authorized to use the Financed Student Loans and
proceeds thereof if the court in the insolvency proceeding finds that the Seller
has provided the Trust with adequate protection of the Trust's interest in the
Financed Student Loans and proceeds thereof.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. Also, some state laws impose finance charge ceilings and
other restrictions on certain consumer transactions and require contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon lenders who fail to comply with their
provisions. In certain circumstances, a Trust may be liable for certain
violations of consumer protection laws that apply to the Financed Student Loans,
either as assignee from the Sellers or as the party directly responsible for
obligations arising after the transfer. With respect to the Federal Loans and
the HEAL Loans, many of these requirements are preempted by the provisions of
the Higher Education Act and the Public Health Service Act. For a discussion of
a Trust's rights if the Financed Student Loans were not originated or serviced
in compliance in all material respects with applicable laws. See "Description of
the Transfer and Servicing Agreements -- Sale of Financed Student Loans;
Representations and Warranties" and "--Servicer Covenants."
Loan Origination and Servicing Procedures Applicable to Financed Student Loans
The Higher Education Act, including the implementing regulations
thereunder (in the case of Federal Loans), the Public Health Service Act and the
regulations thereunder (in the case of HEAL Loans) and the Private Loan Programs
(in the case of the Private Loans) impose specified requirements, guidelines and
procedures with respect to originating and servicing Student Loans such as the
Financed Student Loans. Generally, those procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower under applicable standards (including a review of a financial
need analysis in the case of certain Federal Loans) be made, the borrower's
responsibilities under the loan be explained to him or her, the promissory note
evidencing the loan be executed by the borrower and then that the loan proceeds
be disbursed in a specified manner by the lender. After the loan is made, the
lender must establish repayment terms with the borrower, properly administer
deferrals and forbearances and credit the borrower for payments made thereon. If
a borrower becomes delinquent in repaying a loan, a lender or a servicing agent
must perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent. A
Master Servicer will agree pursuant to a Sale and Servicing Agreement to perform
collection and servicing procedures on behalf of the related Trust. However,
failure to follow these procedures or failure of a Seller to follow procedures
relating to the origination of any Financed Student Loans could result in
adverse consequences. In the case of any such Federal Loans, any such failure
could result in the Department's refusal to make reinsurance payments to the
Guarantors or to make Interest Subsidy Payments and Special Allowance Payments
to the Eligible Lender Trustee with respect to such Financed Student Loans or in
the Guarantors' refusal to honor their Guarantee Agreements with the Eligible
Lender Trustee with respect to such Financed Student Loans. Failure of the
Guarantors to receive reinsurance payments from the Department could adversely
affect the Guarantors' ability or legal obligation to make Guarantee Payments to
the Eligible Lender Trustee with respect to such Federal Loans. In the case of
the HEAL Loans, failure to make or service properly such HEAL Loans in
accordance with such procedures could adversely affect the Eligible Lender
Trustee's ability to obtain insurance payments from the Secretary. In the case
of the Private Loans, failure to make or service properly such Private Loans in
accordance with such procedures could adversely affect the Eligible Lender
Trustee's ability to obtain Guarantee Payments from the applicable Guarantor.
Loss of any such Guarantee Payments, Interest Subsidy Payments, Special
Allowance Payments or insurance payments from the Secretary could adversely
affect the amount of Available Funds on any Distribution Date and a Trust's
ability to pay principal and interest on the Notes and to make distributions in
respect of the Certificates. Under certain circumstances, pursuant to a Sale and
Servicing Agreement, the applicable Seller is obligated to repurchase any
Financed Student Loan, or the Master Servicer is obligated to purchase any
Financed Student Loan, if a breach of the representations, warranties or
covenants of the Seller or the Master Servicer, as the case may be, with respect
to such Financed Student Loan has a material adverse effect on the interest of
the Trust therein and such breach is not cured within any applicable cure period
(it being understood that any such breach that does not affect any Guarantor's
or the Secretary's obligation to guarantee payment of such Financed Student Loan
will not be considered to have such a material adverse effect). See "Description
of the Transfer and Servicing Agreements--Sale of Financed Student Loans;
Representations and Warranties" and "--Servicer Covenants." The failure of the
applicable Seller or the Master Servicer to so purchase a Financed Student Loan
would constitute a breach of the Sale and Servicing Agreement, enforceable by
the Eligible Lender Trustee on behalf of the Trust or by the Indenture Trustee
on behalf of the Noteholders, but would not constitute an Event of Default under
the Indenture.
Federal Loans and HEAL Loans Generally Not Subject to Discharge in Bankruptcy
Federal Loans and HEAL Loans are generally not dischargeable by a
borrower in bankruptcy pursuant to the Bankruptcy Code, unless (A) such loan
first became due before seven years (exclusive of any applicable suspension of
the repayment period) before the date of the bankruptcy (or, in the case of HEAL
Loans, after expiration of the seven-year period beginning on the first date the
HEAL Loan has gone into repayment) or (B) excepting such debt from discharge
will impose an undue hardship on the debtor and the debtor's dependents.
CERTAIN TAX CONSEQUENCES
Set forth below is a summary of certain Federal income tax consequences
of the purchase, ownership and disposition of the Securities. Stroock & Stroock
& Lavan, special Federal tax counsel for the Trust ("Federal Tax Counsel") is of
the opinion that the discussion hereunder fully and fairly discloses all
material Federal tax risks associated with the purchase, ownership and
disposition of the Securities. The tax consequences of the jurisdiction in which
a Trust is established with respect to the Securities will be set forth in the
related Prospectus Supplement.
This summary does not deal with all aspects of Federal income taxation
applicable to all categories of holders of the Securities, some of which may be
subject to special rules or special treatment under the Federal income tax laws.
For example, it does not discuss the specific tax treatment of Securityholders
that are insurance companies, banks and certain other financial institutions,
regulated investment companies, individual retirement accounts ("IRA's") life
insurance companies, tax-exempt organizations or dealers in securities.
Furthermore, this summary is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. Moreover, there are no cases or
Internal Revenue Service (the "IRS") rulings on similar transactions involving a
trust that issues debt and equity interests with terms similar to those of the
Notes and the Certificates. As a result, the IRS may disagree with all or part
of the discussion below.
Prospective investors are advised to consult their own tax advisors
with regard to the Federal income tax consequences of the purchase, ownership
and disposition of the Securities, as well as the tax consequences arising under
the laws of any state, foreign country or other jurisdiction. The Trust has been
provided with an opinion of Federal Tax Counsel regarding certain of the Federal
income tax matters discussed below. An opinion of counsel, however, is not
binding on the IRS, and no ruling on any of the issues discussed below will be
sought from the IRS.
The Trust has also been provided with an opinion of Rhoads & Sinon LLP,
special Pennsylvania tax counsel for the Trust ("Pennsylvania Tax Counsel")
regarding certain Pennsylvania tax matters as discussed below. An opinion of
counsel is not binding on the Pennsylvania Department of Revenue and no ruling
on any of the Pennsylvania tax issues discussed below will be sought from the
Pennsylvania Department of Revenue.
Certain Federal Tax Consequences with Respect to the Notes
Tax Characterization of the Notes and the Trust. Federal Tax Counsel
has advised the Trust that based on the terms of the Notes and the transactions
relating to the Financed Student Loans as set forth herein, the Notes will be
treated as debt for Federal income tax purposes. There is, however, no specific
authority with respect to the characterization for Federal income tax purposes
of securities having the same terms as the Notes.
Federal Tax Counsel is also of the opinion that based on the applicable
provisions of a Trust Agreement and related documents and the minimum
denomination of the Certificates, a Trust will not be classified as an
association or publicly traded partnership taxable as a corporation for Federal
income tax purposes. However, there are no authorities directly dealing with
similar transactions. If the IRS were to successfully characterize the Trust as
a corporation for Federal income tax purposes, the income from the Financed
Student Loans (reduced by deductions, possibly including interest on the Notes)
would be subject to Federal income tax at corporate rates, which would reduce
the amounts available to make payments on the Notes. Likewise, if a Trust were
subject to income or franchise tax in the jurisdiction in which it was
established, the amount of cash available to make payments on the Notes would be
reduced.
If, contrary to the opinion of Federal Tax Counsel, the IRS
successfully asserted that the Notes were not debt for Federal income tax
purposes, the Notes might be treated as equity interests in the Trust. If so,
the Trust might be taxable as a corporation with the adverse consequences
described above (and the taxable corporation would not be able to deduct
interest on the Notes). The remainder of this discussion assumes that the Notes
will be treated as debt and that the Trust will not be taxable as a corporation.
Interest Income on the Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting.
It is not anticipated that the Notes will be issued with "original issue
discount" within the meaning of Section 1273 of the Code ("OID"). A holder who
purchases a Note at a discount that exceeds a statutorily defined de minimis
amount will be subject to the "market discount" rules of the Code, and a holder
who purchases a Note at a premium will be subject to the premium amortization
rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any OID (if any), market discount and gain
previously included by such Noteholder in income with respect to the Note and
decreased by the amount of bond premium (if any) previously amortized and by the
amount of principal payments previously received by such Noteholder with respect
to such Note. Subject to the rules of the Code concerning market discount on the
Notes, any such gain or loss will be capital gain or loss if the note was held
as a capital asset. Capital losses generally may be deducted only to the extent
the Noteholder has capital gains for the taxable year, although under certain
circumstances non-corporate Noteholders can deduct losses in excess of available
capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest," and generally will not be subject to
United States Federal income tax and withholding tax, if the foreign person (i)
is not actually or constructively a "10 percent shareholder" of the Trust or
Student Holdings (including a holder of 10% of the outstanding Certificates) or
a "controlled foreign corporation" with respect to which the Trust or Student
Holdings is a "related person" within the meaning of the Code and (ii) provides
the person otherwise required to withhold U.S. tax with an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If the information provided in the statement changes, the foreign
person must so inform the person otherwise required to withhold U.S. tax within
30 days of such change. The statement generally must be provided in the year a
payment occurs or in either of the two preceding years. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the withholding agent. However, in that case, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If such interest is not portfolio interest, then it will be
subject to United States Federal income and withholding tax at a rate of 30%,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States Federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year or does not have a tax home in the United States.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States Federal income tax on the
interest, gain or income at regular Federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
Information Reporting and Backup Withholding. The Trust will be
required to report annually to the IRS, and to each Noteholder of record, the
amount of interest paid on the Notes (and the amount of interest withheld for
Federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, tax-exempt organizations,
qualified pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status as
nonresidents). Accordingly, each holder (other than exempt holders who are not
subject to the reporting requirements) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct Federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31%
of the amount otherwise payable to the holder, and remit the withheld amount to
the IRS as a credit against the holder's Federal income tax liability.
Certain Federal Tax Consequences with Respect to the Certificates
Tax Characterization of the Trust. The Sellers and the Master Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat a Trust as a partnership for purposes of Federal income
tax, with the assets of the partnership being the assets held by the Trust, the
partners of the partnership being the Certificateholders (including Student
Holdings in its capacity as recipient of distributions from the Reserve
Account), and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving a Trust, the Certificates, the
Notes, the Sellers, Student Holdings and the Master Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
If a Trust were held to be an "association" taxable as a corporation
for Federal income tax purposes, rather than a partnership, the Trust would be
subject to a corporate level income tax. Any such corporate income tax could
materially reduce or eliminate cash that would otherwise be distributable with
respect to the Certificates (and Certificateholders could be liable for any such
tax that is unpaid by the Trust). However, in the opinion of Federal Tax
Counsel, a Trust will not be classified as an association taxable as a
corporation because it will not have certain "corporate" characteristics
necessary for a business trust to be an association taxable as a corporation.
Even if a Trust were not an association taxable as a corporation under
the rules described above, it would still be subject to corporate income tax if
it were a "publicly traded partnership" taxable as a corporation, but due to the
fact that the Certificates will be issued in minimum denominations to ensure
that the Trust has fewer than 100 partners, Federal Tax Counsel is of the
opinion that the Trust will not be a publicly traded partnership taxable as a
corporation.
As a result of the foregoing, in the opinion of Federal Tax Counsel, a
Trust will not be an association or publicly traded partnership taxable as a
corporation. Nonetheless, because of the lack of cases or rulings on similar
transactions, a variety of alternative characterizations are possible in
addition to the position to be taken by Certificateholders that the Certificates
represent equity interests in a partnership. For example, because the
Certificates have certain features characteristic of debt, the Certificates
might be considered debt of the related Trust or of the Sellers. Any such
characterization should not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership. The remainder of this summary assumes
that the Certificates represent equity interests in a partnership that owns the
Financed Student Loans.
Partnership Taxation. As a partnership, a Trust will not be subject to
Federal income tax, but each Certificateholder will be required to separately
take into account such holder's allocated share of income, gains, losses,
deductions and credits of the Trust. The Trust's income will consist primarily
of interest earned on the Financed Student Loans (including appropriate
adjustments for market discount, original issue discount and bond premium),
investment income from Eligible Investments in the Trust Accounts and any gain
upon collection or disposition of the Financed Student Loans. The Trust's
deductions will consist primarily of interest accruing with respect to the
Notes, servicing and other fees and losses or deductions upon collection or
disposition of the Financed Student Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, a Trust Agreement and related documents). A Trust Agreement provides (a)
that except as set forth in a Trust Supplement, the Certificateholders will be
allocated taxable income of the Trust for each Interest Period equal to the sum
of (i) the amount of interest that accrues on the Certificates for such Interest
Period based on the Certificate Rate; (ii) an amount equivalent to interest that
accrues during such Interest Period on amounts previously due on the
Certificates but not yet distributed; and (iii) any Trust income attributable to
discount on the Financed Student Loans that corresponds to any excess of the
principal amount of the Certificates over their initial issue price and that (b)
all remaining taxable income of the Trust will be allocated to Student Holdings.
In addition, the Trust Agreement may provide that certain "excess nonrecourse
liabilities" will be allocated to Student Holdings. It is believed that this
allocation will be valid under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of income
to be allocated to Certificateholders. Moreover, under the foregoing method of
allocation, holders may be allocated income equal to the entire amount of
interest accruing on the Certificates for an Interest Period based on the
Certificate Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all Certificateholders of
one Class but Certificateholders may be purchasing Certificates at different
times and at different prices, Certificateholders may be required to report on
their tax returns taxable income that is greater or less than the amount
reported to them by the Trust.
Additionally, all of the taxable income allocated to a
Certificateholder that is a tax-exempt entity will constitute "unrelated
business taxable income," which, under the Code, is generally taxable to such a
holder despite the holder's tax exempt status.
An individual taxpayer may generally deduct miscellaneous itemized
deductions (which do not include interest expenses) only to the extent they
exceed two percent of the individual's adjusted gross income. Those limitations
would apply to an individual Certificateholder's share of expenses of the Trust
(including fees paid to the Master Servicer) and might result in such holder
being taxed on an amount of income that exceeds the amount of cash actually
distributed to such holder over the life of the Trust.
Each Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each of the Financed
Student Loans, the Trust might be required to incur additional expense, but it
is believed that there would not be a material adverse effect on
Certificateholders.
Discount and Premium. It is believed that the Financed Student Loans
were not issued (or will not be issued) with OID, and, therefore, a Trust should
not have OID income. However, the purchase price paid by a Trust for the
Financed Student Loans may be greater or less than the remaining principal
balance of the Financed Student Loans at the time of purchase. If so, the
Financed Student Loans will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a loan by loan basis.)
The Trust will make an election that will result in any such market discount on
the Financed Student Loans being included in income currently as such discount
accrues over the life of the loans. As indicated above, a portion of such market
discount income will be allocated to Certificateholders. Similarly, the Trust
will make an election to amortize any market premium over the life of the
Financed Student Loans, which could result in additional deductions allocated to
the Certificateholders.
Section 708 Termination. Under Section 708 of the Code, a Trust will be
deemed to terminate for Federal income tax purposes if 50% or more of the
capital and profits interests in the Trust (which include the Certificates and
the Seller's interest) are sold or exchanged within a 12-month period. If such a
termination occurs, the Trust will be considered to distribute its assets to the
partners, who would then be treated as recontributing those assets to the Trust,
as a new partnership. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of a Certificate in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificate sold.
A Certificateholder's tax basis in a Certificate will generally equal his cost
increased by his share of Trust income that is includible in his gross income
and decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificate and the amount realized on a
sale of a Certificate would include the holder's share of the Notes and other
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Financed Student Loans
would generally be treated as ordinary income to the holder and would give rise
to special tax reporting requirements. Thus, to avoid these special reporting
requirements, the Trust will elect to include any such market discount in income
as it accrues. The Trust does not expect to have any other assets that would
give rise to such special reporting requirements.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed miscellaneous itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
Allocations Between Transferor and Transferee. In general, a Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect the tax liability and tax basis of the
holder) attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or is allowed only for
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by any future authority.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificate than the selling Certificateholder
had. The tax basis of a Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust files an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, a Trust will not make such an election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Administrator, on behalf of the related
Trust, is required to keep or cause to be kept complete and accurate books of
the Trust. Such books will be maintained for financial reporting and tax
purposes on an accrual basis and the taxable year of the Trust will be the
calendar year. The Eligible Lender Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and will
report to holders (and to the IRS) each Certificateholder's allocable share of
items of Trust income and expense on Schedule K-l. A Trust will provide the
Schedule K-l information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information returns filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee on behalf of another person at any time during a calendar year is
required to furnish the related Trust with a statement containing certain
information on the nominee, the beneficial owners and the Certificates so held.
Such information includes (i) the name, address and taxpayer identification
number of the nominee and (ii) as to each beneficial owner (x) the name, address
and taxpayer identification number of such person, (y) whether such person is a
United States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly-owned agency or instrumentality of
either of the foregoing and (z) certain information concerning Certificates that
were held, acquired or transferred on behalf of such person throughout the year.
In addition, brokers and financial institutions that hold Certificates through a
nominee are required to furnish directly to the Trust information as to
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act that holds Certificates as a nominee is
not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties. The Trust will provide the Schedule K-1 information
to nominees that fail to provide the Trust with the information described above
and such nominees will be required to forward such information to the beneficial
owners of the Certificates.
Student Holdings, as the "tax matters partner," will be responsible for
representing the Certificateholders in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of a Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
Proposed Tax Legislation. Legislation introduced before the 103rd
Congress (H.R. 13 and H.R. 3419) would have applied special rules to "large
partnerships," defined as partnerships with at least 250 partners during a
taxable year (counting towards such total each owner during the year of a
partnership interest that is transferred during the year). Under the
legislation, certain computations are made at the partnership level rather than
the partner level. In particular, taxable income is calculated at the
partnership level, and is calculated generally in the same manner as for an
individual, except that 70% of miscellaneous itemized deductions (such as
expenses for the production of nonbusiness income) are disallowed. As a result,
all partners (including corporations) might have a portion of their share of
partnership deductions (other than interest expense) disallowed. Moreover, large
partnerships would become subject to new audit procedures; among other things,
an adjustment to taxable income of the partnership for a prior year would flow
through to current partners in the year the audit was settled, and the
partnership itself (rather than the partners) would be subject to any applicable
interest or penalties. These rules would have applied to partnership taxable
years ending on or after December 31, 1994. No prediction can be made whether
similar legislation will be enacted in the future, the form in which future
legislation might be enacted or the ultimate effective date of such future
legislation.
ERISA CONSIDERATIONS
The Notes
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and/or Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan or retirement arrangement, as well
as individual retirement accounts and certain types of Keogh Plans (each a
"Plan") from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Plan. A violation of these "prohibited transaction" rules may result in an
excise tax or other penalties and liabilities under ERISA and the Code for such
persons.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the related Trust were deemed to be assets of a Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of a Trust would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquires an "Equity
Interest" in the Trust and none of the exceptions contained in the Plan Assets
Regulation is applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Assuming that a Class of Notes is treated as indebtedness without
substantial equity features for purposes of the Plan Assets Regulation then such
Class of Notes will be eligible for purchase by Plans. However, without regard
to whether the Notes are characterized as Equity Interests, the acquisition,
transfer or holding of Notes by or on behalf of a Plan could be considered to
give rise to a prohibited transaction if the Trust or any of its affiliates is
or becomes a party in interest or a disqualified person with respect to such
Plan. In such case, PTCE 90-1, PTCE 91-38, PTCE 95-60 or PTCE 84-14 may be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A Plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of a Trust would be
considered Plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
The Certificates
The Certificates may not be acquired (directly or indirectly) by or on
behalf of any employee benefit plan, retirement arrangement, individual
retirement account or Keogh Plan subject to either Title I of ERISA or Section
4975 of the Code, or any entity (including an insurance company general account)
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each a "Benefit Plan"). By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not a Benefit Plan.
PLAN OF DISTRIBUTION
The Notes will be offered in one or more Series and one or more Classes
either directly by the Sellers and The Money Store or through one or more
underwriters or underwriting syndicates ("Underwriters"). The Prospectus
Supplement for each Series of Notes will set forth the terms of the offering of
such Series and of each Class within such Series, including the name or names of
the Underwriters, the proceeds to the Sellers, and either the initial public
offering price, the discounts and commissions to the Underwriters and any
discounts or concessions allowed or reallowed to certain dealers, or the method
by which the price at which the Underwriters will sell the Notes will be
determined.
The Notes may be acquired by Underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of any Underwriters will be subject to
certain conditions precedent, and such Underwriters will be severally obligated
to purchase all of a Series of Notes described in the related Prospectus
Supplement, if they are purchased. If Notes of a Series are offered other than
through Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Notes of such Series.
The place and time of delivery for the Notes of a Series in respect of
which this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters relating to the Sellers, the Master Servicer and
the Administrator will be passed upon by Eric R. Elwin, Esq., Corporate Counsel
of the Sellers, and Squire, Sanders & Dempsey, Phoenix, Arizona, and certain
legal matters relating to the validity of the issuance of each Series of Notes
and the Certificates will be passed upon for the Underwriter by Stroock &
Stroock & Lavan, New York, New York. Stroock & Stroock & Lavan has performed
legal services for the Sellers and The Money Store Inc. and it is expected that
it will continue to perform such services in the future. Certain federal income
tax and other matters will be passed upon for a Trust by Stroock & Stroock &
Lavan. Other parties, if any, passing upon legal matters for a Trust, the
Sellers or The Money Store will be identified in the related Prospectus
Supplement.
FINANCIAL INFORMATION
The Sellers and The Money Store have determined that their financial
statements are not material to the offering made hereby. A Trust will engage in
no activities other than as described herein. Accordingly, no financial
statements with respect to a Trust are included in this Prospectus.
RATING
It is a condition to the issuance and sale of each Series and Class of
Notes and each Class of Certificates that they each be rated by at least one
nationally recognized statistical rating organization (a "Rating Agency") in one
its four highest applicable rating categories. A securities rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
Page
Accrual Notes........................................................... (ii)
Accrual Period ......................................................... 9
Additional Funding ..................................................... 7
Additional Principal Payments ......................................... 13
Additional Student Loans................................................ 76
Administration Agreement ............................................... 2
Administration Fee...................................................... 9
Administrator........................................................... 2
Administrator Default................................................... 90
Aggregate Pool Balance.................................................. 26
AMBAC................................................................... (ii)
Applicable Trustee...................................................... 72
Assigned Rights......................................................... 33
Auction Agent Fee....................................................... 9
Auction Period Adjustment............................................... 65
Auction Rate Certificates............................................... (ii)
Auction Rate Notes...................................................... cover
Available Funds......................................................... 80
Benefit Plan............................................................ 106
Business Day............................................................ 8
Capitalized Interest Account............................................ 7
Capitalized Pre-Funding Account......................................... 7
Capitalized Pre-Funding Requirement..................................... 7
Capped Amount........................................................... 18
Cede.................................................................... 28
Certificate Balance..................................................... 83
Certificate Distribution Account........................................ 10
Certificate Distribution Date........................................... (ii)
Certificate Final Maturity Date......................................... 25
Certificate Rate........................................................ 23
Certificate Record Date................................................. 24
Certificate Surety Bond................................................. cover
Certificate Surety Bond Payment......................................... 16
Certificateholders...................................................... 24
Certificateholders' Distribution Amount................................. 83
Certificateholders' Interest Carryover.................................. 24
Certificateholders' Interest Carryover Shortfall........................ 83
Certificateholders' Interest Distribution Amount........................ 83
Certificateholders' Principal Carryover Shortfall....................... 84
Certificateholders' Principal Distribution Amount....................... 84
Certificates............................................................ cover
Class................................................................... cover
Class Interest Rate..................................................... 19
Closing Date............................................................ (ii)
Code.................................................................... 98
Collection Account...................................................... 8
Collection Period....................................................... 6
Commission.............................................................. (iv)
Consolidation Loan...................................................... 48
Cut-off Date............................................................ 26
Deferral Period......................................................... 44
Deferral Phase.......................................................... 5
Definitive Certificates................................................. 73
Definitive Notes........................................................ 73
Definitive Securities................................................... 73
Department.............................................................. (iii)
Depository.............................................................. 64
Determination Date...................................................... 8
Distribution Accounts................................................... 10
Distribution Date....................................................... 24
DTC..................................................................... 28
Effective Interest Rate ................................................ 20
Eligible Deposit Account................................................ 76
Eligible Institution.................................................... 76
Eligible Investments.................................................... 76
Eligible Lender Trustee................................................. cover
Eligible Lender Trustee Fee............................................. 9
Eligible Student........................................................ 41
ERISA................................................................... 28
Event of Default........................................................ 70
Exchange Act............................................................ (v)
Expense Account......................................................... 10
Federal Assistance...................................................... 43
Federal Loans........................................................... (iii)
Federal Guarantee Agreements............................................ 40
Federal Program......................................................... 4
Federal Tax Counsel..................................................... 98
Final Maturity Date..................................................... 22
Financed Student Loans.................................................. cover
Forbearance Period...................................................... 44
Funding Period.......................................................... 6
Grace Period............................................................ 44
Guarantee Agreements.................................................... 40
Guarantee Payments...................................................... 29
Guarantor............................................................... 5
HEAL Loans.............................................................. (iii)
HEAL Program............................................................ 49
HICA.................................................................... 4
Higher Education Act.................................................... 40
Indenture............................................................... 19
Indenture Trustee....................................................... 2
Indenture Trustee Fee................................................... 9
Index Maturity.......................................................... 68
Indirect Participants................................................... 72
Initial Closing Date.................................................... 23
Insolvency Event........................................................ 91
Interest Deficiency..................................................... 15
Interest Period......................................................... 20
Interest Subsidy Payments............................................... 43
Investment Earnings..................................................... 76
IRS..................................................................... 98
LIBOR................................................................... cover
LIBOR Determination Date................................................ 68
LIBOR Rate.............................................................. 65
LIBOR Rate Certificates................................................. 23
LIBOR Rate Notes........................................................ cover
Master Indenture........................................................ 19
Master Servicer......................................................... 2
Master Servicer Default................................................. 89
Monthly Advance Account................................................. 26
Monthly Advances 26
Net Loan Rate........................................................... 20
1992 Amendments......................................................... 42
1993 Amendments......................................................... 42
1993 Act................................................................ (iv)
Note Distribution Account............................................... 9
Note Distribution Date.................................................. (ii)
Note Record Date........................................................ 20
Note Surety Bond........................................................ cover
Note Surety Bond Payment................................................ 15
Noteholders............................................................. 20
Noteholders' Distribution Amount........................................ 84
Noteholders' Interest Carryover......................................... 21
Noteholders' Interest Carryover Shortfall............................... 84
Noteholders' Interest Distribution Amount............................... 84
Noteholders' Principal Carryover Shortfall.............................. 84
Noteholders' Principal Distribution Amount.............................. 84
Notes................................................................... cover
Obligors................................................................ 6
OID..................................................................... 99
One-Month LIBOR......................................................... 68
Originators' Interest................................................... 1
Option 4 Loans.......................................................... 54
Option 4 Program........................................................ 4
PAL Loans............................................................... 57
PAL Program............................................................. 4
Participants............................................................ 64
Pennsylvania Tax Counsel................................................ 98
PEP Loans............................................................... 56
PEP Program............................................................. 4
PHEAA................................................................... 2
Plan.................................................................... 105
Plan Assets Regulation.................................................. 105
PLUS Loans.............................................................. 3
Pool Balance............................................................ 6
Pre-Funded Amount....................................................... 6
Pre-Funding Account..................................................... 6
Principal Deficiency.................................................... 15
Principal Distribution Amount........................................... 85
Private Loans .......................................................... (iii)
Private Loan Programs................................................... 4
Program................................................................. 40
Proprietary School...................................................... 41
Prospectus Supplement................................................... cover
Public Health Service Act............................................... 4
Purchase Amount......................................................... 75
Purchased Loans......................................................... 2
Rating Agencies......................................................... 28
Realized Loss........................................................... 85
Reference Bank.......................................................... 69
Regulations............................................................. 49
Related Documents....................................................... 71
Repayment Phase......................................................... 5
Representative.......................................................... 1
Reserve Account......................................................... 13
Reserve Account Deposit................................................. 13
Rules................................................................... 72
Sale and Servicing Agreement............................................ 3
Secretary............................................................... (iii)
Securities.............................................................. cover
Securities Act.......................................................... cover
Securityholders......................................................... 24
Seller.................................................................. cover
Serial Loan............................................................. 34
Series.................................................................. cover
Servicer................................................................ 2
Servicing Fee........................................................... 9
Servicing Fee Carryover................................................. 18
SLS Loans............................................................... 3
SLS Program............................................................. 46
Special Allowance Payments.............................................. 43
Specified Reserve Account Balance....................................... 14
Stafford Loans.......................................................... 40
Statement 115........................................................... 95
Student Holdings........................................................ 3
Subsequent Cut-off Date................................................. 77
Surety Bonds............................................................ 15
Surety Provider......................................................... 3
Surety Provider Fee..................................................... 9
T-Bill Rate............................................................. 43
Telerate Page 3750...................................................... 69
TERI.................................................................... 55
TERI Alternative Loan .................................................. 55
TERI Alternative Program................................................ 4
Terms Supplement ....................................................... 19
The Money Store......................................................... 1
Transaction Fees........................................................ 9
Transfer Agreement...................................................... 77
Transfer and Servicing Agreements....................................... 74
Transfer Date........................................................... 77
Trust................................................................... cover
Trust Accounts.......................................................... 76
Trust Agreement......................................................... 3
Trust Supplement........................................................ 23
UCC..................................................................... 96
Underlying Federal Loan................................................. 48
Unsubsidized Stafford Loans............................................. 46
USAF.................................................................... 54
<PAGE>
Appendix I
AUCTION PROCEDURES
The following description of the Auction Procedures applies to each
Class of Auction Rate Notes (unless otherwise set forth in a Prospectus
Supplement) and each Class of Auction Rate Certificates (unless otherwise set
forth in a Trust Supplement). The term "Security," as used in this Appendix,
refers to each Class of Auction Rate Notes and each Class of Auction Rate
Certificates, and the term "Securityholder" refers to Noteholders holding
Auction Rate Notes and Certificateholders holding Auction Rate Certificates, as
applicable.
Definitions
Capitalized terms used herein and not otherwise defined have the
meanings ascribed in the accompanying Prospectus and Prospectus Supplement.
Additionally, the following terms have the meanings ascribed to them:
"All Hold Rate" means ninety percent (90%) of One-Month LIBOR.
"Auction" means the implementation of the Auction Procedures on an
Auction Date.
"Auction Agent" means the initial auction agent under the initial
Auction Agent Agreement unless and until a substitute Auction Agent Agreement
becomes effective, after which "Auction Agent" shall mean the substitute auction
agent.
"Auction Agent Agreement" means the initial Auction Agent Agreement
unless and until a substitute Auction Agent Agreement is entered into, after
which "Auction Agent Agreement" shall mean such substitute Auction Agent
Agreement.
"Auction Agent Fee" has the meaning set forth in the Auction Agent
Agreement.
"Auction Agent Fee Rate" has the meaning set forth in the Auction Agent
Agreement.
"Auction Date" means, with respect to the Initial Period for each Class
of Notes, the date set forth in the related Prospectus Supplement, and with
respect to each Class of Certificates, the date set forth in the Trust Agreement
or Trust Supplement and thereafter, the Business Day immediately preceding the
first day of each Auction Period for each Security, other than:
(A) each Auction Period commencing after the ownership of the
Securities is no longer maintained in Book-Entry Form by the
Securities Depository;
(B) each Auction Period commencing after and during the continuance
of an Event of Default; or
(C) each Auction Period commencing less than two Business Days
after the cure or waiver of an Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the Master Indenture and the related Terms Supplement
or the Trust Agreement and the related Trust Supplement, as described herein.
"Auction Period" means, with respect to each Security, the Interest
Period applicable to such Security during which time the applicable Security
Interest Rate is determined pursuant to the related Terms Supplement or the
Trust Agreement or the related Trust Supplement, which Auction Period (after the
Initial Period for such Security) initially shall consist of between 7 days and
one year (as set forth in the related Prospectus Supplement), as the same may be
adjusted pursuant to such Terms Supplement or the Trust Agreement or the related
Trust Supplement.
"Auction Period Adjustment" means an adjustment to the Auction Period
as provided in the related Terms Supplement or the Trust Agreement or the
related Trust Supplement, as applicable, as described herein.
"Auction Procedures" means the procedures set forth in the related
Terms Supplement or the Trust Agreement or the related Trust Supplement, as
applicable, and described herein by which the Auction Rate applicable to a
Security is determined.
"Auction Rate" means, with respect to any Security, the rate of
interest per annum that results from the implementation of the Auction
Procedures and is determined as described in the Trust Agreement or the related
Terms Supplement or the related Trust Supplement and this Appendix I.
"Authorized Denominations" means, with respect to any Security,
$50,000 and any integral multiple in excess thereof.
"Broker-Dealer" means the initial broker-dealer under the initial
Broker-Dealer Agreement 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 Trust pursuant to the
Indenture or the Administrator on behalf of the Eligible Lender Trustee pursuant
to the Trust Agreement 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 Trust, pursuant to which the
Broker-Dealer agrees to participate in Auctions as set forth in the Auction
Procedures, as from time to time amended or supplemented.
"Broker-Dealer Fee" has the meaning set forth in the Auction Agent
Agreement.
"Broker-Dealer Fee Rate" has the meaning set forth in the Auction Agent
Agreement.
"Effective Interest Rate" means, for any Financed Student Loan and any
Collection Period, the per annum rate at which such Financed Student Loan
accrues interest during such Collection Period and, in the case of a Federal
Loan, after giving effect to all applicable Interest Subsidy Payments and
Special Allowance Payments due with respect to such Federal Loan.
"Existing Securityholder" means (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with an Auction, a
Person who is a Broker-Dealer listed in the Existing Securityholder Registry at
the close of business on the Business Day immediately preceding such Auction and
(ii) with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of any Security.
"Existing Securityholder Registry" means the registry of Persons who
are owners of the Securities, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Federal Funds Rate" means, for any date of determination, the federal
funds (effective) rate as published on page 118 of the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices) on the immediately preceding
Business Day. If no such rate is published on such page on such date, "Federal
Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"Initial Period" means, as to any Security, the period commencing on
the Closing Date of such Security and continuing through the day immediately
preceding the Security Initial Rate Adjustment Date for such Security.
"Interest Period" means, with respect to a Security, the Initial
Period for such Security and each period commencing on the Rate Adjustment Date
for such Security and ending on the day before (i) the next Rate Adjustment Date
for such Security or (ii) the Final Maturity Date of such Security, as
applicable.
"Market Agent" means the entity named as market agent under the
Indenture, or any successor to it in such capacity thereunder.
"Maximum Auction Rate" generally means (i) for Auction Periods of 34
days or less, either (A) the greater of (1) One-Month LIBOR plus 0.60% or (2)
the Federal Funds Rate plus 0.60% (if both ratings assigned by the Rating
Agencies to the applicable Security are "Aa3" or "AA-" or better) or (B)
One-Month LIBOR plus 1.50% (if any one of the ratings assigned by the Rating
Agencies to the Security is less than "Aa3" or "AA-") or (ii) for Auction
Periods of greater than or equal to 35 days, either (A) the greater of One-Month
LIBOR or Three-Month LIBOR, plus in either case, 0.60% (if both of the ratings
assigned by the Rating Agencies to the applicable Security are "Aa3" or "AA-" or
better) or (B) the greater of One-Month LIBOR or Three-Month LIBOR, plus in
either case, 1.50% (if any one of the ratings assigned by the Rating Agencies to
the applicable Security is less than "Aa3" or "AA-") or such other rate as may
be set forth in the related Prospectus Supplement. For purposes of the Auction
Agent and the Auction Procedures, the ratings referred to in this definition
shall be the last ratings of which the Auction Agent has been given notice
pursuant to the Auction Agent Agreement.
"Net Loan Rate" for any Interest Period will equal the weighted
average Effective Interest Rate for the Collection Period immediately preceding
such Interest Period less the amount set forth in the related Prospectus
Supplement.
"Non-Payment Rate" means One-Month LIBOR plus 1.50%, as the same may
be adjusted pursuant to a Terms Supplement or a Trust Supplement.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Potential Securityholder" means any Person (including an Existing
Securityholder that is (i) a Broker- Dealer when dealing with the Auction Agent
and (ii) a potential beneficial owner when dealing with a Broker- Dealer) who
may be interested in acquiring Securities (or, in the case of an Existing
Securityholder thereof, an additional principal amount of Securities).
"Rate Adjustment Date" means, with respect to each Security, the date
on which the applicable Security Interest Rate is effective and means, with
respect to each such Security, the date of commencement of each Auction Period.
"Rate Determination Date" means, with respect to any Security, the
Auction Date, or if no Auction Date is applicable to such Series, the Business
Day immediately preceding the date of commencement of an Auction Period.
"Security Initial Rate" means, (i) with respect to any Class of Notes,
the rate identified as such in the related Prospectus Supplement and (ii) with
respect to any Class of Certificates, the rate identified as such in the Trust
Agreement or the related Trust Supplement.
"Security Initial Rate Adjustment Date" means, with respect to any
Class of Notes, the date identified as such in the related Prospectus Supplement
and, with respect to any Class of Certificates, the date set forth in the Trust
Agreement or the related Trust Supplement.
"Three-Month LIBOR" means the London interbank offered rate for
deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Three-Month Index Maturity") which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Three Month Index Maturity and in a principal amount of
not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London
time, on such LIBOR Determination Date to prime banks in the London interbank
market by the Reference Banks. The Auction Agent will request the principal
London office of each of such Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Auction Agent, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Three Month Index Maturity and
in a principal amount equal to an amount of not less than U.S. $1,000,000;
provided that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, Three-Month LIBOR in effect for the applicable Interest Period
will be Three-Month LIBOR in effect for the previous Interest Period.
Existing Securityholders and Potential Securityholders
Participants in each Auction will include: (1) "Existing
Securityholders," which shall mean any Securityholder according to the records
of the Auction Agent at the close of business on the Business Day preceding each
Auction Date; and (ii) "Potential Securityholders," which shall mean any person,
including any Existing Securityholder or a Broker/Dealer, who may be interested
in acquiring Securities (or, in the case of an Existing Securityholder, an
additional principal amount of the Security such Securityholder then holds). See
"--Broker-Dealer."
By purchasing a Security, whether in an Auction or otherwise, each
prospective purchaser of Securities or its Broker-Dealer must agree and will be
deemed to have agreed: (i) to participate in Auctions on the terms described
herein; (ii) so long as the beneficial ownership of the Securities is maintained
in Book-Entry Form to sell, transfer or otherwise dispose of the Securities only
pursuant to a Bid (as defined below) or a Sell Order (as defined below) in an
Auction, or to or through a Broker-Dealer, provided that in the case of all
transfers other than those pursuant to an Auction, the Existing Securityholder
of the Securities so transferred, its Participant or Broker-Dealer advises the
Auction Agent of such transfer; (iii) to have its beneficial ownership of
Securities maintained at all times in Book-Entry Form for the account of its
Participant, which in turn will maintain records of such beneficial ownership,
and to authorize such Participant to disclose to the Auction Agent such
information with respect to such beneficial ownership as the Auction Agent may
request; (iv) that a Sell Order placed by an Existing Securityholder will
constitute an irrevocable offer to sell the principal amount of the Security
specified in such Sell Order; (v) that a Bid placed by an Existing
Securityholder will constitute an irrevocable offer to sell the principal amount
of the Security specified in such Bid if the rate specified in such Bid is
greater than, or in some cases equal to, the Security Interest Rate of such
Security, determined as described herein; and (vi) that a Bid placed by a
Potential Securityholder will constitute an irrevocable offer to purchase the
amount, or a lesser principal amount, of the Security specified in such Bid if
the rate specified in such Bid is, respectively, less than or equal to the
Security Interest Rate of the specified Security, determined as described
herein.
The principal amount of the Securities purchased or sold may be
subject to proration procedures on the Auction Date. Each purchase or sale of
Securities on the Auction Date will be made for settlement on the first day of
the Interest Period immediately following such Auction Date at a price equal to
100% of the principal amount thereof, plus accrued but unpaid interest thereon.
The Auction Agent is entitled to rely upon the terms of any Order submitted to
it by a Broker-Dealer.
Auction Agent
Bankers Trust Company, or such other entity as may be named in the
related Prospectus Supplement, will be appointed as Auction Agent to serve as
agent for a Trust in connection with Auctions. The Indenture Trustee and the
Trust will enter into the Auction Agreement with Bankers Trust Company or such
other entity, as the Auction Agent. Any Substitute Auction Agent will be (i) a
bank, national banking association or trust company duly organized under the
laws of the United States of America or any state or territory thereof having
its principal place of business in the Borough of Manhattan, New York, or such
other location as approved by the Indenture Trustee and the Market Agent in
writing and having a combined capital stock or surplus of at least $50,000,000,
or (ii) a member of the National Association of Securities Dealers, Inc. having
a capitalization of at least $50,000,000, and, in either case, authorized by law
to perform all the duties imposed upon it under the Indenture and under the
Auction Agent Agreement. The Auction Agent may at any time resign and be
discharged of the duties and obligations created by the Indenture by giving at
least 90 days notice to the Indenture Trustee, the Trust and the Market Agent.
The Auction Agent may be removed at any time by the Indenture Trustee upon the
written direction of the Surety Provider, if applicable, or, with the consent of
the Surety Provider, if applicable, the Noteholders of 66-2/3% of the aggregate
principal amount of the Notes then outstanding, by an instrument signed by the
Surety Provider, if applicable, or such Noteholders or their attorneys and filed
with the Auction Agent, the Trust, the Indenture Trustee and the Market Agent
upon at least 90 days' notice. Neither resignation nor removal of the Auction
Agent pursuant to the preceding two sentences will be effective until and unless
a Substitute Auction Agent has been appointed and has accepted such appointment.
If required by the Trust or by the Market Agent, with the Trust's consent, a
Substitute Auction Agent Agreement shall be entered into with a Substitute
Auction Agent. Notwithstanding the foregoing, the Auction Agent may terminate
the Auction Agent Agreement if, within 25 days after notifying the Indenture
Trustee, the Trust, the Surety Provider, if applicable, and the Market Agent in
writing that it has not received payment of any Auction Agent Fee due it in
accordance with the terms of the Auction Agent Agreement, the Auction Agent does
not receive such payment.
If the Auction Agent should resign or be removed or be dissolved, or
if the property or affairs of the Auction Agent shall be taken under the control
of any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Indenture Trustee, at the direction of
the related Trust (after receipt of a certificate from the Market Agent
confirming that any proposed Substitute Auction Agent meets the requirements
described in the immediately preceding paragraph above), shall use its best
efforts to appoint a Substitute Auction Agent.
The Auction Agent is acting as agent for the Trust in connection with
Auctions. In the absence of bad, faith, negligent failure to act or negligence
on its part, the Auction Agent will not be liable for any action taken, suffered
or omitted or any error of judgment made by it in the performance of its duties
under the Auction Agent Agreement and will not be liable for any error of
judgment made in good faith unless the Auction Agent will have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
The Indenture Trustee will pay the Auction Agent the Auction Agent Fee
on the Note Distribution Date or Certificate Distribution Date set forth in the
related Prospectus Supplement, and will reimburse the Auction Agent upon its
request for all reasonable expenses, disbursements and advances incurred or made
by the Auction Agent in accordance with any provision of the Auction Agent
Agreement or the Broker-Dealer Agreements (including the reasonable compensation
and the expenses and disbursements of its agents and counsel). The Trust will
indemnify and hold harmless the Auction Agent for and against any loss,
liability or expense incurred without negligence or bad faith on the Auction
Agent's part, arising out of or in connection with the acceptance or
administration of its agency under the Auction Agent Agreement and the
Broker-Dealer Agreements including the reasonable costs and expenses (including
the reasonable fees and expenses of its counsel) of defending itself against any
such claim or liability in connection with its exercise or performance of any of
its respective duties thereunder and of enforcing this indemnification
provision; provided that the Trust will not indemnify the Auction Agent as
described in this paragraph for any fees and expenses incurred by the Auction
Agent in the normal course of performing its duties under the Auction Agent
Agreement and under the Broker-Dealer Agreements, such fees and expenses being
payable as described above.
Broker-Dealer
Existing Securityholders and Potential Securityholders may participate
in Auctions only by submitting orders (in the manner described below) through a
"Broker-Dealer," including the Broker-Dealer, as the sole Broker-Dealer or any
other broker or dealer (each as defined in the Securities Exchange Act of 1934,
as amended), commercial bank or other entity permitted by law to perform the
functions required of a Broker-Dealer set forth below which (i) is a Participant
or an affiliate of a Participant, (ii) has been selected by the Trust and (iii)
has entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective, in which the Broker-Dealer agrees to participate in Auctions as
described in the Auction Procedures, as from time to time amended or
supplemented.
The Broker-Dealers are entitled to a Broker-Dealer Fee, which is
payable by the Auction Agent from monies received from the Indenture Trustee, on
the Note Distribution Date or Certificate Distribution Date set forth in the
related Prospectus Supplement.
Market Agent
In connection with each Series of Notes and the Certificates, the
"Market Agent," will act solely as agent of the Trust and will not assume any
obligation or relationship of agency or trust for or with any of the
Securityholders.
Auction Procedures
General
Pursuant to the related Terms Supplement and the Trust Agreement and
the related Trust Supplement, Auctions to establish the Auction Rate for each
Security issued by the Trust will be held on each applicable Auction Date,
except as described below, by application of the Auction Procedures described
herein. Such procedures are to be applicable separately to each Class of Notes
and each Class of Certificates.
The Auction Agent will calculate the Maximum Auction Rate, the All Hold
Rate and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each
Auction Date. The Administrator will calculate and, no later than the Business
Day preceding each Auction Date, will report to the Auction Agent in writing,
the Net Loan Rate. If the ownership of a Security is no longer maintained in
Book-Entry Form, the Indenture Trustee will calculate the Maximum Auction Rate,
and Administrator will report to the Indenture Trustee in writing the Net Loan
Rate, on the Business Day immediately preceding the first day of each Interest
Period commencing after delivery of such Security. If an Event of Default has
occurred, the Indenture Trustee will calculate the Non-Payment Rate on the Rate
Determination Date for (i) each Interest Period commencing after the occurrence
and during the continuance of such Payment Default and (ii) any Interest Period
commencing less than two Business Days after the cure of any Event of Default.
The Auction Agent will determine One-Month LIBOR or the Three-Month LIBOR, as
applicable, for each Interest Period other than the Initial Period for a
Security; provided, that if the ownership of the Securities is no longer
maintained in Book-Entry Form, or if an Event of Default has occurred, then the
Indenture Trustee will determine the One-Month LIBOR or the Three-Month LIBOR,
as applicable, for each such Interest Period. The determination by the Indenture
Trustee or the Auction Agent, as the case may be, of the One-Month LIBOR or the
Three-Month LIBOR, as applicable, will (in the absence of manifest error) be
final and binding upon the Securityholders and all other parties. If calculated
or determined by the Auction Agent, the Auction Agent will promptly advise the
Indenture Trustee of the One-Month LIBOR or the Three-Month LIBOR, as
applicable.
Submission of Orders
So long as the ownership of the Securities is maintained in Book-Entry
Form, an Existing Securityholder may sell, transfer or otherwise dispose of
Securities only pursuant to a Bid or Sell Order (as hereinafter defined) placed
in an Auction or through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Securityholder, its
Broker-Dealer or its Participant advises the Auction Agent of such transfer.
Auctions for each Class of Notes and each Class of Certificates will be
conducted on each applicable Auction Date, if there is an Auction Agent on such
Auction Date, in the following manner (such procedures to be applicable
separately to each Class of Notes and each Class of Certificates).
Prior to the Submission Deadline (defined as 1:00 P.M., eastern time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time) on each Auction Date relating to a
Security:
(a) each Existing Securityholder of the applicable Security may
submit to a Broker-Dealer by telephone or otherwise information as to: (i) the
principal amount and class of outstanding Securities, if any, held by such
Existing Securityholder which such Existing Securityholder desires to continue
to hold without regard to the Security Interest Rate for such Securities for the
next succeeding Auction Period (a "Hold Order"); (ii) the principal amount and
class of outstanding Securities, if any, which such Existing Securityholder
offers to sell if the Security Interest Rate for such Securities for the next
succeeding Auction Period will be less than the rate per annum specified by such
Existing Securityholder (a "Bid"); and/or (iii) the principal amount and class
of outstanding Securities, if any, held by such Existing Securityholder which
such Existing Securityholder offers to sell without regard to the Security
Interest Rate for such Securities for the next succeeding Auction Period (a
"Sell Order"); and
(b) one or more Broker-Dealers may contact Potential
Securityholders to determine the principal amount and class of Securities which
each such Potential Securityholder offers to purchase, if the Security Interest
Rate for such Securities for the next succeeding Auction Period will not be less
than the rate per annum specified by such Potential Securityholder (also a
"Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Securityholder and each Potential Securityholder placing an Order is referred to
as a "Bidder."
Subject to the provisions described below under "Validity of Orders,"
a Bid by an Existing Securityholder will constitute an irrevocable offer to
sell: (i) the principal amount and class of the outstanding Securities specified
in such Bid if the Security Interest Rate for such Securities will be less than
the rate specified in such Bid, (ii) such principal amount or a lesser principal
amount and class of the outstanding Securities to be determined as described
below in "Acceptance and Rejection of Orders," if the Security Interest Rate for
such Securities will be equal to the rate specified in such Bid or (iii) such
principal amount or a lesser principal amount of the then outstanding Securities
to be determined as described below under "Acceptance and Rejection of Orders,"
if the rate specified therein will be higher than the Security Interest Rate for
such Securities and Sufficient Bids (as defined below) have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Sell Order by an Existing Securityholder will constitute an irrevocable offer
to sell: (i) the principal amount of the Security specified in such Sell Order
or (ii) such principal amount or a lesser principal amount of outstanding
Securities of the specified Security as described below under "Acceptance and
Rejection of Orders," if Sufficient Bids have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Bid by a Potential Securityholder will constitute an irrevocable offer to
purchase: (i) the principal amount of the Security specified in such Bid if the
Security Interest Rate for such Securities will be higher than the rate
specified in such Bid or (ii) such principal amount or a lesser principal amount
of such Securities as described below in "Acceptance and Rejection of Orders,"
if the Security Interest Rate is equal to the rate specified in such Bid.
Each Broker-Dealer will submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and will specify with respect to each such Order: (i) the name of
the Bidder placing such Order; (ii) the aggregate principal amount and class of
Security that are the subject of such Order; (iii) to the extent that such
Bidder is an Existing Securityholder: (a) the principal amount and class of
Securities, if any, subject to any Hold Order placed by such Existing
Securityholder; (b) the principal amount, and class of Securities, if any,
subject to any Bid placed by such Existing Securityholder and the rate specified
in such Bid; and (c) the principal amount, and class of Securities, if any,
subject to any Sell Order placed by such Existing Securityholder, and (iv) to
the extent such Bidder is a Potential Securityholder, the rate specified in such
Potential Securityholder's Bid.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate up to the
next highest one-thousandth (.001) of one percent.
If an Order or Orders covering all Securities of the applicable class
held by any Existing Securityholder are not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent will deem a Hold Order to have
been submitted on behalf of such Existing Securityholder covering the principal
amount of Securities held by such Existing Securityholder and not subject to an
Order submitted to the Auction Agent.
Neither the Trust, the Owner Trustee, the Indenture Trustee nor the
Auction Agent will be responsible for any failure of a Broker-Dealer to submit
an Order to the Auction Agent on behalf of any Existing Securityholder or
Potential Securityholder.
An Existing Securityholder may submit multiple Orders, of different
types and specifying different rates, in an Auction with respect to Securities
then held by such Existing Securityholder. An Existing Securityholder that
offers to purchase additional Securities is, for purposes of such offer, treated
as a Potential Securityholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will
(i) be treated as a Sell Order if submitted by a Existing Securityholder and
(ii) not be accepted if submitted by a Potential Securityholder.
Validity of Orders
If any Existing Securityholder submits through a Broker-Dealer to the
Auction Agent one or more Orders covering in the aggregate more than the
principal amount of the class of Securities held by such Existing
Securityholder, such Orders will be considered valid as follows and in the order
of priority described below.
Hold Orders. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of the class of Securities held by such Existing
Securityholder, and if the aggregate principal amount of the class of Securities
subject to such Hold Orders exceeds the aggregate principal amount of the class
of Securities held by such Existing Securityholder, the aggregate principal
amount of the class of Securities subject to each such Hold Order will be
reduced pro rata so that the aggregate principal amount of the class of
Securities subject to all such Hold Orders equals the aggregate principal amount
of the class of Securities held by such Existing Securityholder.
Bids. Any Bid will be considered valid up to an amount equal to the
excess of the principal amount of the class of Securities held by such Existing
Securityholder over the aggregate principal amount of such Security, subject to
any Hold Orders referred to above. Subject to the preceding sentence, if
multiple Bids with the same rate are submitted on behalf of such Existing
Securityholder and the aggregate principal amount of Securities subject to such
Bids is greater than such excess, such Bids will be considered valid up to an
amount equal to such excess. Subject to the two preceding sentences, if more
than one Bid with different rates are submitted on behalf of such Existing
Securityholder, such Bids will be considered valid first in the ascending order
of their respective rates until the highest rate is reached at which such excess
exists and then at such rate up to the amount of such excess. In any event, the
aggregate principal amount of Securities, if any, subject to Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Securityholder at the rate therein specified.
Sell Orders. All Sell Orders will be considered valid up to an amount
equal to the excess of the principal amount of Securities of the class held by
such Existing Securityholder over the aggregate principal amount of Securities
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for a class of Security is submitted on behalf of
any Potential Securityholder, each Bid submitted will be a separate Bid with the
rate and principal amount therein specified. Any Bid or Sell Order submitted by
an Existing Securityholder covering an aggregate principal amount of Securities
not equal to an Authorized Denomination or an integral multiple thereof will be
rejected and will be deemed a Hold Order. Any Bid submitted by a Potential
Securityholder covering an aggregate principal amount of Securities not equal to
an Authorized Denomination or an integral multiple thereof will be rejected. Any
Order submitted in an Auction by a Broker-Dealer to the Auction Agent prior to
the Submission Deadline on any Auction Date will be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid
pursuant to the procedures described above is referred to as a "Submitted Hold
Order," a "Submitted Bid" and a "Submitted Sell Order," respectively
(collectively, "Submitted Orders").
Determination of Sufficient Bid and Bid Auction Rate
Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent will assemble all valid Submitted Orders and will determine:
(a) for the applicable Security, the excess of the total
principal amount of such Securities over the sum of the aggregate principal
amount of such Securities subject to Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Securities"); and
(b) from such Submitted Orders whether the aggregate principal amount
of Securities of such class subject to Submitted Bids by Potential
Securityholders specifying one or more rates equal to or lower than the Maximum
Auction Rate exceeds or is equal to the sum of (i) the aggregate principal
amount of Securities of such class subject to Submitted Bids by Existing
Securityholders specifying one or more rates higher than the Maximum Auction
Rate and (ii) the aggregate principal amount of Securities of such class subject
to Submitted Sell Orders (in the event such excess or such equality exists other
than because all of the Securities are subject to Submitted Hold Orders, such
Submitted Bids by Potential Securityholders above will be hereinafter referred
to collectively as "Sufficient Bids"); and
(c) if Sufficient Bids exist, the "Bid Auction Rate," which
will be the lowest rate specified in such Submitted Bids such that if:
(i) each such Submitted Bid from Existing
Securityholders of such Security specifying such lowest rate
and all other Submitted Bids from Existing Securityholders of
such Security specifying lower rates were rejected (thus
entitling such Existing Securityholders to continue to hold the
principal amount of Securities subject to such Submitted Bids);
and
(ii) each such Submitted Bid from Potential
Securityholders of such Security specifying such lowest rate
and all other Submitted Bids from Potential Securityholders
specifying lower rates, were accepted, the result would be that
such Existing Securityholders described in subparagraph (c)(i)
above would continue to hold an aggregate principal amount of
Securities which, when added to the aggregate principal amount
of Securities to be purchased by such Potential Securityholders
described in this subparagraph (ii) would equal not less than
the Available Securities.
Determination of Auction Rate and Security Interest Rate, Notice
Promptly after the Auction Agent has made the determinations described
above, the Auction Agent is to advise the Indenture Trustee of the Net Loan
Rate, the Maximum Auction Rate, the All Hold Rate and the components thereof on
the Auction Date, and based on such determinations, the Auction Rate for the
next succeeding Interest Period for the applicable Security as follows:
(a) if Sufficient Bids exist, that the Auction Rate for the next
succeeding Interest Period will be equal to the Bid Auction Rate so determined;
(b) if Sufficient Bids do not exist (other than because all of the
Securities of the applicable Security are subject to Submitted Hold Orders),
that the Auction Rate for the next succeeding Interest Period will be equal to
the Maximum Auction Rate; or
(c) if all Securities of the applicable Security are subject to
Submitted Hold Orders, that the Auction Rate for the next succeeding Interest
Period will be equal to the All Hold Rate.
Promptly after the Auction Agent has determined the Auction Rate, the
Auction Agent will determine and advise the Indenture Trustee of the Security
Interest Rate for each applicable Security, which rate will be the lesser of (a)
the Auction Rate for each such Security and (b) the Net Loan Rate. In no event
shall a Security Interest Rate exceed the rate (the "Security Interest Rate
Limitation") set forth in the related Prospectus Supplement (with respect to a
Class of Notes) or the Trust Agreement or the related Trust Supplement (with
respect to a Class of Certificates).
Acceptance and Rejection of Orders
Existing Securityholders of the applicable Security will continue to
hold the principal amount of Securities of such class that are subject to
Submitted Hold Orders. If, with respect to a Security, the Net Loan Rate is
equal to or greater than the Bid Auction Rate and if Sufficient Bids, as
described above under "Determination of Sufficient Bids and Bid Auction Rate,"
have been received by the Auction Agent, the Bid Auction Rate will be the
Security Interest Rate, and Submitted Bids and Submitted Sell Orders will be
accepted or rejected and the Auction Agent will take such other action as
provided in the Indenture and described below under "Sufficient Bids."
If the Net Loan Rate is less than the Auction Rate, the Security
Interest Rate will be the Net Loan Rate. If the Auction Rate and the Net Loan
Rate are both greater than the Security Interest Rate Limitation, the Security
Interest Rate for each series shall be equal to the Security Interest Rate
Limitation. If the Auction Agent has not received Sufficient Bids as described
above under "Determination of Sufficient Bids and Bid Auction Rate" (other than
because all of the Securities are subject to Submitted Holds Orders), the
Security Interest Rate will be the lesser of the Maximum Auction Rate or the Net
Loan Rate. In any of the cases described above in this paragraph, Submitted
Orders will be accepted or rejected and the Auction Agent will take such other
action as described below under "Insufficient Bids."
Sufficient Bids. If Sufficient Bids have been made with a respect to a
Security and the Net Loan Rate is equal to or greater than the Bid Auction Rate
(in which case the Interest Rate shall be the Bid Auction Rate), all Submitted
Sell Orders will be accepted and, subject to the denomination requirements
described below, Submitted Bids will be accepted or rejected as follows in the
following order of priority and all other Submitted Bids will be rejected:
(a) Existing Securityholders' Submitted Bids specifying any rate that
is higher than the Security Interest Rate will be accepted, thus requiring each
such Existing Securityholder to sell the aggregate principal amount of
Securities subject to such Submitted Bids;
(b) Existing Securityholders' Submitted Bids specifying any rate that
is lower than the Security Interest Rate will be rejected, thus entitling each
such Existing Securityholder to continue to hold the aggregate principal amount
of Securities subject to such Submitted Bids;
(c) Potential Securityholders' Submitted Bids specifying any rate that
is lower than the Security Interest Rate will be accepted;
(d) Each Existing Securityholder's Submitted Bid specifying a rate that
is equal to the Security Interest Rate will be rejected, thus entitling such
Existing Securityholder to continue to hold the aggregate principal amount of
Securities subject to such Submitted Bid, unless the aggregate principal amount
of Securities subject to such Submitted Bids will be greater than the principal
amount of Securities (the "remaining principal amount") equal to the excess of
the Available Securities over the aggregate principal amount of Securities
subject to Submitted Bids described in subparagraphs (b) and (c) above, in which
event such Submitted Bid of such Existing Securityholder will be rejected in
part and such Existing Securityholder will be entitled to continue to hold the
principal amount of Securities subject to such Submitted Bid, but only in an
amount equal to the aggregate principal amount of Securities obtained by
multiplying the remaining principal amount by a fraction, the numerator of which
will be the principal amount of Securities held by such Existing Securityholder
subject to such Submitted Bid and the denominator of which will be the sum of
the principal amount of Securities subject to such Submitted Bids made by all
such Existing Securityholders that specified a rate equal to the Security
Interest Rate; and
(e) Each Potential Securityholder's Submitted Bid specifying a rate
that is equal to the Security Interest Rate will be accepted, but only in an
amount equal to the principal amount of Securities obtained by multiplying the
excess of the aggregate principal amount of Available Securities over the
aggregate principal amount of Securities subject to Submitted Bids described in
subparagraphs (b), (c) and (d) above by a fraction, the numerator of which will
be the aggregate principal amount of Securities subject to such Submitted Bid
and the denominator of which will be the sum of the principal amount of
Securities subject to Submitted Bids made by all such Potential Securityholders
that specified a rate equal to the Security Interest Rate.
Insufficient Bids. If Sufficient Bids have not been made with respect
to a Security (other than because all of the Securities of such class are
subject to Submitted Hold Orders) or if the Net Loan Rate is less than the Bid
Auction Rate (in which case the Security Interest Rate shall be the Net Loan
Rate) or if the Security Interest Rate Limitation applies, subject to the
denomination requirements described below, Submitted Orders will be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids will be rejected:
(a) Existing Securityholders' Submitted Bids specifying any
rate that is equal to or lower than the Security Interest Rate will be rejected,
thus entitling such Existing Securityholders to continue to hold the aggregate
principal amount of Securities subject to such Submitted Bids;
(b) Potential Securityholders' Submitted Bids specifying any
rate that is equal to or lower than the Security Interest Rate will be accepted,
and specifying any rate that is higher than the Security Interest Rate will be
rejected; and
(c) each Existing Securityholder's Submitted Bid specifying any
rate that is higher than the Security Interest Rate and the Submitted Sell Order
of each Existing Securityholder will be accepted, thus entitling each Existing
Securityholder that submitted any such Submitted Bid or Submitted Sell Order to
sell the Securities subject to such Submitted Bid or Submitted Sell Order, but
in both cases only in an amount equal to the aggregate principal amount of
Securities obtained by multiplying the aggregate principal amount of Securities
subject to Submitted Bids described in subparagraph (b) above by a fraction, the
numerator of which will be the aggregate principal amount of Securities held by
such Existing Securityholder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which will be the aggregate principal amount of
Securities subject to all such Submitted Bids and Submitted Sell Orders.
All Hold Orders. If all Securities of a class are subject to Submitted
Hold Orders, all Submitted Bids will be rejected.
Authorized Denominations Requirement. If, as a result of the
procedures described above regarding Sufficient Bids and Insufficient Bids, any
Existing Securityholder would be entitled or required to sell, or any Potential
Securityholder would be entitled or required to purchase, a principal amount of
Securities that is not equal to an Authorized Denomination or an integral
multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, round up or down the principal amount of
Securities to be purchased or sold by any Existing Securityholder or Potential
Securityholder so that the principal amount of Securities purchased or sold by
each Existing Securityholder or Potential Securityholder will be equal to an
Authorized Denomination or an integral multiple in excess thereof. If, as a
result of the procedures described above regarding Insufficient Bids, any
Potential Securityholder would be entitled or required to purchase less than a
principal amount of Securities equal to an Authorized Denomination or any
integral multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, allocate Securities for purchase among Potential
Securityholders so that only Securities in an Authorized Denomination or any
integral multiples in excess thereof are purchased by any Potential
Securityholder, even if such allocation results in one or more of such Potential
Securityholders not purchasing any Securities.
Based on the results of each Auction, the Auction Agent is to determine
the aggregate principal amount of Securities of each class to be purchased and
the aggregate principal amount of Securities of each class to be sold by
Potential Securityholders and Existing Securityholders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of Securities
to be sold differs from such aggregate principal amount of Securities to be
purchased, determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer will deliver, or from which
Broker-Dealers acting for one or more sellers such Broker-Dealer will receive,
as the case may be, Securities.
Any calculation by the Auction Agent (or the Indenture Trustee, if
applicable) of the Security Interest Rate, One-Month LIBOR, Three-Month LIBOR,
the Maximum Auction Rate, the All Hold Rate, the Net Loan Rate and the
Non-Payment Rate will, in the absence of manifest error, be binding on all other
parties.
Notwithstanding anything in the Master Indenture, a related Terms
Supplement or the Trust Agreement to the contrary, no Auction is to be held on
any Auction Date on which there are insufficient moneys held by the Indenture
Trustee under the Master Indenture and available to pay the principal of and
interest due on the applicable Security on the Note Distribution Date or
Certificate Distribution Date immediately following such Auction Date.
Settlement Procedures
The Auction Agent is required to advise each Broker-Dealer that
submitted an Order in an Auction of the Security Interest Rate for a Security
for the next Interest Period and, if such Order was a Bid or Sell Order, whether
such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 pm., eastern time, on the Auction Date if the
Interest Rate is the Auction Rate and not later than 4:00 pm. eastern time on
the Auction Date if the Interest Rate is the Net Loan Rate. Each Broker-Dealer
that submitted an Order on behalf of a Bidder is required to then advise such
Bidder of the applicable Security Interest Rate for the next Interest Period
and, if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was
accepted or rejected, in whole or in part, confirm purchases and sales with each
Bidder purchasing or selling Securities as a result of the Auction and advise
each Bidder purchasing or selling Securities as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
such Securities or to deliver such Securities against payment therefor, as
appropriate. Pursuant to the Auction Agent Agreement, the Auction Agent is to
record each transfer of Securities on the Existing Securityholders Registry to
be maintained by the Auction Agent.
In accordance with DTC's normal procedures, on the Business Day after
the Auction Date, the transactions described above will be executed through DTC,
so long as DTC is the Depository, and the accounts of the respective
Participants at DTC will be debited and credited and Securities delivered as
necessary to effect the purchases and sales of Securities as determined in the
Auction. Purchasers are required to make payment through their Participants in
same-day funds to DTC against delivery through their Participants. DTC will make
payment in accordance with its normal procedures, which now provide for payment
against delivery by its Participants in immediately available funds.
If any Existing Securityholder selling Securities in an Auction fails
to deliver such Securities, the Broker-Dealer of any person that was to have
purchased Securities in such Auction may deliver to such person a principal
amount of Securities that is less than the principal amount of Securities that
otherwise was to be purchased by such person but in any event equal to an
Authorized Denomination or any integral multiple thereof. In such event, the
principal amount of Securities to be delivered will be determined by such
Broker-Dealer. Delivery of such lesser principal amount of Securities will
constitute good delivery. Neither the Indenture Trustee nor the Auction Agent
will have any responsibility or liability with respect to the failure of a
Potential Securityholder, Existing Securityholder or their respective
Broker-Dealer or Participant to deliver the principal amount of Securities or to
pay for the Securities purchased or sold pursuant to an Auction or otherwise.
For a further description of the settlement procedures, see "SETTLEMENT
PROCEDURES."
Indenture Trustee Not Responsible for Auction Agent, Market Agent and
Broker-Dealers
The Indenture Trustee shall not be liable or responsible for the
actions of or failure to act by the Auction Agent, Market Agent or any
Broker-Dealer under the Master Indenture, the related Terms Supplement or under
the Auction Agent Agreement, the Market Agent Agreement or any Broker-Dealer
Agreement. The Indenture Trustee may conclusively rely upon any information
required to be furnished by the Auction Agent, the Market Agent or any
Broker-Dealer without undertaking any independent review or investigation of the
truth or accuracy of such information.
Changes in Auction Terms
Changes in Auction Period or Periods
While any of the Securities are outstanding, the Administrator, may,
from time to time, change the length of the one or more Auction Periods in order
to conform with then current market practice with respect to similar securities
or to accommodate economic and financial factors that may affect or be relevant
to the length of the Auction Period and the interest rate borne by the
Securities (an "Auction Period Adjustment"). The Administrator will not initiate
such change in the length of the Auction Period unless it shall have received
the written consent from the Market Agent, which consent will not be
unreasonably withheld, not less than three days nor more than 20 days prior to
the effective date of an Auction Period Adjustment. The Administrator will
initiate an Auction Period Adjustment by giving written notice to the Indenture
Trustee, the Auction Agent, the Market Agent, the Surety Provider and the
Securities Depository in substantially the form of, or containing substantially
the information contained in, the Indenture at least 10 days prior to the
Auction Date for such Auction Period.
Any such Auction Period Adjustment shall not result in an Auction
Period of less than 7 days nor more than 91 days. If any such Auction Period
Adjustment will result in an Auction Period of less than the number of days in
the then current Auction Period, the notice described above will be effective
only if it is accompanied by a written statement of the Indenture Trustee, the
Eligible Lender Trustee, the Auction Agent and the Depository to the effect that
they are capable of performing their duties, if any, under the Indenture, the
Auction Agent Agreement and any Broker-Dealer Agreement with respect to such
changed Auction Period.
An Auction Period Adjustment will take effect only if (A) the
Indenture Trustee and the Auction Agent receive, by 11:00 A.M., eastern time, on
the Business Day before the Auction Date for the first such Auction Period, a
certificate from the Trust authorizing an Auction Period Adjustment specified in
such certificate, the certificate of the Market Agent described above and the
written statement of the Indenture Trustee, the Eligible Lender Trustee, the
Auction Agent and the Securities Depository described above and (B) Sufficient
Bids exist at the Auction on the Auction Date for such first Auction Period. If
the condition referred to in (A) is not met, the Security Interest Rate
applicable for the next Auction Period will be determined pursuant to the
Auction Procedures and the Auction Period will be the Auction Period determined
without reference to the proposed change. If the condition referred to in (A) is
met, but the condition referred to in (B) above is not met, the Security
Interest Rate applicable for the next Auction Period will be the lesser of the
Maximum Auction Rate and the Net Loan Rate and the Auction Period will be the
Auction Period determined without reference to the proposed change.
Changes in the Auction Date
The Market Agent, at the written direction of the Trust, may specify
an earlier Auction Date (but in no event more than five Business Days earlier)
than the Auction Date that would otherwise be determined in accordance with the
definition of "Auction Date" with respect to one or more specified Auction
Periods in order to conform with then current market practice with respect to
similar securities or to accommodate economic and financial factors that may
affect or be relevant to the day of the week constituting an Auction Date and
the interest rate borne on the Securities. The Trust will not consent to such
change in the Auction Date unless the Trust will have received from the Market
Agent not less than three days nor more than 20 days prior to the effective date
of such change a written request for consent together with a certificate
demonstrating the need for change in reliance on such factors. The Market Agent
will provide notice of its determination to specify an earlier Auction Date for
one or more Auction Periods by means of a written notice delivered at least 10
days prior to the proposed changed Auction Date to the Indenture Trustee, the
Auction Agent, the Trust and the Depository.
The changes in Auction terms described above may be made with respect
to any class of the Securities. In connection with any change in Auction Terms
described above, the Auction Agent is to provide such further notice to such
parties as is specified in the Auction Agent Agreement.
<PAGE>
Appendix II
SETTLEMENT PROCEDURES
These Settlement Procedures apply separately to each class of Securities.
(a) Not later than (i) 3:00 P.M. if the Security Interest Rate is the
Auction Rate or (2) 4:00 p.m. if the Security Interest Rate is the Net Loan
Rate, the Auction Agent is to notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of an Existing Securityholder or Potential Securityholder of:
(i) the Security Interest Rate fixed for the next Interest
Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Securityholder,
whether such Bid or Sell Order was accepted or rejected, in whole or
in part, and the principal amount of Securities, if any, to be sold by
such Existing Securityholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Securityholder, whether such
Bid was accepted or rejected, in whole or in part, and the principal
amount of Securities, if any, to be purchased by such Potential
Securityholder;
(v) if the aggregate amount of Securities to be sold by all
Existing Securityholders on whose behalf such Seller's Broker-Dealer
submitted Bids or Sell Orders exceeds the aggregate principal amount
of Securities to be purchased by all Potential Securityholders on
whose behalf such Buyer's Broker-Dealer submitted a Bid, the name or
names of one or more Buyer's Broker-Dealers and the name of the
Participant, if any, of each such Buyer's Broker-Dealer (an
"Participant") acting for one or more purchasers of such excess
principal amount of Securities and the principal amount of Securities
to be purchased from one or more Existing Securityholders on whose
behalf such Seller's Broker-Dealer acted by one or more Potential
Securityholders on whose behalf each of such Buyer's Broker-Dealers
acted;
(vi) if the principal amount of Securities to be purchased by
all Potential Securityholders on whose behalf such Buyer's
Broker-Dealer submitted a Bid exceeds the amount of Securities to be
sold by all Existing Securityholders on whose behalf such Seller's
Broker-Dealer submitted a Bid or a Sell Order, the name or names of
one or more Seller's Broker-Dealers (and the name of the Participant,
if any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess principal amount of Securities and the
principal amount of Securities to be sold to one or more Potential
Securityholders on whose behalf such Buyer's Broker-Dealer acted by
one or more Existing Securityholder on whose behalf each of such
Seller's Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Securityholder or Potential Securityholder is to:
(i) advise each Existing Securityholder and Potential
Securityholder on whose behalf such Broker- Dealer submitted a Bid or
Sell Order in the Auction on such Auction Date whether such Bid or Sell
Order was accepted or rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, advise each Potential Securityholder on whose behalf
such Buyer's Broker-Dealer submitted a Bid that was accepted, in whole
or in part, to instruct such Potential Securityholder's Participant to
pay to such Buyer's Broker-Dealer (or its Participant) through the
Depository the amount necessary to purchase the principal amount of the
Securities to be purchased pursuant to such Bid against receipt of such
Securities together with accrued interest;
(iii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Securityholder on whose behalf
such Seller's Broker-Dealer submitted a Sell Order that was accepted,
in whole or in part, or a Bid that was accepted, in whole or in part,
to instruct such Existing Securityholder's Participant to deliver to
such Seller's Broker-Dealer (or its Participant) through the Depository
the principal amount of the Securities to be sold pursuant to such
Order against payment therefor;
(iv) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order and each Potential Securityholder on
whose behalf such Broker-Dealer submitted a Bid of the Security
Interest Rate for the next Interest Period;
(v) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Securityholder on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part,
of the next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order in an
Auction is required to allocate any funds received by it in connection with such
Auction pursuant to paragraph (b)(ii) above, and any Securities received by it
in connection with such Auction pursuant to paragraph (b)(iii) above, among the
Potential Securityholders, if any, on whose behalf such Broker- Dealer submitted
Bids, the Existing Securityholder, if any, on whose behalf such Broker-Dealer
submitted Bids or Sell Orders in such Auction, and any Broker-Dealers identified
to it by the Auction Agent following such Auction pursuant to paragraph (a)(v)
or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Securityholder and Existing Securityholder
with an Order in the Auction on such Auction Date will instruct its
Participant as provided in (b)(ii) or (b)(iii) above, as the case may
be:
(ii) each Seller's Broker-Dealer that is not a Participant of
the Depository will instruct its Participant to deliver such
Securities through the Depository to a Buyer's Broker-Dealer (or its
Participant) identified to such Seller's Broker-Dealer pursuant to
(a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in
the Depository will instruct its Participant to pay through the
Depository to Seller's Broker-Dealer (or its Participant) identified
following such Auction pursuant to (a)(vi) above the amount necessary
to purchase the Securities to be purchased pursuant to (b)(ii) above
against receipt of such Securities.
(e) On the Business Day following each Auction Date;
(i) each Participant for a Bidder in the Auction on such
Auction Date referred to in (d)(i) above will instruct the Depository
to execute the transactions described under (b)(ii) or (b)(iii) above
for such Auction, and the Depository will execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(ii) above for such Auction, and the Depository will execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(iii) above for such Auction, and the Depository will execute such
transactions.
(f) If an Existing Securityholder selling Securities in an Auction
fails to deliver such Securities (by authorized book-entry), a Broker-Dealer may
deliver to the Potential Securityholder on behalf of which it submitted a Bid
that was accepted a principal amount of Securities that is less than the
principal amount of Securities that otherwise was to be purchased by such
Potential Securityholder. In such event, the principal amount of Securities to
be so delivered will be determined solely by such Broker-Dealer (but only in
Authorized Denominations). Delivery of such lesser principal amount of
Securities will constitute good delivery. Notwithstanding the foregoing terms of
this paragraph (f), any delivery or nondelivery of Securities which will
represent any departure from the results of an Auction, as determined by the
Auction Agent, will be of no effect unless and until the Auction Agent will have
been notified of such delivery or nondelivery in accordance with the provisions
of the Auction Agent Agreement and the Broker-Dealer Agreements. Neither the
Indenture Trustee nor the Auction Agent will have any responsibility or
liability with respect to the failure of a Potential Securityholder, Existing
Securityholder or their Respective Broker- Dealer or Participant to take
delivery of or deliver, as the case may be, the principal amount of the
Securities purchased or sold pursuant to an Auction or otherwise.
<PAGE>
ANNEX A
FINANCIAL STATEMENTS
OF THE
SURETY PROVIDER
<PAGE>
No dealer, salesman or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Seller, The Money Store Inc. or the Underwriter. This
Prospectus Supplement and the accompanying Prospectus do not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the Notes
offered hereby nor an offer of such Notes to any person in any state or other
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus Supplement and the accompanying Prospectus at any time does not imply
that information herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Terms of the Series 199_-_Notes ................... S-3
-
Previously Issued Securities S-8
Underwriting..................................... S-9
Risk Factors.....................................
Pennsylvania Higher Education Assistance
Agency.........................................
Description of the Securities
Description of the Transfer and Servicing
Agreements.....................................
Certain Tax Consequences.........................
ERISA Considerations.............................
Legal Matters....................................
Rating...........................................
Index of Principal Terms.........................
Annex A-Certain Characteristics of the Financed
Student Loans.................................. A-1
Annex B-Certain Information Relating to the
Guarantors..................................... B-1
PROSPECTUS
Prospectus Supplement............................ iv
Available Information............................ iv
Reports to Securityholders....................... iv
Incorporation of Certain Documents of
Reference...................................... v
Summary of Terms................................. 1
Risk Factors..................................... 29
Formation of Trust............................... 37
Use of Proceeds.................................. 38
The Seller and the Money Store 38
The Student Loan Financing Business............... 39
The Financed Student Loan Pool 57
Description of the Securities 63
Description of the Transfer and Servicing
Agreements..................................... 74
Certain Legal Aspects of the Financed Student
Loans.......................................... 96
Certain Tax Consequences......................... 98
ERISA Considerations............................. 105
Plan of Distribution............................. 106
Legal Matters.................................... 106
Financial Information............................ 107
Rating........................................... 107
Index of Principal Terms......................... 108
Appendix ICAuction Procedures
Appendix IICSettlement Procedures
Annex ACFinancial Statements of the Surety Provider
$-------------
TRANS-WORLD INSURANCE COMPANY
D/B/A EDUCAID
(Seller)
CLASSNOTES INC.
(Seller)
THE MONEY STORE INC.
(Representative)
[NAME OF TRUST]
ASSET BACKED NOTES
(Issuable in Series)
PROSPECTUS SUPPLEMENT
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The estimated expenses in connection with the offering, all of
which will be borne by the Registrant are as follows:
Registration Fee.........................................$ 43.10
Trustee's Fee...............................................25,000.00
Printing....................................................50,000.00
Legal Fees and Expenses ...................................125,000.00
Accounting Fees.............................................17,000.00
Blue Sky Qualification Fees
and Expenses..............................................15,000.00
Rating Agency Fees..........................................25,000.00
Miscellaneous...............................................10,000.00
Total.....................................................$267,043.10
*All amounts are estimates of expenses incurred or to be incurred in connection
with the issuance and distribution of a Securities in an aggregate principal
amount assumed for these purposes to be one-eighth of the $1,000,000 of
Securities registered hereby. Accordingly, only one-eighth of the SEC
Registration Fee paid upon the filing of this Registration Statement is included
in the table above.
Item 15. Indemnification of Directors and Officers
Section 102 of the Delaware General Corporation Law allows a
corporation to limit or eliminate the personal liability of directors to the
corporation and its shareholders for monetary damages for breach of fiduciary
duty as director. However, this provision excludes any limitation on liability
(i) for any breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for intentional or
negligent payment of unlawful dividends or stock purchase or redemption or (iv)
for any transaction from which the director derived an improper personal
benefit. Article Seventh of ClassNotes Inc.'s Certificate of Incorporation
provides for the limitation on directors' liability as permitted by this
statute.
Section 10-005 of the Arizona General Corporation Law provides
that Arizona corporations such as Trans- World Insurance Company may indemnify
any director, officer, employee or agent against expenses and liabilities in
connection with any proceeding involving the director, officer, employee or
agent by reason of him or her acting in such capacity if he or she acted, or
failed to act, in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, did not have reasonable cause to believe such
conduct was unlawful. Trans-World Insurance Company's By-Laws entitle officers
and directors to indemnification to the fullest extent permissible under Section
10-005 of the Arizona General Corporation Law.
Article X of Trans-World Insurance Company's Articles of Incorporation
provides that Trans-World Insurance Company shall indemnify and hold harmless
the directors and officers of such corporation from any claims or causes of
action which may accrue or be brought against them by reason of their action or
inaction in their capacity as directors or officers of such corporation
including indemnity for all attorneys' fees, expenses, loss of time from
employment and damages in the event of any litigation or claims, and any and all
other liabilities that might accrue.
ClassNotes Inc. and Trans-World Insurance Company each maintains
directors' and officers' liability insurance, which covers their respective
directors and officers, with policy limits of $5,000,000.
Unless otherwise specified in the related Prospectus Supplement, each
of the Trust Agreement, Sale and Servicing Agreement and the Indenture will
provide that the Registrants and their parent, the Money Store Inc., will
indemnify and hold the Indenture Trustee and the Eligible Lender Trustee
harmless against any losses that either may sustain by reason of the failure of
the Registrants or The Money Store Inc. to perform their respective obligations
under these Agreements.
Item 16. List of Exhibits
(a) Any required financial statements of a provider of credit
enhancement will be included as an appendix to the
related Prospectus Supplement.
(b)
1.1* - Form of Underwriting Agreement for Notes.
4.1* - Form of Indenture between [Trust 199_-_] and _______, as
Indenture Trustee.
4.2* - Form of Terms Supplement between [Trust 199_-_] and _____________, as
Indenture Trustee.
4.3* - Form of Trust Agreement between Trans-World Insurance Company d/b/a
Educaid, and _________________, as Eligible Lender Trustee.
4.4* - Form of Note (included as part of Exhibit 4.1).
5.1** - Opinion of Stroock & Stroock & Lavan with respect to legality.
8.1** - Opinion of Stroock & Stroock & Lavan with respect to federal and New
York tax matters (included in Exhibit 5.1).
23.1** - Consent of Stroock & Stroock & Lavan (included as part of Exhibit
5.1).
23.3** - Consent of KPMG Peat Marwick LLP.
24 - Powers of Attorney (included as part of signature page).
25.1** - Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee (bound separately).
99.1* - Form of Sale and Servicing Agreement among The Money Store Inc.,
Trans-World Insurance Company d/b/a Educaid, as Seller, Master
Servicer and Administrator, [Trust 199_-_] and ______________, as
Eligible Lender Trustee.
99.2* - Form of Administration Agreement among the Trans-World Insurance
Company d/b/a/ Educaid, as Administrator, ____________, as Eligible
Lender Trustee and ____________, as Indenture Trustee.
99.3** - Form of Guarantee Agreement between ________________, as Eligible
Lender Trustee on behalf of [Trust 199_-_], and the California
Student Aid Commission.
99.4** - Form of Guarantee Agreement between ____________, as Eligible Lender
Trustee on behalf of [Trust 199_-_], and the Florida Office of
Student Financial Assistance.
99.5** - Form of Guarantee Agreement between __________, as Eligible Lender
Trustee on behalf of [Trust 199_-_], and the New Jersey Higher
Education Assistance Authority.
99.6** - Form of Guarantee Agreement between _________, as Eligible Lender
Trustee on behalf of [Trust 199_-_], and the United Student Aid Funds.
- -------------------
* Filed herewith.
** To be filed by amendment.
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in the post-effective amendment is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing by the Registrant of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Union, State of New Jersey, on the 26th day of
December, 1996.
CLASSNOTES INC., Seller
TRANS-WORLD INSURANCE COMPANY, Seller
By: /s/
Eric Elwin
Assistant Secretary of ClassNotes Inc. and
Trans-World Insurance Company d/b/a Educaid
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Morton Dear, Harry Puglisi or Eric Elwin,
or any of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, for him or her and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on December 26, 1996.
Signature Title
/s/ Director and Executive Vice President of
- ----------------------- ClassNotes Inc. and Director of
Alan Turtletaub Trans-World Insurance Company d/b/a Educaid
/s/ Chief Executive Officer and Director of
- ----------------------- ClassNotes Inc. and Chief Executive Officer
Marc Turtletaub and Director of Trans-World Insurance
Company d/b/a Educaid
/s/ Executive Vice President (Principal Financial
- ---------------------- Officer) and Director of ClassNotes Inc. and
Morton Dear Executive Vice President, Chief Financial
Officer (Principal Financial Officer ) and
Director of Trans-World Insurance Company
d/b/a Educaid
/s/ Treasurer and Director of Trans-World
- ----------------------------- Insurance Company d/b/a Educaid
Harry Puglisi
/s/ Vice President (Principal Accounting Officer)
- ----------------------------- of ClassNotes Inc. and Trans-World
James K. Ransom Insurance Company d/b/a Educaid
/s/ Executive Vice President and Director of
- ----------------------------- Trans-World Insurance Company d/b/a
Paul R. Eber Educaid and ClassNotes Inc.
<PAGE>
As filed with the Securities and Exchange Commission on December 26, 1996
Registration Statement No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
CLASSNOTES INC.
(Seller)
TRANS-WORLD INSURANCE COMPANY
(Seller)
(Exact name of registrant as specified in its charter)
Delaware 22-3400682
Arizona 86-0255348
State of Incorporation IRS Employer Identification Number
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive office)
Eric R. Elwin, Esq.
Vice President and Corporate Counsel
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Richard L. Fried, Esq.
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description No.
- --------- ----------- ----
(a) Any required financial statements of a provider of credit
enhancement will be included as an appendix to the related
Prospectus Supplement.
(b)
1.1* Form of Underwriting Agreement for Notes
4.1* Form of Indenture between [Trust 199_-_] and _____________, as
Indenture Trustee
4.2* Form of Terms Supplement between [Trust 199_-_] and ________, as
Indenture Trustee
4.3* Form of Trust Agreement between Trans-World Insurance Company d/b/a
Educaid and _____________, as Eligible Lender Trustee
4.4* Form of Note (included as part of Exhibit 4.1)
5.1** Opinion of Stroock & Stroock & Lavan with respect to legality
8.1** Opinion of Stroock & Stroock & Lavan with respect to federal and New
York tax matters (included in Exhibit 5.1).
23.1** Consent of Stroock & Stroock & Lavan (included in Exhibit 5.1).
23.3** Consent of KPMG Peat Marwick LLP
24 Powers of Attorney (included as part of signature page).
25.1** Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee (bound separately)
99.1* Form of Sale and Servicing Agreement among The Money Store Inc.,
Trans-World Insurance Company d/b/a Educaid, as Seller, Master
Servicer and Administrator, [Trust 199_-_] and ___________, as
Eligible Lender Trustee
99.2* Form of Administration Agreement among the Trans-World Insurance
Company d/b/a/ Educaid, as Administrator, ______________, as
Eligible Lender Trustee and _________________, as Indenture
Trustee
99.3** Form of Guarantee Agreement between ________________, as Eligible
Lender Trustee on behalf of [Trust 199_-_], and the California
Student Aid Commission.
99.4** Form of Guarantee Agreement between ____________, as Eligible
Lender Trustee on behalf of [Trust 199_-_], and the Florida
Office of Student Financial Assistance.
99.5** Form of Guarantee Agreement between __________, as Eligible Lender
Trustee on behalf of [Trust 199_-_], and the New Jersey Higher
Education Assistance Authority.
99.6** Form of Guarantee Agreement between _________, as Eligible Lender
Trustee on behalf of [Trust 199_-_], and the United Student Aid
Funds.
- -------------------
* Filed herewith.
** To be filed by amendment.
[EXHIBIT 1.1]
[TRUST 190_-_]
$_____________ ASSET BACKED NOTES
(ISSUABLE IN SERIES)
UNDERWRITING AGREEMENT
_____ __, 199_
[Name and Address of Underwriter]
Dear Sirs:
Trans-World Insurance Company, an Arizona corporation doing business as
Educaid (the "Company"), and a wholly owned subsidiary of The Money Store Inc.,
a New Jersey corporation ("The Money Store"), has formed a trust known as [Trust
199_-_] (the "Trust") under the laws of _____________ and the Company proposes
to cause the Trust to sell to Smith Barney Inc. (the "Underwriter"), pursuant to
the terms of this Underwriting Agreement, up to $____________ of Asset Backed
Notes (the "Notes") in various series, and, within each series, in various
classes, in one or more offerings on terms to be determined at the time of sale.
__________, a _________ bank and trust company, will act as eligible lender
trustee (the "Eligible Lender Trustee") of the Trust. The Notes will be issued
under an indenture (the "Master Indenture") between the Trust and __________, as
indenture trustee ("Indenture Trustee"), which will be supplemented with respect
to each series of Notes by an indenture supplement (each, an "Indenture
Supplement" and collectively with the Master Indenture, the "Indenture"). Upon
issuance, each series of Notes will be secured by, among other things, Financed
Student Loans (as defined in the Sale and Servicing Agreement referred to below)
pledged to the Indenture Trustee and described in the Prospectus (as defined in
Section 3 below). This Agreement, the Sale and Servicing Agreement, the
Indenture and the Indemnification Agreement dated _________, 199_, among AMBAC
Indemnity Corporation, The Money Store and the Underwriter shall collectively
hereinafter be referred to as the "Basic Documents." Capitalized terms used
herein without definition shall have the meanings ascribed to them in the Sale
and Servicing Agreement dated as of ______, 199_ (as amended from time to time,
the "Sale and Servicing Agreement") among the Trust, the Company, the Eligible
Lender Trustee and The Money Store or the Prospectus.
The Trust proposes, upon the terms and conditions set forth herein, to sell
to the Underwriter on the Initial Closing Date (as hereinafter defined)
$__________ aggregate principal amount of the Notes.
Whenever the Company determines to cause the Trust to issue and sell a
series of Notes (including on the Initial Closing Date), it proposes, upon the
terms and conditions set forth herein, to cause the Trust to enter into an
agreement (each, a "Terms Agreement") providing for the sale of such Notes to
the Underwriter. The Terms Agreement relating to each sale of Notes shall
specify, among other matters, the principal amount of Notes to be sold, the
series and class designations, the interest rate for each such class and, if
variable, the initial interest rate and the interest rate adjustment dates, any
terms not otherwise specified in the Master Indenture, the price at which the
Notes are to be purchased by the Underwriter or the method by which the price at
which the Notes are to be purchased will be determined. The Terms Agreement,
which shall be substantially in the form of Exhibit A hereto, may take the form
of an exchange of any standard form of written telecommunication among the
Underwriter, the Company, the Trust and The Money Store.
The Company, the Trust and The Money Store wish to confirm as follows this
agreement with the Underwriter in connection with the purchase and resale of the
Notes.
1. Agreements to Sell, Purchase and Resell. (a) The Trust hereby agrees,
subject to all the terms and conditions set forth herein and in the related
Terms Agreement, to sell to the Underwriter and, upon the basis of the
representations, warranties and agreements of the Company and The Money Store
herein contained and subject to all the terms and conditions set forth herein
and in the related Terms Agreement, the Underwriter agrees to purchase from the
Trust such principal amount of each series and class of Notes at such respective
purchase prices as may be described in the Terms Agreement with respect thereto
executed by the Company, the Trust, The Money Store and the Underwriter pursuant
to the terms hereof.
(b) It is understood that the Underwriter proposes to offer the Notes for
sale to the public (which may include selected dealers) as set forth in the
Prospectus.
2. Delivery of the Notes and Payment Therefor. Delivery to the Underwriter
of and payment for any series of Notes to be sold pursuant to the initial Terms
Agreement shall be made at the office of Stroock & Stroock & Lavan, 7 Hanover
Square, New York, New York, NY 10003, at 10:00 A.M., New York City time, on
_______, 199_ (the "Initial Closing Date"). The place of such closing and the
Initial Closing Date may be varied by agreement among the Underwriter, the Trust
and the Company.
Delivery to the Underwriter of and payment for any additional series of
Notes to be purchased by the Underwriter shall be made at the aforementioned
office at such time and on such dates (each, a "Subsequent Closing Date"), as
shall be specified in the related Terms Agreements. The place of such a closing
and a Subsequent Closing Date for such additional series of Notes may be varied
by agreement between the Underwriter, the Trust and the Company.
The Notes will be delivered to the Underwriter against payment of the
purchase price therefor to the Trust in Federal Funds, by wire, or such other
form of payment as to which the parties may agree. Each Class of Notes will be
evidenced by a single global security in definitive form and/or by additional
definitive securities, and will be registered, in the case of the global Classes
of Notes, in the name of Cede & Co. as nominee of The Depository Trust Company
("DTC"), and in the other cases, in such names and in such denominations as the
Underwriter shall request prior to 1:00 p.m., New York City time, no later than
the business day preceding the Closing Date or any Subsequent Closing Date, as
the case may be. The Notes to be delivered to the Underwriter shall be made
available to the Underwriter in New York City for inspection and packaging not
later than 9:30 a.m., New York City time, on the business day next preceding the
Initial Closing Date or a Subsequent Closing Date, as the case may be.
3. Representations and Warranties of the Company and The Money Store. The
Company and The Money Store represent and warrant to the Underwriter that:
(a) A registration statement on Form S-3 (No. 33- _______), including a
prospectus and such amendments thereto as may have been required to the date
hereof, relating to the Notes and the offering thereof from time to time in
accordance with Rule 415 under the Securities Act of 1933, as amended (the
"Act"), has been filed with the Securities and Exchange Commission (the "SEC")
and such registration statement, as amended, has become effective; such
registration statement, as amended, and the prospectus relating to the sale of
the Notes offered thereby constituting a part thereof, as from time to time
amended or supplemented (including the base prospectus and any prospectus
supplement filed with the Commission pursuant to Rule 424(b) under the Act, are
respectively referred to herein as the "Registration Statement" and the
"Prospectus"; and the conditions to the use of a registration statement on Form
S-3 under the Act, as set forth in the General Instructions to Form S-3, and the
conditions of Rule 415 under the Act, have been satisfied with respect to the
Registration Statement;
(b) On the effective date of the Registration Statement, the Registration
Statement and the Prospectus conformed in all respects to the requirements of
the Act, the rules and regulations of the SEC (the "Rules and Regulations") and
the Trust Indenture Act of 1939, as amended, and the rules and regulations
thereunder (the "Trust Indenture Act"), and did not include any untrue statement
of a material fact or, in the case of the Registration Statement, omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and, in the case of the Prospectus, omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and on the date
of this Agreement and each Terms Agreement, the Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act, the
Rules and Regulations and the Trust Indenture Act, and neither of such documents
included or will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the foregoing does
not apply to statements in or omissions from the Registration Statement or the
Prospectus based upon written information furnished to the Company by the
Underwriters specifically for use therein.
(c) The Commission has not issued and, to the best knowledge of the
Company, is not threatening to issue any order preventing or suspending the use
of the Registration Statement.
(d) As of each Closing Date, each consent, approval, authorization or order
of, or filing with, any court or governmental agency or body which is required
to be obtained or made by the Company or its affiliates for the consummation of
the transactions contemplated by this Agreement and each Terms Agreement shall
have been obtained, except as otherwise provided in the Basic Documents.
(e) The Master Indenture and the Indenture Supplement relating to the Notes
to be sold on the initial Closing Date (the "Initial Indenture Supplement") have
been and each additional Indenture Supplement will be duly and validly
authorized by the Trust and, upon their execution and delivery by the Trust and
assuming due authorization, execution and delivery by the Trustee, will be valid
and binding agreements of the Trust, enforceable in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally and conform in all material
respects to the description thereof in the Prospectus.
(f) The Notes have been duly authorized by the Trust and the Notes to be
issued on the Initial Closing Date, when executed by the Trust and authenticated
by the Trustee in accordance with the Indenture, and delivered to the
Underwriter against payment therefor in accordance with the terms hereof, will
have been validly issued and delivered, and will constitute valid and binding
obligations of the Trust entitled to the benefits of the Indenture and
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or other
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and the Notes will conform in all material
respects to the description thereof in the Prospectus.
(g) Each of the Company and The Money Store is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona and the State of New Jersey, respectively, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as conducted on the date hereof, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company or The Money Store, respectively.
(h) The Trust is a business trust duly formed and validly existing under
the laws of the Commonwealth of Pennsylvania with full power and authority to
own and pledge its assets and to issue the Notes as described in the Prospectus.
(i) There are no legal or governmental proceedings pending or, to the
knowledge of the Company or The Money Store, threatened, against the Company,
The Money Store or the Trust, or to which the Company, The Money Store, the
Trust or any of their respective properties is subject, that are not disclosed
in the Prospectus or that will not be disclosed in any subsequent amendment or
supplement to the Prospectus and which, if adversely decided, are reasonably
likely to materially affect the issuance of the Notes or the consummation of the
transactions contemplated hereby or by the Basic Documents.
(j) Neither the offer, sale or delivery of the Notes by the Trust nor the
execution, delivery or performance of this Agreement and the Terms Agreements by
the Company, the Trust and The Money Store nor the consummation by the Company,
the Trust and The Money Store of the transactions contemplated hereby or thereby
(i) requires or will require any consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official (except for compliance
with the securities or Blue Sky laws of various jurisdictions, the qualification
of the Indenture under the Trust Indenture Act and such other consents,
approvals or authorizations as shall have been obtained prior to the Initial
Closing Date) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the organizational documents or
bylaws of the Company, the Trust or The Money Store or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
in any material respect, any material agreement, indenture, lease or other
instrument to which the Company, the Trust or The Money Store is a party or by
which the Company, the Trust or The Money Store or any of their respective
properties may be bound, or violates or will violate in any material respect any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company, the Trust or The Money Store or any of their
respective properties, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company, the Trust or
The Money Store pursuant to the terms of any agreement or instrument to which
any is a party or by which any may be bound or to which any of their respective
properties is subject other than as contemplated by the Basic Documents.
(k) The Company, the Trust and The Money Store each have all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement and each Terms Agreement; the execution and delivery of, and the
performance by each of the Company, the Trust and The Money Store of its
respective obligations under, this Agreement have been duly and validly
authorized by the Company, the Trust and The Money Store, respectively, (and the
execution, delivery of, and the performance by each of the Company, the Trust
and The Money Store of its respective obligations under, each Terms Agreement
will be duly and validly authorized by the Company, the Trust and The Money
Store, respectively) and this Agreement has been and each Terms Agreement will
be, duly executed and delivered by each of them and constitutes or in the case
of each Terms Agreement, will constitute, the valid and legally binding
agreement of each of them, enforceable against each of them in accordance with
its terms, except as the enforcement hereof may be limited by bankruptcy,
insolvency, moratorium, fraudulent conveyance or other similar laws relating to
or affecting creditors' rights generally and court decisions with respect
thereto and subject to the applicability of general principles of equity, and
except as rights to indemnity and contribution hereunder may be limited by
Federal or state securities laws or principles of public policy.
(l) The Company has, and has no reason to believe that any facts exist
which would result in the revocation or termination of, such permits, licenses,
agreements, and other approvals or authorizations of governmental or regulatory
authorities ("Permits") as are necessary under applicable law to originate hold
and otherwise deal in Financed Student Loans, except to the extent that the
failure to have such Permits would not have a material adverse effect on the
ability of the Company to provide Financed Student Loans to the Trust to support
additional series of Notes as contemplated hereby.
(m) Neither the Trust nor the Company is subject to registration as an
"investment company" under the Investment Company Act of 1940, as amended (the
"1940 Act").
(n) The representations and warranties made by (i) the Trust in the
Indenture and made in any officer's certificate of the Eligible Lender Trustee
delivered pursuant to the Indenture and (ii) the Company and The Money Store in
the Sale and Servicing Agreement and made in any Officer's Certificate of the
Company or The Money Store will be true and correct at the time made and on and
as of the applicable Closing Date.
4. Agreements of the Company and The Money Store. The Company and The Money
Store agree with the Underwriter as follows:
(a) In connection with the execution of each Terms Agreement, the Company
will prepare a supplement to the Prospectus setting forth the amount of the
Notes covered thereby and the terms thereof not otherwise specified in the
Prospectus, the price at which the Notes are to be purchased by the Underwriter,
either the initial public offering price or the method by which the price at
which the Notes are to be sold will be determined, the selling concessions and
reallowances, if any, and such other information as the Underwriter and the
Company deem appropriate in connection with the offering of the Notes, and the
Company will timely file such supplement to the prospectus with the SEC pursuant
to Rule 424(b) under the Act, but the Company will not file any amendments to
the Registration Statement as in effect with respect to the Notes or any
amendments or supplements to the Prospectus, unless it shall first have
delivered copies of such amendments or supplements to the Underwriter, or if the
Underwriter shall have reasonably objected thereto promptly after receipt
thereof; the Company will immediately advise the Underwriter or the
Underwriter's counsel (i) when notice is received from the SEC that any
post-effective amendment to the Registration Statement has become or will become
effective and (ii) of any order or communication suspending or preventing, or
threatening to suspend or prevent, the offer and sale of the Notes or of any
proceedings or examinations that may lead to such an order or communication,
whether by or of the SEC or any authority administering any state securities or
Blue Sky Law, as soon as the Company is advised thereof, and will use its best
efforts to prevent the issuance of any such order or communication and to obtain
as soon as possible its lifting, if issued.
(b) If, at any time when a Prospectus relating to a series of Notes is
required to be delivered under the Act, any event occurs as a result of which
such Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the Company
promptly will prepare and file with the SEC, an amendment or supplement to such
Prospectus that will correct such statement or omission or an amendment that
will effect such compliance.
(c) The Company will immediately inform the Underwriter (i) of the receipt
by the Company or the Trust of any communication from the SEC or any state
securities authority concerning the offering or sale of the Notes and (ii) of
the commencement of any lawsuit or proceeding to which either the Company or the
Trust is a party relating to the offering or sale of the Notes.
(d) The Company will furnish to the Underwriter, without charge, copies of
the Registration Statement (including all documents and exhibits thereto or
incorporated by reference therein), the Prospectus, and all amendments and
supplements to such documents relating to the Notes, in each case in such
quantities as the Underwriter may reasonably request.
(e) No amendment or supplement will be made to the Registration Statement
or Prospectus which the Underwriter shall not previously have been advised or to
which it shall reasonably object after being so advised.
(f) The Company will cooperate with the Underwriter and with its counsel in
connection with the qualification of, or procurement of exemptions with respect
to, the Notes for offering and sale by the Underwriter and by dealers under the
securities or Blue Sky laws of such jurisdictions as the Underwriter may
designate and will file or cause the Trust to file such consents to service of
process or other documents necessary or appropriate in order to effect such
qualification or exemptions; provided that in no event shall either the Company
or the Trust be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action which would subject it to service
of process in suits, other than those arising out of the offering or sale of the
Notes, in any jurisdiction where it is not now so subject.
(g) The Company and the Trust consent to the use, in accordance with the
securities or Blue Sky laws of such jurisdictions in which the Notes are offered
by the Underwriter and by dealers, of the Prospectus furnished by the Company.
(h) To the extent, if any, that the rating or ratings provided with respect
to a series of Notes by the rating agency or agencies that initially rate a
series of Notes is conditional upon the furnishing of documents or the taking of
any other actions by the Company or the Trust, the Company shall cause to be
furnished such documents and such other actions to be taken.
(i) So long as any of the Notes are outstanding, the Company or the Trust
will furnish to the Underwriter (i) as soon as available, a copy of each
document relating to the Trust or the Notes required to be filed with the SEC
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any order of the SEC thereunder, and (ii) such other information
concerning the Company, The Money Store or the Trust as the Underwriter may
request from time to time.
(j) If this Agreement shall terminate or shall be terminated after
execution and delivery pursuant to any provisions hereof (otherwise than by
notice given by the Underwriter terminating this Agreement pursuant to Section 8
or Section 9 hereof) or if this Agreement shall be terminated by the Underwriter
because of any failure or refusal on the part of the Company, the Trust or The
Money Store to comply with the terms or fulfill any of the conditions of this
Agreement, the Company and The Money Store agree jointly and severally to
reimburse the Underwriter for all out-of-pocket expenses (including fees and
expenses of its counsel) reasonably incurred by it in connection herewith, but
without any further obligation on the part of the Company or The Money Store for
loss of profits or otherwise. In the event any such termination occurs after the
Initial Closing Date, the out-of-pocket expenses shall relate only to those
incurred in connection with the series of Notes then contemplated to be issued
and purchased by the Underwriter.
(k) The net proceeds from the sale of the Notes hereunder will be applied
substantially in accordance with the description set forth in the Prospectus.
(l) Except as stated in this Agreement and in the Prospectus, neither the
Company, the Trust nor The Money Store has taken, nor will any of them take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Notes to facilitate the sale or resale of the Notes.
5. Indemnification and Contribution. (a) The Company and The Money Store
jointly and severally agree to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, the
Prospectus, or in any amendment or supplement thereto, or any preliminary
prospectus, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to the Underwriter furnished in writing to the Company by
or on behalf of the Underwriter expressly for use in connection therewith;
PROVIDED, HOWEVER, that the indemnification contained in this paragraph (a) with
respect to any preliminary prospectus shall not inure to the benefit of the
Underwriter (or to the benefit of any person controlling the Underwriter) on
account of any such loss, claim, damage, liability or expense arising from the
sale of the series of Notes covered thereby by the Underwriter to any person if
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such preliminary prospectus was corrected in the
final Prospectus relating to such series of Notes and the Underwriter sold Notes
of such series to that person without sending or giving at or prior to the
written confirmation of such sale, a copy of the final Prospectus (as then
amended or supplemented) if the Company has previously furnished sufficient
copies thereof to the Underwriter. The foregoing indemnity agreement shall be in
addition to any liability which the Company or The Money Store may otherwise
have.
(b) If any action, suit or proceeding shall be brought against the
Underwriter or any person controlling the Underwriter in respect of which
indemnity may be sought against the Company or The Money Store, the Underwriter
or such controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. The Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have failed
to assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both the
Underwriter or such controlling person and the indemnifying parties and the
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of the Underwriter or such controlling
person). It is understood, however, that the indemnifying parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for the Underwriter and
controlling persons not having actual or potential differing interests with the
Underwriter or among themselves, which firm shall be designated in writing by
Smith Barney Inc., and that all such fees and expenses shall be reimbursed on a
monthly basis as provided in paragraph (a) hereof. The indemnifying parties
shall not be liable for any settlement of any such action, suit or proceeding
effected without their written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
suit or proceeding, the indemnifying parties agree to indemnify and hold
harmless the Underwriter, to the extent provided in paragraph (a), and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) The Underwriter agrees to indemnify and hold harmless the Company, The
Money Store and their respective directors and officers, and any person who
controls the Company or The Money Store within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act to the same extent as the indemnity from
the Company and The Money Store to the Underwriter set forth in paragraph (a)
hereof, but only with respect to information relating to the Underwriter
furnished in writing by or on behalf of the Underwriter expressly for use in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus. If any action, suit or proceeding shall
be brought against the Company or The Money Store, any of their respective
directors or officers, or any such controlling person based on the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus and in respect of which indemnity may be sought
against the Underwriter pursuant to this paragraph (c), the Underwriter shall
have the rights and duties given to the Company and The Money Store by paragraph
(b) above (except that if the Company or The Money Store shall have assumed the
defense thereof the Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the Underwriter's expense), and the
Company and The Money Store, their respective directors and officers, and any
such controlling person shall have the rights and duties given to the
Underwriter by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which the Underwriter may otherwise have.
(d) If the indemnification provided for in this Section 5 is unavailable to
an indemnified party under paragraphs (a) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
The Money Store on the one hand and the Underwriter on the other hand from the
offering of the Notes, or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and The Money Store on the one hand and the
Underwriter on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and The Money Store on the one hand and the Underwriter on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Notes (before deducting expenses) received by the Company bear
to the total underwriting discounts and commissions received by the Underwriter.
The relative fault of the Company and The Money Store on the one hand and the
Underwriter on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or The Money Store on the one hand or by the Underwriter
on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by a pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 5, the Underwriter shall not be
required to contribute any amount in excess of the amount received by the
Underwriter over the price paid by the Underwriter for the Notes purchased by it
and distributed to the public less the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 5 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Company, The Money Store and the
Underwriter set forth in this Agreement shall remain operative and in full force
and effect, regardless of (i) any investigation made by or on behalf of the
Underwriter, the Company or The Money Store or any person controlling any of
them or their respective directors or officers, (ii) acceptance of any Notes and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to the Underwriter, the Company or The Money Store or any person
controlling any of them or their respective directors or officers, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 5.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter to purchase the Notes hereunder are subject to the following
conditions:
A. With respect to the Notes to be purchased on the Initial Closing Date:
(a) All actions required to be taken and all filings required to be made by
the Company under the Act prior to the sale of the Notes shall have been duly
taken or made. At and prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the knowledge of
the Company or the Underwriters, shall be contemplated by the Commission.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting the condition (financial or other), business, properties, net
worth, or results of operations of the Company, The Money Store or the Surety
Provider not contemplated by the Registration Statement, which in the opinion of
the Underwriter, would materially adversely affect the market for the Notes, or
(ii) any event or development which makes any statement made in the Registration
Statement or Prospectus untrue or which, in the opinion of the Company and its
counsel or the Underwriter and its counsel, requires the filing of any amendment
to or change in the Registration Statement or Prospectus in order to state a
material fact required by any law to be stated therein or necessary in order to
make the statements therein not misleading, if amending or supplementing the
Registration Statement or Prospectus to reflect such event or development would,
in the opinion of the Underwriter, materially adversely affect the market for
the Notes.
(c) The Underwriter shall have received on the Initial Closing Date
opinions of Squire, Sanders & Dempsey, special Arizona counsel for the Company,
and Kutak, Rock, special counsel for the Company, dated the Initial Closing Date
and addressed to the Underwriter in form and scope satisfactory to the
Underwriter and its counsel.
(d) The Underwriter shall have received on the Initial Closing Date an
opinion of Eric R. Elwin, Esq., General Counsel of the Company and The Money
Store, dated the Initial Closing Date and addressed to the Underwriter in form
and scope satisfactory to the Underwriter and its counsel.
(e) The Underwriter shall have received on the Initial Closing Date an
opinion of Rhoads & Sinon, Esqs., counsel for the Eligible Lender Trustee, dated
the Initial Closing Date and addressed to the Underwriter in form and scope
satisfactory to the Underwriter and its counsel.
(f) The Underwriter shall have received on the Initial Closing Date an
opinion of counsel for AMBAC Indemnity Corporation (the "Surety Provider"),
dated the Initial Closing Date and addressed to the Underwriter in form and
scope satisfactory to the Underwriter and its counsel.
(g) The Underwriter shall have received on the Initial Closing Date an
opinion of White & Case, Esqs., counsel for the Indenture Trustee, dated the
Initial Closing Date and addressed to the Underwriter in form and scope
satisfactory to the Underwriter and its counsel.
(h) The Underwriter shall have received on the Closing Date an opinion or
opinions of Stroock & Stroock & Lavan, counsel for the Underwriter, dated the
Initial Closing Date, and addressed to the Underwriter, in form and scope
satisfactory to the Underwriter.
(i) The Underwriter shall have received on the Initial Closing Date from
KPMG Peat Marwick L.L.P. a letter dated the Initial Closing Date, and in form
and substance satisfactory to the Underwriter, to the effect that they have
carried out certain specified procedures, not constituting an audit, with
respect to certain information regarding the Financed Student Loans and setting
forth the results of such specified procedures.
(j) (i) There shall not have been, since the respective dates as of which
information is given in the Registration Statement (or any amendment or
supplement thereto), except as may otherwise be stated therein, any material
adverse change in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company or of The Money
Store, and (ii) all the representations and warranties of the Company and The
Money Store contained in this Agreement and the Basic Documents shall be true
and correct in all material respects on and as of the date hereof and on and as
of the Initial Closing Date as if made on and as of the Initial Closing Date and
the Underwriter shall have received a certificate, dated the Initial Closing
Date and signed by an executive officer of the Company and The Money Store, to
the effect set forth in this Section 6(j) and in Section 6(k) hereof.
(k) Neither the Company nor The Money Store shall have failed at or prior
to the Initial Closing Date to have performed or complied with any of its
respective agreements herein contained and required to be performed or complied
with by it hereunder at or prior to the Initial Closing Date.
(l) The Underwriter shall have received by instrument dated the Initial
Closing Date (at the option of the Underwriter), in lieu of or in addition to
the opinions referred to in clauses (c) through (h) of this Section (6), the
right to rely on opinions provided by such counsel and all other counsel under
the terms of the Basic Documents or to Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("Standard & Poor's").
(m) Moody's and Standard & Poor's shall have rated each class of Notes
"Aaa" and "AAA", respectively, and there shall not have been any announcement by
Moody's or Standard & Poor's that (i) it is downgrading any of its ratings
assigned to any class of Notes or (ii) it is reviewing its ratings assigned to
any class of Notes with a view to possible downgrading, or with negative
implications, or direction not determined.
(n) The Surety Provider shall have provided (i) a Note Surety Bond relating
to the Initial Series of Notes, (ii) a certificate dated the Initial Closing
Date and signed by an executive officer of the Surety Provider with respect to
the accuracy of the information relating to the Surety Provider contained in the
Prospectus and (iii) a letter addressed to the Underwriter and dated the date
hereof from KPMG Peat Marwick, independent certified public accountants,
consenting to the inclusion of its report on the financial statements of the
Surety Provider in the Prospectus.
(p) Deposits required by the Sale and Servicing Agreement into the
Pre-Funding Account, Capitalized Pre-Funding Account and Capitalized Interest
Account shall have been made.
(q) The Company shall have furnished or caused to be furnished to the
Underwriter an executed copy of each of the Basic Documents and such further
certificates and documents as the Underwriter shall have requested.
B. With respect to each series of Notes to be purchased on a Subsequent
Closing Date:
The obligations of the Underwriter to purchase each additional series of
Notes hereunder are subject to the satisfaction on and as of any Subsequent
Closing Date of the conditions set forth under clause (A) of this Section 6,
except that references to the Initial Closing Date and the Prospectus shall be
to the applicable Subsequent Closing Date and the applicable Prospectus. The
Note Surety Bond, opinions and letters referred to therein shall be dated the
applicable Subsequent Closing Date and shall be revised to reflect the
applicable Subsequent Closing Date, the applicable Prospectus and the applicable
additional series of Notes and the deposits to Accounts referred to in clause
(p) shall be to such deposits as may be required by the applicable Supplemental
Sale and Servicing Agreement.
All such opinions, certificates, letters and other documents referred in
clauses (A) and (B) will be in compliance with the provisions hereof only if
they are reasonably satisfactory in form and substance to the Underwriter and
counsel for the Underwriter.
Any certificate or document signed by any officer of the Company or The
Money Store and delivered to the Underwriter, or to counsel for the Underwriter,
shall be deemed a representation and warranty by the Company or The Money Store,
respectively, to the Underwriter as to the statements made therein.
7. Expenses. The Company and The Money Store agree to pay or to otherwise
cause the payment of the following costs and expenses and all other costs and
expenses incident to the performance by them and the Trust of their respective
obligations hereunder: (i) the preparation, printing or reproduction of the
Registration Statement, each Prospectus and each amendment or supplement to any
of them, this Agreement, each Terms Agreement and each other Basic Document;
(ii) the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Prospectus and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Notes; (iii) the preparation, printing, authentication, issuance
and delivery of definitive certificates for the Notes; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Notes; (v) qualification of
the Indenture under the Trust Indenture Act; (vi) the qualification of the Notes
for offer and sale under the securities or Blue Sky laws of the several states
as provided in Section 3(h) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriter relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such qualification); (vii) the fees and disbursements of (A)
the Company's counsel, (B) the Underwriter's counsel (provided, however, that
the Underwriter shall be responsible for 50% of such fees and disbursements),
(C) the Indenture Trustee and its counsel, (D) the Surety Provider and its
counsel and accountants, (E) the Eligible Lender Trustee and its counsel, (F)
the Depository Trust Company in connection with the book-entry registration of
the Notes and (G) KPMG Peat Marwick, L.L.P., accountants for the Company and
issuer of the Comfort Letter; and (viii) the fees charged by Moody's and
Standard & Poor's for rating the Notes.
8. Effective Date of Agreement. This Agreement shall become effective upon
the execution and delivery hereof by all the parties hereto. Until such time as
this Agreement shall have become effective, it may be terminated by the Company
or The Money Store, by notifying the Underwriter, or by the Underwriter, by
notifying the Company.
Any notice under this Section 8 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
9. Termination of Agreement. This Agreement shall be subject to termination
in the absolute discretion of the Underwriter, without liability on the part of
the Underwriter to the Company, the Trust or The Money Store, by notice to the
Company, the Trust and The Money Store, if prior to the Initial Closing Date or
any Subsequent Closing Date (but then only as to series of Notes not yet
purchased by the Underwriter), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or state authorities, (iii) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Underwriter, impracticable or inadvisable to commence
or continue the offering of the Notes on the terms set forth in the Prospectus,
as applicable, or to enforce contracts for the resale of the Notes by the
Underwriter, (iv) legislation shall be enacted by the Congress of the United
States or a decision by a court of the United States or the Tax Court of the
United States shall be rendered, or an officially published ruling, regulation,
proposed regulation or official statement by or on behalf of the Treasury
Department of the United States, the Internal Revenue Service or any other
governmental agency shall be made, with respect to federal taxation upon
revenues or other income of the general character expected to be pledged under
the Indenture or upon interest received on securities of the general character
of the Notes, or which would have the effect of changing, directly or
indirectly, the federal income tax consequences of interest on securities of the
general character of the Notes in the hands of the holders thereof, which in our
opinion materially affects the market price of the Notes, or (v) legislation
shall be enacted by the Commonwealth of Pennsylvania, or a decision by a court
of competent jurisdiction of the Commonwealth of Pennsylvania or any
administrative tribunal of the Commonwealth of Pennsylvania or other
governmental agency or department thereof shall be rendered with respect to
taxation by the Commonwealth of Pennsylvania or any of its political
subdivisions upon revenues or other income of the general character expected to
be pledged under the Indenture or upon interest received on securities of the
general character of the Notes, or which would have the effect of changing,
directly or indirectly, the tax consequences under Commonwealth of Pennsylvania
tax law of interest on securities of the general character of the Notes in the
hands of the holders thereof, which in our opinion materially affects the market
price of the Notes. Notice of such termination may be given to the Company, the
Trust and The Money Store, by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
10. Information Furnished by the Underwriter. The statements set forth
under the heading "Plan of Distribution" in the Prospectus constitute the only
information furnished by or on behalf of the Underwriter as such information is
referred to in Sections 3(b) and 5 hereof. Additional such information may be
provided in connection with the purchase of additional series of Notes by the
Underwriter for inclusion in any Prospectus Supplement and, if so, will be
identified in the applicable Terms Agreement.
11. Miscellaneous. Except as otherwise provided in Sections 4, 8 and 9
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or The Money Store, at 3301
C Street, Suite 700-A, Sacramento, California 95816, Attention: President and at
2840 Morris Avenue, Union, New Jersey 07083, Attention: Chief Financial Officer,
(ii) if to the Trust, at the office of the Eligible Lender Trustee,
____________, Attention: Corporate Trust Services and (iii) if to the
Underwriter, to Smith Barney Inc., 1345 Avenue of the Americas, 46th Floor, New
York, NY 10105, Attention: Manager, Securitization Group.
This Agreement has been and is made solely for the benefit of the
Underwriter, the Company, the Trust, The Money Store, their respective
directors, officers, trustees and controlling persons referred to in Section 5
hereof and their respective successors and assigns, to the extent provided
herein, and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from the
Underwriter of any of the Notes in his status as such purchaser.
12. Applicable Law; Counterparts. This Agreement, and each Terms Agreement,
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and to be performed within the State of
New York without giving effect to the choice of laws or conflict of laws
principles thereof.
This Agreement, and each Terms Agreement, may be signed in various
counterparts which together constitute one and the same instrument. If signed in
counterparts, this Agreement and each Terms Agreement shall not become effective
unless at least one counterpart hereof or thereof shall have been executed and
delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Trust, The Money Store and the Underwriter.
Very truly yours,
ATTEST [TRUST 199_-_]
__________________________ By: __________________
Name: , as Eligible Lender
Title: Assistant Secretary Trustee
By: _____________________________
Name:
Title: Senior Vice President
TRANS-WORLD INSURANCE COMPANY
By: _____________________________
Name: Morton Dear
Title: Executive Vice President
THE MONEY STORE INC.
By: _____________________________
Name: Morton Dear
Title: Executive Vice President
Confirmed as of the date first above mentioned.
SMITH BARNEY INC.
By_________________________________
Name:
Title:
<PAGE>
Exhibit A
TRANS-WORLD INSURANCE COMPANY
Auction Rate Asset Backed Notes
TERMS AGREEMENT
Dated ______, 199_
To: TRANS-WORLD INSURANCE COMPANY
Re: Underwriting Agreement dated ______, 199_
Issuer: [Trust 199_-_]
Series Designation:
TERMS OF THE NOTES:
Final Original
Maturity Principal Interest Price to
CLASS DATE AMOUNT RATE UNDERWRITER(1)
- ---------
(1) Plus accrued interest, if any, at the applicable rate
from _______________.
COLLATERAL: The Student Loans to be included in the Collateral are
as described in Schedule A to the [Supplemental] Sale and
Servicing Agreement.
CREDIT SUPPORT: Note Surety Bond issued by AMBAC Indemnity
Corporation.
INITIAL NOTE DISTRIBUTION DATES:
NOTE RATING: "AAA" by Standard and Poor's Corporation and "Aaa" by
Moody's Investors Service, Inc.
FORM OF NOTES: [Book entry] [definitive]
CLOSING DATE:
Information Provided by the Underwriter in the
Prospectus Supplement:
Additional Terms, if any, Not in Master Indenture:
SMITH BARNEY INC.
By:_____________________________
Name:
Title:
TRANS-WORLD INSURANCE COMPANY
By:_____________________________
Name: Morton Dear
Title: Executive Vice President
[TRUST199_-_] ATTEST
By: __________, as Eligible Lender
Trustee
By: _____________________________ By:_________________________
Name: Name:
Title: Senior Vice President Title: Assistant Secretary
THE MONEY STORE INC.
By: _____________________________
Name:
Title:
[EXHIBIT 4.1]
INDENTURE
between
[TRUST 199_-_],
as Issuer
and
-----------------
not in its individual capacity, but
solely as Indenture Trustee
Dated as of _______, 199_
<PAGE>
CROSS-REFERENCE TABLE1
TIA Indenture
SECTION SECTION
310(a)(1) .................... 6.11
(a)(2) .................... 6.11
(a)(3) .................... 6.10
(a)(4) .................... N.A.2
(a)(4) .................... 6.11
(b) .................... 6.8;
6.10; 6.11
(c) .................... N.A.
311(a) .................... 6.11
(b) .................... 6.11
(c) .................... N.A.
312(a) .................... 7.1;
7.2(a)
(b) .................... 7.2(b)
(c) .................... 7.2(c)
313(a) .................... 6.6
(b) .................... 6.6
(c) .................... 11.5
(d) .................... 6.6
314(a) .................... 3.9; 7.3
(b) .................... 3.6
(c) .................... 2.9; 4.1
11.1
(d) .................... 2.9;
11.1
(e) .................... 11.1
(f) .................... 3.9
315(a) .................... 6.1
(b) .................... 6.5
(c) .................... 6.1
(d) .................... 6.1
(e) .................... 5.13
316(a)(1)(A) .................... 5.11
(a)(1)(B) .................... 5.12
(a)(2) .................... N.A.
(b) .................... 5.7
(c) .................... 1.1
317(a) .................... 5.3
(b) .................... 3.3
318(a) .................... 11.7
- --------
1 Note: This Cross-Reference Table shall not, for any purpose, be
deemed to be part of the Indenture.
2 N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND USAGE............................................. 1
SECTION 1.1. Definitions and Usage. ...................................... 1
SECTION 1.2. Incorporation by Reference of Trust
Indenture Act................................... 1
ARTICLE II THE NOTES........................................................ 2
SECTION 2.1. Form. ....................................................... 2
SECTION 2.2. Execution, Authentication and Delivery....................... 2
SECTION 2.3. Notes Issuable in Series and Classes; General
Provisions with Respect to Principal and
Interest Payments. ............................. 3
SECTION 2.4. Denominations................................................. 6
SECTION 2.5. Temporary Notes. ............................................. 6
SECTION 2.6. Registration; Registration of Transfer and
Exchange......................................... 7
SECTION 2.7. Mutilated, Destroyed, Lost or Stolen Notes. .................. 8
SECTION 2.8. Persons Deemed Owner. ........................................ 9
SECTION 2.9. Payments of Principal and Interest. .......................... 9
SECTION 2.10. Cancellation................................................. 13
SECTION 2.11. Authentication and Delivery of Notes. ....................... 13
SECTION 2.12. Release of Collateral........................................ 18
SECTION 2.13. Book-Entry Notes............................................. 18
SECTION 2.14. Notices to Clearing Agency................................... 19
SECTION 2.15. Definitive Notes............................................. 19
SECTION 2.16 Restrictions on Transfer..........................20
ARTICLE III COVENANTS...................................................... 21
SECTION 3.1. Payment to Noteholders....................................... 21
SECTION 3.2. Maintenance of Office or Agency.............................. 21
SECTION 3.3. Money for Payments To Be Held in Trust....................... 22
SECTION 3.4. Existence................................................... 23
SECTION 3.5. Protection of Indenture Trust Estate......................... 24
SECTION 3.6. Opinions as to Indenture Trust Estate........................ 24
SECTION 3.7. Performance of Obligations; Servicing
of Financed Student Loans........................ 24
SECTION 3.8. Negative Covenants........................................... 28
SECTION 3.9. Annual Statement as to Compliance............................ 29
SECTION 3.10. Issuer May Consolidate, etc.,
Only on Certain Terms........................... 29
SECTION 3.11. Successor or Transferee...................................... 31
SECTION 3.12. No Other Business............................................ 31
SECTION 3.13. No Borrowing................................................. 32
SECTION 3.14. Obligations of Servicer and Administrator.................... 32
SECTION 3.15. Guarantees, Loans, Advances and Other
Liabilities..................................... 32
SECTION 3.16. Capital Expenditures......................................... 32
SECTION 3.17. Restricted Payments.......................................... 32
SECTION 3.18. Notice of Events of Default.................................. 32
SECTION 3.19. Further Instruments and Acts................................. 33
ARTICLE IV SATISFACTION AND DISCHARGE....................................... 33
SECTION 4.1. Satisfaction and Discharge of Indenture...................... 33
SECTION 4.2. Application of Trust Money................................... 34
SECTION 4.3. Repayment of Moneys Held by Paying Agent..................... 35
ARTICLE V REMEDIES......................................................... 35
SECTION 5.1. Events of Default............................................ 35
SECTION 5.2. Acceleration of Maturity; Rescission and
Annulment....................................... 36
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee................ 37
SECTION 5.4. Remedies; Priorities......................................... 40
SECTION 5.5. Optional Preservation of the Financed
Student Loans................................... 42
SECTION 5.6. Limitation of Suits.......................................... 42
SECTION 5.7. Unconditional Rights of Noteholders To
Receive Principal and Interest.................. 43
SECTION 5.8. Restoration of Rights and Remedies........................... 43
SECTION 5.9. Rights and Remedies Cumulative............................... 43
SECTION 5.10. Delay or Omission Not a Waiver............................... 43
SECTION 5.11. Control by Noteholders....................................... 44
SECTION 5.12. Waiver of Past Defaults...................................... 44
SECTION 5.13. Undertaking for Costs........................................ 45
SECTION 5.14. Waiver of Stay or Extension Laws............................. 45
SECTION 5.15. Action on Notes.............................................. 45
SECTION 5.16. Performance and Enforcement of Certain
Obligations..................................... 46
SECTION 5.17 Subrogation.......................................46
ARTICLE VI THE INDENTURE TRUSTEE............................................ 47
SECTION 6.1. Duties of Indenture Trustee.................................. 47
SECTION 6.2. Rights of Indenture Trustee.................................. 49
SECTION 6.3. Individual Rights of Indenture Trustee....................... 49
SECTION 6.4. Indenture Trustee's Disclaimer............................... 49
SECTION 6.5. Notice of Defaults........................................... 50
SECTION 6.6. Reports by Indenture Trustee to Noteholders.................. 50
SECTION 6.7. Compensation and Indemnity................................... 50
SECTION 6.8. Replacement of Indenture Trustee............................. 51
SECTION 6.9. Successor Indenture Trustee by Merger........................ 52
SECTION 6.10. Appointment of Co-Trustee or Separate
Trustee......................................... 53
SECTION 6.11. Eligibility; Disqualification................................ 54
SECTION 6.12. Preferential Collection of Claims Against
Issuer.......................................... 55
ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS.................................. 55
SECTION 7.1. Issuer to Furnish Indenture Trustee
Names and Addresses of Noteholders.............. 55
SECTION 7.2. Preservation of Information; Communications
to Noteholders.................................. 55
SECTION 7.3. Reports by Issuer............................................ 56
ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES........................... 57
SECTION 8.1. Collection of Money.......................................... 57
SECTION 8.2. Trust Accounts............................................... 57
SECTION 8.3. General Provisions Regarding Accounts........................ 57
SECTION 8.4. Substitution and Release of Indenture Trust
Estate.......................................... 58
SECTION 8.5. Opinion of Counsel........................................... 59
ARTICLE IX SUPPLEMENTAL INDENTURES.......................................... 59
SECTION 9.1. Supplemental Indentures Without Consent of
Noteholders...................................... 59
SECTION 9.2. Supplemental Indentures with Consent of
Noteholders..................................... 62
SECTION 9.3. Execution of Supplemental Indentures......................... 64
SECTION 9.4. Effect of Supplemental Indenture............................. 64
SECTION 9.5. Conformity with Trust Indenture Act.......................... 64
SECTION 9.6. Reference in Notes to Supplemental
Indentures...................................... 64
ARTICLE X [INTENTIONALLY OMITTED]........................................... 65
ARTICLE XI MISCELLANEOUS.................................................... 65
SECTION 11.1. Compliance Certificates and Opinions, etc.................... 65
SECTION 11.2. Form of Documents Delivered to Indenture
Trustee......................................... 67
SECTION 11.3. Acts of Noteholders.......................................... 67
SECTION 11.4. Notices, etc................................................. 68
SECTION 11.5. Notices to Noteholders; Waiver............................... 69
SECTION 11.6. Alternate Payment and Notice Provisions...................... 70
SECTION 11.7. Conflict with Trust Indenture Act............................ 70
SECTION 11.8. Effect of Headings and Table of Contents..................... 70
SECTION 11.9. Successors and Assigns....................................... 70
SECTION 11.10. Separability................................................. 70
SECTION 11.11. Benefits of Indenture........................................ 70
SECTION 11.12. Legal Holidays............................................... 71
SECTION 11.13. Governing Law................................................ 71
SECTION 11.14. Counterparts................................................. 71
SECTION 11.15. Recording of Indenture....................................... 71
SECTION 11.16. Trust Obligations............................................ 71
SECTION 11.17. No Petition.................................................. 72
SECTION 11.18. Inspection................................................... 72
SECTION 11.19. Usury........................................................ 72
SECTION 11.20. Rights of Surety Provider.....................................73
APPENDIX A Definitions and Usage
EXHIBIT A Form of Series 199_-_ Notes
<PAGE>
INDENTURE dated as of ______, 199_, between [TRUST 199_-_], a _____ trust
(the "Issuer"), and __________, a _____ banking corporation, as trustee and not
in its individual capacity (the "Indenture Trustee").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this Indenture
to provide for one or more series (each a "Series") of its Notes (the "Notes"),
issuable as provided in this Indenture. Each Series of such Notes will be issued
only under a separate supplement to this Indenture duly executed and delivered
by the Issuer and the Indenture Trustee and limited to the amount therein
described. All covenants and agreements made by the Issuer herein are for the
benefit and security of the holders of the Notes. The Issuer is entering into
this Indenture and the Trustee is accepting the trusts created hereby, for good
and valuable consideration; the receipt and sufficiency of which are hereby
acknowledged.
All things necessary to make this Indenture a valid agreement of the Issuer
in accordance with its terms have been done.
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.1. DEFINITIONS AND USAGE. Except as otherwise specified herein or
as the context may otherwise require, capitalized terms used but not defined
herein are defined in Appendix A hereto (as supplemented to the extent indicated
therein, by the provisions of the Terms Supplement for a particular Series),
which Appendix A also contains rules as to usage that shall be applicable
herein.
SECTION 1.2. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means, if requested in writing by the
Administrator, this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
ARTICLE II
THE NOTES
SECTION 2.1. FORM. The Notes and the Indenture Trustee's certificate of
authentication shall be in substantially the form set forth in Exhibit A, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture or any Terms Supplement 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
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive 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 officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of the
Notes set forth in Exhibit A are part of the terms of this Indenture.
SECTION 2.2. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were at
any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Notes executed by the Issuer to the Trustee
for authentication; and the Trustee shall authenticate and deliver such Notes as
provided in this Indenture and not otherwise.
Each Note shall be dated as of the date specified in the related Terms
Supplement.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on 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 upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder.
SECTION 2.3. NOTES ISSUABLE IN SERIES AND CLASSES; GENERAL PROVISIONS WITH
RESPECT TO PRINCIPAL AND INTEREST PAYMENTS. The Notes may, as provided herein,
be issued in one or more Series, each of which Series may consist of only one
Class of Notes or may be divided into two or more Classes, and shall be
designated generally as the "Asset Backed Notes" of the Issuer, with such
further particular designations added or incorporated in such title for the
Notes of any particular Series or Class as the Issuer may determine.
If a Series of Notes includes more than one Class, the Classes of Notes of
such Series shall mature sequentially unless otherwise provided in the related
Terms Supplement and their final installments of principal shall be due on such
Final Maturity Dates as shall be specified in the related Terms Supplement. The
principal of each Note shall be payable on the related Final Maturity Date
unless the unpaid principal of such Note becomes due and payable at an earlier
date by declaration of acceleration or otherwise.
Unless otherwise provided in the related Terms Supplement, no payments of
principal of any Class of Notes of a Series shall be made until payment of the
entire principal amount of all Outstanding Notes, if any, with an earlier Final
Maturity Date has been made. Payments of principal of a Class of Notes of a
Series shall be made pro rata among all Outstanding Notes of such Class, without
preference or priority of any kind.
Unless otherwise provided in the Terms Supplement, all payments made with
respect to any Note shall be applied first to the interest then due and payable
on such Note and then to the principal thereof. Unless otherwise provided in the
related Terms Supplement, all computations of interest accrued on any Note shall
be made on the basis of the actual number of days elapsed in each applicable
Interest Period divided by 360.
Interest on the unpaid principal amount of each Outstanding Note of a Class
shall be payable on each Note Distribution Date for such Class at the Class
Interest Rates applicable to such Note for the related Interest Periods.
Notwithstanding any of the foregoing provisions with respect to payments of
principal of and interest on the Notes, if the Notes of a Series have become or
been declared due and payable following an Event of Default and such
acceleration of maturity and its consequences have not been rescinded and
annulled and the provisions of Section 5.5 are not applicable to such Series,
then payments of principal of and interest on such Notes shall be made in
accordance with Section 5.4.
Each Note shall bear upon the face thereof the designation so selected for
the Series and Class to which it belongs. All Notes of the same Series and Class
shall be identical in all respects except for the denominations and dates
thereof. All Notes of all Classes within any one Series at any time Outstanding
shall be identical except for differences among the Notes of the different
Classes within such Series as specified in the applicable Terms Supplement. All
Notes of a particular Series issued under this Indenture shall be in all
respects equally and ratably entitled to the benefits hereof without preference,
priority or distinction on account of the actual time or times of authentication
and delivery, all in accordance with the terms and provisions of this Indenture.
Each Series of Notes shall be created by a Terms Supplement authorized by
the Trust Agreement and establishing the terms and provisions of such Series,
specifying the Financed Student Loans and any other property to be included in
the Indenture Trust Estate therefor and Granting such Indenture Trust Estate as
security for all previously issued and Outstanding Series of Notes and the
Series of Notes created thereby. The several Series may differ in respect of any
of the following matters:
(1) designation of the Series;
(2) dating of the Notes of the Series and Interest Period;
(3) the number of Classes and the maximum aggregate principal amount
of Notes of each such Class which may be issued;
(4) Class Interest Rate for each Class and the method for determining
such Class Interest Rate, including the applicable Interest
Period;
(5) Final Maturity Date on which the final installment of principal
of each Class is to be paid;
(6) place or places for the payment of the final installment of
principal or the manner in which Noteholders will be informed of
such place or places;
(7) denominations;
(8) whether the Notes of such Series may be au- thenticated by an
Authenticating Agent, and, if so, the Person appointed as
Authenticating Agent for such Series;
(9) Record Dates and Note Distribution Dates for each Class;
(10) the amount, if any, to be deposited at the Closing Date in each
of the Collection Account, the Pre- Funding Account, the
Capitalized Interest Account, the Expense Account, the Reserve
Account and the Capitalized Pre-Funding Account;
(11) the amount, if any, to be deposited in the Reserve Account, the
Requisite Amount of the Specified Reserve Account Requirement for
such Series, the circumstances under which withdrawals from such
Reserve Account are permitted or required to be made and whether
a Qualified Letter of Credit may be delivered to the Indenture
Trustee in lieu of a cash deposit in such Reserve Account, and,
if so, the standards applicable to such Qualified Letter of
Credit;
(12) whether any surplus funds in the Collection Account for such
Series are required to be used to restore amounts on deposit in
the Reserve Account to the minimum amount, if any, required to be
on deposit therein;
(13) any items required to be delivered to the Indenture Trustee on
the Closing Date for such Series pursuant to Section 2.11;
(14) whether or the extent to which Eligible Substitute Financed
Student Loans may be substituted for Financed Student Loans and
the conditions relating thereto including what constitutes an
Eligible Substitute Financed Student Loan;
(15) provisions with respect to terms defined in Appendix A for which
the definitions set forth therein require or permit further
specification in the related Terms Supplement;
(16) restrictions, if any, on the transferability of the Notes of such
Series; and
(17) any other provisions expressing or referring to the terms and
conditions upon which the Notes of that Series are to be issued
under this Indenture which are not in conflict with the
provisions of this Indenture.
In authorizing the issuance of any Series, the Issuer, by Issuer Order,
shall determine and specify all matters in respect of the Notes of such Series
set forth in clauses (1) to (17), inclusive, to the extent applicable, and shall
also determine and specify the forms of Notes of such Series, in compliance with
the terms of this Article II.
Each Series of Notes shall be covered by a Note Surety Bond issued by the
Surety Provider and shall not have the benefits of any other form of third-party
credit enhancement, including, without limitation, a Qualified Letter of Credit
or a Note Surety Bond issued by a surety provider other than AMBAC Indemnity
Corporation, unless the Surety Provider gives its prior written consent.
SECTION 2.4. DENOMINATIONS. The Notes shall be issuable only as registered
Notes in the denominations prescribed by the terms of the Terms Supplement
creating the particular Series.
SECTION 2.5. TEMPORARY NOTES. Pending the preparation of Definitive Notes,
the Issuer may execute, and upon receipt of an Issuer Order the Indenture
Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, photocopied, mimeographed or otherwise produced, of
the tenor of the Definitive Notes in lieu of which they are issued and with such
variations not inconsistent with the terms of this Indenture as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes to be
prepared without unreasonable delay. After the preparation of Definitive Notes,
the temporary Notes shall be exchangeable for Definitive Notes upon surrender of
the temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 3.2, without charge to the Noteholder. Upon surrender for
cancellation of any one or more temporary Notes, the Issuer shall execute and
the Indenture Trustee shall authenticate and deliver in exchange therefor a like
principal amount of Definitive Notes of the same Series and Class and of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as Definitive
Notes of the same Series and Class.
SECTION 2.6. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE. 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 Notes and the registration of transfers of Notes. The
Indenture Trustee shall be "Note Registrar" for the purpose of registering Notes
and transfers of 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.
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 Registrar, and the Indenture Trustee shall have the
right to inspect the Note Register at all reasonable times and to obtain copies
thereof, and the Indenture Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by an officer thereof as to
the names and addresses of the Noteholders and the principal amounts and number
of such Notes.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Noteholder
shall obtain from the Indenture Trustee, in the name of the designated
transferee or transferees, one or more new Notes in any authorized
denominations, of the same class and a like aggregate principal amount.
At the option of the Noteholder, Notes may be exchanged for other Notes of
any authorized denominations, of the same Series and Class and a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute, and the Indenture Trustee shall authenticate and the Noteholder shall
obtain from the Indenture Trustee, the Notes which the Noteholder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Restrictions on transfer, if any, of a Series or Class of Notes shall be
set forth in the related Terms Supplement.
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 Indenture Trustee 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 includes membership
or participation in the 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, all in accordance with
the Exchange Act.
No service charge shall be made to a Noteholder for any registration of
transfer or exchange of Notes, but the Indenture Trustee 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 Notes,
other than exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
SECTION 2.7. MUTILATED, DESTROYED, LOST OR STOLEN 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 Surety
Provider such security or indemnity as may be required by it 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, 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 of the
same Series, tenor, aggregate initial principal amount and Class bearing a
number not contemporaneously outstanding; PROVIDED, HOWEVER, that if any such
destroyed, lost or stolen Note, but not a mutilated Note, shall have become or
within 15 days shall be due and payable, instead of issuing a replacement Note,
the Issuer may pay such destroyed, lost or stolen Note when so due or payable.
If, after the delivery of such replacement Note or payment of a destroyed, lost
or stolen Note 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 for payment such original Note, 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.
Upon the issuance of any replacement Note under this Section, the Issuer
may require the payment by the Noteholder thereof 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) connected therewith.
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.
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 2.8. 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 or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of, interest, if any, on
such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.9. PAYMENTS OF PRINCIPAL AND INTEREST. (a) Any installment of
interest or principal payable on any Notes of any Series which is punctually
paid or duly provided for by the Issuer on the applicable Note Distribution Date
shall be paid to the Person in whose name such Note (or one or more Predecessor
Notes) is registered at the close of business on the Record Date for such Note
Distribution Date (i) by check mailed to such Person's address as it appears in
the Note Register on such Record Date, or (ii) except that, unless Definitive
Notes have been issued pursuant to Section 2.13, with respect to Notes
registered on the Note Record Date in the name of the nominee of the Securities
Depository (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; provided, however, the final installment of principal payable with
respect to such Note shall be payable as provided in subsection (b) of this
Section 2.9.
(b) All reductions in the principal amount of a Note (or one or more
Predecessor Notes) effected by payments of installments of principal made on any
Note Distribution Date shall be binding upon all Holders of such Note and of any
Note issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, whether or not such payment is noted on such Note. The final
installment of principal of each Note shall be payable only upon presentation
and surrender thereof on or after the Note Distribution Date or therefor at the
office or agency of the Issuer maintained by it for such purpose in the Borough
of Manhattan, the City of New York, State of New York, pursuant to Section 3.2.
(c) The principal of each Class of Notes shall be payable in installments
on each Note Distribution Date as provided in the applicable Terms Supplement.
Notwithstanding the foregoing, the entire unpaid principal amount of each Class
of Notes shall be due and payable, if not previously paid, on the date on which
an Event of Default shall have occurred and be continuing, if the Surety
Provider or, with the consent of the Surety Provider, either the Indenture
Trustee or the Noteholders of the Notes representing not less than a majority of
the Outstanding Amount of the Notes have declared the Notes to be immediately
due and payable in the manner provided in Section 5.2. All principal payments on
each Class of Notes shall be made to the Noteholders of such Class entitled
thereto as provided in the applicable Terms Supplement. The Indenture Trustee
shall notify the Person in whose name a Note is registered at the close of
business on the Record Date preceding the Note Distribution Date on which the
Issuer expects that the final installment of principal of and interest on such
Note will be paid. Such notice shall be mailed or transmitted by facsimile prior
to such final Note Distribution Date and shall specify that such final
installment will be payable only upon presentation and surrender of such Note
and shall specify the place where such Note may be presented and surrendered for
payment of such installment.
(d) If the Issuer defaults in a payment of interest on any Class of Notes,
the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the applicable Class Interest Rate in any
lawful manner. The Issuer may pay such defaulted interest to the persons who are
Noteholders of such Class 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 each
Noteholder of such Class a notice that states the special record date and the
amount of defaulted interest to be paid.
(e) Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture, upon registration of transfer of or in exchange
for or in lieu of any other Note, shall carry the rights to unpaid principal and
interest that were carried by such other Note. Any checks mailed pursuant to
this Section 2.9 and returned undelivered shall be held in accordance with
Section 3.3.
(f) Not later than each Determination Date relating to each Note
Distribution Date for a Series of Notes, the Administrator shall prepare and
deliver to the Issuer, the Eligible Lender Trustee, the Indenture Trustee and
the Surety Provider a statement (a "Distribution Date Statement") with respect
to the following Note Distribution Date setting forth:
(i) the amount of the distribution allocable to principal of each
Class of Notes or the Certificates, as the case may be;
(ii) the amount of the distribution allocable to interest on each
Class of Notes and the Certificates (or, with respect to a Class of Accrual
Notes, the amount of interest accrued thereon), together with the interest
rates applicable with respect thereto (indicating whether such interest
rates are based on the applicable Auction Rate or LIBOR Rate, as the case
may be, or on the Net Loan Rate, with respect to each Class of Notes and
the Certificates, and specifying what each such interest rate would have
been if it had been calculated using the alternate basis);
(iii) the amount of the distribution or accrual, if any, allocable to
any Noteholders' Auction Rate Interest Carryover, any Noteholders' LIBOR
Rate Interest Carryover and any Certificateholders' Auction Rate Interest
Carryover, together with the outstanding amount, if any, of each thereof
after giving effect to any such distribution or accrual;
(iv) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(v) the aggregate outstanding principal balance of each Class of Notes
and the Certificate Balance as of such Note Distribution Date or
Certificate Distribution Date, after giving effect to payments allocated to
principal reported under clause (i) above (and, with respect to a Class of
Accrual Notes, after giving effect to any interest accrued thereon reported
under clause (ii) above);
(vi) the amount of the Servicing Fee and any Servicing Fee Carryover
allocated to the Master Servicer, the amount of the Administration Fee
allocated to the Administrator, the amount of the Auction Agent Fee
allocated to the Auction Agent, the amount of the Indenture Trustee Fee
allocated to the Indenture Trustee, the amount of the Eligible Lender
Trustee Fee allocated to the Eligible Lender Trustee and the amount of the
Surety Provider Fee allocated to the Surety Provider, respectively, with
respect to such Collection Period, and the amount, if any, of the Servicing
Fee Carryover remaining unpaid after giving effect to any such payment;
(vii) the amount of the distribution, if any, payable to the Surety
Provider as reimbursement for any unpaid Surety Bond Payments;
(viii) the amount of the aggregate Realized Losses, if any, for such
Collection Period;
(ix) the balance of the Reserve Account, Capitalized Interest Account
and Capitalized Pre-Funding Account on such Note Distribution Date or
Certificate Distribution Date, after giving effect to changes therein on
such Note Distribution Date or Certificate Distribution Date and the then
applicable Parity Percentage;
(x) for Note Distribution Dates during each Funding Period, the
remaining Pre-Funded Amount on such Note Distribution Date, after giving
effect to changes therein during the related Collection Period; and
(xi) for the first Note Distribution Date on or following the end of
each Funding Period, the amount of any remaining Pre-Funded Amount that has
not been used to make Additional Fundings and is being paid out to
Noteholders.
SECTION 2.10. CANCELLATION. All Notes surrendered for payment, registration
of transfer or exchange shall, if surrendered to any Person other than the
Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly
cancelled 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 cancelled by the Indenture Trustee.
No Notes shall be authenticated in lieu of or in exchange for any Notes
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled 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 returned to it and so long as such Issuer Order is timely and the Notes have
not been previously disposed of by the Indenture Trustee.
SECTION 2.11. AUTHENTICATION AND DELIVERY OF NOTES. Notes of any one or
more Series may from time to time be executed by the Issuer and delivered to the
Indenture Trustee for authentication, and thereupon the same shall be
authenticated and delivered by the Indenture Trustee, upon Issuer Request and
upon receipt by the Indenture Trustee of the following:
(a) an Issuer Order authorizing the execution, authentication and
delivery of such Notes by the Issuer and specifying the Series, the Classes
within such Series, the Final Maturity Date of each Class, the principal
amount and the Class Interest Rate and the method of determining such Class
Interest Rate, of each Class of such Notes to be authenticated and
delivered;
(b) in case the Notes to be authenticated and delivered are of any
Series not theretofore created, an appropriate Terms Supplement,
accompanied by (i) the written consent of the Surety Provider as to the
issuance of such Series and the form of such Terms Supplement, and (ii) an
Issuer Order authorizing such Terms Supplement (and, in the case of the
first Series to be authenticated and delivered hereunder, authorizing this
Indenture), designating the new Series to be created and prescribing,
consistent with the applicable provisions of this Indenture, the terms and
provisions relating to the Notes of such Series;
(c) Opinions of Counsel addressed to the Indenture Trustee and the
Surety Provider, and to the effect that:
(i) all instruments furnished to the Indenture Trustee in
connection with such Notes conform to the requirements of this
Indenture and constitute all the documents required to be delivered
hereunder for the Indenture Trustee to authenticate and deliver the
Notes then applied for;
(ii) all conditions precedent provided for in this Indenture
relating to the authentication and delivery of the Notes applied for
have been complied with;
(iii) the Eligible Lender Trustee is an "eligible lender" under
the terms of the Higher Education Act, has corporate power to execute
and deliver the Trust Agreement, the Trust Agreement authorizes the
Issuer to execute and deliver the Terms Supplement relating to such
Notes (and, in the case of the first Series to be authenticated and
delivered hereunder, this Indenture), and to issue such Notes, and the
Issuer has duly taken all necessary action under the Trust Agreement
for those purposes;
(iv) the Issuer is a __________ business trust and the issuance
of the Notes then applied for is in conformity with the terms of and
duly authorized by the Trust Agreement;
(v) assuming due execution and delivery thereof by the Indenture
Trustee, this Indenture and the related Terms Supplement, as executed
and delivered by the Issuer, are the valid, legal and binding
obligations of the Issuer, enforceable in accordance with their terms,
subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to
or affecting creditors' rights generally and court decisions with
respect thereto, and such counsel need express no opinion with respect
to the availability of equitable remedies, and the execution of such
Terms Supplement is authorized or permitted by Section 9.1 of this
Indenture;
(vi) the Notes then applied for, when issued, delivered,
authenticated and paid for, will be the valid, legal and binding
obligations of the Issuer, entitled to the benefits of this Indenture
and the related Terms Supplement, equally and ratably with all other
Notes of such Series, if any, theretofore issued, authenticated,
delivered and paid for and then Outstanding hereunder, and enforceable
in accordance with their terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and such counsel
need express no opinion with respect to the availability of equitable
remedies;
(vii) the Issuer has Granted to the Indenture Trustee a lien and
first perfected security interest in all of its right, title and
interest in each such Financed Student Loan;
(viii) the Trust Agreement authorizes the Issuer to Grant the
Indenture Trust Estate to the Indenture Trustee as security for the
Notes of such Series and all previously issued and Outstanding Series
and the Issuer has taken all necessary action under the Trust
Agreement to Grant the Indenture Trust Estate to the Indenture
Trustee;
(ix) the Terms Supplement delivered to the Indenture Trustee with
such Opinion of Counsel subjects the Financed Student Loans securing
such Series and all previously issued and Outstanding Series and all
proceeds therefrom and the Pledged Accounts or Funds for such Series
and all previously issued and Outstanding Series to the lien and
security interest of this Indenture;
(x) such action has been taken with respect to delivery of
possession of the Indenture Trust Estate and with respect to the
recording and filing of this Indenture, the Terms Supplement for such
Series, any other indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of
any financing statements as is necessary to perfect a first priority
security interest in the Indenture Trust Estate for such Series and
all previously issued and Outstanding Series, with either the details
of such action being recited therein, or the absence of any such
action being necessary to make such lien and security interest
effective being stated therein; and, with any recording, filing,
re-recording and re-filing of this Indenture, the Terms Supplement for
such Series, any other indentures supplemental hereto and any other
requisite documents and any execution and filing of any financing
statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest
created by this Indenture and the related Terms Supplements in the
Indenture Trust Estate for such Series and all previously issued and
Outstanding Series until March 15 of the year in which the first
Opinion of Counsel with respect to such Series is required to be
delivered under Section 3.6 being described therein;
(xi) this Indenture and the Terms Supplement for such Series have
been duly qualified under the TIA, or that no qualification of such
Terms Supplement under the TIA is necessary; the execution of the
Terms Supplement for such Series requires the requalification of this
Indenture under the TIA, or that no requalification of the Indenture
under the TIA is necessary by virtue of the execution of such Terms
Supplement; and
(xii) no authorization, approval or consent of any governmental
body having jurisdiction over the Issuer which has not been obtained
by the Issuer is required for the valid issuance and delivery of the
Notes.
(d) an Officer's Certificate of the Administrator on behalf of the
Issuer stating that:
(i) the Issuer is not in Default under this Indenture or the
Insurance Agreement and the issuance of the Notes applied for will not
result in any breach of any of the terms, conditions or provisions of,
or constitute a default under, the Trust Agreement, the Insurance
Agreement, any indenture, mortgage, deed of trust or other agreement
or instrument to which the Issuer is a party or by which it is bound,
or any order of any court or administrative agency entered in any
proceeding to which the Issuer is a party or by which it may be bound
or to which it may be subject, and that all conditions precedent
provided in this Indenture relating to the authentication and delivery
of the Notes applied for have been complied with;
(ii) the Issuer is the owner of each Financed Student Loan
securing such Series and any previously issued Series, has not
assigned any interest or participation in any such Financed Student
Loan (or, if any such interest or participation has been assigned, it
has been released) and has the right to Grant each such Financed
Student Loan to the Indenture Trustee;
(iii) the Issuer has Granted to the Indenture Trustee a lien and
first perfected security interest in all of its right, title, and
interest in each such Financed Student Loan;
(iv) attached thereto are true and correct copies of letters
signed by each Rating Agency confirming that the Notes of such new
Series have been rated in the highest rating categories by such Rating
Agency.
(e) Unless any of the requirements set forth herein shall be deleted
by the related Terms Supplement, an Officer's Certificate of the
Administrator on behalf of the Issuer stating that all of the Financed
Student Loans and any other assets securing such Series and all previously
issued and Outstanding Series:
(i) satisfy each of the requirements established for such
Financed Student Loans in the related Terms Supplement and the
Insurance Agreement; and
(ii) have been endorsed as provided in the Sale and Servicing
Agreement;
(f) Cash in the amount, if any, required by the terms of the related
Terms Supplement to be deposited in the Collection Account and held by the
Indenture Trustee and applied in accordance with the terms hereof or as
otherwise provided in the related Series Supplement;
(g) Cash, Eligible Investments or (if permitted by the related Terms
Supplement) a Qualified Letter of Credit or any other assets specified in
or permitted by the related Terms Supplement in the respective amounts, if
any, required by the terms of the related Terms Supplement to be maintained
in the Reserve Account and held by the Indenture Trustee;
(h) If such Series is directly insured, guaranteed or otherwise
backed, the Note Surety Bond for such Series;
(i) An executed counterpart of the Terms Supplement; and
(j) Such other documents, certificates, instruments or opinions as may
be required by the terms of the Terms Supplement creating such Series of
Notes.
SECTION 2.12. RELEASE OF COLLATERAL. Subject to Section 11.1 and the terms
of the Basic Documents, the Indenture Trustee shall release property from the
lien of this Indenture and the related Terms Supplement only upon receipt of an
Issuer Request accompanied by an Officer's Certificate of the Issuer, an Opinion
of Counsel and Independent Certificates in accordance with TIA ss.ss. 314(c) and
314(d)(1) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
SECTION 2.13. BOOK-ENTRY NOTES. Unless otherwise provided in the related
Terms Supplement, the 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 will receive a Definitive Note (as defined below) representing such Note
Owner's interest in such Note, except as provided in Section 2.15. Unless and
until definitive, fully registered Notes (the "Definitive Notes") have been
issued to Note Owners pursuant to Section 2.15:
(i) the provisions of this Section shall be in full force and effect;
(ii) 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 Notes) as the authorized representative
of the Note Owners;
(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 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 Agreements.
Unless and until Definitive Notes are issued pursuant to Section 2.15, 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 Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Noteholders of Notes evidencing a
specified percentage of the Outstanding Amount of the 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 Notes and has
delivered such instructions to the Indenture Trustee.
SECTION 2.14. 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
2.15, the Indenture Trustee shall give all such notices and communications
specified herein to be given to Noteholders to the Clearing Agency.
SECTION 2.15. DEFINITIVE NOTES. If (i) the Administrator 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 Notes, and
the Administrator is unable to locate a qualified successor, or (ii) the
Administrator 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, a Servicer Default or an
Administrator Default, Note Owners representing beneficial interests aggregating
at least a majority of the Outstanding Amount of the Notes advise the Clearing
Agency (which shall then notify the Indenture Trustee) 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 2.16. RESTRICTIONS ON TRANSFER. THE PROVISIONS OF THIS SECTION
SHALL APPLY ONLY TO A CLASS OF NOTES ISSUED IN A TRANSACTION NOT REGISTERED
UNDER THE SECURITIES ACT (the "Non- Registered Notes"). Except as otherwise set
forth in a Terms Supplement, the Non-Registered Notes may not be offered or
sold, after their initial issuance, except to Qualified Institutional Buyers in
reliance on the exemption from the registration requirements of the Securities
Act provided by Rule 144A thereunder.
Except as otherwise set forth in a Terms Supplement, each purchaser of any
Class of Non-Registered Notes will be deemed to have represented and agreed as
follows:
(i) It is a Qualified Institutional Buyer as defined in Rule 144A
promulgated under the Securities Act and is acquiring the Notes for its own
institutional account or for the account of a Qualified Institutional
Buyer.
(ii) It understands that the Non-Registered Notes will be offered in a
transaction not involving any public offering within the meaning of the
Securities Act, and that, if in the future it decides to resell, pledge or
otherwise transfer any Non-Registered Notes, such Non-Registered Notes may
be resold, pledged or transferred only (a) to a person who the seller
reasonably believes is a Qualified Institutional Buyer that purchases for
its own account or for the account of a Qualified Institutional Buyer to
whom notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A or (b) pursuant to an effective registration
statement under the Securities Act.
(iii) It understands that each Non-Registered Note will bear a legend
substantially to the following effect:
"UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, AGREES THAT THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WHICH
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT.
THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY."
ARTICLE III
COVENANTS
SECTION 3.1. PAYMENT TO NOTEHOLDERS. The Issuer will pay or
cause to be duly and punctually paid, from the property of the Issuer, the
principal of and interest on the Notes of each Series in accordance with the
terms of such Notes, this Indenture and the related Terms Supplement and Sale
and Servicing Agreement. Amounts properly withheld under the Code by any Person
from a payment to any Noteholder of interest (including any Noteholders' Auction
Rate Interest Carryover) and/or principal shall be considered as having been
paid by the Issuer to such Noteholder for all purposes of this Indenture.
SECTION 3.2. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will
maintain in the Borough of Manhattan, the City of New York, the State of New
York, an office or agency where Notes may be surrendered for registration of
transfer or exchange, 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
and the Surety Provider 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.
The Issuer may also from time to time designate one or more
other offices or agencies (in or outside the City of New York) where the Notes
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that (i) no such
designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in the Borough of Manhattan, the City
of New York, the State of New York for the purposes set forth in the preceding
paragraph, (ii) presentations or surrenders of Notes for payment may be made
only in the City of New York, the State of New York and (iii) any designation of
an office or agency for payment of Notes shall be subject to Section 3.3. The
Issuer will give prompt written notice to the Indenture Trustee and the Surety
Provider of any such designation or rescission and of any change in the location
of any such other office or agency.
SECTION 3.3. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As
provided in Section 8.2(a) and (b), 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 Trust Account pursuant to Section 8.2(c) shall
be made on behalf of the Issuer by the Indenture Trustee or by another Paying
Agent, and no amounts so distributed from the Collection Account for payments of
Notes shall be paid over to the Issuer except as provided in this Section.
The Issuer will cause each Paying Agent other than the
Indenture Trustee to execute and deliver to the Indenture Trustee 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 Surety Provider
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;
(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 its 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, and, at the direction of the
Surety Provider, shall, 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 the Surety Provider to the extent of any unreimbursed
claims of the Surety Provider, including interest thereon from the date any such
claim was first made, and if all such claims of the Surety Provider have been
satisfied, to the Issuer on Issuer Request; 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 right to or interest in moneys 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).
SECTION 3.4. EXISTENCE. The Issuer will keep in full effect
its existence and rights as a trust under the laws of the Commonwealth of
Pennsylvania (unless 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 and
rights 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.
SECTION 3.5. PROTECTION OF INDENTURE TRUST ESTATE. 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
interests (and the priority thereof) 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 or any
Terms Supplement;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Indenture Trust
Estate and the rights of the Indenture Trustee and the
Noteholders in such Indenture Trust Estate against the claims
of all persons and parties.
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.
SECTION 3.6. OPINIONS AS TO INDENTURE TRUST ESTATE. On or
before April 30 in each calendar year, beginning with the first calendar year
commencing more than three months after the Closing Date for a Series, the
Administrator, on behalf of the Issuer, shall furnish to the Indenture Trustee
and the Surety Provider an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, rerecording and refiling 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
is necessary to maintain the lien and security interest created by this
Indenture and reciting the details of such action or stating that in the opinion
of such counsel no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture until April 30 in the following calendar year.
SECTION 3.7. PERFORMANCE OF OBLIGATIONS; SERVICING OF FINANCED
STUDENT LOANS. (a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others 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 related Terms
Supplement or Sale and Servicing Agreement, the Supplemental Sale and Servicing
Agreement or such other instrument or agreement.
(b) With the written consent of the Surety Provider, 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 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 Servicer and the Administrator to assist the Issuer in performing its
duties under this Indenture.
(c) The Issuer will punctually perform and observe all its
obligations and agreements contained in this Indenture, the other Basic
Documents and in the instruments and agreements included in the Indenture Trust
Estate, including filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the related Terms Supplement and Sale and Servicing Agreement in accordance with
and within the time periods provided for herein and therein. Except as otherwise
expressly provided therein, the Issuer shall not waive, amend, modify,
supplement or terminate any Basic Document or any provision thereof without the
consent of the Surety Provider and either the Indenture Trustee or the
Noteholders of at least a majority of the Outstanding Amount of the Notes of
each Series then Outstanding.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default or an Administrator Default under the Sale and Servicing
Agreement, the Issuer shall promptly notify in writing the Indenture Trustee,
the Surety Provider and the Rating Agencies thereof, 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 Servicer to perform any
of its duties or obligations under the Sale and Servicing Agreement or any
Supplemental Sale and Servicing Agreement, or an Administrator Default shall
arise from the failure of the Administrator to perform any of its duties or
obligations under the Sale and Servicing Agreement, any Supplemental Sale and
Servicing Agreement or the Administration Agreement, as the case may be, with
respect to the Financed Student Loans, the Issuer shall take all reasonable
steps available to it to enforce its rights under the Basic Documents in respect
of such failure and shall act in accordance with all directions of the Surety
Provider.
(e) As promptly as possible after the giving of notice of
termination to the Servicer of the Servicer's rights and powers, or to the
Administrator of the Administrator's rights and powers, pursuant to Section 8.1
of the related Sale and Servicing Agreement, the Issuer shall appoint a
successor servicer (the "Successor Servicer"), or a successor administrator (the
"Successor Administrator"), and such Successor Servicer or Administrator, as the
case may be, shall accept its appointment by a written assumption in a form
acceptable to the Indenture Trustee; PROVIDED, HOWEVER, that the Issuer shall
not appoint a Successor Servicer or Successor Administrator without obtaining
the prior written consent of the Surety Provider. In the event that a Successor
Servicer or Administrator has not been appointed and accepted its appointment at
the time when the Servicer or Administrator, as the case may be, ceases to act
as Servicer or Administrator, as the case may be, the Indenture Trustee without
further action shall automatically be appointed the Successor Servicer or
Administrator, as the case may be. The Indenture Trustee may resign as the
Servicer or the Administrator by giving written notice of such resignation to
the Issuer and the Surety Provider and in such event will be released from such
duties and obligations, such release not to be effective until the date a new
servicer or a new administrator enters into an agreement with the Issuer as
provided below. Upon delivery of any such notice to the Issuer, the Issuer
shall, with the written consent of the Surety Provider, obtain a new servicer or
a new administrator as the Successor Servicer or Administrator under the Sale
and Servicing Agreement. Any Successor Servicer or Administrator, as the case
may be, other than the Indenture Trustee shall (i) be an established institution
whose regular business includes the servicing or administration of student loans
and (ii) enter into a servicing agreement or an administration agreement with
the Issuer having substantially the same provisions as the provisions of the
Sale and Servicing Agreement and any Supplemental Sale and Servicing Agreement
applicable to the Servicer or the provisions of the Sale and Servicing
Agreement, any Supplemental Sale and Servicing Agreement and the Administration
Agreement applicable to the Administrator. If within 30 days after the delivery
of the notice referred to above, the Issuer shall not have obtained such a new
servicer or administrator, as the case may be, the Indenture Trustee may
appoint, or may petition a court of competent jurisdiction to appoint, a
Successor Servicer or Administrator; PROVIDED, HOWEVER, that such right to
appoint or to petition for the appointment of any such successor shall in no
event relieve the Indenture Trustee from any obligations otherwise imposed on it
under the Basic Documents until such successor has in fact assumed such
appointment. In connection with any such appointment, the Indenture Trustee may
make such arrangements for the compensation of such successor as it and such
successor shall agree, subject to the limitations set forth below and in the
Sale and Servicing Agreement, and in accordance with Section 8.2 of the Sale and
Servicing Agreement, the Issuer shall enter into an agreement with such
successor for the servicing or administration of the Financed Student Loans
(such Agreement to be in form and substance satisfactory to the Indenture
Trustee and the Surety Provider). If the Indenture Trustee shall succeed as
provided herein to the Servicer's duties as servicer with respect to the
Financed Student Loans, or the Administrator's duties with respect to the Issuer
and the Financed Student Loans, as the case may be, it shall do so in its
individual capacity and not in its capacity as Indenture Trustee and,
accordingly, the provisions of Article VI hereof shall be inapplicable to the
Indenture Trustee in its duties as the successor to the Servicer or the
Administrator, as the case may be, and the servicing or administration of the
Financed Student Loans. In case the Indenture Trustee shall become successor to
the Servicer or the Administrator, as the case may be, under the related Sale
and Servicing Agreement, the Indenture Trustee shall be entitled to appoint as
Servicer or as Administrator, as the case may be, any one of its affiliates or
an agent, provided that it shall be fully liable for the actions and omissions
of such affiliate or agent in such capacity as Successor Servicer or
Administrator.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the related Sale and Servicing Agreement, or any termination of the
Administrator's rights and powers pursuant to the related Sale and Servicing
Agreement, as the case may be, the Issuer shall promptly notify the Indenture
Trustee and the Surety Provider. As soon as a Successor Servicer or a Successor
Administrator is appointed, the Issuer shall notify the Indenture Trustee and
the Surety Provider of such appointment, specifying in such notice the name and
address of such Successor Servicer or such Successor Administrator.
(g) Without derogating from the absolute nature of the
assignment Granted to the Indenture Trustee under any Terms Supplement or the
rights of the Indenture Trustee hereunder, the Issuer agrees that it will not,
without the prior written consent of the Surety Provider and either the
Indenture Trustee or the Noteholders of at least a majority in Outstanding
Amount of the Notes of each Series then outstanding, amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the terms of (i) any portion of
the Trust Estate, or, as applicable, (ii) the Basic Documents, except to the
extent otherwise provided in the related Sale and Servicing Agreement, or waive
timely performance or observance by the Servicer, the Administrator, the Seller,
the Issuer or the Eligible Lender Trustee under the related Sale and Servicing
Agreement and the Supplemental Sale and 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, or (ii) 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. If any such amendment,
modification, supplement or waiver should be so consented to by the Indenture
Trustee or such Noteholders, the Issuer agrees, promptly following a request by
the Indenture Trustee 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 may deem necessary or appropriate in the circumstances.
SECTION 3.8. NEGATIVE COVENANTS. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture
or any other Basic Documents, 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 and
the Surety Provider has approved of such action;
(ii) claim any credit on, or make any deduction from
the principal of or interest on (including any Noteholders'
Auction Rate Interest Carryover) any 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;
(iii) except as contemplated by the Basic Documents,
dissolve or liquidate in whole or in part; or
(iv) (A) permit the validity or effectiveness of this
Indenture or any Terms Supplement to be impaired, or permit
the lien of this Indenture and any Terms Supplement 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, (B) permit any
lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture and
any Terms Supplement) 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 Basic Documents) or (C) permit
the lien of this Indenture and any Terms Supplement 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 3.9. ANNUAL STATEMENT AS TO COMPLIANCE. The
Administrator, on behalf of the Issuer, will deliver to the Indenture Trustee
and the Surety Provider, within 120 days after the first fiscal year of the
Issuer that ends more than three months after the Closing Date for a Series, and
each fiscal year thereafter, an Officer's Certificate of the Issuer stating
that:
(i) a review of the activities of the Issuer during
such year and of performance under this Indenture has been
made under such Authorized Officers' supervision; and
(ii) to the best of such Authorized Officers' knowledge,
based on such review, the Issuer has complied with all
conditions and covenants under this Indenture throughout such
year, or, if there has been a default in the compliance of any
such condition or covenant, specifying each such default known
to such Authorized Officers and the nature and status thereof.
SECTION 3.10. 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, in form satisfactory to the Indenture
Trustee, the due and punctual payment of the principal of and
interest on and any Noteholders' Auction Rate Interest
Carryover, if any, with respect to all Notes and the
performance or observance of every agreement and covenant of
this Indenture and any Terms Supplement on the part of the
Issuer to be performed or observed, all as provided herein or
therein;
(ii) immediately after giving effect to such
transaction, no Default shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been
satisfied 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 Federal or Pennsylvania state tax consequence
to the Issuer, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien
and security interest created by this Indenture shall have
been taken;
(vi) the Surety Provider shall have furnished its
written consent to such transaction; and
(vii) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate of the Issuer and an Opinion
of Counsel each 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 (including any filing
required by the Exchange Act).
(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 assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form
satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on and Noteholders'
Auction Rate Interest 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
agrees 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, (D) unless
otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer
against and from any loss, liability or expense arising under
or related to this Indenture and the Notes and (E) expressly
agrees 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 shall have occurred and be
continuing;
(iii) the Rating Agency Condition shall have been
satisfied 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 Federal or Pennsylvania state tax consequence
to the Issuer, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien
and security interest created by this Indenture shall have
been taken;
(vi) the Surety Provider shall have furnished its
written consent to such transaction; and
(vii) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate of the Issuer and an Opinion
of Counsel each 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 (including any filing
required by the Exchange Act).
SECTION 3.11. SUCCESSOR OR TRANSFEREE. (a) Upon any
consolidation or merger of the Issuer in accordance with Section 3.10(a), the
Person formed by or surviving such consolidation or merger (if other than the
Issuer) shall succeed to, and be substituted for, and may exercise every right
and power of, the Issuer under this Indenture and any Terms Supplement 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 3.10(b), [Trust 199_-_]
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 stating that [Trust 199_-_] is to be so released.
SECTION 3.12. NO OTHER BUSINESS. The Issuer shall not engage
in any business other than financing, purchasing, owning, selling, servicing and
managing Financed Student Loans and making Additional Fundings in the manner
contemplated by this Indenture and the other Basic Documents and activities
incidental thereto. After each Funding Period, the Issuer shall not fund the
purchase of any Additional Student Loans or make any other Additional Fundings
with respect to the related Series of Notes.
SECTION 3.13. NO BORROWING. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes and such other obligations as are authorized
under the Basic Documents.
SECTION 3.14. OBLIGATIONS OF MASTER SERVICER AND
ADMINISTRATOR. The Issuer shall cause the Master Servicer to comply with
Sections 4.8(a) and (b), 4.9, 4.10, 4.11, 5.5 and 5.6 of the Sale and Servicing
Agreement and the Administrator to comply with Sections 4.7, 4.8(a), 4.8(c),
4.9, 5.6 and 5.7 thereof.
SECTION 3.15. GUARANTEES, LOANS, ADVANCES AND OTHER
LIABILITIES. Except as contemplated by the Sale and Servicing Agreement, any
Supplemental Sale and Servicing Agreement this Indenture or any Terms
Supplement, 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.
SECTION 3.16. CAPITAL EXPENDITURES. The Issuer shall not
make any expenditure (by long-term or operating lease or otherwise)
for capital assets (either realty or personalty).
SECTION 3.17. RESTRICTED PAYMENTS. The Issuer shall not,
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to the Eligible Lender Trustee or any owner of a beneficial
interest in the Issuer or otherwise with respect to any ownership or equity
interest or security in or of the Issuer or to the Servicer or the
Administrator, (ii) redeem, purchase, retire or otherwise acquire for value any
such ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; PROVIDED, HOWEVER, that the Issuer
may make, or cause to be made, distributions to the Servicer, the Eligible
Lender Trustee, the Indenture Trustee, the Certificateholders, the Noteholders,
the Surety Provider, the Administrator, the Auction Agent and the Seller as
contemplated by, and to the extent funds are available for such purpose under,
the Sale and Servicing Agreement.
SECTION 3.18. NOTICE OF EVENTS OF DEFAULT. The Issuer shall
give the Indenture Trustee, the Surety Provider and the Rating Agencies prompt
written notice of each Event of Default hereunder and each default on the part
of the Seller of its obligations under the Sale and Servicing Agreement or any
Supplemental Sale and Servicing Agreement, the Servicer of its obligations under
the Sale and Servicing Agreement or any Supplemental Sale and Servicing
Agreement or the Administrator of its obligations under the Sale and Servicing
agreement, any Supplemental Sale and Servicing Agreement or the Administration
Agreement. In addition, the Issuer shall deliver to the Indenture Trustee and
the Surety Provider, within five days after the occurrence thereof, written
notice in the form of an Officer's Certificate of the Issuer of any event which
with the giving of notice and the lapse of time would become an Event of Default
under Section 5.1(iii), its status and what action the Issuer is taking or
proposes to take with respect thereto.
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS. Upon request of
the Indenture Trustee, the Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. SATISFACTION AND DISCHARGE OF INDENTURE. This
Indenture shall cease to be of further effect with respect to a Series of Notes
except as to (i) rights of registration of transfer and exchange, (ii)
substitution of mutilated, destroyed, lost or stolen Notes of such Series, (iii)
rights of Noteholders to receive payments of principal thereof and interest
(including Noteholders' Auction Rate Interest Carryover) thereon, (iv) Sections
3.3, 3.4, 3.5, 3.8, 3.10, 3.12, 3.13 and 3.15 of this Agreement, (v) the rights,
obligations and immunities of the Indenture Trustee hereunder (including the
rights of the Indenture Trustee under Section 6.7 and the obligations of the
Indenture Trustee under Section 4.2), and (vi) the rights of Noteholders 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 of such Series 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 2.7 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 3.3) have been delivered to the Indenture
Trustee for cancellation; or
(2) all Notes of such Series not theretofore
delivered to the Indenture Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable within one year,
and the Issuer, in the case of (i) or (ii) 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
will mature prior to the date such amounts are payable), in
trust for such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Series of Notes not
theretofore delivered to the Indenture Trustee for
cancellation when due to the applicable Final Maturity Date;
(B) the Issuer has paid or caused to be paid all
other sums payable hereunder by the Issuer with respect to
such Series;
(C) the Surety Provider has received all premiums due
under the Insurance Agreement and has been reimbursed for all
claims paid and interest thereon since the date any such claim
was made pursuant to the Sale and Servicing Agreement; and
(D) the Issuer has delivered to the Indenture Trustee
and the Surety Provider an Officer's Certificate of the
Issuer, an Opinion of Counsel and (if required by the TIA or
either the Indenture Trustee or the Surety Provider) an
Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of
Section 11.1(a) and, subject to Section 11.2, each stating
that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect
to such Series have been complied with.
SECTION 4.2. APPLICATION OF TRUST MONEY. All moneys deposited
with the Indenture Trustee pursuant to Section 4.1 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 of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest (including
Noteholders' Auction Rate Interest Carryover); but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
SECTION 4.3. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture with
respect to a Series of Notes, all moneys then held by any Paying Agent other
than the Indenture Trustee under the provisions of this Indenture with respect
to such Series of Notes shall, upon demand of the Issuer, be paid to the
Indenture Trustee to be held and applied according to Section 3.3 and thereupon
such Paying Agent shall be released from all further liability with respect to
such moneys.
ARTICLE V
REMEDIES
SECTION 5.1. EVENTS OF DEFAULT. "Event of Default," wherever
used herein, means, with respect to all Outstanding Notes issued hereunder, 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):
(i) default in the payment of any interest on any
Note of any Series (other than Noteholders' Auction Rate
Interest Carryover) when the same becomes due and payable, and
such default shall continue for a period of two Business Days;
or
(ii) default in the payment of the principal of any Note
of any Series when the same becomes due and payable, and such
default shall continue for a period of two Business Days; or
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture,
the Insurance Agreement or the Sale and Servicing Agreement
(other than a covenant or agreement, a default in the
observance or performance of which is specifically dealt with
elsewhere in this Section), or any representation or warranty
of the Issuer made in this Indenture or in any certificate or
other writing delivered pursuant hereto or in connection
herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the
circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days
after there shall have been given, by registered or certified
mail, to the Issuer by the Indenture Trustee or the Surety
Provider or to the Issuer, the Indenture Trustee and the
Surety Provider by the Noteholders of at least 25% of the
Outstanding Amount of the Outstanding Notes, a written notice
specifying such default or incorrect representation or
warranty and requiring it to be remedied and stating that such
notice is a notice of Default hereunder; or
(iv) 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 receive, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Indenture 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
(v) 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
debt as such debts become due, or the taking of action by the
Issuer in furtherance of any of the foregoing.
SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT. If an Event of Default should occur and be continuing with respect to
any Series of Notes, then and in every such case the Surety Provider may, or the
Indenture Trustee or Noteholders of Notes representing no less than a majority
of the Outstanding Amount of the Outstanding Notes may, after obtaining the
written consent of the Surety Provider, declare all the Outstanding Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee and the Surety Provider if given by Noteholders), and upon any
such declaration the unpaid principal amount of all the Outstanding Notes,
together with accrued and unpaid interest thereon and any outstanding
Noteholders' Auction Rate Interest Carryover through the date of acceleration,
shall become immediately due and payable.
At any time after such a declaration of acceleration of
maturity of the Outstanding Notes has been made and before a judgment or decree
for payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Surety Provider or, after obtaining
the written consent of the Surety Provider, the Noteholders of Notes
representing a majority of the Outstanding Amount of the Outstanding Notes, by
written notice to the Issuer and the Indenture Trustee, may, rescind and annul
such declaration and its consequences if:
(i) the Issuer has paid or deposited with the
Indenture Trustee a sum sufficient to pay
(A) all payments of principal of and
interest on all Outstanding 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
(B) all sums paid or advanced by the
Indenture Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Outstanding 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.
SECTION 5.3. 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 on any Series of Notes (other than
Noteholders' Auction Rate Interest Carryover) 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 principal of or any installment of the principal
of any Series of Notes when the same becomes due and payable, and such default
continues for a period of five days the Issuer will, upon demand of the Surety
Provider or, if the Surety Provider consents, the Indenture Trustee, pay to the
Indenture Trustee, for the benefit of the Noteholders, the whole amount then due
and payable on the Outstanding Notes for principal and interest (and any
Noteholders' Auction Rate Interest 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' Auction
Rate Interest Carryover), at the respective Note Interest Rate 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 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 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 any
Series of Notes and collect in the manner provided by law out of the property of
the Issuer or other obligor upon any Series of Notes, wherever situated, the
moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the
Indenture Trustee may, as more particularly provided in Section 5.4, in its
discretion, proceed to protect and enforce its rights and the rights of the
Noteholders, 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.
(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
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 Proceedings
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, 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'
Auction Rate Interest Carryover) owing and unpaid in respect
of such Series of 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 or bad faith) and of the
Noteholders allowed in such Proceedings;
(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 Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute
all amounts received with respect to the claims of the
Noteholders and of 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 or the Noteholders allowed
in any judicial proceedings 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 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 Outstanding Notes or the rights of any 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 Outstanding Notes, may be enforced by the
Indenture Trustee without the possession of any of the Outstanding Notes or the
production thereof in any trial or other Proceedings relative thereto, and any
such action or Proceedings 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 ratable benefit of the Noteholders.
(g) In any Proceedings brought by the Indenture Trustee (and
also any Proceedings 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 Proceedings.
SECTION 5.4. REMEDIES; PRIORITIES. (a) If an Event of Default
shall have occurred and be continuing in respect of the Outstanding Notes and
the Outstanding Notes have been declared due and payable and such declaration
and its consequences have not been rescinded and annulled, the Indenture Trustee
may do one or more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts
then payable on the Outstanding Notes or under this Indenture
with respect of Notes, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Issuer and
any other obligor upon such Outstanding Notes moneys 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 securing the Outstanding Notes;
(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 and
the Noteholders; and
(iv) sell the Indenture Trust Estate or any portion
thereof or rights or interest therein, at one or more public
or private sales called and conducted in any manner permitted
by law;
PROVIDED, HOWEVER, that the Indenture Trustee may not sell or otherwise
liquidate the Indenture Trust Estate following an Event of Default, other than
an Event of Default described in Section 5.1(i) or (ii), unless the Surety
Provider has given its written consent and (A) the Noteholders of 100% of the
Outstanding Amount of the Notes of such Series consent thereto, (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 the Outstanding Notes for
principal and interest 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 Outstanding Notes had not been declared due and payable, and the
Indenture Trustee obtains the consent of Noteholders of 66-2/3% of the
Outstanding Amount of all the Outstanding Notes. In determining such sufficiency
or insufficiency with respect to clause (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 Indenture Trustee for amounts due
under Section 6.7;
SECOND: to the Eligible Lender Trustee for amounts
due under the Trust Agreement and the Sale and Servicing
Agreement;
THIRD: to Noteholders for amounts due and unpaid on
each Series of Notes for interest, ratably, without
preference or priority of any kind, according to the
amounts due and payable on each Series of Notes for interest;
FOURTH: to Noteholders for amounts due and unpaid on
the Notes of each Series for principal, ratably, without
preference or priority of any kind, according to the
amounts due and payable on the Notes of each Series for
principal;
FIFTH: to the Issuer for distribution of principal
and interest due and unpaid to the Certificateholders;
SIXTH: to the Surety Provider for amounts due for
unreimbursed Note and Certificate Surety Bond Payments
previously made or any unpaid premiums;
SEVENTH: to the Servicer, for any unpaid Servicing
Fee Carryovers; and
EIGHTH: to the Issuer, for distribution in accordance
with the terms of the Sale and Servicing Agreement, and any
related Supplemental Sale and Servicing Agreements.
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 and the Indenture
Trustee a notice that states the record date, the payment date and the amount to
be paid.
SECTION 5.5. OPTIONAL PRESERVATION OF THE FINANCED STUDENT
LOANS. If the Outstanding Notes have been declared to be due and payable under
Section 5.2 following an Event of Default and such declaration and its
consequences have not been rescinded and annulled, the Indenture Trustee may,
but need not, 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' Auction Rate Interest Carryover) on the Notes, and the Indenture
Trustee shall take such desire into account when determining whether or not 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 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 5.6. LIMITATION OF SUITS. No Noteholder of any Series
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:
(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
Outstanding Notes 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; and
(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 Outstanding
Amount of the Notes of such Series;
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 and for the equal and ratable benefit of all Noteholders.
In the event the Indenture Trustee shall receive conflicting
or inconsistent requests and indemnity from two or more groups of Noteholders,
each representing less than a majority of the Outstanding Amount of the
Outstanding Notes, the Indenture Trustee in its sole discretion may determine
what action, if any, shall be taken, notwithstanding any other provisions of
this Indenture based upon the larger percentage of Noteholders as of a date
certain.
SECTION 5.7. 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 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 5.8. RESTORATION OF RIGHTS AND REMEDIES. If the
Indenture Trustee 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 or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee 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 and the Noteholders shall continue as though no such Proceeding had been
instituted.
SECTION 5.9. RIGHTS AND REMEDIES CUMULATIVE. No right or
remedy herein conferred upon or reserved to the Indenture Trustee 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 to exercise any right or
remedy accruing upon any Default shall impair any such right or remedy or
constitute a waiver of any such Default or an acquiescence therein. Every right
and remedy given by this Article V or by law to the Indenture Trustee or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Indenture Trustee or by the Noteholders, as the case may be.
SECTION 5.11. CONTROL BY NOTEHOLDERS. The Noteholders of a
majority of the Outstanding Amount of the Notes 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 that
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Indenture Trustee to sell or liquidate the
Indenture Trust Estate shall be by the Noteholders of not less
than 100% of the Outstanding Amount of the Notes of each
Series;
(iii) if the conditions set forth in Section 5.5 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 Outstanding Amount of the Notes of each Series to
sell or liquidate the Indenture Trust Estate shall be of no
force and effect;
(iv) the Surety Provider has given its consent
thereto; and
(v) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not
inconsistent with such direction;
PROVIDED, HOWEVER, that, subject to Section 6.1, 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 5.2, the Noteholders of not less than a majority of the Outstanding
Amount of the Notes of a Series may, after obtaining the written consent of the
Surety Provider, waive any past Default hereunder and its consequences except a
Default (a) in payment when due of principal of or interest on any of the
Outstanding Notes or (b) in respect of a covenant or provision hereof which
cannot be modified or amended without the consent of each Noteholder. In the
case of any such waiver, the Issuer, the Indenture Trustee 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 impair any
right consequent thereto.
Upon any such waiver, such Default shall cease but to exist
and be deemed to have been cured and not to have occurred for every purpose of
this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereto.
SECTION 5.13. UNDERTAKING FOR COSTS. All parties to this
Indenture agree, not in their individual capacity but solely in their capacity
as Indenture Trustee or Eligible Lender Trustee, as applicable, 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, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Outstanding Notes or (c) any suit instituted by any
Noteholder for the enforcement of the payment of principal of or interest
(including any Noteholders' Auction Rate Interest Carryover) on any Note on or
after the respective due dates expressed in such Note.
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, 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 and each
Terms Supplement nor any rights or remedies of the Indenture Trustee or the
Noteholders of any Series shall be impaired by the recovery of any judgment by
the Indenture Trustee 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 5.4(b).
SECTION 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN
OBLIGATIONS. (a) Promptly following a request from the Indenture Trustee to do
so and at the Administrator's expense, the Issuer shall take all such lawful
action as the Indenture Trustee may request to compel or secure the performance
and observance by the Seller, the Administrator and the Servicer, as applicable,
of each of their obligations to the Issuer under or in connection with the Sale
and Servicing Agreement and Supplemental Sale and Servicing Agreement (and with
respect to the Administrator only, the Administration Agreement) in accordance
with the terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Issuer under or in connection with the Sale
and Servicing Agreement and any Supplemental Sale and Servicing Agreement (and
the Administration Agreement) to the extent and in the manner directed by the
Indenture Trustee, including the transmission of notices of default on the part
of the Seller, the Administrator or the Servicer thereunder and the institution
of legal or administrative actions or proceedings to compel or secure
performance by the Seller, the Administrator or the Servicer of each of their
obligations under the Sale and Servicing Agreement and any Supplemental Sale and
Servicing Agreement (and the Administration Agreement).
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in
writing) of either the Surety Provider or, upon receipt of the Surety Provider's
written consent, the Noteholders of 66-2/3% of the Outstanding Amount of the
Outstanding Notes shall, exercise all rights, remedies, powers, privileges and
claims of the Issuer against the Seller, the Administrator or the Servicer under
or in connection with the Sale and Servicing Agreement and any Supplemental Sale
and Servicing Agreement (and the Administration Agreement), including the right
or power to take any action to compel or secure performance or observance by the
Seller, the Administrator or the Servicer of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the related Sale and Servicing Agreement and any
Supplemental Sale and Servicing Agreement (and the Administration Agreement) and
any right of the Issuer to take such action shall be suspended.
SECTION 5.17. SUBROGATION. Subject only to the priority of
payment provisions of this Indenture and any Terms Supplement, each of the
Issuer and the Indenture Trustee acknowledges that to the extent of any payment
made by the Surety Provider pursuant to any Note Surety Bond, the Surety
Provider is to be fully subrogated to the extent of such payment and any
additional interest due on any late payment to the rights of the Holders of the
Notes to any moneys paid or payable in respect of the Notes under this
Indenture, any Terms Supplement, the Sale and Servicing Agreement or otherwise.
Each of the Issuer and the Indenture Trustee agrees to such subrogation and,
further, agrees to execute such instruments and to take such actions as, in the
sole judgment of the Surety Provider, are necessary to evidence such subrogation
and, subject to the priority of payment provision of this Indenture, any Terms
Supplement and the Sale and Servicing Agreement, to perfect the rights of the
Noteholders to receive any moneys paid or payable in respect of the Notes under
this Indenture, any Terms Supplement, the Sale and Servicing Agreement or
otherwise.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in
this Indenture and any Terms Supplement and no implied
covenants or obligations shall be read into this Indenture or
any Terms Supplement against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Indenture Trustee and conforming to the requirements of this
Indenture; PROVIDED, HOWEVER, that the Indenture Trustee shall
examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability
for its own negligent action, its own negligent failure to act or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer
unless it is proved that the Indenture Trustee was negligent
in ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith
in accordance with a direction received by it pursuant to
Section 5.11.
(d) Every provision of this Indenture that in any way relates
to the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on
any money received by it except as the Indenture Trustee may agree in writing
with the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights of powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity satisfactory to it against any
loss, liability or expense is not reasonably assured to it; provided, however,
that the Indenture Trustee shall not refuse or fail to perform any of its duties
hereunder solely as a result of nonpayment of its normal fees and expenses and
further provided that nothing in this Section 6.1(g) shall be construed to limit
the exercise by the Indenture Trustee of any right or remedy permitted under
this Indenture or otherwise in the event of the Issuer's failure to pay the
Indenture Trustee's fees and expenses pursuant to Section 6.7.
(h) Except as expressly provided in the Basic Documents, the
Indenture Trustee shall have no obligation to administer, service or collect the
Financed Student Loans or to maintain, monitor or otherwise supervise the
administration, servicing or collection of the Financed Student Loans.
(i) In the event that the Indenture Trustee is the Paying
Agent or the Note Registrar, the rights and protections afforded to the
Indenture Trustee pursuant to this Indenture shall also be afforded to the
Indenture Trustee in its capacity as Paying Agent or Note Registrar.
(j) 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 provision of this Section and to the provisions of the
TIA.
SECTION 6.2. RIGHTS OF INDENTURE TRUSTEE. (a) The
Indenture Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Indenture Trustee
need not investigate any fact or matter stated in such document.
(b) Before the Indenture Trustee acts or refrains from acting,
it may require an Officer's Certificate of the Issuer or an Opinion of Counsel.
The Indenture Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officer's Certificate or Opinion of
Counsel.
(c) The Indenture Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee, and the Indenture Trustee
shall not be responsible for any misconduct or negligence on the part of, or for
the supervision of, any such agent, attorney, custodian or nominee appointed
with due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action
it takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; PROVIDED, HOWEVER, that the Indenture Trustee's
conduct does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 6.3. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The
Indenture Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates
with the same rights it would have if it were not Indenture Trustee. Any Paying
Agent, Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4. INDENTURE TRUSTEE'S DISCLAIMER. Neither the
Indenture Trustee nor the Eligible Lender Trustee shall be responsible for and
neither makes any representation as to the validity or adequacy of this
Indenture or the Notes, neither shall be accountable for the Issuer's use of the
proceeds from the sale of the Notes, and neither shall be responsible for any
statement of the Issuer in the Indenture or in any document issued in connection
with the sale of the Notes or in the Notes other than the Indenture Trustee's
certificate of authentication.
SECTION 6.5. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is either actually known or written notice of the existence
thereof has been delivered to a Responsible Officer of the Indenture Trustee,
the Indenture Trustee shall mail notice of the Default to the Surety Provider
within two days and to each Noteholder within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Note, the
Indenture Trustee may withhold the notice to the Noteholders, but not to the
Surety Provider if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of
Noteholders of such Series.
SECTION 6.6. REPORTS BY INDENTURE TRUSTEE TO NOTEHOLDERS. The
Indenture Trustee shall deliver to each Noteholder (and to each Person who was a
Noteholder at any time during the applicable calendar year) such information as
may be requested of it to enable such holder to prepare its Federal and state
income tax returns. Within 60 days after each December 31 beginning with the
December 31 following the first issuance of a Series of Notes, the Indenture
Trustee shall mail to each Noteholder a brief report as of such December 31 that
complies with TIA ss. 313(a) if required by said section. The Indenture Trustee
shall also comply with TIA ss. 313(b). If the issuance of any Series of Notes
has been registered under the Securities Act of 1933, as amended, a copy of each
such report required pursuant to TIA ss.ss. 313(a) or (b) shall, at the time of
such transmission to Noteholders, be filed by the Indenture Trustee with the
Commission and with each securities exchange, if any, upon which the Notes of
such Series are listed, provided that the Issuer has previously notified the
Indenture Trustee of such listing.
SECTION 6.7. COMPENSATION AND INDEMNITY. The Issuer shall pay
to the Indenture Trustee for its services, a fee equal to the amount agreed to
in writing between the Indenture Trustee and the Administrator (the "Indenture
Trustee Fee") at the times set forth in Section 5.5 of the Sale and Servicing
Agreement and shall or shall cause the Administrator from its own funds to
reimburse the Indenture Trustee for all reasonable out-of-pocket expenses
incurred or made by it in accordance with any provision of this Indenture. The
Indenture Trustee's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Issuer shall or shall cause the
Administrator from its own funds to indemnify the Indenture Trustee against any
and all loss, liability or expense (including attorneys' fees) incurred by it in
connection with the administration of this trust and the performance of its
duties hereunder and the other Basic Documents. The Indenture Trustee shall
notify the Issuer and the Administrator promptly of any claim for which it may
seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and the
Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder and under the other Basic Documents. The Issuer shall or
shall cause the Administrator to defend the claim and the Administrator shall
not be liable for any separate legal fees and expenses of the Indenture Trustee
after it has assumed such defense; PROVIDED, HOWEVER, that, in the event that
there may be a conflict between the positions of the Indenture Trustee and the
Administrator in conducting the defense of such claim, the Indenture Trustee
shall be entitled to separate counsel the fees and expenses of which shall be
paid by the Administrator from its own funds on behalf of the Issuer. Neither
the Issuer nor the Administrator need reimburse any expense or indemnify against
any loss, liability or expense incurred by the Indenture Trustee through the
Indenture Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee
pursuant to this Section shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of a Default specified in
Section 5.1(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable Federal or State bankruptcy, insolvency or similar law.
SECTION 6.8. REPLACEMENT OF INDENTURE TRUSTEE. No resignation
or removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.8. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Surety Provider. The
Noteholders of a majority in Outstanding Amount of the Notes may, after
receiving the written consent of the Surety Provider, remove the Indenture
Trustee by so notifying the Indenture Trustee and may, after receiving the
written consent of the Surety Provider, appoint a successor Indenture Trustee.
The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with
Section 6.11;
(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.
If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall, with the written consent of the Surety Provider, promptly appoint
a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee, the Surety
Provider and to the Issuer. Thereupon the resignation or removal of the retiring
Indenture Trustee shall become effective, and the successor Indenture Trustee
shall have all the rights, powers and duties of the Indenture Trustee under this
Indenture. The successor Indenture Trustee shall mail a notice of its succession
to Noteholders. The retiring Indenture Trustee shall promptly transfer all
property held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within
60 days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Noteholders of a majority in Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11,
any Noteholder may petition any court of competent jurisdiction for the removal
of the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee
pursuant to this Section, the Issuer's and the Administrator's obligations under
Section 6.7 shall continue for the benefit of the retiring Indenture Trustee.
SECTION 6.9. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11. The Indenture Trustee shall provide
the Rating Agencies and the Surety Provider prior written notice of any such
transaction.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Indenture Trust Estate may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons to act as co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Indenture Trust Estate, and to vest
in such Person or Persons, in such capacity and for the benefit of the
Noteholders, such title to the Indenture Trust Estate, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.8 hereof; provided, however, that no
co-trustee or separate trustee shall be appointed without having obtained the
prior written consent of the Surety Provider, and any such appointment of a
co-trustee or separate trustee shall be terminated for cause by the Indenture
Trustee at the direction of the Surety Provider.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Indenture Trustee shall be
conferred or imposed upon and exercised or performed by the
Indenture Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations
(including the holding of title to the Indenture Trust Estate
or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee
hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or, at its election or the election of the
Surety Provider, remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the
Indenture Trustee shall be deemed to have been given to each of the then
separate trustees and co-trustees, as effectively as if given to each of them.
Every instrument appointing any separate trustee or co-trustee shall refer to
this Indenture and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time
constitute the Indenture Trustee, its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Indenture on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all its estates, properties, rights, remedies and trusts shall vest in
and be exercised by the Indenture Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
SECTION 6.11. ELIGIBILITY; DISQUALIFICATION. The
Indenture Trustee shall at all times satisfy the requirements of TIA ss. 310(a).
The Indenture Trustee shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of condition
and it shall have a long term debt rating of Baa3 or better by Moody's or BBB or
better by Standard & Poor's Corporation. The Indenture Trustee shall comply with
TIA ss. 310(b), including the optional provision permitted by the second
sentence of TIA ss. 310(b)(9); PROVIDED, HOWEVER, that there shall be excluded
from the operation of TIA ss. 310(b)(1) any indenture or indentures under which
other securities of the Issuer are outstanding if the requirements for such
exclusion set forth in TIA ss. 310(b)(1) are met.
In addition to the conflicting interests specified in TIA ss.
310(b), the Indenture Trustee shall be deemed to have a conflicting interest
prohibited by said ss.310(b) and therefore prohibited by this Section 6.11, if
by reason of supplements or amendments to this Indenture as originally executed,
there shall be created covenants, restrictions, conditions or additional events
of default which are applicable to less than all Series of Notes and the
existence of which
(1) would give the Noteholders of any Series any
rights with respect to the Indenture Trust Estate or any other
property held by the Indenture Trustee for the benefit of
Noteholders of any other Series with respect to which it is
also serving as Indenture Trustee,
(2) would cause the Notes of one or more Series not
to rank equally with the Notes of any other Series, or
(3) is sufficiently likely to involve a material
conflict of interest between Series of Notes that it is
advisable in the public interest or for the protection of
Noteholders of any Series that the Indenture Trustee
disqualify itself from acting as such with respect to one or
more applicable Series of Notes.
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
ISSUER. The Indenture Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). AN Indenture Trustee who has
resigned or been removed shall be subject to TIA ss. 311(a) to the extent
indicated.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date for a Series and (ii) three months after the last Record Date for
such Series, a list, in such form as the Indenture Trustee may reasonably
require, of the names and addresses of the Noteholders of such Series as of such
Record Date, (b) at such other times as the Indenture Trustee may request in
writing, within 30 days after receipt by the Issuer of any such request, a list
of similar form and content as of a date not more than 10 days prior to the time
such list is furnished; PROVIDED, HOWEVER, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
SECTION 7.2. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Noteholders contained
in the most recent list furnished to the Indenture Trustee as provided in
Section 7.1 and the name and addresses of Noteholders received by the Indenture
Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any
list furnished to it as provided in such Section 7.1 upon receipt of a new list
so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b)
with other Noteholders with respect to their rights under this Indenture or
under the Notes. Upon receipt by the Indenture Trustee of any request by a
Noteholder to receive a copy of the current list of Noteholders (whether or not
made pursuant to TIA ss. 312(b)), the Indenture Trustee shall promptly notify
the Administrator thereof by providing to the Administrator a copy of such
request and a copy of the list of Noteholders produced in response thereto.
(c) The Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA ss. 312(c).
(d) The Indenture Trustee shall furnish to the Noteholders
promptly upon receipt of a written request therefor, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and any
other instruments furnished to the Indenture Trustee under the Basic Documents.
SECTION 7.3. REPORTS BY ISSUER. (a) If the issuance of
any Series of Notes has been registered under the Securities Act of
1933, as amended, the Issuer shall:
(i) file with the Indenture Trustee and the Surety
Provider, within 15 days after the Issuer is required to file
the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which
the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, the Surety Provider
and the Commission in accordance with rules and regulations
prescribed from time to time by the Commission such additional
information, documents and reports with respect to compliance
by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules
and regulations; and
(iii) supply to the Indenture Trustee and the Surety
Provider (and the Indenture Trustee shall transmit by mail to
all Noteholders of the related Series described in TIA ss.
313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses
(i) and (ii) of this Section 7.3(a) as may be required by
rules and regulations prescribed from time to time by the
Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1. COLLECTION OF MONEY. Except as otherwise
expressly provided herein, the Indenture Trustee may demand payment or delivery
of, and shall receive and collect, 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 on
behalf of the Noteholders and the Surety Provider pursuant to the Sale and
Servicing Agreement and each Supplemental Sale and Servicing Agreement 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. Any such action shall be without prejudice to any right to claim a
Default under this Indenture and any right to proceed thereafter as provided in
Article V.
SECTION 8.2. TRUST ACCOUNTS. (a) On or prior to the Closing
Date of the first Series, the Indenture Trustee shall establish and maintain, in
the name of and with the Indenture Trustee, for the benefit of the Noteholders,
the Certificateholders and the Surety Provider, the Trust Accounts as provided
in Section 5.1 of the Sale and Servicing Agreement.
(b) On or before the Business Day preceding each Note
Distribution Date, all Available Funds for the related Class of Notes with
respect to the preceding Collection Period will be deposited in the Collection
Account as provided in Section 5.2 of the Sale and Servicing Agreement. On or
before each Note Distribution Date for each Class of Notes, the appropriate
Noteholders' Distribution Amount and any Noteholders' Auction Rate Interest
Carryover, if any, with respect to the preceding Collection Period will be
distributed from the Collection Account and any other Trust Account to the
Indenture Trustee (or any other Paying Agent) on behalf of the Noteholders as
provided in Sections 5.5 and 5.6 of the Sale and Servicing Agreement.
(c) On each Note Distribution Date, the Indenture Trustee (or
any other Paying Agent) shall distribute all amounts received by it on behalf of
Noteholders of a particular Class pursuant to paragraph (b) above to such
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes of such Class as provided in the related Terms Supplement.
SECTION 8.3. GENERAL PROVISIONS REGARDING ACCOUNTS. (a)
So long as no Default shall have occurred and be continuing, all or a
portion of the funds in the Trust Accounts shall be invested in Eligible
Investments and reinvested by the Indenture Trustee upon Issuer Order, subject
to the provisions of Section 5.1(b) of the Sale and Servicing Agreement. All
income or other gain from investments of moneys deposited in the Trust Accounts
relating to a particular Series shall be deposited by the Indenture Trustee in
the Collection Account, and any loss resulting from such investments shall be
charged to such Trust Account.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not
in any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture Trustee in its
commercial capacity as principal obligor and not as trustee, in accordance with
their terms.
(c) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Indenture
Trustee by 10:00 a.m. New York City time (or such other time as may be agreed by
the Issuer and Indenture Trustee) on any Business Day; or (ii) a Default shall
have occurred and be continuing with respect to the Notes but the Notes shall
not have been declared due and payable pursuant to Section 5.2, or, if such
Notes shall have been declared due and payable following an Event of Default,
amounts collected or receivable from the Indenture Trust Estate are being
applied in accordance with Section 5.4 as if there had not been such a
declaration; the Indenture Trustee shall, to the fullest extent practicable,
invest and reinvest funds in the Trust Accounts in one or more Eligible
Investments listed in paragraph (7) of the definition of Eligible Investments.
SECTION 8.4. SUBSTITUTION AND RELEASE OF INDENTURE TRUST
ESTATE. (a) To the extent so provided in the related Terms Supplement, the
Issuer shall have the right to Grant an Eligible Substitute Financed Student
Loan for any Financed Student Loan securing Notes, any such substitution to take
place only upon compliance with all conditions precedent thereto set forth in
the related Terms Supplement.
(b) Upon any Grant of Eligible Substitute Financed Student
Loans pursuant to this Section 8.4 and the related Terms Supplement, the
Indenture Trustee shall transfer and assign the Financed Student Loans that were
the subject of such substitution to the Issuer, whereupon they shall be released
from, and no longer be subject to, the lien of any Terms Supplement.
(c) In connection with any release of Financed Student Loans
to which the Issuer is entitled pursuant to this Section 8.4 and the related
Terms Supplement, the Issuer shall prepare and the Indenture Trustee shall
execute appropriate instruments to release such Financed Student Loans from the
lien of any Terms Supplement, or convey the Indenture Trustee's interest in the
same. No party relying upon an instrument so executed by the Indenture Trustee
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(d) The Indenture Trustee shall, at such time as there are no
Notes Outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
have been paid, release any remaining portion of the Indenture Trust Estate that
secured the Notes from the lien of any Terms Supplement and release to the
Issuer or any other Person entitled thereto any funds then on deposit in the
Trust Accounts.
(e) The Indenture Trustee shall release property from the lien
of each Terms Supplement pursuant to this Section 8.4 only upon receipt of an
Issuer Request accompanied by an Officer's Certificate of the Issuer, an Opinion
of Counsel and (if required by the TIA) Independent Certificates in accordance
with TIA ss.ss. 314(c) and 314(d)(1) meeting the applicable requirements of
Section 11.1.
SECTION 8.5. OPINION OF COUNSEL. The Indenture Trustee shall
receive at least five days' notice when requested by the Issuer to take any
action pursuant to Section 8.4(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require, as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Noteholders in contravention of the provisions of this Indenture;
PROVIDED, HOWEVER, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Indenture Trust Estate. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS. (a) Without the consent of any Noteholders but with prior notice to
the Rating Agencies and the prior written consent of the Surety Provider, the
Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any
time and from time to time, may enter into one or more indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as in
force at the date of the execution thereof), in form satisfactory to the
Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of each Terms
Supplement, or better to assure, convey and confirm unto the
Indenture Trustee any property subject or required to be
subjected to the lien of each Terms Supplement, or to subject
to the lien of each Terms Supplement additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another Person to the Issuer,
and the assumption by any such successor of the covenants of
the Issuer herein and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Noteholders of all Notes or of the Notes of any
Series, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge
any property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement
any provision herein or in any supplemental indenture which
may be inconsistent with any other provision herein or in any
supplemental indenture or to make any other provisions with
respect to matters or questions arising under this Indenture
or in any supplemental indenture; provided that such action
shall not materially adversely affect the interests of the
Noteholders of any Series;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to
the Notes and to add to or change any of the provisions of
this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI;
(vii) to add to the conditions, limitations and
restrictions on the authorized amount, terms and purposes of
the issuance, authentication and delivery of any Series of
Notes, as herein set forth, additional conditions, limitations
and restrictions thereafter to be observed;
(viii) to set forth the terms of, and security for, any
Series that has not theretofore been authorized by a Terms
Supplement;
(ix) to modify or eliminate any of the terms of this
Indenture; provided, however, that
(A) such supplemental indenture shall
expressly provide that any such modifications or
eliminations shall not be effective with respect to
any Outstanding Note of any Series created prior to
the execution of such supplemental indenture; and
(B) the Indenture Trustee may, in its
discretion, decline to enter into any such
supplemental indenture which, in its opinion, would
adversely affect its own rights, duties or
immunities;
(x) to provide for the issuance of Notes of any
Series (including Notes of a Series theretofore authorized and
than Outstanding) or any Class within such Series in bearer
form with coupons ("Bearer Notes") and for the exchangeability
of Bearer Notes and Notes of the same Series and Class issued
in registered form ("Registered Notes"); any such supplemental
indenture may provide for payments on Bearer Notes only
outside the United States and for appointment of a foreign
Paying Agent that is acceptable to the Rating Agencies that
rated the initial Series of the Notes and may also contain any
provisions as may in the Issuer's judgment be necessary,
appropriate or convenient (a) to permit the Notes to be issued
and sold to or held in bearer form by non-United States
Persons, (b) to establish entitlement to an exemption from
United States withholding tax or reporting requirements with
respect to payments on the Notes, (c) to comply, or facilitate
compliance, with other applicable laws or regulations, (d) to
provide for usual and customary provisions for communication
(by notice, publication, maintenance of lists of holders of
Bearer Notes who have provided names and addresses for such
purpose, or otherwise) with holders of Bearer Notes, or (e) to
otherwise effectuate provisions of the issuance of Bearer
Notes and their exchangeability with Registered Notes; or
(xi) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any
similar Federal statute hereafter enacted and to add to this
Indenture such other provisions as may be expressly required
by the TIA.
The Indenture Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by
an Issuer Order, may, also without the consent of any of the Noteholders but
with prior notice to the Rating Agencies and prior written consent of the Surety
Provider, 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 such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Noteholder.
SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF
NOTEHOLDERS. The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, also may, with prior notice to the Rating Agencies and with the consent
of the Surety Provider and the Noteholders of not less than a majority of the
Outstanding Amount of all the Notes in case Outstanding Notes of all Series are
to be affected or with the consent of the Noteholders of not less than a
majority of the Outstanding Amount of the Notes to be affected in case one or
more, but less than all, of the Series of Outstanding Notes are to be affected,
by Act of such Noteholders delivered to the Issuer and the Indenture Trustee,
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 relating to such Series or of modifying in any
manner the rights of the Noteholders of such Series under this Indenture;
PROVIDED, however, that no such supplemental indenture shall, without the
consent of the Noteholders of each Outstanding Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest (including any Noteholders' Auction
Rate Interest Carryover) on any Note, or reduce the principal
amount thereof or the interest rate thereon, change the
provisions of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Indenture
Trust Estate to payment of principal of or interest (including
any Noteholders' Auction Rate Interest Carryover) on the
Notes, or change any 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 the provisions of this Indenture requiring the
application of funds available therefor, as provided in
Article V, to the payment of any such amount due on the Notes
on or after the respective due dates thereof;
(ii) reduce the percentage of the Outstanding Amount of
the Notes of any Series, the consent of the Noteholders of
which is required for any such supplemental indenture, or the
consent of the Noteholders of which is required for any waiver
of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for
in this Indenture;
(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of
the Notes of any Series required to direct the Indenture
Trustee to direct the Issuer to sell or liquidate the
Indenture Trust Estate pursuant to Section 5.4;
(v) modify any provision of this Section except to
increase any percentage specified herein or to provide that
certain additional provisions of this Indenture or the other
Basic Documents cannot be modified or waived without the
consent of the Noteholder of each Outstanding Note affected
thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any
payment of interest (including any Noteholders' Auction Rate
Interest Carryover) or principal due on any Note on any Note
Distribution Date (including the calculation of any of the
individual components of such calculation); or
(vii) 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, except as otherwise
permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or
deprive any Noteholder of any Note of the security provided by
the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether
or not any Notes of any particular Series would be affected by any supplemental
indenture and any such determination shall be conclusive upon the Noteholders of
all Notes, whether theretofore or thereafter authenticated and delivered
hereunder. The Indenture Trustee shall not be liable for any such determination
made in good faith.
It shall not be necessary for any Act of Noteholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer and the Indenture
Trustee of any supplemental indenture pursuant to this Section, the Indenture
Trustee shall mail to the Noteholders of the Notes of each Series to which such
amendment or supplemental indenture relates and to the Surety Provider a notice
setting forth in general terms the substance of such supplemental indenture. Any
failure of the Indenture Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES. In
executing, or permitting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Indenture Trustee shall be entitled to
receive, and subject to Sections 6.1 and 6.2, 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 such
supplemental indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to the Notes of each Series affected thereby, and the
respective rights, limitations of rights, obligations, duties, liabilities and
immunities under this Indenture of the Indenture Trustee, the Issuer and the
Noteholders shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT. Every
amendment of this Indenture and every supplemental indenture executed pursuant
to this Article IX shall conform to the requirements of the Trust Indenture Act
as then in effect so long as this Indenture shall then be qualified under the
Trust Indenture Act.
SECTION 9.6. REFERENCE IN NOTES TO SUPPLEMENTAL Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX which relates to the Series of which such
Notes are a part may, and if required by the Indenture Trustee shall, bear a
notation in form approved by the Indenture Trustee as to any matter provided for
in such supplemental indenture. If the Issuer or the Indenture Trustee shall so
determine, new Notes so modified as to conform, in the opinion of the Indenture
Trustee and the Issuer, to any such supplemental indenture which relates to the
Series of which such Notes are a part may be prepared and executed by the Issuer
and authenticated and delivered by the Indenture Trustee in exchange for
Outstanding Notes of such Series.
ARTICLE X
[Intentionally Omitted]
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a)
Upon any application or request by the Issuer to the Indenture Trustee to take
any action under any provision of this Indenture, the Issuer, or the
Administrator on behalf of the Issuer, shall furnish to the Indenture Trustee
and the Surety Provider (i) an Officer's Certificate of the Issuer stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that such signatory of such
certificate or opinion has read or has caused to be read such
covenant or condition and the definitions herein relating
thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination or
investigation as is necessary to enable such signatory to
express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has been complied
with.
(b) (i) Other than any property released as
contemplated by clause (iii) below, whenever any property or
securities are to be released from the lien of this Indenture
and the related Terms Supplements, the Issuer shall also
furnish to the Indenture Trustee and the Surety Provider an
Officer's Certificate of the Issuer certifying or stating the
opinion of each person signing such certificate as to the fair
value (within 90 days of such release) of the property or
securities proposed to be released and stating that in the
opinion of such person the proposed release will not impair
the security under this Indenture in contravention of the
provisions hereof.
(ii) Whenever the Issuer is required to furnish to
the Indenture Trustee and the Surety Provider an Officer's
Certificate of the Issuer certifying or stating the opinion of
any signer thereof as to the matters described in clause (i)
above, the Issuer shall also furnish to the Indenture Trustee
and the Surety Provider an Independent Certificate as to the
same matters if the fair value of the property or securities
and of all other property, other than property as contemplated
by clause (iii) below, or securities released from the lien of
this Indenture and the related Terms Supplements since the
commencement of the then-current calendar year, as set forth
in the certificates required by clause (i) above and this
clause (ii), equals 10% or more of the Outstanding Amount of
the Notes, but such certificate need not be furnished in the
case of any release of property or securities if the fair
value thereof as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of
the then Outstanding Amount of the Notes Outstanding.
(iii) Notwithstanding Section 2.12 or any other
provisions of this Section, the Issuer may, without compliance
with the requirements of the other provisions of this Section,
(A) collect, liquidate, sell, service, convey, administer,
manage or otherwise dispose of Financed Student Loans as and
to the extent permitted or required by the Basic Documents,
(B) make cash payments out of the Trust Accounts as and to the
extent permitted or required by the Basic Documents, so long
as the Issuer shall deliver to the Indenture Trustee and the
Surety Provider every six months, commencing six months after
the first issuance of a Series of Notes, an Officer's
Certificate of the Issuer stating that all the dispositions of
any portion of the Indenture Trust Estate described in clauses
(A) or (B) above that occurred during the immediately
preceding six calendar months were applied in accordance with
the Basic Documents.
SECTION 11.2. FORM OF DOCUMENTS DELIVERED TO INDENTURE
TRUSTEE. In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Seller, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of the
Servicer, the Seller, the Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Whenever in this Indenture, in connection with any application
or certificate or report to the Indenture Trustee or the Surety Provider, it is
provided that the Issuer shall deliver any document as a condition of the
granting of such application, or as evidence of the Issuer's compliance with any
term hereof, it is intended that the truth and accuracy, at the time of the
granting of such application or at the effective date of such certificate or
report (as the case may be), of the facts and opinions stated in such document
shall in such case be conditions precedent to the right of the Issuer to have
such application granted or to the sufficiency of such certificate or report.
The foregoing shall not, however, be construed to affect the Indenture Trustee's
right to rely upon the truth and accuracy of any statement or opinion contained
in any such document as provided in Article VI.
SECTION 11.3. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.1) conclusive in favor of the Indenture Trustee and the Issuer, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any manner that the Indenture
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Noteholder of any Notes shall bind the
Noteholder of every Note issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Indenture Trustee or the Issuer in reliance thereon, whether or
not notation of such action is made upon such Note.
SECTION 11.4. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER AND
RATING AGENCIES. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture shall be in writing and if such request, demand, authorization,
direction, notice, consent, waiver or Act of Noteholders is to be made upon,
given or furnished to or filed with:
(a) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing and mailed, first
class, postage prepaid or sent by overnight courier or by
facsimile transmission to or with the Indenture Trustee at its
Corporate Trust Office, or
(b) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if
in writing and mailed, first-class, postage prepaid, or via
overnight courier to the Issuer addressed to: [Trust 199_-_],
in care of [Dauphin Deposit Bank and Trust Company, 8 West
High Street, Carlisle, Pennsylvania 17101, Attention:
Corporate Trust Services]; with two copies to the
Administrator, one addressed to The Money Store Inc., 2840
Morris Ave, Union, New Jersey 07083, Attention: Chief
Financial Officer; and the other addressed to: The Money Store
Inc., Educaid Division, 3301 C Street, Suite 100A, Sacramento,
California 95816, Attention: President; or at any other
address previously furnished in writing to the Indenture
Trustee by the Issuer or the Administrator. The Issuer shall
promptly transmit any notice received by it from the
Noteholders to the Indenture Trustee.
Notices required to be given to the Rating Agencies and/or the
Surety Provider by the Issuer, the Indenture Trustee or the Eligible Lender
Trustee shall be in writing, personally delivered or mailed by certified mail,
return receipt requested, to (i) in the case of Moody's, at the following
address: Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church
Street, New York, New York 10007; (ii) in the case of Standard & Poor's, at the
following address: Standard & Poor's Corporation, 25 Broadway (20th Floor), New
York, New York 10004, Attention of Asset Backed Surveillance Department; or
(iii) in the case of AMBAC Indemnity Corporation, at the following address: One
State Street Plaza, New York, New York 10004, Attention: Structured Finance
Department/Student Loans; or as to each of the foregoing, at such other address
as shall be designated by written notice to the other parties.
SECTION 11.5. NOTICES TO NOTEHOLDERS; WAIVER. Where this
Indenture provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Indenture Trustee
shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute a
Default.
SECTION 11.6. ALTERNATE PAYMENT AND NOTICE PROVISIONS.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer and the Indenture Trustee may enter into any agreement with
any Noteholder providing for a method of payment, or notice by the Indenture
Trustee or any Paying Agent to such Noteholder, that is different from the
methods provided for in this Indenture for such payments or notices. The Issuer
will furnish to the Indenture Trustee a copy of each such agreement and the
Indenture Trustee will cause payments to be made and notices to be given in
accordance with such agreements.
SECTION 11.7. CONFLICT WITH TRUST INDENTURE ACT. If any
provision hereof limits, qualifies or conflicts with another provision hereof
that is required to be included in this Indenture by any of the provisions of
the Trust Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
herein unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 11.8. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.9. SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Indenture and the Notes by the Issuer shall bind its
successors and assigns, whether so expressed or not. All agreements of the
Indenture Trustee in this Indenture shall bind the successors, co-trustees and
agents (excluding any legal representatives or accountants) of the Indenture
Trustee.
SECTION 11.10. SEPARABILITY. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.11. BENEFITS OF INDENTURE. Nothing in this
Indenture or in the Notes, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, and the Noteholders, and
any other party secured hereunder, and any other Person with an ownership
interest in any part of the Indenture Trust Estate, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 11.12. LEGAL HOLIDAYS. In any case where the date on
which any payment is due shall not be a Business Day, then (notwithstanding any
other provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. This Indenture, each Terms
Supplement and the Notes shall be construed in accordance with the laws of the
State of New York, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder and thereunder shall
be determined in accordance with such laws.
SECTION 11.14. COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
SECTION 11.15. RECORDING OF INDENTURE. If this Indenture is
subject to recording in any appropriate public recording offices, such recording
is to be effected by the Issuer and at its expenses accompanied by an Opinion of
Counsel (which may be counsel to the Issuer or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
SECTION 11.16. TRUST OBLIGATIONS. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the
Eligible Lender Trustee or the Indenture Trustee on the Notes or under this
Indenture or any certificate or other writing delivered in connection herewith
or therewith, against (i) the Indenture Trustee or the Eligible Lender Trustee
in its individual capacity or (ii) any partner, owner, beneficiary, custodian,
officer, director, employee or agent of the Indenture Trustee or the Eligible
Lender Trustee in its individual capacity, any holder or owner of a beneficial
interest in the Issuer, the Eligible Lender Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Eligible Lender
Trustee in its individual capacity, except as any such Person may have expressly
agreed (it being understood that the Indenture Trustee and the Eligible Lender
Trustee have no such obligations in their individual capacity) and except that
any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity. For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Eligible Lender Trustee shall be
subject to, and entitled to the benefit of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
SECTION 11.17. NO PETITION. The Indenture Trustee, by entering
into this Indenture, and each Noteholder, by accepting a Note, hereby covenant
and agree that they will not at any time institute against the Seller or the
Issuer, or join in any institution against the Seller or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency, receivership or liquidation
proceedings, or other proceedings under any United States Federal or State
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Indenture or any of the other Basic Documents.
SECTION 11.18. INSPECTION. The Issuer agrees that, on
reasonable prior notice, it will permit any representative of the Indenture
Trustee, during the Issuer's normal business hours, to examine all the books of
account, records, reports, and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
SECTION 11.19. USURY. The amount of interest payable or paid
on any Note under the terms of this Indenture shall be limited to an amount
which shall not exceed the maximum non usurious rate of interest allowed by the
applicable laws of the United States or the lesser of New York or Pennsylvania
(whichever shall permit the higher rate), which could lawfully be contracted
for, charged or received (the "Highest Lawful Rate"). If 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 as a result of an error on the
part of both the Indenture Trustee, acting on behalf of the Noteholder of such
Note, and the Issuer, and the Noteholder receiving such excess payment shall
promptly, upon discovery of such error or upon notice thereof from the Issuer or
the Indenture Trustee, refund the amount of such excess and, at the option of
the Indenture Trustee, apply the excess to the payment of principal of such
Note, if any, remaining unpaid.
SECTION 11.20. RIGHTS OF SURETY PROVIDER. The Surety Provider
is a third-party beneficiary of this Indenture and any Terms Supplement. Any
right conferred to the Surety Provider shall be suspended during any period in
which the Surety Provider is in default in its payment obligations under the
Insurance Agreement. During any period of suspension the Surety Provider's
rights hereunder shall vest in the Noteholders and shall be exercisable by the
Holders of a majority of the aggregate principal amount of Notes then
Outstanding.
At such time as the Notes are no longer Outstanding hereunder and the Surety
Provider has been reimbursed for all Required Surety Payments to which it is
entitled under the Basic Documents and has been paid all Premium Amounts due and
owing in respect of the Surety Bonds, the Surety Provider's rights hereunder
shall terminate.
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have
caused this Indenture to be duly executed by their respective officers,
thereunto duly authorized and duly attested, all as of the day and year first
above written.
[TRUST 199_-_],
by ________________,
not in its individual
capacity but solely as
Eligible Lender Trustee,
ATTEST:
by by
- ---------------------------
Name: Name:
Title: Assistant Secretary Title: Senior Vice President
_________________, not in its
individual capacity but solely as Indenture
Trustee,
by
------------------------
Name:
Title:
<PAGE>
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and
for said county and state, on this day personally appeared
__________________________, known to me to be the person and officer whose name
is subscribed to the foregoing instrument and acknowledged to me that the same
was the act of the said _____________ of _________________, not in its
individual capacity but solely as Eligible Lender Trustee of [TRUST 199_-_], a
__________ trust, and that he executed the same as the act of said trust for the
purpose and consideration therein expressed, and in the capacities therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of
___________, 1995.
-----------------------------
Notary Public in
and for the State
of New York.
[SEAL]
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and
for said county and state, on this day personally appeared
__________________________, known to me to be the person and officer whose name
is subscribed to the foregoing instrument and acknowledged to me that the same
was the act of the said ____________, a _________ banking corporation, and that
she executed the same as the act of said corporation for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of
_____________, 1995.
-----------------------------
Notary Public in
and for the State
of New York.
[SEAL]
My commission expires:
- ----------------------
<PAGE>
APPENDIX A
TO THE INDENTURE
DEFINITIONS AND USAGE
[See Appendix A to the Sale and Servicing Agreement]
<PAGE>
EXHIBIT A-1
[FORM OF AUCTION RATE SERIES 199_-_ NOTES]
[TRUST 199_-_]
AUCTION RATE ASSET BACKED NOTES
SERIES 199_-_
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, AGREES THAT THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WHICH
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT.]
THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
START HERE
No. A-_-_ $______
FINAL
MATURITY DATED INTEREST
CLASS DATE DATE RATE CUSIP
auction rate
as herein
provided
REGISTERED NOTEHOLDER:
PRINCIPAL AMOUNT: __________________________________
[TRUST 199_-_], a _________ business trust (the
"Issuer"), for value received, promises to pay, from the sources herein
described, to the Registered Noteholder identified above, or registered assigns,
upon presentation and surrender hereof at the Corporate Trust Office of Bankers
Trust Company, as Paying Agent, or at the principal office of any successor or
additional Paying Agent, the Principal Amount identified above, as reduced from
time to time as described herein, on the Final Maturity Date identified above,
and to pay to the registered owner hereof, interest and principal hereon in
lawful money of the United States of America at the Class Interest Rate on the
dates as provided herein. Unless otherwise defined in this Series 199_-_ Note,
capitalized terms used in this Series 199_-_ Note shall have the respective
meanings given to such terms in the Master Indenture dated as of ______ __,
1995, as supplemented by the _____ Terms Supplement dated as of _______, 199_,
(the "_____ Terms Supplement" and, together, the "Indenture") between the Issuer
and ______________, as Indenture Trustee.
This Series 199_-_ Note is one of a duly authorized
issue of notes of the Issuer designated as "[Trust 199_-_]
Asset-Backed Notes, Series 199_-_" (herein referred to by specific Class as the
"Series 199_-_, Class A-_ Notes" and collectively as the "Series 199_-_ Notes"),
in the aggregate principal amount of $__________ issued under the Indenture. The
Series 199_-_ Notes are issued to finance the acquisition and consolidation of
Financed Student Loans, and to make certain deposits to the Pledged Accounts.
The Master Indenture provides for the issuance, from
time to time, under the conditions, limitations and restrictions set forth
therein, of additional notes on a parity with all Series of obligations issued
or to be issued under the Indenture, for the purpose of providing additional
funds for the acquisition and consolidation of Financed Student Loans (said
additional notes, together with Series 199_-_ Notes, being collectively referred
to herein as the "Notes").
The Notes are secured under the Indenture which,
together with certain other documents, assigns to the Indenture Trustee for the
benefit of the Noteholders all the rights and remedies of the Issuer under
certain Financed Student Loans and rights under various contracts providing for
the issuance, guarantee and servicing of such Financed Student Loans. Reference
is hereby made to the Indenture for the provisions, among others, with respect
to the custody and application of the proceeds of the Notes, definitions of
certain capitalized terms used in this Series 199_-_ Note, the nature and the
extent of the liens and security of the Indenture, the collection and
disposition of revenues, the funds charged with and pledged to the payment of
the principal of and the interest on the Notes, the terms and conditions under
which additional Notes may be issued, the rights, duties and immunities of the
Indenture Trustee, the rights of the registered owners of the Notes, and the
rights and obligations of the Issuer. By the acceptance of this Series 199_-_
Note, the registered owner hereof assents to all of the provisions of the
Indenture.
The unpaid principal amount hereof from time to time
outstanding shall bear interest at a Class Interest Rate, as described below,
payable on each applicable Note Distribution Date to the extent of interest
accrued on the principal then outstanding, such interest to accrue from the
later of the date hereof or the date through which interest has been paid or
duly provided for. Interest at a Class Interest Rate established pursuant to the
_____ Terms Supplement shall be computed for the actual number of days elapsed
on the basis of a year consisting of 360 days.
During the Class Initial Period, this Series 199_-_
Note shall bear interest at the Class Initial Rate for the Series 199_-_ Notes
of this Class. Thereafter until an Auction Period Adjustment, if any, this
Series 199_-_ Note shall bear interest at a Class Interest Rate based on an
Auction Period that shall, until adjusted pursuant to the _____ Terms
Supplement, generally consist of __ days, all as determined in the _____ Terms
Supplement.
The Class Interest Rate to be borne by this Series
199_-_ Note after the Class Initial Period for each Auction Period, if any, or
an Auction Period Adjustment, if any, shall be the lesser of (i) the Net Loan
Rate in effect for such Auction Period and (ii) the Auction Rate determined in
accordance with the applicable provisions of the _____ Terms Supplement.
In no event shall the Class Interest Rate on this
Series 199_-_ Note exceed ___% per annum.
The Class Interest Period, including, without
limitation, an Auction Period, the applicable Class Interest Rate, the method of
determining the applicable Class Interest Rate on each of the Series 199_-_
Notes and the Auction Procedures related thereto, including, without limitation,
required notices thereof to the Noteholders or Existing Noteholders of the
Series 199_-_ Notes, an Auction Period Adjustment, a change in the Auction Date
and the Note Distribution Dates will be determined in accordance with the terms,
conditions and provisions of the _____ Terms Supplement and the Auction Agent
Agreement, to which terms, conditions and provisions specific reference is
hereby made, and all of which terms, conditions and provisions are hereby
specifically incorporated herein by reference.
If the Auction Rate for the Series 199_-_ Notes is
greater than the Net Loan Rate, then the Class Interest Rate applicable to the
Series 199_-_ Notes for that Class Interest Period will be the Net Loan Rate. If
the Class Interest Rate applicable to the Series 199_-_ Notes for any Class
Interest Period is the Net Loan Rate, the Indenture Trustee shall determine the
Noteholders' Auction Rate Interest Carryover, if any, with respect to the Series
199_-_ Notes for such Class Interest Period. Such Noteholders' Auction Rate
Interest Carryover shall bear interest calculated at a rate equal to One-Month
LIBOR from the Note Distribution Date for each Class Interest Period with
respect to which such Noteholders' Auction Rate Interest Carryover was
calculated until paid. For purposes of this Series 199_-_ Note, any reference to
"principal" or "interest" herein shall not include within the meaning of such
words Noteholders' Auction Rate Interest Carryover or any interest accrued on
any such Noteholders' Auction Rate Interest Carryover. Such Noteholders' Auction
Rate Interest Carryover shall be separately calculated for each Series 199_-_
Note by the Indenture Trustee during such Class Interest Period in sufficient
time for the Indenture Trustee to give notice to each Noteholder of such
Noteholders' Auction Rate Interest Carryover as required in the next succeeding
sentence. On the Note Distribution Date for a Class Interest Period with respect
to which such Noteholders' Auction Rate Interest Carryover has been calculated
by the Indenture Trustee, the Indenture Trustee shall give written notice to
each Noteholder of the Noteholders' Auction Rate Interest Carryover applicable
to each Noteholder's Series 199_-_ Note, which written notice may accompany the
payment of interest by check made to each such Noteholder on such Note
Distribution Date or otherwise shall be mailed on such Note Distribution Date by
first class mall, postage prepaid, to each such Noteholder at such Noteholder's
address as it appears on the registration books maintained by the Registrar.
Such notice shall state, in addition to such Noteholders' Auction Rate Interest
Carryover, that, unless and until a Series 199_-_ Note has been paid in full or
has been deemed no longer Outstanding under the _____ Terms Supplement (after
which no Noteholders' Auction Rate Interest Carryover (and all accrued interest
thereon) shall be paid with respect to a Series 199_-_ Note), (i) the
Noteholders' Auction Rate Interest Carryover (and interest accrued thereon
calculated on the basis of One-Month LIBOR) shall be paid by the Indenture
Trustee on a Series 199_-_ Note on the first occurring Note Distribution Date
for a subsequent Class Interest Period if and to the extent that (1) during such
Class Interest Period no additional Noteholders' Auction Rate Interest Carryover
is accruing on the Series 199_-_ Notes and (2) moneys are available on such Note
Distribution Date pursuant to the terms of the _____ Terms Supplement in an
amount sufficient to pay all or a portion of such Noteholders' Auction Rate
Interest Carryover and (ii) interest shall accrue on the Noteholders' Auction
Rate Interest Carryover at a rate equal to One-Month LIBOR until such
Noteholders' Auction Rate Interest Carryover is paid in full or is cancelled.
The Noteholders' Auction Rate Interest Carryover for
the Series 199_-_ Notes shall be paid by the Indenture Trustee on Outstanding
Series 199_-_ Notes on the first occurring Note Distribution Date for a
subsequent Class Interest Period if and to the extent that (i) during such Class
Interest Period, no additional Noteholders' Auction Rate Interest Carryover is
accruing on the Series 199_-_ Notes and (ii) on such Note Distribution Date
there are sufficient moneys available pursuant to the terms of the _____ Terms
Supplement to pay all or a portion of the Noteholders' Auction Rate Interest
Carryover due on the Series 199_-_ Notes on such Note Distribution Date. Any
Noteholders' Auction Rate Interest Carryover (and any interest accrued thereon)
on any Series 199_-_ Note which is due and payable on any Note Distribution
Date, which Series 199_-_ Note is deemed no longer Outstanding under the
Indenture on said Note Distribution Date, shall be paid to the Noteholder
thereof on the next Note Distribution Date to the extent that moneys are
available therefor in accordance with the _____ Terms Supplement; provided,
however, that any Noteholders' Auction Rate Interest Carryover (and any interest
accrued thereon) which is not yet due and payable on said Note Distribution Date
shall be cancelled with respect to said Series 199_-_ Note that is to be deemed
no longer Outstanding under the Indenture on said Note Distribution Date and
shall not be paid on any succeeding Note Distribution Date. To the extent that
any portion of the Noteholders' Auction Rate Interest Carryover remains unpaid
after payment of a portion thereof, such unpaid portion of the Noteholders'
Auction Rate Interest Carryover shall be paid in whole or in part until fully
paid by the Indenture Trustee on the next occurring Note Distribution Date or
Dates, as necessary, for a subsequent Class Interest Period or Periods, if and
to the extent that the conditions in the immediately preceding sentence are
satisfied.
The Note Distribution Date in such subsequent Class
Interest Period on which such Noteholders' Auction Rate Interest Carryover for
the Series 199_-_ Notes shall be paid shall be determined by the Indenture
Trustee in accordance with the provisions of the immediately preceding
paragraph, and the Indenture Trustee shall make payment of the Noteholders'
Auction Rate Interest Carryover in the same manner as, and from the same account
from which, it pays interest on the Series 199_-_ Notes on an Note Distribution
Date.
The principal of and interest on the Series 199_-_
Notes and Noteholders' Auction Rate Interest Carryover on the Series 199_-_
Notes (and interest accrued thereon), if any, are special limited obligations of
the Issuer, payable solely from certain revenues derived by the Issuer from
certain assets of the Issuer, including certain notes evidencing Financed
Student Loans. The Series 199_-_ Notes are not an indebtedness, a debt or a
liability of Trans- World Insurance Company or The Money Store Inc.
Distributions of principal will made on each Note
Distribution Date to the Class of Notes with the earliest Final Maturity Date in
the manner described in the Sale and Servicing Agreement. With respect to the
Class of Notes entitled to receive payments of principal, the actual Notes of
such Class that will receive payments of principal on each applicable Note
Distribution Date will be selected no later than 15 days prior to the related
Note Distribution Date by the Indenture Trustee by lot in such manner as the
Indenture Trustee in its discretion may determine and which may provide for the
selection for payment of principal in minimum denominations of $50,000, and
integral multiples in excess thereof.
If an Event of Default as defined in the Indenture
occurs, the principal of and interest on all Notes issued under the Indenture
may be declared due and payable upon the conditions and in the manner and with
the effect provided in the Indenture. The Indenture and the rights and
obligations of the Issuer, the Indenture Trustee and the Noteholder hereof may
be modified or amended in the manner and subject to the conditions set forth in
the Indenture.
The Noteholder of this Series 199_-_ Note shall have
no right to enforce the provisions of the Indenture or to institute action to
enforce the covenants therein, or to take any action with respect to any Event
of Default under the Indenture, or to institute, appear in or defend any suit or
other proceeding with respect thereto, except as provided in the Indenture.
The transfer of this Series 199_-_ Note may be
registered only upon surrender hereof to the Indenture Trustee together with an
assignment duly executed by the registered owner or its attorney or legal
representative in such form as shall be satisfactory to the Indenture Trustee.
Upon any such registration of transfer of this Series 199_-_ Note and subject to
the payment of any fees and charges as provided by the Indenture, the Issuer
shall execute and the Indenture Trustee shall authenticate and deliver in
exchange for this Series 199_-_ Note a new Series 199_-_ Note or Notes
registered in the name of the transferee, in any denomination or denominations
authorized by the Indenture, of the same maturity and in an aggregate principal
amount equal to the unredeemed principal amount of this Series 199_-_ Note and
bearing the same interest as this Series 199_-_ Note.
In any case where the date fixed for the payment of
principal of or interest on this Series 199_-_ Note shall not be a Business Day,
then payment of such principal or interest need not be made on such date but may
be made on the next succeeding Business Day with the same force and effect as if
made on the date fixed for the payment thereof.
It is hereby certified, recited and declared that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the execution and delivery of the Indenture and
issuance of this Series 199_-_ Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This Series 199_-_ Note shall not be valid or become
obligatory for any purpose or be entitled to any security or benefit under the
Indenture until the certificate of authentication hereon shall have been
manually signed by the Indenture Trustee.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Series
199_-_ Note to be executed in its name by the manual or facsimile signature of
an Authorized Officer and the manual or facsimile signature of an Assistant
Secretary, and has caused its corporate seal or a facsimile thereof to be hereto
affixed.
[TRUST 199_-_]
By:____________________,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
(SEAL)
Attest:
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Series 199_-_ Notes designated
in and issued under the provisions of the within mentioned Indenture.
- -----------------
New York, New York, as
Indenture Trustee
By:
Authorized Representative
Date of Authentication:
- ------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells,
assigns and transfers unto
, the within Note and irrevocably appoints , attorney-in-fact,
to transfer the within Note on the books kept for registration thereof, with
full power of substitution in the premises.
Dated:___________ ___________________________
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as __________________________
it appears upon the face of
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:__________________________
Tax Identification Number or
Social Security Number(s):___________________________
[END OF FORM OF SERIES 199_-_ NOTE)
<PAGE>
EXHIBIT A-2
[FORM OF LIBOR RATE SERIES 199_-_ NOTES]
[TRUST 199_-_]
ASSET BACKED NOTES
SERIES 199_-_
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, AGREES THAT THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WHICH
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT.]
THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
No. A-_-_ $__________
FINAL CLASS
MATURITY DATED INTEREST
CLASS DATE DATE RATE CUSIP
LIBOR + ____% as
herein provided
REGISTERED NOTEHOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
<PAGE>
[TRUST 199_-_], a ____________ business trust (the
"Issuer"), for value received, promises to pay, from the sources herein
described, to the Registered Noteholder identified above, or registered assigns,
upon presentation and surrender hereof at the Corporate Trust Office of
_______________, as Paying Agent, or at the principal office of any successor or
additional Paying Agent, the Principal Amount identified above, as reduced from
time to time as described herein, on the Final Maturity Date identified above,
and to pay to the registered owner hereof, interest and principal hereon in
lawful money of the United States of America at the Class Interest Rate on the
dates as provided herein. Unless otherwise defined in this Series 199_-_ Note,
capitalized terms used in this Series 199_-_ Note shall have the respective
meanings given to such terms in the Master Indenture dated as of _______ __,
1995 (the "Master Indenture"), as supplemented by the ______ Terms Supplement
dated as of _______ __, 199_, (the "______ Terms Supplement" and, together with
the Master Indenture, the "Indenture") between the Issuer and Bankers Trust
Company, as Indenture Trustee.
This Series 199_-_ Note is one of a duly authorized
issue of notes of the Issuer designated as "[Trust 199_-_] Asset-Backed
Notes, Series 199_-_" (herein referred to by specific Class as the "Series
199_-_, Class A-_ Notes" and collectively as the "Series 199_-_ Notes"), in the
aggregate principal amount of $_________ issued under the Indenture. The Series
199_-_ Notes are issued to finance the acquisition and consolidation of Financed
Student Loans, and to make certain deposits to the Pledged Accounts.
The Master Indenture provides for the issuance, from
time to time, under the conditions, limitations and restrictions set forth
therein, of additional notes on a parity with all Series of obligations issued
or to be issued under the Indenture, for the purpose of providing additional
funds for the acquisition and consolidation of Financed Student Loans (said
additional notes, together with Series 199_-_ Notes, being collectively referred
to herein as the "Notes").
The Notes are secured under the Indenture which,
together with certain other documents, assigns to the Indenture Trustee for the
benefit of the Noteholders all the rights and remedies of the Issuer under
certain Financed Student Loans and rights under various contracts providing for
the issuance, guarantee and servicing of such Financed Student Loans. Reference
is hereby made to the Indenture for the provisions, among others, with respect
to the custody and application of the proceeds of the Notes, definitions of
certain capitalized terms used in this Series 199_-_ Note, the nature and the
extent of the liens and security of the Indenture, the collection and
disposition of revenues, the funds charged with and pledged to the payment of
the principal of and the interest on the Notes, the terms and conditions under
which additional Notes may be issued, the rights, duties and immunities of the
Indenture Trustee, the rights of the registered owners of the Notes, and the
rights and obligations of the Issuer. By the acceptance of this Series 199_-_
Note, the registered owner hereof assents to all of the provisions of the
Indenture.
The unpaid principal amount hereof from time to time
outstanding shall bear interest at a Class Interest Rate, as described below,
payable on each applicable Note Distribution Date to the extent of interest
accrued on the principal then outstanding, such interest to accrue from the
later of the date hereof or the date through which interest has been paid or
duly provided for. Interest at a Class Interest Rate established pursuant to the
_______ Terms Supplement shall be computed for the actual number of days elapsed
on the basis of a year consisting of 360 days.
During the Initial Period, this Series 199_-_ Note
shall bear interest at the Class Initial Rate equal to the rate set forth in the
_______ Terms Supplement. Thereafter, this Series 199_-_ Note generally shall
bear interest at a Class Interest Rate equal to LIBOR plus the margin set forth
in the _______ Terms Supplement.
[In no event shall the Class Interest Rate on this
Series 199_-_ Note exceed ____% per annum.]
[If the LIBOR Rate for the Series 199_-_ Notes is
greater than the Net Loan Rate, then the Class Interest Rate applicable to the
Series 199_-_ Notes for that Interest Period will be the Net Loan Rate. If the
Class Interest Rate applicable to the Series 199_-_ Notes for any Interest
Period is the Net Loan Rate, the Indenture Trustee shall determine the
Noteholders' LIBOR Rate Interest Carryover, if any, with respect to the Series
199_-_ Notes for such Interest Period. Such Noteholders' LIBOR Rate Interest
Carryover shall bear interest calculated at a rate equal to One-Month LIBOR from
the Note Distribution Date for each Interest Period with respect to which such
Noteholders' LIBOR Rate Interest Carryover was calculated until paid. For
purposes of this Series 199_-_ Note, any reference to "principal" or "interest"
herein shall not include within the meaning of such words Noteholders' LIBOR
Rate Interest Carryover or any interest accrued on any such Noteholders' LIBOR
Rate Interest Carryover. Such Noteholders' LIBOR Rate Interest Carryover shall
be calculated by the Indenture Trustee during such Interest Period in sufficient
time for the Indenture Trustee to give notice to each Noteholder of such
Noteholders' LIBOR Rate Interest Carryover as required in the next succeeding
sentence. On the Note Distribution Date for an Interest Period with respect to
which such Noteholders' LIBOR Rate Interest Carryover has been calculated by the
Indenture Trustee, the Indenture Trustee shall give written notice to each
Noteholder of the Noteholders' LIBOR Rate Interest Carryover applicable to each
Noteholder's Series 199_-_ Notes, which written notice may accompany the payment
of interest by check made to each such Noteholder on such Note Distribution Date
or otherwise shall be mailed on such Note Distribution Date by first class mall,
postage prepaid, to each such Noteholder at such Noteholder's address as it
appears on the registration books maintained by the Registrar. Such notice shall
state, in addition to such Noteholders' LIBOR Rate Interest Carryover, that,
unless and until a Series 199_-_ Note has been paid in full or has been deemed
no longer Outstanding under the _______ Terms Supplement (after which no
Noteholders' LIBOR Rate Interest Carryover (and all accrued interest thereon)
shall be paid with respect to a Series 199_-_ Note), (i) the Noteholders' LIBOR
Rate Interest Carryover (and interest accrued thereon calculated on the basis of
One-Month LIBOR) shall be paid by the Indenture Trustee on a Series 199_-_ Note
on the first occurring Note Distribution Date for a subsequent Interest Period
if and to the extent that (1) during such Interest Period no additional
Noteholders' LIBOR Rate Interest Carryover is accruing on the Series 199_-_
Notes and (2) moneys are available on such Note Distribution Date pursuant to
the terms of the _______ Terms Supplement in an amount sufficient to pay all or
a portion of such Noteholders' LIBOR Rate Interest Carryover and (ii) interest
shall accrue on the Noteholders' LIBOR Rate Interest Carryover at a rate equal
to One-Month LIBOR until such Noteholders' LIBOR Rate Interest Carryover is paid
in full or is cancelled.]
[The Noteholders' LIBOR Rate Interest Carryover for
the Series 199_-_ Notes shall be paid by the Indenture Trustee on Outstanding
Series 199_-_ Notes on the first occurring Note Distribution Date for a
subsequent Interest Period if and to the extent that (i) during such Interest
Period, no additional Noteholders' LIBOR Rate Interest Carryover is accruing on
the Series 199_-_ Notes and (ii) on such Note Distribution Date there are
sufficient moneys available pursuant to the terms of the _______ Terms
Supplement to pay all or a portion of the Noteholders' LIBOR Rate Interest
Carryover due on the Series 199_-_ Notes on such Note Distribution Date. Any
Noteholders' LIBOR Rate Interest Carryover (and any interest accrued thereon) on
any Series 199_-_ Note which is due and payable on any Note Distribution Date,
which Series 199_-_ Note is deemed no longer Outstanding under the Indenture on
said Note Distribution Date, shall be paid to the Noteholder thereof on the next
Note Distribution Date to the extent that moneys are available therefor in
accordance with the _______ Terms Supplement; provided, however, that any
Noteholders' LIBOR Rate Interest Carryover (and any interest accrued thereon)
which is not yet due and payable on said Note Distribution Date shall be
cancelled with respect to said Series 199_-_ Note that is to be deemed no longer
Outstanding under the Indenture on said Note Distribution Date and shall not be
paid on any succeeding Note Distribution Date. To the extent that any portion of
the Noteholders' LIBOR Rate Interest Carryover remains unpaid after payment of a
portion thereof, such unpaid portion of the Noteholders' LIBOR Rate Interest
Carryover shall be paid in whole or in part until fully paid by the Indenture
Trustee on the next occurring Note Distribution Date or Dates, as necessary, for
a subsequent Interest Period or Periods, if and to the extent that the
conditions in the immediately preceding sentence are satisfied.]
[The Note Distribution Date in such subsequent
Interest Period on which such Noteholders' LIBOR Rate Interest Carryover for the
Series 199_-_ Notes shall be paid shall be determined by the Indenture Trustee
in accordance with the provisions of the immediately preceding paragraph, and
the Indenture Trustee shall make payment of the Noteholders' LIBOR Rate Interest
Carryover in the same manner as, and from the same account from which, it pays
interest on the Series 199_-_ Notes on an Note Distribution Date.]
Distributions of principal will made on each Note
Distribution Date to the Class of Notes with the earliest Final Maturity Date in
the manner described in the Sale and Servicing Agreement. With respect to the
Class of Notes entitled to receive payments of principal, the actual Notes of
such Class that will receive payments of principal on each applicable Note
Distribution Date will be selected no later than 15 days prior to the related
Note Distribution Date by the Indenture Trustee by lot in such manner as the
Indenture Trustee in its discretion may determine and which may provide for the
selection for payment of principal in minimum denominations of $50,000, and
integral multiples in excess thereof.
If an Event of Default as defined in the Indenture
occurs, the principal of and interest on all Notes issued under the Indenture
may be declared due and payable upon the conditions and in the manner and with
the effect provided in the Indenture. The Indenture and the rights and
obligations of the Issuer, the Indenture Trustee and the Noteholder hereof may
be modified or amended in the manner and subject to the conditions set forth in
the Indenture.
The Noteholder of this Series 199_-_ Note shall have
no right to enforce the provisions of the Indenture or to institute action to
enforce the covenants therein, or to take any action with respect to any Event
of Default under the Indenture, or to institute, appear in or defend any suit or
other proceeding with respect thereto, except as provided in the Indenture.
The transfer of this Series 199_-_ Note may be
registered only upon surrender hereof to the Indenture Trustee together
with an assignment duly executed by the registered owner or its attorney or
legal representative in such form as shall be satisfactory to the Indenture
Trustee. Upon any such registration of transfer of this Series 199_-_ Note and
subject to the payment of any fees and charges as provided by the Indenture, the
Issuer shall execute and the Indenture Trustee shall authenticate and deliver in
exchange for this Series 199_-_ Note a new Series 199_-_ Note or Notes
registered in the name of the transferee, in any denomination or denominations
authorized by the Indenture, of the same maturity and in an aggregate principal
amount equal to the unredeemed principal amount of this Series 199_-_ Note and
bearing the same interest as this Series 199_-_ Note.
In any case where the date fixed for the payment of
principal of or interest on this Series 199_-_ Note shall not be a Business Day,
then payment of such principal or interest need not be made on such date but may
be made on the next succeeding Business Day with the same force and effect as if
made on the date fixed for the payment thereof.
It is hereby certified, recited and declared that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the execution and delivery of the Indenture and
issuance of this Series 199_-_ Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This Series 199_-_ Note shall not be valid or become
obligatory for any purpose or be entitled to any security or benefit under the
Indenture until the certificate of authentication hereon shall have been
manually signed by the Indenture Trustee.
IN WITNESS WHEREOF, the Issuer has caused this Series
199_-_ Note to be executed in its name by the manual or facsimile signature of
an Authorized Officer and the manual or facsimile signature of an Assistant
Secretary, and has caused its corporate seal or a facsimile thereof to be hereto
affixed.
[TRUST 199_-_]
By: ________________,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
(SEAL)
Attest:
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Series 199_-_ Notes designated
in and issued under the provisions of the within mentioned Indenture.
- -----------------
New York, New York, as
Indenture Trustee
By:
Authorized Representative
Date of Authentication:
- -----------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells,
assigns and transfers unto , the within Note and irrevocably appoints ,
attorney-in-fact, to transfer the within Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ___________ ___________________________
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as ___________________________
it appears upon the face of
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:__________________________
Tax Identification Number or
Social Security Number(s):___________________________
[END OF FORM OF Series 199_-_ Note)
[EXHIBIT 4.2]
______ TERMS SUPPLEMENT
TO THE
INDENTURE
DATED AS OF _________, 199_
between
[TRUST 199_-_]
and
-------------
Indenture Trustee
Dated as of ________, 199_
Securing
$--------------
ASSET-BACKED NOTES
SERIES 199_-_
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions................................................2
ARTICLE II
AUTHORIZATION, TERMS AND ISSUANCE
SECTION 2.1. Authorization of Series 199_-_ Notes......................13
SECTION 2.2. Purposes..................................................14
SECTION 2.3. Terms of Series 199_-_ Notes Generally....................14
SECTION 2.4. Series 199_-_ Notes.......................................15
SECTION 2.5. Class Interest Rate.......................................19
SECTION 2.6. Additional Provisions Regarding the Interest
Rates on the Series 199_-_ Notes..........................37
SECTION 2.7. Qualifications of Market Agent............................37
ARTICLE III
DISTRIBUTIONS
SECTION 3.1. Distribution of Interest and Principal....................38
SECTION 3.2. Selection of Notes to Receive Payments
of Principal..............................................38
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Issuer for This Third Terms Supplement....................39
SECTION 4.2. Counterparts..............................................39
SECTION 4.3. Indenture Constitutes a Security Agreement................39
SECTION 4.4. Governing Law.............................................39
SECTION 4.5. Ratification of Master Indenture..........................40
EXHIBIT A-1 Form of Auction Rate Notes
EXHIBIT A-2 Form of LIBOR Rate Notes
EXHIBIT B Form of Notice of Payment Default
EXHIBIT C Form of Notice of Cure of Payment Default
EXHIBIT D Notice of Proposed Auction Period Adjustment
EXHIBIT E Notice Establishing Auction Period Adjustment
EXHIBIT F Notice of Change in Auction Date
<PAGE>
________ TERMS SUPPLEMENT, dated as of ________, 199_, between
[TRUST 199_-_], a ___________ business trust, (the "Issuer") acting through
____________, a ___________ bank and trust company, not in its individual
capacity but solely as eligible lender trustee (the "Eligible Lender Trustee"),
and ____________, a New York banking corporation duly established, existing and
authorized to accept and execute trusts of the character herein set out under
and by virtue of the laws of the State of New York, with its principal corporate
trust office in New York, New York, (the "Indenture Trustee"), as Indenture
Trustee under a Master Indenture dated as of ________, 199_ (the "Master
Indenture").
PRELIMINARY STATEMENT
Section 2.3 of the Master Indenture provides, among other things, that
the Issuer, as provided in the Trust Agreement, and the Indenture Trustee may
enter into an indenture supplemental to the Master Indenture for the purpose of
authorizing a Series of Notes and to specify certain terms of such Series of
Notes. The Issuer has duly authorized the creation of a Series of Notes in an
aggregate principal amount not to exceed $__________ to be known as the Issuer's
Asset Backed Notes, Series 199_-_ (the "Series 199_-_ Notes"), and the Issuer
and the Indenture Trustee are executing and delivering this _______ Terms
Supplement in order to provide for the Series 199_-_ Notes. Except as otherwise
specified herein, or as the context may require, capitalized terms used but not
defined herein are defined in Appendix A to the ______ Supplemental Sale and
Servicing Agreement dated as of _____, 199_ (the "Second Supplemental Sale and
Servicing Agreement") among the Issuer, Trans-World Insurance Company (the
"Administrator"), the Eligible Lender Trustee and The Money Store Inc. ("TMSI"),
which Appendix A also contains rules as to usage that shall be applicable
herein.
GRANTING CLAUSES
The Issuer hereby Grants to the Indenture Trustee, for the exclusive
benefit of the Holders of the Series 199_-_ Notes, and (other than with respect
to clause (d) below) any Series of Notes issued previously and any Series of
Notes that may be issued hereafter, all of the Issuer's right, title and
interest in and to (a) the Financed Student Loans listed in Schedule A to the
Second Supplemental Sale and Servicing Agreement (as such Schedule may be
amended from time to time including, but not limited to, by the purchase by the
Trust during the Funding Period of any Additional Financed Student Loans) and
all obligations of the Obligors thereunder, and all written communications
received by the Seller with respect thereto (including borrower correspondence,
notices of death, disability or bankruptcy and requests for deferrals or
forbearance), on and after _____, 199_ (the "Cut-Off Date") (or, with respect to
the Additional Financed Student Loans, the applicable Subsequent Cut-Off Date),
(b) all funds on deposit from time to time in the Trust Accounts (other than the
Certificate Distribution Account) and in all investments and proceeds thereof
(including all income thereon), (c) all proceeds of the foregoing, including
without limitation, proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or other liquid property and (d) the Note Surety Bond
relating to the Series 199_-_ Notes. Such Grants are made, however, in trust, to
secure the Series 199_-_ Notes and, other than with respect to clause (d) above,
any Series of Notes issued previously and any Series of Notes issued hereafter,
equally and ratably without prejudice, priority or distinction, between any Note
and any other Note by reason of difference in time of issuance or otherwise
except to the extent otherwise described herein, and to secure (i) the payment
of all amounts due on the Series 199_-_ Notes, any Series of Notes issued
previously and any Series of Notes issued hereafter, as such amounts become due
in accordance with their terms, (ii) the payment of all other sums payable under
the Master Indenture or this ____ Terms Supplement with respect to the Series
199_-_ Notes, any Series of Notes issued previously and any Series of Notes
issued hereafter, and (iii) compliance with the provisions of the Master
Indenture and this _____ Terms Supplement with respect to the Series 199_-_
Notes, any Series of Notes issued previously and any Series of Notes issued
hereafter, all as provided in the Master Indenture and this _____ Terms
Supplement.
The Indenture Trustee acknowledges such Grants, accepts the trusts
hereunder in accordance with the provisions hereof and of the Master Indenture
and agrees to perform the duties herein or therein required to the best of its
ability to the end that the interests of the Holders of the Series 199_-_ Notes,
any Series of Notes issued previously by the Issuer and any Series of Notes
issued by the Issuer hereafter may be adequately and effectively protected.
ARTICLE I.
DEFINITIONS
"ADMINISTRATOR" means Trans-World Insurance Company d/b/a
Educaid, an Arizona insurance company, and its successors and assigns.
"ALL HOLD RATE" means ninety percent (90%) of One-Month
LIBOR.
"AUCTION" means the implementation of the Auction
Procedures on an Auction Date.
"AUCTION AGENT" means the Initial Auction Agent under the
Initial Auction Agent Agreement unless and until a Substitute Auction Agent
Agreement becomes effective, after which "Auction Agent" shall mean the
Substitute Auction Agent.
"AUCTION AGENT AGREEMENT" means the Initial Auction Agent
Agreement unless and until a Substitute Auction Agent Agreement is entered into,
after which "Auction Agent Agreement" shall mean such Substitute Auction Agent
Agreement.
"AUCTION AGENT FEE" has the meaning set forth in the
Auction Agent Agreement.
"AUCTION AGENT FEE RATE" has the meaning set forth in the
Auction Agent Agreement.
"AUCTION DATE" means, initially, _______, and thereafter, the
Business Day immediately preceding the first day of each Auction Period for each
respective Class, other than:
(a) each Auction Period commencing after the
ownership of such Class of Auction Rate
Notes is no longer maintained in Book-Entry
Form by the Securities Depository;
(b) each Auction Period commencing after and
during the continuance of an Event of
Default; or
(c) each Auction Period commencing less than two
Business Days after the cure or waiver of an
Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to Section 2.5.8 of this Terms Supplement.
"AUCTION PERIOD" means, with respect to each Class of Auction
Rate Notes, the Interest Period applicable to such Class of Notes during which
time the related Class Interest Rate is determined pursuant to Section 2.5.1
hereof, which Auction Period (after the Initial Period for such Class) initially
shall consist generally of 28 days, as the same may be adjusted pursuant to
Section 2.5.7 hereof.
"AUCTION PERIOD ADJUSTMENT" means an adjustment to the Auction
Period as provided in Section 2.5.7 hereof.
"AUCTION PROCEDURES" means the procedures set forth in Section
2.5.1 hereof by which the Auction Rate is determined.
"AUCTION RATE" means the rate of interest per annum that
results from implementation of the Auction Procedures and is determined as
described in Section 2.5.1(c)(ii) hereof.
"AUCTION RATE NOTES" means the Class A-_ Notes.
"AUTHORIZED DENOMINATIONS" means, (i) with respect to the
Class A-_ Notes, $50,000 and integral multiples of $1,000 in excess thereof and
(ii) with respect to the Class A-_ Notes, $50,000 and integral multiples of
$50,000 in excess thereof.
"AVAILABLE AUCTION RATE NOTES" has the meaning set forth in
Section 2.5.1(c)(i)(A) hereof.
"BID" has the meaning set forth in Section 2.5.1(a)(i)
hereof.
"BID AUCTION RATE" has the meaning set forth in Section
2.5.1(c)(i) hereof.
"BIDDER" has the meaning set forth in Section 2.5.1(a)(i)
hereof.
"BOND EQUIVALENT YIELD - 91-DAY T-BILL" means, in respect of
any security with a maturity of six months or less the rate for which is quoted
in THE WALL STREET JOURNAL (Eastern Edition) on a bank discount basis, a yield
(expressed as a percentage) calculated in accordance with the following formula
and rounded up to the nearest one one-hundredth of one percent:
Bond Equivalent Yield = Q X N x 100
---------------
360 - (91 x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, and "N" refers to 365 or 366 (days),
as the case may be.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or
system under which (i) the beneficial right to principal and interest may be
transferred only through a book entry, (ii) physical securities in registered
form are issued only to a Securities Depository or its nominee as registered
owner, with the securities "immobilized" to the custody of the Securities
Depository, and (iii) the book entry is the record that identifies the owners of
beneficial interests in that principal and interest.
"BROKER-DEALER" means Smith Barney Inc. or any other broker or
dealer (each as defined in the Securities Exchange Act of 1934, as amended),
commercial bank or other entity permitted by law to perform the functions
required of a Broker-Dealer set forth in the Auction Procedures that (a) is a
Participant (or an affiliate of a Participant), (b) has been appointed as such
by the Trust pursuant to Section 2.5.6 hereof or the Administrator on behalf of
the Eligible Lender Trustee pursuant to the Trust Agreement 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 Administrator on behalf
of the Issuer, pursuant to which the Broker-Dealer agrees to participate in
Auctions as set forth in the Auction Procedures, as from time to time amended or
supplemented. Each Broker-Dealer Agreement shall be in substantially the form of
the Broker-Dealer Agreement dated as of ____________, 199_ between ___________,
as Auction Agent, and Smith Barney Inc., as Broker-Dealer.
"BROKER-DEALER FEE" has the meaning set forth in the
Auction Agent Agreement.
"BROKER-DEALER FEE RATE" has the meaning set forth in the
Auction Agent Agreement.
"BUSINESS DAY" means any day on which the New York Stock
Exchange is open for trading and any day other than a Saturday, a Sunday or a
day on which banking institutions or trust companies in New York, California,
New Jersey or Pennsylvania are authorized or obligated by law, regulation or
executive order to remain closed.
"CLASS A-_ NOTES" and "CLASS A-_ NOTES" have the meanings set
forth in Section 2.1 herein.
"CLASS INITIAL PERIOD" means, as to a Class of the Series
199_-_ Notes, the period commencing on the Closing Date and continuing through
the day immediately preceding the Class Initial Rate Adjustment Date for such
Class.
"CLASS INITIAL RATE" means [5.58]% per annum for the Class A-_
and [5.45]% per annum for the Class A-_ Notes.
"CLASS INITIAL RATE ADJUSTMENT DATE" means (i) with respect to
the Class A-_ Notes, [April 15, 1996], and (ii) with respect to the Class A-_
Notes, [April 23, 1996].
"CLASS INTEREST PERIOD" means, with respect to a Class of
Series 199_-_ Notes, the applicable Class Initial Period and each period
commencing on a Class Rate Adjustment Date for such Class and ending on the day
before (i) the next Class Rate Adjustment Date for such Class or (ii) the Final
Maturity Date of such Class, as applicable.
"CLASS INTEREST RATE" means each variable rate of interest per
annum borne by a Class of the Series 199_-_ Notes for each Class Interest Period
and determined in accordance with the provisions of Sections 2.4 and 2.5 hereof;
provided, however, that in the event of an Event of Default, the Class Interest
Rate shall equal the Non-Payment Rate; provided, further, however that such
Class Interest Rate with respect to the Auction Rate Notes shall in no event
exceed the applicable Class Interest Rate Limitation.
"CLASS INTEREST RATE LIMITATION" means a rate equal to
18.0%.
"CLASS RATE ADJUSTMENT DATE" means the date on which an
Interest Rate is effective, and means, (i) with respect to the Auction Rate
Notes, the date of commencement of each related Auction Period and (ii) with
respect to the LIBOR Rate Notes, the 15th day of each calendar month.
"CLASS RATE DETERMINATION DATE" means, (i) with respect to any
Class of Auction Rate Notes, the related Auction Date, or if no Auction Date is
applicable to such Auction Rate Notes, the Business Day immediately preceding
the date of commencement of the related Auction Period and (ii) with respect to
any Class of LIBOR Rate Notes, the date which is both a Business Day and a
London Banking Day immediately preceding the date of commencement of an Interest
Period for the LIBOR Rate Notes.
"CLOSING DATE" means with respect to the Series 199_-_ Notes,
March 28, 1996, the date of initial issuance and delivery of the Series 199_-_
Notes hereunder.
"CUT-OFF DATE" means, with respect to the Series 199_-_ Notes,
[March 21, 1996].
"EFFECTIVE INTEREST RATE" means, for any Financed Student Loan
and any Collection Period, the per annum rate at which such Financed Student
Loan accrues interest during such Collection Period, and in the case of a
Federal Loan, after giving effect to all applicable Interest Subsidy Payments
and Special Allowance Payments due with respect to such Federal Loan.
"EVENT OF DEFAULT" means, with respect to the Series 199_-_
Notes, (i) a default in the due and punctual payment of any installment of
interest or principal on any Class of Series 199_-_ Notes, or (ii) a default in
the due and punctual payment of any interest on and principal of any Class of
Series 199_-_ Notes at their respective Final Maturity Date.
"EXISTING NOTEHOLDER" means (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with an Auction, a
Person who is a Broker-Dealer listed in the Existing Noteholder Registry at the
close of business on the Business Day immediately preceding such Auction and
(ii) with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of any Class of
Auction Rate Notes.
"EXISTING NOTEHOLDER REGISTRY" means the registry of Persons
who are owners of the Auction Rate Notes, maintained by the Auction Agent as
provided in the Auction Agent Agreement.
"FEDERAL FUNDS RATE" means, for any date of determination, the
Federal funds (effective) rate as published on page 118 of the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices) on the immediately
preceding Business Day. If no such rate is published on such page on such day,
"Federal Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"FINAL MATURITY DATE" means [March 15, 2001] with respect to
the Class A-_ Notes; and [April 1, 2018] with respect to the Class A-_ Notes.
"FUNDING PERIOD" means, with respect to the Series 199_-_
Notes, the period beginning on the Closing Date and ending on the first to occur
of (a) the Note Distribution Date on which the amount on deposit in the
Pre-Funding Account (after giving effect to any transfers therefrom in
connection with any Additional Fundings on or prior to such Note Distribution
Date) is less than $100,000, (b) the date on which an Event of Default, a Master
Servicer Default or an Administrator Default occurs, (c) the date on which an
Insolvency Event occurs with respect to the Seller and (d) the close of business
on [July 1, 1996], or such later date as may be agreed to by the Rating
Agencies.
"HOLD ORDER" has the meaning set forth in Section
2.5.1(a)(i) hereof.
"INITIAL AUCTION AGENT" means __________, a New York banking
corporation, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" means the Auction Agent
Agreement dated as of [March 27, 1996], by and among the Issuer, the Indenture
Trustee and the Initial Auction Agent, including any amendment thereof or
supplement thereto.
"INTEREST PERIOD" means, with respect to any Class of Series
199_-_ Notes, the respective Class Interest Period.
"INTEREST RATE" means, with respect to a Class of the Series
199_-_ Notes, the rate of interest per annum borne by such Class as of the time
referred to, including, without limitation, the related Class Initial Rate and
the related Class Interest Rate.
"LIBOR DETERMINATION DATE" means, with respect to a Class of
the Series 199_-_ Notes, the date which is both a Business Day and a London
Banking Day prior to the commencement of each related Interest Period.
"LIBOR RATE NOTES" means the Class A-_ Notes.
"LONDON BANKING DAY" means any Business Day on which dealings
in deposits in United States dollars are transacted in the London interbank
market.
"MARKET AGENT" means Smith Barney Inc., New York, New York, in
such capacity hereunder, or any successor to it in such capacity hereunder.
"MASTER INDENTURE" means the Master Indenture dated as of
_____________, as amended from time to time, between the Issuer and the
Indenture Trustee.
"MAXIMUM AUCTION RATE" means, with respect to the Auction Rate
Notes, (i) for Auction Periods of 34 days or less, either (A) the greater of (1)
One-Month LIBOR plus 0.60% or (2) the Federal Funds Rate plus 0.60% (if both
ratings assigned by the Rating Agencies to the Auction Rate Notes are "Aa3" or
"AA-" or better) or (B) One-Month LIBOR plus 1.50% (if any one of the ratings
assigned by the Rating Agencies to the Auction Rate Notes is less than "Aa3" or
"AA-") or (ii) for Auction Periods of greater than or equal to 35 days, either
(A) the greater of One-Month LIBOR or Three-Month LIBOR, plus in either case,
0.60% (if both of the ratings assigned by the Rating Agencies to the Auction
Rate Notes are "Aa3" or "AA-" or better) or (B) the greater of One-Month LIBOR
or Three-Month LIBOR, plus in either case, 1.50% (if any one of the ratings
assigned by the Rating Agencies to the Auction Rate Notes is less than "Aa3" or
"AA-"). For purposes of the Auction Agent and the Auction Procedures, the
ratings referred to in this definition shall be the last ratings of which the
Auction Agent has been given notice pursuant to the Auction Agent Agreement.
"NET LOAN RATE" means, for any Interest Period, the weighted
average Effective Interest Rate for the Collection Period immediately preceding
such Interest Period less 1.60%.
"NINETY-ONE DAY UNITED STATES TREASURY BILL RATE" means that
rate of interest per annum equal to the Bond Equivalent Yield - 91-Day T-Bill on
the 91-Day United States Treasury Bills sold at the last auction thereof that
immediately precedes the Class Rate Adjustment Date for the Class of Series
199_-_ Notes to which the Net Loan Rate applies.
"NON-PAYMENT RATE" means One-Month LIBOR plus 1.50%.
"NOTEHOLDERS' AUCTION RATE INTEREST CARRYOVER" means, as to
any Class of Auction Rate Notes, with respect to any Interest Period for which
the Class Interest Rate for such Interest Period is based on the Net Loan Rate,
the amount equal to the excess, if any, of (a) the amount of interest on such
Class of Notes that would have accrued in respect of the related Interest Period
had interest been calculated based on the applicable Auction Rate over (b) the
amount of interest on such Class of Notes actually accrued in respect of such
Interest Period based on the Net Loan Rate, together with the unpaid portion of
any such excess from prior Interest Periods (and interest accrued thereon, to
the extent permitted by law, at the applicable rate calculated based on
One-Month LIBOR); PROVIDED, HOWEVER, that, with respect to any Class of Auction
Rate Notes, on the related Final Maturity Date, the portion of the Noteholders'
Auction Rate Interest Carryover allocable to such Class of Notes will be equal
to the lesser of (i) the portion allocable to such Class of Notes of the
Noteholders' Auction Rate Interest Carryover on such date determined as
described above and (ii) the amount of funds, if any, required and available to
be distributed to such Class of Notes on such date pursuant to Sections
5.5(e)(iv) and 5.6(b)(B) of the Second Supplemental Sale and Servicing
Agreement.
"NOTEHOLDERS' INTEREST CARRYOVER" means, as to any Class of
Series 199_-_ Notes, the related Noteholders' Auction Rate Interest
Carryover or Noteholders' LIBOR Rate Interest Carryover, as
applicable.
"NOTEHOLDERS' LIBOR RATE INTEREST CARRYOVER" means, as to any
Class of LIBOR Rate Notes, with respect to any Interest Period for which the
Class Interest Rate for such Interest Period is based on the Net Loan Rate, the
amount equal to the excess, if any, of (a) the amount of interest on such Class
of Notes that would have accrued in respect of the related Interest Period had
interest been calculated based on the applicable One-Month LIBOR over (b) the
amount of interest on such Class of Notes actually accrued in respect of such
Interest Period based on the Net Loan Rate, together with the unpaid portion of
any such excess from prior Interest Periods (and interest accrued thereon, to
the extent permitted by law, at the applicable rate calculated based on
One-Month LIBOR); provided, however, that, with respect to any Class of LIBOR
Rate Notes, on the related Final Maturity Date, the portion of the Noteholders'
LIBOR Rate Interest Carryover allocable to such Class of Notes will be equal to
the lesser of (i) the Noteholders' LIBOR Rate Interest Carryover on such date
determined as described above and (ii) the amount of funds, if any, required and
available to be distributed to such Class of Notes on such date pursuant to
Sections 5.5(e)(iv) and 5.6(b)(B) of the Second Supplemental Sale and Servicing
Agreement.
"NOTE DISTRIBUTION DATE" means (i) with respect to the LIBOR
Rate Notes, the 15th day of each month (or if such day is not a Business Day,
the next succeeding Business Day), commencing April 1996, and (ii) with respect
to the Auction Rate Notes, (A) with respect to distributions of interest, the
first Business Day following the expiration of each Interest Period for such
Auction Rate Notes, commencing [April 23, 1996] and (B) with respect to
distributions of principal, the first Business Day following the expiration of
the first Interest Period for such Class of Auction Rate Notes ending in each
month, commencing [April 1996].
"NOTE SURETY BOND" means each surety bond issued by the Surety
Provider in favor of the Eligible Lender Trustee for the benefit of the holders
of the related Class of Series 199_-_ Notes.
"NOTICE OF FEE RATE CHANGE" means a notice of a change in the
Auction Agent Fee Rate or the Broker-Dealer Fee Rate substantially in the form
of Exhibit E to the Auction Agent Agreement.
"ONE-MONTH LIBOR" means the London interbank offered rate for
deposits in U.S. dollars having a maturity of one month commencing on the
related LIBOR Determination Date (the "Index Maturity") which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR Determination
Date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in U.S. dollars,
having the Index Maturity and in a principal amount of not less than U.S.
$1,000,000, are offered at approximately 11:00 a.m., London time, on such LIBOR
Determination Date to prime banks in the London interbank market by the
Reference Banks. The Auction Agent will request the principal London office of
each of such Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for that day will be the arithmetic mean
of the quotations. If fewer than two quotations are provided, the rate for that
day will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the Auction Agent, at approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date for loans in U.S. dollars to leading
European banks having the Index Maturity and in a principal amount equal to an
amount of not less than U.S. $1,000,000; provided that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, One-Month LIBOR in
effect for the applicable Interest Period will be One-Month LIBOR in effect for
the previous Interest Period.
"ORDER" has the meaning set forth in Section 2.5.1(a)(i)
hereof.
"PAYMENT DEFAULT" means, with respect to any Class of Series
199_-_ Notes, a default in the due and punctual payment of any Noteholders'
Interest Distribution Amount or Noteholders' Principal Distribution Amount on
the related Note Distribution Date or Final
Maturity Date, as applicable.
"PERCENTAGE INTEREST" means, with respect to a Class of LIBOR
Rate Notes, the portion of such Class held by a Note Owner, expressed as a
percentage, the numerator of which is the original denomination represented by
such Note and the denominator of which is the original aggregate principal
amount of such Class of LIBOR Rate Notes as set forth in Section 2.1 hereof.
"POTENTIAL NOTEHOLDER" means any Person (including an Existing
Noteholder that is (i) a Broker-Dealer when dealing with the Auction Agent and
(ii) a potential beneficial owner when dealing with a Broker-Dealer) who may be
interested in acquiring Auction Rate Notes (or, in the case of an Existing
Noteholder thereof, an additional principal amount of Auction Rate Notes).
"PREMIUM," means (i) with respect to any Financed Student Loan
conveyed on the Closing Date, an amount equal to 1.47% of the par amount of such
Financed Student Loan as of the Cut-off Date and (ii) with respect to any
Additional Financed Student Loan conveyed during the Funding Period, an amount
equal to 1.47% of the par amount of such Additional Financed Student Loan as of
the related Subsequent Cut-off Date.
"RECORD DATE" means, with respect to a Class of the Series
199_-_ Notes, the close of business on the second Business Day immediately
preceding the related Note Distribution Date.
"REFERENCE BANK" means a leading bank (i) engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
(ii) not controlling, controlled by or under common control with the
Administrator or The Money Store Inc. and (iii) having an established place of
business in London.
"REMARKETING AGENT" means a remarketing agent designated
under a Remarketing Agreement.
"REMARKETING AGREEMENT" means any remarketing agreement
hereafter entered into by the Issuer and a remarketing agent with respect to the
Auction Rate Notes, as originally executed and as from time to time amended or
supplemented in accordance with the terms thereof.
"SELL ORDER" has the meaning set forth in Section
2.5.1(a)(i) hereof.
"SUBMISSION DEADLINE" means 12:30 p.m., eastern time, on any
Auction Date or such other time on any Auction Date by which Broker-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.
"SUBMITTED BID" has the meaning set forth in Section
2.5.1(c)(i) hereof.
"SUBMITTED HOLD ORDER" has the meaning set forth in Section
2.5.1(c)(i) hereof.
"SUBMITTED ORDER" has the meaning set forth in Section
2.5.1(c)(i) hereof.
"SUBMITTED SELL ORDER" has the meaning set forth in Section
2.5.1(c)(i) hereof.
"SUBSTITUTE AUCTION AGENT" means the Person with whom the
Indenture Trustee enters into a Substitute Auction Agent Agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" means an auction agent
agreement containing terms substantially similar to the terms of the Initial
Auction Agent Agreement, whereby a Person having the qualifications required by
Section 2.5.5 of this _____ Terms Supplement agrees with the Indenture Trustee
and the Issuer to perform the duties of the Auction Agent under this _____ Terms
Supplement.
"SUFFICIENT BIDS" has the meaning set forth in Section
2.5.1(c)(i) hereof.
"TELERATE PAGE 3750" means the display page so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"_____ TERMS SUPPLEMENT" means this _____ Terms Supplement, as
from time to time amended or supplemented.
"THREE-MONTH LIBOR" means the London interbank offered rate
for deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Three-Month Index Maturity") which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Three Month Index Maturity and in a principal amount of
not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London
time, on such LIBOR Determination Date to prime banks in the London interbank
market by the Reference Banks. The Auction Agent will request the principal
London office of each of such Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Auction Agent, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Three Month Index Maturity and
in a principal amount equal to an amount of not less than U.S. $1,000,000;
provided that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, Three-Month LIBOR in effect for the applicable Interest Period
will be Three-Month LIBOR in effect for the previous Interest Period.
ARTICLE II.
AUTHORIZATION, TERMS AND ISSUANCE
SECTION 2.1. AUTHORIZATION OF SERIES 199_-_ NOTES. There is
hereby authorized the borrowing of funds, and to evidence such borrowing there
are hereby authorized two Classes of Series 199_-_ Notes (collectively, the
"Series 199_-_ Notes"), designated (i) the "[Trust 199_-_] Asset-Backed Notes,
Series 199_-_, Class A-_" (the "Class A-_ Notes") in the aggregate principal
amount of $___________ and (ii) the "ClassNotes Trust 1995-I Asset-Backed Notes,
Series 199_- _, Class A-_" (the "Class A-_ Notes") in the aggregate principal
amount of $51,000,000.
SECTION 2.2. PURPOSES. The Series 199_-_ Notes are
authorized to finance the acquisition by the Issuer of Financed
Student Loans, and to make deposits to the Trust Accounts required
hereby.
SECTION 2.3. TERMS OF SERIES 199_-_ NOTES GENERALLY. The
Series 199_-_ Notes shall be issued in fully registered form, in substantially
the form set forth in Exhibit A-1 hereof (with respect to the Auction Rate
Notes) and Exhibit A-2 hereof (with respect to the LIBOR Rate Notes), in each
case with such variations, omissions and insertions as may be required by the
circumstances, as may be required or permitted by the Master Indenture and this
_____ Terms Supplement, or be consistent with the Master Indenture and this
_____ Terms Supplement and necessary or appropriate to conform to the rules and
requirements of any governmental authority or any usage or requirement of law
with respect thereto.
The Series 199_-_ Notes may be issued only in Authorized
Denominations. The Series 199_-_ Notes shall be dated as of the Closing Date.
Each Class of Notes shall mature on its Final Maturity Date. Each Class of
Series 199_-_ Notes shall be numbered consecutively from 1 upwards with the
prefix A-[Class Designation]- preceding each number. The Series 199_-_ Notes
shall be issued to a Securities Depository for use in a Book-Entry System in
accordance with the provisions of Section 2.13 of the Indenture.
Interest on each Series 199_-_ Note shall accrue on the
Outstanding Amount of such Series 199_-_ Note until such Series 199_-_ Note has
been paid in full or payment has been duly provided for, as the case may be, and
shall accrue from the later of the initial date thereof or the most recent Note
Distribution Date to which interest has been paid or duly provided for. Each
Series 199_-_ Note shall bear interest at an interest rate determined in
accordance with the provisions and subject to the limitations set forth herein,
and interest on a Class of the Series 199_-_ Notes shall be paid for the related
Class Initial Period and each Class Interest Period for such Class thereafter on
each Note Distribution Date for such Class and on each date of payment of
principal thereof to the extent of interest accrued on the principal then being
paid.
Principal will be paid to the then Outstanding Class of Series
199_-_ Notes with the earliest Final Maturity Date on each Note Distribution
Date for such Class in an amount equal to the Noteholder's Principal
Distribution Amount on such Note Distribution Date; provided, however, that if
any Class of a Series of Notes issued previously or hereafter has an earlier
Final Maturity Date than any Class of Series 199_-_ Notes, principal will be
paid to each such Class of previously or subsequently issued Notes with an
earlier Final Maturity Date prior to the Class or Classes of Series 199_-_ Notes
with a later Final Maturity Date.
SECTION 2.4. SERIES 199_-_ NOTES. The Initial Rate
Adjustment Date for each Class of Notes shall be the Class Initial
Rate Adjustment Date.
During the related Class Initial Period, each Class of Series
199_-_ Notes shall bear interest at the Class Initial Rate for such Class.
Thereafter, (i) the Class A-_ Notes shall bear interest during each applicable
Interest Period at a Class Interest Rate equal to the lesser of (A) One-Month
LIBOR plus 0.17% and (B) the Net Loan Rate, and (ii) except with respect to an
Auction Period Adjustment, the Class A-_ Notes shall bear interest at a Class
Interest Rate based on a 28-day Auction Period, as determined pursuant to this
Section 2.4 and Section 2.5 hereof.
For each Class of the Series 199_-_ Notes during the Class
Initial Period for such Class and each Interest Period thereafter, interest at
the Class Interest Rate shall accrue daily and shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days.
The Class Interest Rate to be borne by each Class of Auction
Rate Notes after such Class Initial Period for each Auction Period until an
Auction Period Adjustment, if any, shall be determined as herein described. Each
such Auction Period shall commence on and include the first day following the
expiration of the immediately preceding Auction Period and terminate on and
include the second business day of the fourth following week; provided, however,
that in the case of the Auction Period that immediately follows the Class
Initial Period for a Class of Auction Rate Notes, such Auction Period shall
commence on the Class Initial Rate Adjustment Date for such Class. The Class
Interest Rate on each Class of Auction Rate Notes for each Auction Period shall
be the lesser of the (i) Net Loan Rate in effect for such Auction Period and
(ii) the Auction Rate in effect for such Auction Period as determined in
accordance with Section 2.5.1 hereof; provided that if, on any Class Rate
Determination Date relating to a Class of Auction Rate Notes, an Auction is not
held for any reason, then the Class Interest Rate on such Class of Auction Rate
Notes for the next succeeding Auction Period shall be the Net Loan Rate.
Notwithstanding the foregoing:
(a) if the ownership of a Class of Auction Rate Notes is no
longer maintained in Book-Entry Form, the Class Interest Rate on such Class of
Auction Rate Notes for any Class Interest Period commencing after the delivery
of certificates representing the Notes of such Class pursuant to Section 2.15 of
the Master Indenture shall equal the lesser of (i) the Maximum Auction Rate and
(ii) the Net Loan Rate on the Business Day immediately preceding the first day
of such subsequent Class Interest Period; or
(b) if an Event of Default shall have occurred, the Class
Interest Rate on each Class of the Series 199_-_ Notes for the Class Interest
Period for such Class commencing on or immediately after such Event of Default,
and for each Class Interest Period thereafter, to and including the Class
Interest Period, if any, during which, or commencing less than two Business Days
after, such Event of Default is cured in accordance with this _____ Terms
Supplement, shall equal the Non-Payment Rate on the first day of each such Class
Interest Period.
In accordance with Section 2.5.1(c)(ii) hereof, the Auction
Agent shall promptly give written notice to the Indenture Trustee, the Eligible
Lender Trustee and the Surety Provider of each Class Interest Rate (unless the
Class Interest Rate is the Non-Payment Rate) and either the Auction Rate or the
Net Loan Rate, as the case may be, when such rate is not the Class Interest
Rate, applicable to each Class of Auction Rate Notes. The Indenture Trustee
shall notify the related Noteholders of the Class Interest Rate applicable to
such Class of Notes for each Auction Period on the second Business Day of such
Auction Period.
In the event that the day on which an Auction Period for a
Class of Auction Rate Notes would otherwise be scheduled to expire is not a
Business Day, the expiration date and Note Distribution Date for such Auction
Period then in effect, if applicable, and the Class Rate Determination Date and
commencement date for the immediately following Class Interest Period for such
Class of Auction Rate Notes shall be the next succeeding Business Day.
Notwithstanding any other provision of the Auction Rate Notes
or this _____ Terms Supplement and except for the occurrence of an Event of
Default, interest payable on each Class of Auction Rate Notes for an Auction
Period shall never exceed for such Auction Period the amount of interest payable
at the Net Loan Rate (subject to the Class Interest Rate Limitation) in effect
for such Auction Period.
If the Auction Rate for a Class of Auction Rate Notes or the
LIBOR Rate for a Class LIBOR Rate Notes is greater than the Net Loan Rate, then
the Class Interest Rate applicable to such Class of Series 199_-_ Notes for that
Class Interest Period will be the Net Loan Rate. If the Class Interest Rate
applicable to such Class of Series 199_-_ Notes for any Class Interest Period is
the Net Loan Rate, the Indenture Trustee shall determine the Noteholders'
Interest Carryover, if any, with respect to such Class of Series 199_-_ Notes
for such Class Interest Period. Such determination of the Noteholders' Interest
Carryover shall be made separately for each Class of Series 199_-_ Notes. Such
Noteholders' Interest Carryover shall bear interest calculated at a rate equal
to One-Month LIBOR (as determined by the Auction Agent, provided the Indenture
Trustee has received notice of One-Month LIBOR from the Auction Agent, and if
the Indenture Trustee shall not have received such notice from the Auction
Agent, then as determined by the Indenture Trustee) from the Note Distribution
Date for the Class Interest Period with respect to which such Noteholders'
Interest Carryover was calculated, until paid. For purposes of this _____ Terms
Supplement, any reference to "principal" or "interest" herein shall not include
within the meaning of such words Noteholders' Interest Carryover or any interest
accrued on any such Noteholders' Interest Carryover. Such Noteholders' Interest
Carryover shall be separately calculated for each Series 199_-_ Note of such
Class by the Indenture Trustee during such Class Interest Period in sufficient
time for the Indenture Trustee to give notice to each Noteholder of such
Noteholders' Interest Carryover as required in the next succeeding sentence. On
the Note Distribution Date for a Class Interest Period with respect to which
such Noteholders' Interest Carryover for a Class of Series 199_-_ Notes has been
calculated by the Indenture Trustee, the Indenture Trustee shall give written
notice to each Noteholder of the applicable Class of the Noteholders' Interest
Carryover applicable to each Noteholder's Series 199_-_ Note of such Class,
which written notice may be included in any other written statement sent by the
Indenture Trustee to such Noteholders, and shall be mailed on such Note
Distribution Date by first-class mail, postage prepaid, to each such Noteholder
at such Noteholder's address as it appears on the registration books maintained
by the Note Registrar. Such notice shall state, in addition to such Noteholders'
Interest Carryover, that, unless and until the Final Maturity Date for such
Class of Series 199_-_ Notes has occurred (after which all accrued Noteholders'
Interest Carryover (and all accrued interest thereon) that remains unpaid shall
be canceled and no Noteholders' Interest Carryover (and interest accrued
thereon) shall be paid with respect to a Series 199_-_ Note of such Class), (i)
the Noteholders' Interest Carryover (and interest accrued thereon calculated at
a rate equal to One-Month LIBOR) shall be paid by the Indenture Trustee on a
Series 199_-_ Note of such Class on the first occurring Note Distribution Date
for such Class for a subsequent Class Interest Period if and to the extent that
(1) during such Class Interest Period no additional Noteholders' Interest
Carryover is accruing on such Class of Series 199_-_ Notes and (2) moneys are
available pursuant to the terms of this _____ Terms Supplement and the
applicable Sale and Servicing Agreement in an amount sufficient to pay all or a
portion of such Noteholders' Interest Carryover and (ii) interest shall accrue
on the Noteholders' Interest Carryover at a rate equal to One-Month LIBOR until
such Noteholders' Interest Carryover is paid in full or the related Final
Maturity Date occurs.
The Noteholders' Interest Carryover for a Class of Series
199_-_ Notes shall be paid by the Indenture Trustee on Outstanding Series 199_-_
Notes of such Class on the Note Distribution Date for such Class following the
first occurring Note Distribution Date for a subsequent Class Interest Period if
and to the extent that (i) during such Class Interest Period no additional
Noteholders' Interest Carryover is accruing on such Class of Series 199_-_ Notes
and (ii) moneys are available pursuant to the terms of this _____ Terms
Supplement and the applicable Sale and Servicing Agreement in an amount
sufficient to pay all or a portion of such Noteholders' Auction Rate Interest
Carryover. Any Noteholders' Interest Carryover (and any interest accrued
thereon) on any Series 199_-_ Note which is due and payable on the related Final
Maturity Date shall be paid to the Noteholder thereof on said Final Maturity
Date to the extent that moneys are available therefor in accordance with the
provisions of this _____ Terms Supplement and the applicable Sale and Servicing
Agreement; provided, however, that any Noteholders' Interest Carryover (and any
interest accrued thereon) which is not yet due and payable on said Final
Maturity Date shall be canceled with respect to said Series 199_-_ Notes on said
Final Maturity Date. To the extent that any portion of the Noteholders' Interest
Carryover for a Class of Series 199_-_ Notes remains unpaid after payment of a
portion thereof, such unpaid portion of the Noteholders' Interest Carryover
shall be paid in whole or in part as required hereunder until fully paid by the
Indenture Trustee on the next occurring Note Distribution Date or Dates, as
necessary, for a subsequent Class Interest Period or Periods for such Class, if
and to the extent that the conditions in the second preceding sentence are
satisfied. On any Note Distribution Date on which the Indenture Trustee pays
only a portion of the Noteholders' Interest Carryover on an Series 199_-_ Note
of such Class, the Indenture Trustee shall give written notice in the manner set
forth in the immediately preceding paragraph to the Noteholder of such Series
199_-_ Note receiving such partial payment of the Noteholders' Interest
Carryover remaining unpaid on such Series 199_-_ Note.
The Note Distribution Date in such subsequent Class Interest
Period on which such Noteholders' Interest Carryover for a Class of Series
199_-_ Notes shall be paid shall be determined by the Indenture Trustee in
accordance with the provisions of the immediately preceding paragraph, and the
Indenture Trustee shall make payment of the Noteholders' Interest Carryover in
the same manner as, and from the same Account from which, it pays interest on
the Series 199_-_ Notes on a Note Distribution Date.
In the event that the Auction Agent no longer determines, or
fails to determine, when required, the Class Interest Rate with respect to a
Class of Series 199_-_ Notes, or, if for any reason such manner of determination
shall be held to be invalid or unenforceable by a court of competent
jurisdiction, the Class Interest Rate for the next succeeding Class Interest
Period for such Class of Series 199_-_ Notes shall be the Net Loan Rate as
determined by the Administrator (which is responsible for notifying the Auction
Agent of such Net Loan Rate), for such next succeeding Interest Period.
SECTION 2.5. CLASS INTEREST RATE.
SECTION 2.5.1. DETERMINING THE CLASS INTEREST RATE FOR
SERIES 199_-_ NOTES.
By purchasing Auction Rate Notes, whether in an Auction or
otherwise, each purchaser of the Auction Rate Notes, or its Broker-Dealer, must
agree and shall be deemed by such purchase to have agreed (i) to participate in
Auctions on the terms described herein, (ii) to have its beneficial ownership of
the Auction Rate Notes maintained at all times in Book-Entry Form for the
account of its Participant, which in turn will maintain records of such
beneficial ownership and (iii) to authorize such Participant to disclose to the
Auction Agent such information with respect to such beneficial ownership as the
Auction Agent may request.
So long as the ownership of a Class of Auction Rate Notes is
maintained in Book-Entry Form, an Existing Noteholder may sell, transfer or
otherwise dispose of Auction Rate Notes only pursuant to a Bid or Sell Order
placed in an Auction or otherwise sell, transfer or dispose of Auction Rate
Notes through a Broker-Dealer, provided that, in the case of all transfers other
than pursuant to Auctions, such Existing Noteholder, its Broker-Dealer or its
Participant advises the Auction Agent of such transfer. Auctions shall be
conducted on each Auction Date, if there is an Auction Agent on such Auction
Date, in the following manner:
(a) (i) Prior to the Submission Deadline on each
Auction Date relating to a Class of the Auction Rate Notes:
(A) each Existing Noteholder of the applicable Class
of Auction Rate Notes may submit to a Broker-Dealer by telephone or
otherwise any information as to:
(1) the principal amount of Outstanding
Auction Rate Notes of such Class, if any, owned by such
Existing Noteholder which such Existing Noteholder desires to
continue to own without regard to the Class Interest Rate for
the next succeeding Auction Period;
(2) the principal amount of Outstanding
Auction Rate Notes of such Class, if any, which such Existing
Noteholder offers to sell if the Class Interest Rate for the
next succeeding Auction Period shall be less than the rate per
annum specified by such Existing Noteholder; and/or
(3) the principal amount of Outstanding
Auction Rate Notes of such Class, if any, owned by such
Existing Noteholder which such Existing Noteholder offers to
sell without regard to the Class Interest Rate for the next
succeeding Auction Period;
and
(B) one or more Broker-Dealers may contact Potential
Noteholders to determine the principal amount of Auction Rate Notes of
such Class which each Potential Noteholder offers to purchase, if the
Class Interest Rate for the next succeeding Auction Period shall not be
less than the rate per annum specified by such Potential Noteholder.
The statement of an Existing Noteholder or a Potential Noteholder
referred to in (A) or (B) of this paragraph (i) is herein referred to as an
"Order," and each Existing Noteholder and each Potential Noteholder placing an
Order is herein referred to as a "Bidder"; an Order described in clause (A)(1)
is herein referred to as a "Hold Order"; an Order described in clauses (A)(2)
and (B) is herein referred to as a "Bid"; and an Order described in clause
(A)(3) is herein referred to as a "Sell Order."
(ii) (A) Subject to the provisions of Section
2.5.1(b) hereof, a Bid by an Existing Noteholder shall constitute an
irrevocable offer to sell:
(1) the principal amount of
Outstanding Auction Rate Notes specified in such Bid if the
Class Interest Rate determined as provided in this Section
2.5.1 shall be less than the rate specified therein; or
(2) such principal amount, or a lesser
principal amount of Outstanding Auction Rate Notes to be
determined as set forth in Section 2.5. 1(d)(i)(D) hereof, if
the Class Interest Rate determined as provided in this Section
2.5.1 shall be equal to the rate specified therein; or
(3) such principal amount, or a lesser
principal amount of Outstanding Auction Rate Notes to be
determined as set forth in Section 2.5.1(d)(ii)(C) hereof, if
the rate specified therein shall be higher than the Class
Interest Rate and Sufficient Bids have not been made.
(B) Subject to the provisions of Section
2.5.1(b) hereof, a Sell Order by an Existing Noteholder shall
constitute an irrevocable offer to sell:
(1) the principal amount of
Outstanding Auction Rate Notes specified in such Sell Order; or
(2) such principal amount, or a lesser
principal amount of Outstanding Auction Rate Notes set forth
in Section 2.5.1(d)(ii)(C) hereof, if Sufficient Bids have not
been made.
(C) Subject to the provisions of Section
2.5.1(b) hereof, a Bid by a Potential Noteholder shall constitute an
irrevocable offer to purchase:
(1) the principal amount of
Outstanding Auction Rate Notes specified in such Bid if the
Class Interest Rate determined as provided in this Section
2.5.1 shall be higher than the rate specified in such Bid; or
(2) such principal amount, or a lesser
principal amount of Outstanding Auction Rate Notes set forth
in Section 2.5.1(d)(i)(E) hereof, if the Class Interest Rate
determined as provided in this Section 2.5.1 shall be equal to
the rate specified in such Bid.
(b) (i) Each Broker-Dealer shall submit in writing
to the Auction Agent prior to the Submission Deadline on each Auction Date all
Orders obtained by such Broker-Dealer and shall specify with respect to each
such Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate principal amount and Class of
Auction Rate Notes that are the subject of such Order;
(C) to the extent that such Bidder is an
Existing Noteholder:
(1) the principal amount and Class of
Auction Rate Notes, if any, subject to any Hold Order
placed by such Existing Noteholder;
(2) the principal amount and Class
of Auction Rate Notes, if any, subject to any Bid
placed by such Existing Noteholder and the rate
specified in such Bid; and
(3) the principal amount and Class of
Auction Rate Notes, if any, subject to any Sell Order
placed by such Existing Noteholder;
and
(D) to the extent such Bidder is a Potential
Noteholder, the rate specified in such Potential Noteholder's Bid.
(ii) If any rate specified in any Bid contains
more than three figures to the right of the decimal point, the Auction
Agent shall round such rate up to the next higher one thousandth (.001)
of one percent.
(iii) If an Order or Orders covering all
Outstanding Auction Rate Notes of the applicable Class owned by an
Existing Noteholder is not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order to have
been submitted on behalf of such Existing Noteholder covering the
principal amount of Outstanding Auction Rate Notes of such Class owned
by such Existing Noteholder and not subject to an Order submitted to
the Auction Agent.
(iv) Neither the Issuer, the Indenture Trustee
nor the Auction Agent shall be responsible for any failure of a
Broker-Dealer to submit an Order to the Auction Agent on behalf of any
Existing Noteholder or Potential Noteholder.
(v) If any Existing Noteholder submits through a
Broker-Dealer to the Auction Agent one or more Orders covering in the
aggregate more than the principal amount of the Class of Outstanding
Auction Rate Notes owned by such Existing Noteholder, such Orders shall
be considered valid as follows and in the
following order of priority:
(A) All Hold Orders shall be considered valid, but only
up to the aggregate principal amount of the Class of Outstanding
Auction Rate Notes owned by such Existing Noteholder, and if the
aggregate principal amount of the Class of Auction Rate Notes subject
to such Hold Orders exceeds the aggregate principal amount of the
Class of Auction Rate Notes owned by such Existing Noteholder, the
aggregate principal amount of the Class of Auction Rate Notes subject
to each such Hold Order shall be reduced pro rata so that the
aggregate principal amount of the Class of Auction Rate Notes subject
to such Hold Order equals the aggregate principal amount of the Class
of Outstanding Auction Rate Notes owned by such Existing Noteholder.
(B) (1) any Bid shall be considered valid up to an
amount equal to the excess of the principal amount of the Class of
Outstanding Auction Rate Notes owned by such Existing Noteholder over
the aggregate principal amount of the Class of Auction Rate Notes
subject to any Hold Order referred to in clause (A) of this paragraph
(v);
(2) subject to subclause (1) of this clause (B), if
more than one Bid with the same rate is submitted on behalf of
such Existing Noteholder and the aggregate principal amount of
the Class of Outstanding Auction Rate Notes subject to such Bids
is greater than such excess, such Bids shall be considered valid
up to an amount equal to such excess;
(3) subject to subclauses (1) and (2) of this clause
(B), if more than one Bid with different rates are submitted on
behalf of such Existing Noteholder, such Bids shall be considered
valid first in the ascending order of their respective rates
until the highest rate is reached at which such excess exists and
then at such rate up to the amount of such excess; and
(4) in any such event, the amount of the Class of
Outstanding Auction Rate Notes, if any, subject to Bids not valid
under this clause (B) shall be treated as the subject of a Bid by
a Potential Noteholder at the rate therein specified; and
(C) All Sell Orders shall be considered valid up to an
amount equal to the excess of the principal amount of the Class of
Outstanding Auction Rate Notes owned by such Existing Noteholder over
the aggregate principal amount of the Class of Auction Rate Notes
subject to Hold Orders referred to in clause (A) of this paragraph (v)
and valid Bids referred to in clause (B) of this paragraph (v).
(vi) If more than one Bid for a Class of Auction Rate
Notes is submitted on behalf of any Potential Noteholder, each Bid
submitted shall be a separate Bid with the rate and principal amount
therein specified.
(vii) An Existing Noteholder of a Class of Auction Rate
Notes that offers to purchase additional Class A-_ Notes is, for
purposes of such offer, treated as a Potential Noteholder.
(viii) Any Bid or Sell Order submitted by an Existing
Noteholder covering an aggregate principal amount of a Class of
Auction Rate Notes not equal to an Authorized Denomination shall be
rejected and shall be deemed a Hold Order. Any Bid submitted by a
Potential Noteholder covering an aggregate principal amount of a Class
of Auction Rate Notes not equal to an Authorized Denomination shall be
rejected.
(ix) Any Bid specifying a rate higher than the Maximum
Auction Rate will (a) be treated as a Sell Order if submitted by an
Existing Noteholder and (b) not be accepted if submitted by a
Potential Noteholder.
(x) Any Order submitted in an Auction by a
Broker-Dealer to the Auction Agent at the Submission Deadline on any
Auction Date shall be irrevocable.
(c) (i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all valid Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or deemed
submitted by a Broker-Dealer being herein referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order," and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for the applicable Class of Auction Rate
Notes:
(A) the excess of the total principal amount of Outstanding
Auction Rate Notes of such Class over the sum of the aggregate
principal amount of Outstanding Auction Rate Notes of such Class
subject to Submitted Hold Orders (such excess being herein referred to
as the "Available Auction Rate Notes" of such Class), and
(B) from the Submitted Orders whether:
(1) the aggregate principal amount of Outstanding Auction
Rate Notes of such Class subject to Submitted Bids by Potential
Noteholders specifying one or more rates equal to or lower than the
Maximum Auction Rate;
exceeds or is equal to the sum of:
(2) the aggregate principal amount of Outstanding Auction
Rate Notes of such Class subject to Submitted Bids by Existing
Noteholders specifying one or more rates higher than the Maximum
Auction Rate; and
(3) the aggregate principal amount of Outstanding Auction
Rate Notes of such Class subject to submitted Sell Orders;
(in the event such excess or such equality exists, other than because
all of the Outstanding Auction Rate Notes of such Class are subject to
Submitted Hold Orders, such Submitted Bids described in subclause (1)
above shall be referred to collectively as "Sufficient Bids"); and
(C) if Sufficient Bids exist, the "Bid Auction Rate", which
shall be the lowest rate specified in such Submitted Bids such that
if:
(1) (x) each Submitted Bid from Existing Noteholders
specifying such lowest rate and (y) all other Submitted Bids from
Existing Noteholders specifying lower rates were rejected, thus
entitling such Existing Noteholders to continue to own the
principal amount of Auction Rate Notes of such Class subject to
such Submitted Bids; and
(2) (x) each such Submitted Bid from Potential Noteholders
specifying such lowest rate and (y) all other Submitted Bids from
Potential Noteholders specifying lower rates were accepted;
the result would be that such Existing Noteholders described
in subclause (1) above would continue to own an aggregate principal
amount of Outstanding Auction Rate Notes of the applicable Class
which, when added to the aggregate principal amount of Outstanding
Auction Rate Notes of such Class to be purchased by such Potential
Noteholders described in subclause (2) above, would equal not less
than the Available Auction Rate Notes of such Class.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to Section 2.5.1(c)(i) hereof, the Auction
Agent shall advise the Indenture Trustee of the Net Loan Rate, the
Maximum Auction Rate and the All Hold Rate and the components thereof
on the Auction Date and, based on such determinations, the Auction
Rate for the next succeeding Class Interest Period for such Class of
Auction Rate Notes as follows:
(A) if Sufficient Bids exist, that the Auction Rate for the
next succeeding Class Interest Period for such Class shall be equal to
the Bid Auction Rate so determined;
(B) if Sufficient Bids do not exist (other than because all
of the Outstanding Auction Rate Notes of such Class are subject to
Submitted Hold Orders), that the Auction Rate for the next succeeding
Class Interest Period shall be equal to the Maximum Auction Rate; or
(C) if all Outstanding Auction Rate Notes of such Class are
subject to Submitted Hold Orders, that the Auction Rate for the next
succeeding Class Interest Period shall be equal to the All Hold Rate.
(iii) Promptly after the Auction Agent has determined the
Auction Rate, the Auction Agent shall determine and advise the
Indenture Trustee of the applicable Class Interest Rate, which rate
shall be the lesser of (a) the Auction Rate and (b) the Net Loan Rate;
provided, however, that in no event shall the Class Interest Rate
exceed the Class Interest Rate Limitation.
(d) Existing Noteholders shall continue to own the principal amount of
Auction Rate Notes of such Class that are subject to Submitted Hold Orders. If
the Net Loan Rate is equal to or greater than the Bid Auction Rate and if
Sufficient Bids have been received by the Auction Agent, the Bid Auction Rate
will be the Class Interest Rate, and Submitted Bids and Submitted Sell Orders
will be accepted or rejected and the Auction Agent will take such other action
as described below in subparagraph (i).
If the Net Loan Rate is less than the Auction Rate, the Net Loan Rate
will be the Class Interest Rate. If the Auction Rate and the Net Loan Rate are
both greater than the Class Interest Rate Limitation, the Class Interest Rate
shall be equal to the Class Interest Rate Limitation. If the Auction Agent has
not received Sufficient Bids (other than because all of the Outstanding Auction
Rate Notes of such Class are subject to Submitted Hold Orders), the Class
Interest Rate will be the lesser of the Maximum Auction Rate and the Net Loan
Rate. In any of the cases described above, Submitted Orders will be accepted or
rejected and the Auction Agent will take such other action as described below in
subparagraph (ii).
(i) if Sufficient Bids have been made and the Net Loan Rate is
equal to or greater than the Bid Auction Rate (in which case the Class
Interest Rate shall be the Bid Auction Rate), all Submitted Sell
Orders shall be accepted and, subject to the provisions of paragraphs
(iv) and (v) of this Section 2.5.1(d), Submitted Bids shall be
accepted or rejected as follows in the following order of priority,
and all other Submitted Bids shall be rejected:
(A) Existing Noteholders' Submitted Bids specifying any rate that
is higher than the Class Interest Rate shall be accepted, thus
requiring each such Existing Noteholder to sell the aggregate
principal amount of Auction Rate Notes subject to such Submitted Bids;
(B) Existing Noteholders' Submitted Bids specifying any rate that
is lower than the Class Interest Rate shall be rejected, thus
entitling each such Existing Noteholder to continue to own the
aggregate principal amount of Auction Rate Notes subject to such
Submitted Bids;
(C) Potential Noteholders' Submitted Bids specifying any rate
that is lower than the Class Interest Rate shall be accepted;
(D) Each Existing Noteholders' Submitted Bid specifying a rate
that is equal to the Class Interest Rate shall be rejected, thus
entitling such Existing Noteholder to continue to own the aggregate
principal amount of Auction Rate Notes subject to such Submitted Bid,
unless the aggregate principal amount of Outstanding Auction Rate
Notes subject to all such Submitted Bids shall be greater than the
principal amount of Auction Rate Notes of the applicable Class (the
"remaining principal amount") equal to the excess of the Available
Auction Rate Notes of such Class over the aggregate principal amount
of Auction Rate Notes of such Class subject to Submitted Bids
described in clauses (B) and (C) of this Section 2.5.1(d)(i), in which
event such Submitted Bid of such Existing Noteholder shall be rejected
in part, and such Existing Noteholder shall be entitled to continue to
own the principal amount of such Class of Auction Rate Notes subject
to such Submitted Bid, but only in an amount equal to the aggregate
principal amount of Auction Rate Notes of such Class obtained by
multiplying the remaining principal amount by a fraction, the
numerator of which shall be the principal amount of Outstanding
Auction Rate Notes of such Class owned by such Existing Noteholder
subject to such Submitted Bid and the denominator of which shall be
the sum of the principal amount of Outstanding Auction Rate Notes of
such Class subject to such Submitted Bids made by all such Existing
Noteholders that specified a rate equal to the Class Interest Rate;
and
(E) Each Potential Noteholder's Submitted Bid specifying a rate
that is equal to the Class Interest Rate shall be accepted, but only
in an amount equal to the principal amount of Auction Rate Notes of
the applicable Class obtained by multiplying the excess of the
aggregate principal amount of Available Auction Rate Notes of such
Class over the aggregate principal amount of Auction Rate Notes of
such Class subject to Submitted Bids described in clauses (B), (C) and
(D) of this Section 2.5.1(d)(i) by a fraction the numerator of which
shall be the aggregate principal amount of Outstanding Auction Rate
Notes of such Class subject to such Submitted Bid and the denominator
of which shall be the sum of the principal amount of Outstanding
Auction Rate Notes of such Class subject to Submitted Bids made by all
such Potential Noteholders that specified a rate equal to the Class
Interest Rate.
(ii) If Sufficient Bids have not been made (other than because
all of the Outstanding Auction Rate Notes of the applicable Class are
subject to submitted Hold Orders), or if the Net Loan Rate is less
than the Bid Auction Rate (in which case the Class Interest Rate shall
be the Net Loan Rate), or if the Class Interest Rate Limitation
applies, subject to the provisions of Section 2.5.1(d)(iv) hereof,
Submitted Orders shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids shall be
rejected:
(A) Existing Noteholders' Submitted Bids specifying any rate that
is equal to or lower than the Class Interest Rate shall be rejected,
thus entitling such Existing Noteholders to continue to own the
aggregate principal amount of Auction Rate Notes subject to such
Submitted Bids;
(B) Potential Noteholders' Submitted Bids specifying (1) any rate
that is equal to or lower than the Class Interest Rate shall be
accepted and (2) any rate that is higher than the Class Interest Rate
shall be rejected; and
(C) each Existing Noteholder's Submitted Bid specifying any rate
that is higher than the Class Interest Rate and the Submitted Sell
Order of each Existing Noteholder shall be accepted, thus entitling
each Existing Noteholder that submitted any such Submitted Bid or
Submitted Sell Order to sell the Auction Rate Notes subject to such
Submitted Bid or Submitted Sell Order, but in both cases only in an
amount equal to the aggregate principal amount of Auction Rate Notes
of the applicable Class obtained by multiplying the aggregate
principal amount of Auction Rate Notes subject to Submitted Bids
described in clause (B) of this Section 2.5.1(d)(ii) by a fraction the
numerator of which shall be the aggregate principal amount of
Outstanding Auction Rate Notes of such Class owned by such Existing
Noteholder subject to such submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate principal amount of
Outstanding Auction Rate Notes of such Class subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If all Outstanding Auction Rate Notes of such Class are
subject to Submitted Hold Orders, all Submitted Bids shall be
rejected.
(iv) If, as a result of the procedures described in paragraph (i)
or (ii) of this Section 2.5.1(d), any Existing Noteholder would be
entitled or required to sell, or any Potential Noteholder would be
entitled or required to purchase, a principal amount of Auction Rate
Notes of the applicable Class that is not equal to an Authorized
Denomination, the Auction Agent shall, in such manner as in its sole
discretion it shall determine, round up or down the principal amount
of Auction Rate Notes to be purchased or sold by any Existing
Noteholder or Potential Noteholder so that the principal amount of
Auction Rate Notes purchased or sold by each Existing Noteholder or
Potential Noteholder shall be equal to an Authorized Denomination or
an integral multiple of $50,000 in excess thereof.
(v) If, as a result of the procedures described in paragraph (ii)
of this Section 2.5.1(d), any Potential Noteholder would be entitled
or required to purchase less than an Authorized Denomination of
Auction Rate Notes of the applicable Class, the Auction Agent shall,
in such manner as in its sole discretion it shall determine, allocate
Auction Rate Notes of such Class for purchase among Potential
Noteholders so that only Auction Rate Notes of such Class in
Authorized Denominations or integral multiples of $50,000 in excess
thereof are purchased by any Potential Noteholder, even if such
allocation results in one or more of such Potential Noteholders not
purchasing any Auction Rate Notes of such Class.
(e) Based on the result of each Auction, the Auction Agent shall
determine the aggregate principal amount of Auction Rate Notes of the applicable
Class to be purchased and the aggregate principal amount of Auction Rate Notes
of the applicable Class to be sold by Potential Noteholders and Existing
Noteholders on whose behalf each Broker-Dealer submitted Bids or Sell Orders
and, with respect to each Broker-Dealer, to the extent that such aggregate
principal amount of Auction Rate Notes of the applicable Class to be sold
differs from such aggregate principal amount of Auction Rate Notes of the
applicable Class to be purchased, determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or
more sellers such Broker-Dealer shall receive, as the case may be, Auction Rate
Notes of the applicable Class.
(f) On each Class Rate Determination Date relating to the LIBOR Rate
Notes, the Indenture Trustee (or the Auction Agent on its behalf) shall
determine One-Month LIBOR and the applicable Class Interest Rate and shall
promptly give written notice thereof to the Issuer.
(g) Any calculation by the Auction Agent, the Master Servicer or the
Indenture Trustee, as applicable, of the Class Interest Rate, One-Month LIBOR,
Three-Month LIBOR, the Maximum Auction Rate, the All Hold Rate, the Net Loan
Rate and the Non-Payment Rate shall, in the absence of manifest error, be
binding on all other parties.
SECTION 2.5.2. PAYMENT DEFAULTS; AUCTION AGENT FEES AND EXPENSES.
(a) The Indenture Trustee shall determine not later than 2:00 p.m.,
eastern time, on the Business Day next succeeding a Note Distribution Date,
whether a Payment Default has occurred. If a Payment Default has occurred, the
Indenture Trustee shall, not later than 2:15 p.m., eastern time, on such
Business Day, send a notice thereof in substantially the form of Exhibit B
attached hereto to the Auction Agent, the Eligible Lender Trustee and the Surety
Provider by telecopy or similar means and, if such Payment Default is cured, the
Indenture Trustee shall immediately send a notice in substantially the form of
Exhibit C attached hereto to the Auction Agent, the Eligible Lender Trustee and
the Surety Provider by telecopy or similar means.
(b) Not later than 2:00 p.m., eastern time, on the first Note
Distribution Date for any Class of Notes occurring in each month, the Indenture
Trustee shall pay to the Auction Agent, in immediately available funds out of
amounts in the Expense Account an amount equal to the Auction Agent Fee (which
shall include the Broker-Dealer Fee) as calculated in the Auction Agent
Agreement. TMSI shall from time to time at the request of the Auction Agent
reimburse the Auction Agent for its reasonable expenses as provided in the
Auction Agent Agreement.
SECTION 2.5.3. CALCULATION OF MAXIMUM AUCTION RATE, ALL HOLD RATE, NET
LOAN RATE, ONE-MONTH LIBOR, THREE-MONTH LIBOR AND NON-PAYMENT RATE. The
Administrator shall calculate the Net Loan Rate and inform the Auction Agent
thereof in writing no later than the Business Day preceding each Auction Date.
The Auction Agent shall calculate the Maximum Auction Rate, the All Hold Rate
and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each Auction
Date and shall notify the Indenture Trustee, the Eligible Lender Trustee and the
Broker-Dealers of the Net Loan Rate, the Maximum Auction Rate, the All Hold Rate
and One-Month LIBOR or Three-Month LIBOR, as the case may be, as provided in the
Auction Agent Agreement. If the ownership of the Auction Rate Notes is no longer
maintained in Book-Entry Form by the Securities Depository, the Indenture
Trustee shall calculate the Maximum Auction Rate, and the Master Servicer will
report to the Indenture Trustee in writing the Net Loan Rate, on the Business
Day immediately preceding the first day of each Class Interest period commencing
after the delivery of certificates representing the Auction Rate Notes pursuant
to Section 2.15 of the Master Indenture. If a Payment Default shall have
occurred, the Indenture Trustee shall calculate the Non-Payment Rate on the
Class Rate Determination Date for (i) each Class Interest Period commencing
after the occurrence and during the continuance of such Payment Default and (ii)
any Class Interest Period commencing less than two Business Days after the cure
of any Payment Default. The Auction Agent shall determine One-Month LIBOR or
Three-Month LIBOR, as applicable, for each Class Interest Period other than the
first Class Interest Period; provided, that if the ownership of the Auction Rate
Notes is no longer maintained in Book-Entry Form, or if a Payment Default has
occurred, then the Indenture Trustee shall determine One-Month LIBOR or
Three-Month LIBOR, as applicable, for each such Class Interest Period. The
determination by the Indenture Trustee or the Auction Agent, as the case may be,
of One-Month LIBOR or Three-Month LIBOR, as applicable, shall (in the absence of
manifest error) be final and binding upon all parties. If calculated or
determined by the Auction Agent, the Auction Agent shall promptly advise the
Indenture Trustee and the Eligible Lender Trustee of One-Month LIBOR or
Three-Month LIBOR, as applicable.
SECTION 2.5.4. NOTIFICATION OF RATES, AMOUNTS AND NOTE DISTRIBUTION
DATES.
(a) [Reserved]
(b) Promptly after the Closing Date and after the beginning of each
subsequent Class Interest Period relating to each Class of Auction Rate Notes,
and in any event at least 10 days prior to any Note Distribution Date relating
to a Class of Auction Rate Notes, the Indenture Trustee shall confirm with the
Auction Agent, so long as no Payment Default has occurred and is continuing and
the ownership of the Auction Rate Notes is maintained in Book-Entry Form by the
Securities Depository, (1) the date of such next Note Distribution Date relating
to a Class of Auction Rate Notes and (2) the amount payable to the Auction Agent
on the Auction Date pursuant to Section 2.5.2(b) hereof.
If any day scheduled to be a Note Distribution Date shall be changed
after the Indenture Trustee shall have given the notice or confirmation referred
to in the preceding sentence, the Indenture Trustee shall, not later than 9:15
a.m., eastern time, on the Business Day next preceding the earlier of the new
Note Distribution Date or the old Note Distribution Date, by such means as the
Indenture Trustee deems practicable, give notice of such change to the Auction
Agent, so long as no Payment Default has occurred and is continuing and the
ownership of the Auction Rate Notes is maintained in Book-Entry Form by the
Securities Depository.
SECTION 2.5.5. AUCTION AGENT.
(a) __________ is hereby appointed as Initial Auction Agent to serve
as agent for the Issuer in connection with Auctions. The Indenture Trustee and
the Issuer will, and the Indenture Trustee is hereby directed to, enter into the
Initial Auction Agent Agreement with _____________, as the Initial Auction
Agent. Any Substitute Auction Agent shall be (i) a bank, national banking
association or trust company duly organized under the laws of the United States
of America or any state or territory thereof having its principal place of
business in the Borough of Manhattan, New York, or such other location as
approved by the Indenture Trustee and the Market Agent in writing and having a
combined capital stock or surplus of at least $50,000,000, or (ii) a member of
the National Association of Securities Dealers, Inc., having a capitalization of
at least $50,000,000, and, in either case, authorized by law to perform all the
duties imposed upon it hereunder and under the Auction Agent Agreement. The
Auction Agent may at any time resign and be discharged of the duties and
obligations created by this _____ Terms Supplement by giving at least 90 days'
notice to the Indenture Trustee, the Issuer, the Surety Provider and the Market
Agent. The Auction Agent may be removed at any time by the Indenture Trustee
upon the written direction of the Surety Provider, or with the consent of the
Surety Provider, the Noteholders of 66-2/3% of the aggregate principal amount of
the Auction Rate Notes then Outstanding, and if by such Noteholders, by an
instrument signed by the Surety Provider or such Noteholders or their attorneys
and filed with the Auction Agent, the Issuer, the Market Agent and the Indenture
Trustee upon at least 90 days' notice. Neither resignation nor removal of the
Auction Agent pursuant to the preceding two sentences shall be effective until
and unless a Substitute Auction Agent has been appointed and has accepted such
appointment. If required by the Issuer or the Market Agent, with the Trust's
consent, a Substitute Auction Agent Agreement shall be entered into with a
Substitute Auction Agent. Notwithstanding the foregoing, the Auction Agent may
terminate the Auction Agent Agreement if, within 25 days after notifying the
Indenture Trustee, the Issuer, the Surety Provider and the Market Agent in
writing that it has not received payment of any Auction Agent Fee due it in
accordance with the terms of the Auction Agent Agreement, the Auction Agent does
not receive such payment.
(b) If the Auction Agent shall resign or be removed or be dissolved,
or if the property or affairs of the Auction Agent shall be taken under the
control of any state or federal court or administrative body because of
bankruptcy or insolvency, or for any other reason, the Indenture Trustee, at the
direction of the Trust (after receipt of a certificate from the Market Agent
confirming that any proposed Substitute Auction Agent meets the requirements
described in the immediately preceding paragraph), shall use its best efforts to
appoint a Substitute Auction Agent.
(c) The Auction Agent is acting as agent for the Issuer in connection
with Auctions. In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted in
good faith or for any error of judgment made by it in the performance of its
duties under the Auction Agent Agreement. The Auction Agent shall not be liable
for any error of judgment made in good faith unless the Auction Agent shall have
been negligent in ascertaining the pertinent facts.
(d) In the event of a change in the Auction Agent Fee Rate pursuant to
Section 6.4(b) of the Auction Agent Agreement, the Auction Agent shall give a
Notice of Fee Rate Change to the Indenture Trustee, the Surety Provider and the
Eligible Lender Trustee in accordance with the Auction Agent Agreement.
SECTION 2.5.6. BROKER-DEALERS.
(a) The Auction Agent will enter into a Broker-Dealer Agreement with
Smith Barney Inc., as the initial Broker-Dealer. An Authorized Officer of the
Administrator may, from time to time, approve one or more additional persons to
serve as Broker-Dealers under Broker-Dealer Agreements and shall be responsible
for providing such Broker-Dealer Agreements to the Indenture Trustee, the Surety
Provider and the Auction Agent, provided, however that while Smith Barney Inc.
is serving as a Broker-Dealer, Smith Barney Inc. shall have the right to consent
to the approval of any additional Broker-Dealers, which consent will not be
unreasonably withheld. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such Broker-
Dealer in any Auction.
(b) Any Broker-Dealer may be removed at any time, at the request of an
Authorized Officer of the Administrator, but there shall, at all times, be at
least one Broker-Dealer appointed and acting as such.
SECTION 2.5.7. CHANGES IN AUCTION PERIOD OR PERIODS.
(a) While any of the Auction Rate Notes are Outstanding, the Issuer
may, from time to time, convert the length of one or more Auction Periods (an
"Auction Period Adjustment"), in order to conform with then current market
practice with respect to similar securities or to accommodate economic and
financial factors that may affect or be relevant to the length of the Auction
Period and the Class Interest Rate borne by the Auction Rate Notes. The Issuer
shall not initiate an Auction Period Adjustment unless the Issuer shall have
received the written consent of the Market Agent and the Surety Provider, which
consents shall not be unreasonably withheld, not less than three days nor more
than 20 days prior to the effective date of an Auction Period Adjustment. The
Issuer shall initiate the Auction Period Adjustment by giving written notice by
Issuer Order to the Indenture Trustee, the Auction Agent, the Market Agent, the
Surety Provider, the Rating Agencies and the Securities Depository in
substantially the form of, or containing substantially the information contained
in, Exhibit D to this _____ Terms Supplement at least 5 days prior to the
Auction Date for such Auction Period.
(b) Any such adjusted Auction Period shall not be less than 7 days nor
more than 91 days. If any such adjusted Auction Period will be less than the
number of days in the current Auction Period, the notice described above will be
effective only if it is accompanied by a written statement of the Indenture
Trustee, the Eligible Lender Trustee, the Auction Agent and the Securities
Depository to the effect that they are capable of performing their duties, if
any, under this _____ Terms Supplement, the Auction Agent Agreement and any
Broker-Dealer Agreement with respect to such changed Auction Period.
(c) An Auction Period Adjustment shall take effect only if (A) the
Indenture Trustee and the Auction Agent receive, by 11:00 a.m., Eastern time, on
the Business Day before the Auction Date for the first such Auction Period, an
Issuer Certificate in substantially the form attached as, or containing
substantially the same information contained in, Exhibit E to this _____ Terms
Supplement, authorizing the Auction Period Adjustment specified in such
certificate along with a copy of the certificate of the Market Agent described
above in subparagraph (a) above and, if applicable, the written statement of the
Indenture Trustee, the Eligible Lender Trustee, the Auction Agent and the
Securities Depository described in subparagraph (b) above and (B) Sufficient
Bids exist as of the Auction on the Auction Date for such first Auction Period.
If the condition referred to in (A) above is not met, the Class Interest Rate
for the applicable Class of Auction Rate Notes for the next Auction Period shall
be determined pursuant to the above provisions of this Section 2.5 and the
Auction Period shall be the Auction Period determined without reference to the
proposed change. If the condition referred to in (A) is met but the condition
referred to in (B) above is not met, the Class Interest Rate for the applicable
Class of Auction Rate Notes for the next Auction Period shall be the lesser of
the Maximum Auction Rate and the Net Loan Rate and the Auction Period shall be
the Auction Period determined without reference to the proposed change.
In connection with any Auction Period Adjustment, the Auction Agent
shall provide such further notice to such parties as is specified in Section 2.5
of the Auction Agent Agreement.
SECTION 2.5.8. CHANGES IN THE AUCTION DATE. The Market Agent, with the
written consent of an Authorized Officer of the Administrator, may specify an
earlier or later Auction Date (but in no event more than five Business Days
earlier or later) than the Auction Date that would otherwise be determined in
accordance with the definition of "Auction Date" in Section 1.1 of this _____
Terms Supplement with respect to one or more specified Auction Periods in order
to conform with then current market practice with respect to similar securities
or to accommodate economic and financial factors that may affect or be relevant
to the day of the week constituting an Auction Date and the Class Interest Rate
borne on a Class of Auction Rate Notes. The Market Agent shall deliver a written
request for consent to such change in the length of the Auction Date to the
Issuer not less than three days nor more than 20 days prior to the effective
date of such change together with a certificate demonstrating the need for
change in reliance on such factors. Notwithstanding any adjustments to Auction
Periods that have been initiated or effected pursuant to Section 2.5.7 hereof,
the Market Agent shall specify Auction Periods such that a Note Distribution
Date for each Class of Auction Rate Notes shall occur in the months of January,
April, July and October, commencing January 1996. The Market Agent shall provide
notice of its determination to specify an earlier Auction Date for one or more
Auction Periods by means of a written notice delivered at least 10 days prior to
the proposed changed Auction Date to the Indenture Trustee, the Auction Agent,
the Issuer, the Rating Agencies and the Securities Depository. Such notice shall
be substantially in the form of, or contain substantially the information
contained in, Exhibit F to this _____ Terms Supplement.
In connection with any change described in this Section 2.5.8, the
Auction Agent shall provide such further notice to such parties as is specified
in Section 2.5 of the Auction Agent Agreement.
SECTION 2.6. ADDITIONAL PROVISIONS REGARDING THE CLASS INTEREST RATES
ON THE SERIES 199_-_ NOTES. The determination of a Class Interest Rate by the
Auction Agent, the Indenture Trustee or any other Person pursuant to the
provisions of the applicable Section of this Article II shall be conclusive and
binding on the Noteholders of the Class of Series 199_-_ Notes to which such
Class Interest Rate applies, and the Issuer and the Indenture Trustee may rely
thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on
a Class of Series 199_-_ Notes (including interest calculated as provided
herein, plus any other amounts that constitute interest on the Series 199_-_
Notes of such Class under applicable law, which are contracted for, charged,
reserved, taken or received pursuant to the Series 199_-_ Notes of such Class or
related documents) calculated from the date of issuance of the Series 199_-_
Notes of such Class through any subsequent day during the term of the Series
199_-_ Notes of such Class or otherwise prior to payment in full of the Series
199_-_ Notes of such Class exceed the amount permitted by applicable law. If the
applicable law is ever judicially interpreted so as to render usurious any
amount called for under the Series 199_-_ Notes of such Class or related
documents or otherwise contracted for, charged, reserved, taken or received in
connection with the Series 199_-_ Notes of such Class, or if the acceleration of
the maturity of the Series 199_-_ Notes of such Class results in payment to or
receipt by the Noteholder or any former Noteholder of the Series 199_-_ Notes of
such Class of any interest in excess of that permitted by applicable law, then,
notwithstanding any provision of the Series 199_-_ Notes of such Class or
related documents to the contrary, all excess amounts theretofore paid or
received with respect to the Series 199_-_ Notes of such Class shall be credited
on the principal balance of the Series 199_-_ Notes of such Class (or, if the
Series 199_-_ Notes of such Class have been paid or would thereby be paid in
full, refunded by the recipient thereof), and the provisions of the Series
199_-_ Notes of such Class and related documents shall automatically and
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for under the Series 199_-_
Notes of such Class and under the related documents.
SECTION 2.7. QUALIFICATIONS OF MARKET AGENT. The Market Agent shall be
a member of the National Association of Securities Dealers, Inc., have a
capitalization of at least $50,000,000 and be authorized by law to perform all
the duties imposed upon it by this _____ Terms Supplement. The Market Agent may
resign and be discharged of the duties and obligations created by this _____
Terms Supplement by giving at least 30 days' notice to the Issuer and the
Indenture Trustee, provided that such resignation shall not be effective until
the appointment of a successor market agent by the Issuer and the acceptance of
such appointment by such successor market agent. The Market Agent may be
replaced at the direction of the Issuer, by an instrument signed by an
Authorized Officer, filed with the Market Agent and the Indenture Trustee at
least 30 days before the effective date of such replacement, provided that such
replacement shall not be effective until the appointment of a successor market
agent by the Issuer and the acceptance of such appointment by such successor
market agent.
In the event that the Market Agent shall be removed or be dissolved,
or if the property or affairs of the Market Agent shall be taken under the
control of any state or federal court or administrative body because of
bankruptcy or insolvency, or for any other reason, and there is no Market Agent
and the Issuer shall not have appointed its successor as Market Agent, the
Indenture Trustee, notwithstanding the provisions of the first paragraph of this
Section, shall be deemed to be the Market Agent for all purposes of this _____
Terms Supplement until the appointment by the Issuer of the successor Market
Agent. Nothing in this Section shall be construed as conferring on the Indenture
Trustee additional duties other than as set forth herein.
ARTICLE III
DISTRIBUTIONS
Section 3.1 DISTRIBUTIONS OF INTEREST AND PRINCIPAL. The Indenture
Trustee shall make distributions from and to the several Trust Accounts in the
manner provided for in Section 5.5 of the Second Supplemental Sale and Servicing
Agreement, as such Section may be amended from time to time.
Section 3.2 SELECTION OF NOTES TO RECEIVE PAYMENTS OF PRINCIPAL. With
respect to each Class of Auction Rate Notes entitled to receive payments of
principal, the actual Notes of such Class that will receive payments of
principal on each applicable Note Distribution Date will be selected no later
than 15 days prior to the related Note Distribution Date by the Securities
Depository, pursuant to the Note Depository Agreement entered into with respect
to the Series 199_-_ Notes, by lot in such manner as the Securities Depository
in its discretion may determine and which may provide for the selection for
payment of principal in minimum denominations of $50,000, and integral multiples
in excess thereof.
With respect to each class of LIBOR Rate Notes entitled to receive
payments of principal on a Note Distribution Date, the Noteholders' Principal
Distribution Amount being distributed to such Class shall be distributed on a
pro rata basis among the Note Owners of such Class as of the related Record Date
based on the Percentage Interest represented by their respective LIBOR Rate
Notes.
Notice of the specific Notes to receive payments of principal is to be
given by the Indenture Trustee by first-class mail, postage prepaid, mailed not
less than 15 days but no more than 30 days before the applicable Note
Distribution Date at the address of the applicable Noteholder appearing on the
registration books. Any defect in or failure to give such mailed notice shall
not affect the validity of proceedings for the payment of any other Notes not
affected by such failure or defect. All notices of payment are to state: (i) the
applicable Note Distribution Date; (ii) the amount of principal to be paid, and
(iii) the Class of the Notes to be paid.
The Indenture Trustee shall notify in writing, substantially in the
form of Exhibit D to the Auction Agent Agreement, the Auction Agent when any
notice of principal payment of Notes is sent to the Securities Depository not
later than 11:00 a.m., on the date such notice is sent.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. ISSUER FOR THIS _____ TERMS SUPPLEMENT. This _____ Terms
Supplement is adopted pursuant to the provisions of the Master Indenture.
SECTION 4.2. COUNTERPARTS. This _____ Terms Supplement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
SECTION 4.3. INDENTURE CONSTITUTES A SECURITY AGREEMENT. This _____
Terms Supplement constitutes a security agreement for the purposes of the
Uniform Commercial Code.
SECTION 4.4. GOVERNING LAW. This _____ Terms Supplement shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 4.5. RATIFICATION OF MASTER INDENTURE. As supplemented by this
_____ Terms Supplement and each previously executed Terms Supplement, the Master
Indenture is in all respects ratified and confirmed, and the Master Indenture as
so supplemented by this _____ Terms Supplement and each previously executed
Terms Supplement shall be read, taken and construed as one and the same
instrument. Each addition to and amendment of the Master Indenture contained
herein is solely for purposes of the Series 199_-_ Notes, and shall have no
effect on any other Series of Notes issued pursuant to the Master Indenture. If
any term of this _____ Terms Supplement conflicts with any term of the Master
Indenture or any previously executed Terms Supplement, this _____ Terms
Supplement shall control for purposes of the Series 199_-_ Notes.
Notwithstanding the foregoing, the percentage set forth in clause (ii) of the
definition of Specified Reserve Account Balance relating to each Series of Notes
shall be ____________-%, or such other percentage as may be agreed to in writing
by the Administrator and the Surety Provider. It is the express intention of the
parties hereto that the Specified Reserve Account Balance shall be determined by
reference to the aggregate outstanding principal balances of each Series of
Notes and Certificates.
IN WITNESS WHEREOF, the parties hereto have caused this _____ Terms
Supplement to be duly executed as of the day and year first above written.
[TRUST 199_-_]
By: ________________, not in its
individual capacity
Attest: but solely as Eligible
Lender Trustee
By:___________________ By:
Name: Name:
Title: Assistant Secretary Title: Senior Vice President
Attest: ______________, not in its individual
capacity but solely as Indenture
Trustee,
By:
<PAGE>
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said _____________ of _____________________, not in its individual capacity but
solely as Eligible Lender Trustee of [TRUST 199_-_], a ______ trust, and that he
executed the same as the act of said trust for the purpose and consideration
therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of ____,
199_.
-----------------------------
Notary Public in and for
the State of New York.
[SEAL]
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said ___________, a _________ banking corporation, and that she executed the
same as the act of said corporation for the purpose and consideration therein
expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of _____,
199_.
-----------------------------
Notary Public in and for
the State of New York.
[SEAL]
My commission expires:
- ----------------------
<PAGE>
EXHIBIT A-1
[FORM OF AUCTION RATE NOTES]
[TRUST 199_-_]
ASSET BACKED NOTES
SERIES 199_-_
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
No. A-_-_ $______
FINAL
MATURITY DATED INTEREST
CLASS DATE DATE RATE CUSIP
auction rate
as herein
provided
REGISTERED NOTEHOLDER: CEDE & CO.
PRINCIPAL AMOUNT: __________________________________
<PAGE>
[TRUST 199_-_], a _________ business trust (the "Issuer"), for value
received, promises to pay, from the sources herein described, to the Registered
Noteholder identified above, or registered assigns, upon presentation and
surrender hereof at the Corporate Trust Office of ____________, as Paying Agent,
or at the principal office of any successor or additional Paying Agent, the
Principal Amount identified above on the Final Maturity Date identified above,
and to pay to the registered owner hereof, interest and principal hereon in
lawful money of the United States of America at the Class Interest Rate on the
dates as provided herein. Unless otherwise defined in this Series 199_-_ Note,
capitalized terms used in this Series 199_-_ Note shall have the respective
meanings given to such terms in the Master Indenture dated as of _________,
199_, as supplemented by the _____ Terms Supplement dated as of ____, 199_, (the
"_____ Terms Supplement" and, together, the "Indenture") between the Issuer and
_______________, as Indenture Trustee.
This Series 199_-_ Note is one of a duly authorized issue of notes of
the Issuer designated as "[Trust 199_-_] Asset-Backed Notes, Series 199_-_"
(herein referred to as the "Series 199_-_ Notes"), in the aggregate principal
amount of $___________ issued under the Indenture. The Series 199_-_ Notes are
issued to finance the acquisition and consolidation of Financed Student Loans,
and to make certain deposits to the Pledged Accounts.
The Indenture provides for the issuance, from time to time, under the
conditions, limitations and restrictions set forth therein, of additional notes
on a parity with all Series of obligations issued or to be issued under the
Indenture, for the purpose of providing additional funds for the acquisition and
consolidation of Financed Student Loans (said additional notes, together with
Series 199_-_ Notes, being collectively referred to herein as the "Notes").
The Notes are secured under the Indenture which, together with certain
other documents, assigns to the Indenture Trustee for the benefit of the
Noteholders all the rights and remedies of the Issuer under certain Financed
Student Loans and rights under various contracts providing for the issuance,
guarantee and servicing of such Financed Student Loans. Reference is hereby made
to the Indenture for the provisions, among others, with respect to the custody
and application of the proceeds of the Notes, definitions of certain capitalized
terms used in this Series 199_-_ Note, the nature and the extent of the liens
and security of the Indenture, the collection and disposition of revenues, the
funds charged with and pledged to the payment of the principal of and the
interest on the Notes, the terms and conditions under which additional Notes may
be issued, the rights, duties and immunities of the Indenture Trustee, the
rights of the registered owners of the Notes, and the rights and obligations of
the Issuer. By the acceptance of this Series 199_-_ Note, the registered owner
hereof assents to all of the provisions of the Indenture.
The unpaid principal amount hereof from time to time outstanding shall
bear interest at a Class Interest Rate, as described below, payable on each
applicable Note Distribution Date to the extent of interest accrued on the
principal then outstanding, such interest to accrue from the later of the date
hereof or the date through which interest has been paid or duly provided for.
Interest at a Class Interest Rate established pursuant to the _____ Terms
Supplement shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
During the Class Initial Period, this Series 199_-_ Note shall bear
interest at the Class Initial Rate for the Series 199_-_ Notes of this Class set
forth in the _____ Terms Supplement. Thereafter until an Auction Period
Adjustment, if any, this Series 199_-_ Note shall bear interest at a Class
Interest Rate based on an Auction Period that shall, until adjusted pursuant to
the _____ Terms Supplement, generally consist of __ days, all as determined in
the _____ Terms Supplement.
The Class Interest Rate to be borne by this Series 199_-_ Note after
the Class Initial Period for each Auction Period, if any, or an Auction Period
Adjustment, if any, shall be the lesser of (i) the Net Loan Rate in effect for
such Auction Period and (ii) the Auction Rate determined in accordance with the
applicable provisions of the _____ Terms Supplement.
In no event shall the Class Interest Rate on this Series 199_-_ Note
exceed 18.0% per annum.
The Class Interest Period, including, without limitation, an Auction
Period, the applicable Class Interest Rate, the method of determining the
applicable Class Interest Rate on each of the Auction Rate Notes and the Auction
Procedures related thereto, including, without limitation, required notices
thereof to the Noteholders or Existing Noteholders of the Auction Rate Notes, an
Auction Period Adjustment, a change in the Auction Date and the Note
Distribution Dates will be determined in accordance with the terms, conditions
and provisions of the _____ Terms Supplement and the Auction Agent Agreement, to
which terms, conditions and provisions specific reference is hereby made, and
all of which terms, conditions and provisions are hereby specifically
incorporated herein by reference.
If the Auction Rate for the Class A-_ Notes is greater than the Net
Loan Rate, then the Class Interest Rate applicable to the Class A-_ Notes for
that Class Interest Period will be the Net Loan Rate. If the Class Interest Rate
applicable to the Class A-_ Notes for any Class Interest Period is the Net Loan
Rate, the Indenture Trustee shall determine the Noteholders' Auction Rate
Interest Carryover, if any, with respect to the Class A-_ Notes for such Class
Interest Period. Such Noteholders' Auction Rate Interest Carryover shall bear
interest calculated at a rate equal to One-Month LIBOR from the Note
Distribution Date for each Class Interest Period with respect to which such
Noteholders' Auction Rate Interest Carryover was calculated until paid. For
purposes of this Class A-_ Note, any reference to "principal" or "interest"
herein shall not include within the meaning of such words Noteholders' Auction
Rate Interest Carryover or any interest accrued on any such Noteholders' Auction
Rate Interest Carryover. Such Noteholders' Auction Rate Interest Carryover shall
be separately calculated for each Series 199_-_ Auction Rate Note by the
Indenture Trustee during such Class Interest Period in sufficient time for the
Indenture Trustee to give notice to each Noteholder of such Noteholders' Auction
Rate Interest Carryover as required in the next succeeding sentence. On the Note
Distribution Date for a Class Interest Period with respect to which such
Noteholders' Auction Rate Interest Carryover has been calculated by the
Indenture Trustee, the Indenture Trustee shall give written notice to each
Noteholder of the Noteholders' Auction Rate Interest Carryover applicable to
each Noteholder's Class A-_ Notes, which written notice may accompany the
payment of interest by check made to each such Noteholder on such Note
Distribution Date or otherwise shall be mailed on such Note Distribution Date by
first class mail, postage prepaid, to each such Noteholder at such Noteholder's
address as it appears on the registration books maintained by the Registrar.
Such notice shall state, in addition to such Noteholders' Auction Rate Interest
Carryover, that, unless and until the Final Maturity Date for such Class A-_
Note has occurred (after which no Noteholders' Auction Rate Interest Carryover
(and all accrued interest thereon) shall be paid with respect to a Class A-_
Note), (i) the Noteholders' Auction Rate Interest Carryover (and interest
accrued thereon calculated on the basis of One-Month LIBOR) shall be paid by the
Indenture Trustee on a Class A-_ Note on the first occurring Note Distribution
Date for a subsequent Class Interest Period if and to the extent that (1) during
such Class Interest Period no additional Noteholders' Auction Rate Interest
Carryover is accruing on the Class A-_ Notes and (2) moneys are available on
such Note Distribution Date pursuant to the terms of the _____ Terms Supplement
in an amount sufficient to pay all or a portion of such Noteholders' Auction
Rate Interest Carryover and (ii) interest shall accrue on the Noteholders'
Auction Rate Interest Carryover at a rate equal to One-Month LIBOR until such
Noteholders' Auction Rate Interest Carryover is paid in full or the Final
Maturity Date occurs.
The Noteholders' Auction Rate Interest Carryover for the Class A-_
Notes shall be paid by the Indenture Trustee on Outstanding Class A-_ Notes on
the first occurring Note Distribution Date for a subsequent Class Interest
Period if and to the extent that (i) during such Class Interest Period, no
additional Noteholders' Auction Rate Interest Carryover is accruing on the Class
A-_ Notes and (ii) on such Note Distribution Date there are sufficient moneys
available pursuant to the terms of the _____ Terms Supplement to pay all or a
portion of the Noteholders' Auction Rate Interest Carryover due on the Class A-_
Notes on such Note Distribution Date. Any Noteholders' Auction Rate Interest
Carryover (and any interest accrued thereon) on any Class A-_ Note which is due
and payable on the related Final Maturity Date, shall be paid to the Noteholder
thereof on said Final Maturity Date to the extent that moneys are available
therefor in accordance with the _____ Terms Supplement; provided, however, that
any Noteholders' Auction Rate Interest Carryover (and any interest accrued
thereon) which is not yet due and payable on said Final Maturity Date shall be
canceled with respect to said Class A-_ Note on said Final Maturity Date. To the
extent that any portion of the Noteholders' Auction Rate Interest Carryover
remains unpaid after payment of a portion thereof, such unpaid portion of the
Noteholders' Auction Rate Interest Carryover shall be paid in whole or in part
until fully paid by the Indenture Trustee on the next occurring Note
Distribution Date or Dates, as necessary, for a subsequent Class Interest Period
or Periods, if and to the extent that the conditions in the immediately
preceding sentence are satisfied.
The Note Distribution Date in such subsequent Class Interest Period on
which such Noteholders' Auction Rate Interest Carryover for the Class A-_ Notes
shall be paid shall be determined by the Indenture Trustee in accordance with
the provisions of the immediately preceding paragraph, and the Indenture Trustee
shall make payment of the Noteholders' Auction Rate Interest Carryover in the
same manner as, and from the same account from which, it pays interest on the
Class A- _ Notes on a Note Distribution Date.
The principal of and interest on the Class A-_ Notes and Noteholders'
Auction Rate Interest Carryover on the Series Class A-_ Notes (and interest
accrued thereon), if any, are special limited obligations of the Issuer, payable
solely from certain revenues derived by the Issuer from certain assets of the
Issuer, including certain notes evidencing Financed Student Loans. The Class A-_
Notes are not an indebtedness, a debt or a liability of Trans-World Insurance
Company, The Money Store Inc. or Smith Barney Inc.
Distributions of principal will be made to the Class of Notes with the
earliest Final Maturity Date on the first Note Distribution Date for such Class
occurring each month, commencing April 1996, in the manner described in the
Second Supplemental Sale and Servicing Agreement. With respect to the Class A-_
Notes entitled to receive payments of principal, the actual Notes of such Class
that will receive payments of principal on each applicable Note Distribution
Date will be selected no later than 15 days prior to the related Note
Distribution Date by the Indenture Trustee by lot in such manner as the
Indenture Trustee in its discretion may determine and which may provide for the
selection for payment of principal in minimum denominations of $50,000, and
integral multiples in excess thereof.
If an Event of Default as defined in the Indenture occurs, the
principal of and interest on all Notes issued under the Indenture may be
declared due and payable upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture and the rights and obligations
of the Issuer, the Indenture Trustee and the Noteholder hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
The Noteholder of this Class A-_ Note shall have no right to enforce
the provisions of the Indenture or to institute action to enforce the covenants
therein, or to take any action with respect to any Event of Default under the
Indenture, or to institute, appear in or defend any suit or other proceeding
with respect thereto, except as provided in the Indenture.
The transfer of this Class A-_ Note may be registered only upon
surrender hereof to the Indenture Trustee together with an assignment duly
executed by the registered owner or its attorney or legal representative in such
form as shall be satisfactory to the Indenture Trustee. Upon any such
registration of transfer of this Class A-_ Note and subject to the payment of
any fees and charges as provided by the Indenture, the Issuer shall execute and
the Indenture Trustee shall authenticate and deliver in exchange for this Class
A-_ Note a new Class A-_ Note or Notes registered in the name of the transferee,
in any denomination or denominations authorized by the Indenture, of the same
maturity and in an aggregate principal amount equal to the unredeemed principal
amount of this Class A-_ Note and bearing the same interest as this Class A-_
Note.
In any case where the date fixed for the payment of principal of or
interest on this Class A-_ Note shall not be a Business Day, then payment of
such principal or interest need not be made on such date but may be made on the
next succeeding Business Day with the same force and effect as if made on the
date fixed for the payment thereof.
It is hereby certified, recited and declared that all acts, conditions
and things required to have happened, to exist and to have been performed
precedent to and in the execution and delivery of the Indenture and issuance of
this Class A-_ Note have happened, do exist and have been performed in due time,
form and manner as required by law.
This Class A-_ Note shall not be valid or become obligatory for any
purpose or be entitled to any security or benefit under the Indenture until the
certificate of authentication hereon shall have been manually signed by the
Indenture Trustee.
IN WITNESS WHEREOF, the Issuer has caused this Series 199_-_ Note to
be executed in its name by the manual or facsimile signature of an Authorized
Officer and the manual or facsimile signature of an Assistant Secretary, and has
caused its corporate seal or a facsimile thereof to be hereto affixed.
[TRUST 199_-_]
By: __________________________,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
(SEAL)
Attest:
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Series 199_-_ Notes designated in and issued
under the provisions of the within mentioned Indenture.
- -------------------
New York, New York, as
Indenture Trustee
By:
Authorized Representative
Date of Authentication:
- -----------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto , the within Note and irrevocably appoints , attorney-in-fact, to transfer
the within Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated: ___________ ___________________________
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as ___________________________
it appears upon the face of
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:__________________________
Tax Identification Number or
Social Security Number(s):___________________________
[END OF FORM OF AUCTION RATE NOTES]
A-1-5
<PAGE>
EXHIBIT A-2
[FORM OF LIBOR RATE NOTES]
[TRUST 199_-_]
ASSET BACKED NOTES
SERIES 199_-_
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
<TABLE>
No. A-_-_ $__________
FINAL CLASS
MATURITY DATED INTEREST
CLASS DATE DATE RATE CUSIP
<S> <C> <C> <C> <C>
LIBOR + ____% as
herein provided
REGISTERED NOTEHOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
</TABLE>
<PAGE>
[TRUST 199_-_], a __________ business trust (the "Issuer"),
for value received, promises to pay, from the sources herein described, to the
Registered Noteholder identified above, or registered assigns, upon presentation
and surrender hereof at the Corporate Trust Office of ___________, as Paying
Agent, or at the principal office of any successor or additional Paying Agent,
the Principal Amount identified above on the Final Maturity Date identified
above, and to pay to the registered owner hereof, interest and principal hereon
in lawful money of the United States of America at the Class Interest Rate on
the dates as provided herein. Unless otherwise defined in this Series 199_-_
Note, capitalized terms used in this Series 199_-_ Note shall have the
respective meanings given to such terms in the Master Indenture dated as of
__________, 199_, as supplemented by the _____ Terms Supplement dated as of
___________, 199_, (the "_____ Terms Supplement" and, together, the "Indenture")
between the Issuer and ______________, as Indenture Trustee.
This Series 199_-_ Note is one of a duly authorized issue of
notes of the Issuer designated as "[Trust 199_-_] Asset-Backed Notes, Series
199_-_" (herein referred to collectively as the "Series 199_-_ Notes"), in the
aggregate principal amount of $___________ issued under the Indenture. The
Series 199_-_ Notes are issued to finance the acquisition and consolidation of
Financed Student Loans, and to make certain deposits to the Pledged Accounts.
The Indenture provides for the issuance, from time to time,
under the conditions, limitations and restrictions set forth therein, of
additional notes on a parity with all Series of obligations issued or to be
issued under the Indenture, for the purpose of providing additional funds for
the acquisition and consolidation of Financed Student Loans (said additional
notes, together with Series 199_-_ Notes, being collectively referred to herein
as the "Notes").
The Notes are secured under the Indenture which, together with
certain other documents, assigns to the Indenture Trustee for the benefit of the
Noteholders all the rights and remedies of the Issuer under certain Financed
Student Loans and rights under various contracts providing for the issuance,
guarantee and servicing of such Financed Student Loans. Reference is hereby made
to the Indenture for the provisions, among others, with respect to the custody
and application of the proceeds of the Notes, definitions of certain capitalized
terms used in this Series 199_-_ Note, the nature and the extent of the liens
and security of the Indenture, the collection and disposition of revenues, the
funds charged with and pledged to the payment of the principal of and the
interest on the Notes, the terms and conditions under which additional Notes may
be issued, the rights, duties and immunities of the Indenture Trustee, the
rights of the registered owners of the Notes, and the rights and obligations of
the Issuer. By the acceptance of this Series 199_-_ Note, the registered owner
hereof assents to all of the provisions of the Indenture.
The unpaid principal amount hereof from time to time
outstanding shall bear interest at a Class Interest Rate, as described below,
payable on each applicable Note Distribution Date to the extent of interest
accrued on the principal then outstanding, such interest to accrue from the
later of the date hereof or the date through which interest has been paid or
duly provided for. Interest at a Class Interest Rate established pursuant to the
_____ Terms Supplement shall be computed for the actual number of days elapsed
on the basis of a year consisting of 360 days.
During the Initial Period, this Series 199_-_ Note shall bear
interest at the Class Initial Rate equal to the rate set forth in the _____
Terms Supplement. Thereafter, this Series 199_-_ Note generally shall bear
interest at a Class Interest Rate equal to LIBOR plus the margin set forth in
the _____ Terms Supplement.
If the LIBOR Rate for the Series 199_-_, Class A-_ Notes is
greater than the Net Loan Rate, then the Class Interest Rate applicable to the
Series 199_-_, Class A-_ Notes for that Interest Period will be the Net Loan
Rate. If the Class Interest Rate applicable to the Series 199_-_, Class A-_
Notes for any Interest Period is the Net Loan Rate, the Indenture Trustee shall
determine the Noteholders' LIBOR Rate Interest Carryover, if any, with respect
to the Series 199_-_, Class A-_ Notes for such Interest Period. Such
Noteholders' LIBOR Rate Interest Carryover shall bear interest calculated at a
rate equal to One-Month LIBOR from the Note Distribution Date for each Interest
Period with respect to which such Noteholders' LIBOR Rate Interest Carryover was
calculated until paid.
For purposes of this Series 199_-_ Note, any reference to "principal" or
"interest" herein shall not include within the meaning of such words
Noteholders' LIBOR Rate Interest Carryover or any interest accrued on any such
Noteholders' LIBOR Rate Interest Carryover. Such Noteholders' LIBOR Rate
Interest Carryover shall be calculated by the Indenture Trustee during such
Interest Period in sufficient time for the Indenture Trustee to give notice to
each Noteholder of such Noteholders' LIBOR Rate Interest Carryover as required
in the next succeeding sentence. On the Note Distribution Date for an Interest
Period with respect to which such Noteholders' LIBOR Rate Interest Carryover has
been calculated by the Indenture Trustee, the Indenture Trustee shall give
written notice to each Noteholder of the Noteholders' LIBOR Rate Interest
Carryover applicable to each Noteholder's Series 199_-_, Class A-_ Notes, which
written notice may accompany the payment of interest by check made to each such
Noteholder on such Note Distribution Date or otherwise shall be mailed on such
Note Distribution Date by first class mail, postage prepaid, to each such
Noteholder at such Noteholder's address as it appears on the registration books
maintained by the Registrar. Such notice shall state, in addition to such
Noteholders' LIBOR Rate Interest Carryover, that, unless and until the Final
Maturity Date for such Series 199_-_ Class A-_ Note (after which no Noteholders'
LIBOR Rate Interest Carryover (and all accrued interest thereon) shall be paid
with respect to a Series 199_-_, Class A-_ Note), (i) the Noteholders' LIBOR
Rate Interest Carryover (and interest accrued thereon calculated on the basis of
One-Month LIBOR) shall be paid by the Indenture Trustee on a Series 199_-_,
Class A-_ Note on the first occurring Note Distribution Date for a subsequent
Interest Period if and to the extent that (1) during such Interest Period no
additional Noteholders' LIBOR Rate Interest Carryover is accruing on the Series
199_-_, Class A-_ Notes and (2) moneys are available on such Note Distribution
Date pursuant to the terms of the _____ Terms Supplement in an amount sufficient
to pay all or a portion of such Noteholders' LIBOR Rate Interest Carryover and
(ii) interest shall accrue on the Noteholders' LIBOR Rate Interest Carryover at
a rate equal to One-Month LIBOR until such Noteholders' LIBOR Rate Interest
Carryover is paid in full or is cancelled.
The Noteholders' LIBOR Rate Interest Carryover for the Series
199_-_, Class A-_ Notes shall be paid by the Indenture Trustee on Outstanding
Series 199_-_, Class A-_ Notes on the first occurring Note Distribution Date for
a subsequent Interest Period if and to the extent that (i) during such Interest
Period, no additional Noteholders' LIBOR Rate Interest Carryover is accruing on
the Series 199_-_, Class A-_ Notes and (ii) on such Note Distribution Date there
are sufficient moneys available pursuant to the terms of the _____ Terms
Supplement to pay all or a portion of the Noteholders' LIBOR Rate Interest
Carryover due on the Series 199_-_, Class A-_ Notes on such Note Distribution
Date. Any Noteholders' LIBOR Rate Interest Carryover (and any interest accrued
thereon) on any Series 199_-_, Class A-_ Note which is due and payable on the
related Final Maturity Date, shall be paid to the Noteholder thereof on said
Final Maturity Date to the extent that moneys are available therefor in
accordance with the _____ Terms Supplement; provided, however, that any
Noteholders' LIBOR Rate Interest Carryover (and any interest accrued thereon)
which is not yet due and payable on said Final Maturity Date shall be cancelled
with respect to said Series 199_-_, Class A-_ Note on said Final Maturity Date.
To the extent that any portion of the Noteholders' LIBOR Rate Interest Carryover
remains unpaid after payment of a portion thereof, such unpaid portion of the
Noteholders' LIBOR Rate Interest Carryover shall be paid in whole or in part
until fully paid by the Indenture Trustee on the next occurring Note
Distribution Date or Dates, as necessary, for a subsequent Interest Period or
Periods, if and to the extent that the conditions in the immediately preceding
sentence are satisfied.
The Note Distribution Date in such subsequent Interest Period
on which such Noteholders' LIBOR Rate Interest Carryover for the Series 199_-_,
Class A-_ Notes shall be paid shall be determined by the Indenture Trustee in
accordance with the provisions of the immediately preceding paragraph, and the
Indenture Trustee shall make payment of the Noteholders' LIBOR Rate Interest
Carryover in the same manner as, and from the same account from which, it pays
interest on the Series 199_-_, Class A-_ Notes on a Note Distribution Date.
Distributions of principal will be made on each Note
Distribution Date to the Class of Notes with the earliest Final Maturity Date on
the first Note Distribution Date for such Class occurring each month, commencing
April 1996, in the manner described in the Second Supplemental Sale and
Servicing Agreement. The Noteholders' Principal Distribution Amount distributed
to the Class A- _ Notes shall be distributed on a pro rata basis among the Note
Owners of such Class as of the related Record Date based on the Percentage
Interest represented by their respective Class A-_ Notes.
If an Event of Default as defined in the Indenture occurs, the
principal of and interest on all Notes issued under the Indenture may be
declared due and payable upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture and the rights and obligations
of the Issuer, the Indenture Trustee and the Noteholder hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
The Noteholder of this Series 199_-_ Note shall have no right
to enforce the provisions of the Indenture or to institute action to enforce the
covenants therein, or to take any action with respect to any Event of Default
under the Indenture, or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in the Indenture.
The transfer of this Series 199_-_ Note may be registered only
upon surrender hereof to the Indenture Trustee together with an assignment duly
executed by the registered owner or its attorney or legal representative in such
form as shall be satisfactory to the Indenture Trustee. Upon any such
registration of transfer of this Series 199_-_ Note and subject to the payment
of any fees and charges as provided by the Indenture, the Issuer shall execute
and the Indenture Trustee shall authenticate and deliver in exchange for this
Series 199_-_ Note a new Series 199_-_ Note or Notes registered in the name of
the transferee, in any denomination or denominations authorized by the
Indenture, of the same maturity and in an aggregate principal amount equal to
the unredeemed principal amount of this Series 199_-_ Note and bearing the same
interest as this Series 199_-_ Note.
In any case where the date fixed for the payment of principal
of or interest on this Series 199_-_ Note shall not be a Business Day, then
payment of such principal or interest need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date fixed for the payment thereof.
It is hereby certified, recited and declared that all acts,
conditions and things required to have happened, to exist and to have been
performed precedent to and in the execution and delivery of the Indenture and
issuance of this Series 199_-_ Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This Series 199_-_ Note shall not be valid or become
obligatory for any purpose or be entitled to any security or benefit under the
Indenture until the certificate of authentication hereon shall have been
manually signed by the Indenture Trustee.
IN WITNESS WHEREOF, the Issuer has caused this Series 199_-_
Note to be executed in its name by the manual or facsimile signature of an
Authorized Officer and the manual or facsimile signature of an Assistant
Secretary, and has caused its corporate seal or a facsimile thereof to be hereto
affixed.
[TRUST 199_-_]
By: ____________________________,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
(SEAL)
Attest:
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Series 199_-_ Notes designated in and
issued under the provisions of the within mentioned Indenture.
- ---------------------
New York, New York, as
Indenture Trustee
By:
Authorized Representative
Date of Authentication:
- -----------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells,
assigns and transfers unto , the within Note and irrevocably appoints ,
attorney-in-fact, to transfer the within Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ___________ ___________________________
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as ___________________________
it appears upon the face of
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:__________________________
Tax Identification Number or
Social Security Number(s):___________________________
[END OF FORM OF LIBOR RATE NOTES]
<PAGE>
EXHIBIT B
[TRUST 199_-_]
ASSET BACKED NOTES, SERIES 199_-_, CLASS A-_
NOTICE OF PAYMENT DEFAULT
NOTICE IS HEREBY GIVEN that an Event of Default has
occurred and is continuing with respect to the Notes identified above. The next
Auction for the Series 199_-_, Class A-_ Notes will not be held. The Auction
Rate for the Series 199_-_, Class A-_ Notes for the next succeeding Interest
Period shall be the Non-Payment Rate.
------------,
as Indenture Trustee
Dated: By:______________________________
Name:
Title:
<PAGE>
EXHIBIT C
[TRUST 199_-_]
ASSET BACKED NOTES, SERIES 199_-_, CLASS A-_
NOTICE OF CURE OF PAYMENT DEFAULT
NOTICE IS HEREBY GIVEN that an Event of Default with
respect to the Notes identified above has been waived or cured. The
next Note Distribution Payment Date is and the next
Auction Date is .
------------,
as Indenture Trustee
Dated: By:
Name:
[A Title:
<PAGE>
EXHIBIT D
[TRUST 199_-_
ASSET BACKED NOTES, SERIES 199_-_, CLASS A-_
NOTICE OF PROPOSED AUCTION PERIOD ADJUSTMENT
Notice is hereby given that the Issuer proposes to
change the length of one or more Auction Periods pursuant to the _____ Terms
Supplement as follows:
1. The change shall take effect on the Note
Distribution Date for the current Auction Period and the date of commencement of
the next Auction Period (the "Effective Date").
2. The Auction Period Adjustment in Paragraph 1 shall
take place only if (A) the Indenture Trustee and the Auction Agent receive, by
11:00 a.m., eastern time, on the Business Day before the Auction Date for the
Auction Period commencing on the Effective Date, an Issuer Certificate
substantially in the form attached as Exhibit E to the _____ Terms Supplement, a
certificate from the Market Agent, as required by the _____ Terms Supplement,
authorizing the change in length of one or more Auction Periods [and a written
statement of the Indenture Trustee and the Auction Agent, as required by the
_____ Terms Supplement,] and (B) Sufficient Bids exist on the Auction Date for
the Auction Period commencing on the Effective Date.
3. If the condition referred to in (A) above is not
met, the Auction Rate for the Auction Period commencing on the Effective Date
will be determined pursuant to the Auction Procedures and the Auction Period
shall be the Auction Period determined without reference to the proposed change.
If the condition referred to in (A) is met but the condition referred to in (B)
above is not met, the Auction Rate for the Auction Period commencing on the
Effective Date shall be the lesser of the Maximum Auction Rate and the Net Loan
Rate and the Auction Period shall be the Auction Period determined without
reference to the proposed change.
4. It is hereby represented, upon advice of the
Auction Agent for the Notes described herein, that there were Sufficient Bids
for such Notes at the Auction immediately preceding the date of this Notice.
5. Terms not defined in this Notice shall have the
meanings set forth in the _____ Terms Supplement entered into in connection with
the captioned Notes.
[TRUST 199_-_]
By: _______________________, not in its
individual capacity but solely as
Eligible Lender Trustee
By:__________________________________
Name:
Title:
Dated:
<PAGE>
EXHIBIT E
[TRUST 199_-_]
ASSET BACKED NOTES, SERIES 199_-_, CLASS A-_
NOTICE ESTABLISHING AUCTION PERIOD ADJUSTMENT
Notice is hereby given that the Issuer hereby
establishes new lengths for one or more Auction Periods pursuant to
the _____ Terms Supplement:
l. The change shall take effect on ___________, the
Note Distribution Date for the current Auction Period and the date of
commencement of the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the
Effective Date, the Note Distribution Date shall be _____________________, or
the next succeeding Business Day if such date is not a Business Day.
3. For Auction Periods occurring after the Auction
Period the Note Distribution Dates shall be [___________________ (date) and
every _____________ (number) _______________ (day of week) thereafter] [every
_______________ (number) _______________ (day of week) after the date set forth
in paragraph 2 above], or the next Business Day if any such day is not a
Business Day; provided, however, that the length of subsequent Auction Periods
shall be subject to further change hereafter as provided in Section 2.5.7 of the
_____ Terms Supplement.
4. The changes described in paragraphs 2 and 3
above shall take place only upon delivery of this Notice and the satisfaction of
other conditions set forth in the _____ Terms Supplement and our prior notice
dated ______________ regarding the proposed change.
5. Terms not defined in this Notice shall have the
meanings set forth in the _____ Terms Supplement relating to the
captioned Notes.
[TRUST 199_-_]
By: ______________________, not in its
individual capacity but solely as
Eligible Lender Trustee
By:__________________________________
Name:
Title:
Dated:
<PAGE>
EXHIBIT F
[TRUST 199_-_]
ASSET BACKED NOTES, SERIES 199_-_, CLASS A-_
NOTICE OF CHANGE IN AUCTION DATE
Notice is hereby given by SMITH BARNEY INC., as Market
Agent for the captioned Notes, that with respect to the captioned Notes, the
Auction Date is hereby changed as follows:
l. With respect to the captioned Notes, the
definition of "Auction Date" shall be deemed amended by substituting
"_________________ (number) Business Day" in the second line thereof.
2. This change shall take effect on ______________
which shall be the Auction Date for the Auction Period commencing on
- --------------.
3. The Auction Date for the captioned Notes shall be
subject to further change hereafter as provided in the _____ Terms
Supplement.
4. Terms not defined in this Notice shall have the
meanings set forth in the _____ Terms Supplement relating to the
captioned Notes.
SMITH BARNEY INC., as Market Agent
Dated: By:
Name:
Title:
[EXHIBIT 4.3]
TRUST AGREEMENT
between
Trans-World Insurance Company, d/b/a Educaid
as Depositor
and
-----------------------------
not in its individual capacity but solely
as Eligible Lender Trustee
Dated as of ______, 199_
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
Definitions and Usage............................................ 1
ARTICLE II
ORGANIZATION
SECTION 2.1. Name.............................................. 1
SECTION 2.2. Office............................................ 1
SECTION 2.3. Purposes and Powers............................... 1
SECTION 2.4. Appointment of Eligible Lender Trustee............ 2
SECTION 2.5. Initial Capital Contribution of Trust
Estate ......................................... 3
SECTION 2.6. Declaration of Trust.............................. 3
SECTION 2.7. Liability of the Certificateholders............... 3
SECTION 2.8. Title to Trust Property........................... 4
SECTION 2.9. Representations and Warranties of the
Depositor....................................... 4
SECTION 2.10. Federal Income Tax Allocations.................... 5
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. Initial Beneficial Ownership......................... 7
SECTION 3.2 The Trust Certificates............................... 7
SECTION 3.3. Authentication of Trust Certificates................. 7
SECTION 3.4. Registration of Transfer and Exchange
of Trust Certificates and
Originators' Interests............................. 9
SECTION 3.5. Restrictions on Transfer . . . . . . . . 10
SECTION 3.6. Mutilated, Destroyed, Lost or Stolen
Trust Certificates................................ 12
SECTION 3.7. Persons Deemed Owners............................... 12
SECTION 3.8. Access to List of Certificateholders
Names and Addresses............................... 12
SECTION 3.9. Maintenance of Office or Agency..................... 13
SECTION 3.10. Appointment of Certificate Paying Agent............. 13
SECTION 3.11. Disposition by TMS Student Holdings................. 14
SECTION 3.12. Book-Entry Certificates............................. 15
SECTION 3.13. Notices to Clearing Agency.......................... 16
SECTION 3.14. Definitive Certificates............................. 16
SECTION 3.15. Determination of Auction Rate ...................... 17
ARTICLE IV
ACTIONS BY ELIGIBLE LENDER TRUSTEE
SECTION 4.1. Prior Notice to Certificateholders with
Respect to Certain Matters........................ 17
SECTION 4.2. Action by Certificateholders with
Respect to Certain Matters........................ 18
SECTION 4.3. Action by Certificateholders with
Respect to Bankruptcy............................. 18
SECTION 4.4. Restrictions on Certificateholders'
Power ............................................ 18
SECTION 4.5. Majority Control ................................... 18
ARTICLE V
APPLICATION OF TRUST FUNDS;
CERTAIN DUTIES
SECTION 5.1. Application of Trust Funds......................... 19
SECTION 5.2. Method of Payment.................................. 20
SECTION 5.3. No Segregation of Moneys; No Interest.............. 21
SECTION 5.4. Accounting and Reports to the Note-
holders, Certificateholders,
the Internal Revenue Service and
Others .......................................... 21
SECTION 5.5. Signature on Returns; Tax Matters
Partner.......................................... 21
SECTION 5.6. Subrogation ....................................... 21
ARTICLE VI
AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE
SECTION 6.1. General Authority.................................. 22
SECTION 6.2. General Duties..................................... 23
SECTION 6.3. Action upon Instruction............................ 24
SECTION 6.4. No Duties Except as Specified in this
Agreement, the Sale and Servicing
Agreement, the Supplemental Sale
and Servicing Agreement or in
Instructions..................................... 25
SECTION 6.5. No Action Except Under Specified
Documents or Instructions........................ 25
SECTION 6.6. Restrictions....................................... 26
ARTICLE VII
CONCERNING THE ELIGIBLE LENDER TRUSTEE
SECTION 7.1. Acceptance of Trusts and Duties.................... 26
SECTION 7.2. Furnishing of Documents............................ 28
SECTION 7.3. Representations and Warranties..................... 28
SECTION 7.4. Reliance; Advice of Counsel........................ 29
SECTION 7.5. Not Acting in Individual Capacity.................. 29
SECTION 7.6. Eligible Lender Trustee Not Liable for
Trust Certificates or Financed
Student Loans.................................... 29
SECTION 7.7. Eligible Lender Trustee May Own Trust
Certificates and Notes........................... 30
ARTICLE VIII
COMPENSATION OF ELIGIBLE LENDER TRUSTEE
SECTION 8.1. Eligible Lender Trustee's Fees and
Expenses......................................... 30
SECTION 8.2. Payments to the Eligible Lender
Trustee.......................................... 31
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. Termination of Trust Agreement..................... 31
SECTION 9.2. Dissolution upon Insolvency of
TMS Student Holdings, Inc........................ 32
ARTICLE X
SUCCESSOR ELIGIBLE LENDER TRUSTEES AND
ADDITIONAL ELIGIBLE LENDER TRUSTEES
SECTION 10.1. Eligibility Requirements for
Eligible Lender Trustee.......................... 33
SECTION 10.2. Resignation or Removal of Eligible
Lender Trustee................................... 34
SECTION 10.3. Successor Eligible Lender Trustee.................. 35
SECTION 10.4. Merger or Consolidation of Eligible
Lender Trustee................................... 36
SECTION 10.5. Appointment of Co-Eligible Lender
Trustee or Separate Eligible Lender
Trustee.......................................... 36
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Supplements and Amendments......................... 38
SECTION 11.2. No Legal Title to Trust Estate in
Certificateholders............................... 40
SECTION 11.3. Limitations on Rights of Others.................... 40
SECTION 11.4. Notices............................................ 40
SECTION 11.5. Severability....................................... 41
SECTION 11.6. Separate Counterparts.............................. 41
SECTION 11.7. Successors and Assigns............................. 41
SECTION 11.8 No Petition........................................ 41
SECTION 11.9 No Recourse........................................ 41
SECTION 11.10 Headings........................................... 42
SECTION 11.11 Governing Law...................................... 42
SECTION 11.12 Rights of Surety Provider.......................... 42
SECTION 11.13 Creation of Trust and Delivery of
Trust Agreement................................... 42
EXHIBIT A Form of Trust Certificate
EXHIBIT B Notice of Change in Auction Date
EXHIBIT C Form of Purchaser's Letter
APPENDIX A Definitions
APPENDIX B Certificate Auction Procedures
<PAGE>
TRUST AGREEMENT dated as of ______, 199_, between Trans- World
Insurance Company, d/b/a Educaid, an Arizona corporation, as Depositor (the
"Depositor"), and __________, a ____________ bank and trust company, not in its
individual capacity but solely as Eligible Lender Trustee (the "Eligible Lender
Trustee")
The Depositor and the Eligible Lender Trustee hereby agree as
follows:
ARTICLE I
DEFINITIONS AND USAGE
Capitalized terms used but not defined herein are defined in
Appendix A attached hereto, which also contains rules as to construction and
usage that are applicable herein.
ARTICLE II
ORGANIZATION
SECTION 2.1. NAME. The Trust created hereby shall be known as
"[Trust 199_-_]," in which name the Eligible Lender Trustee may conduct the
business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
SECTION 2.2. OFFICE AND SITUS OF THE TRUST. The
registered office in __________ and situs of the Trust shall be at the
corporate trust office of the Eligible Lender Trustee located at
- --------------------------.
SECTION 2.3. PURPOSES AND POWERS. The purpose of the
Trust is to engage in the following activities:
(i) to issue one or more Classes of Trust
Certificates pursuant to this Agreement and, if applicable, one or more
Trust Supplements, and to sell the Trust Certificates in one or more
transactions;
(ii) to issue the Originators' Interests pursuant to this
Agreement and one or more Trust Supplements and to sell the
Originators' Interests in one or more transactions;
(iii) to issue one or more Series of Notes pursuant to the
Indenture and the applicable Terms Supplement and to sell the Notes in
one or more transactions in accordance with instructions received from
the Administrator;
(iv) with the proceeds of the sale of the Notes and the
Trust Certificates, to purchase, from time to time, the Financed
Student Loans and to fund one or more Pre-Funding Accounts pursuant to
the Sale and Servicing Agreement;
(v) to assign, grant, transfer, pledge, mortgage and
convey the Indenture Trust Estate pursuant to the Indenture and the
applicable Terms Supplement and to hold, manage and distribute to the
Certificateholders pursuant to the terms of the Sale and Servicing
Agreement and any related Supplemental Sale and Servicing Agreement any
portion of the Indenture Trust Estate released from the Lien of, and
remitted to the Trust pursuant to, the Indenture and the applicable
Terms Supplement;
(vi) from time to time to sell and dispose of the
Financed Student Loans in accordance with the terms of the Basic
Documents;
(vii) to enter into and perform its obligations under
the Basic Documents to which it is to be a party;
(viii) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(ix) to engage in such other activities as may be required
in connection with conservation of the Trust Estate and the making of
distributions to the Certificateholders, the Noteholders and the others
specified in Article V of the Sale and Servicing Agreement and or
contemplated by the Basic Documents.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the other Basic Documents.
SECTION 2.4. APPOINTMENT OF ELIGIBLE LENDER TRUSTEE. The
Depositor hereby (i) appoints the Eligible Lender Trustee as trustee of the
Trust effective as of the date hereof, to have all the rights, powers and duties
set forth herein, and (ii) ratifies all actions of the Eligible Lender Trustee
taken on behalf of the Trust prior to the execution hereof.
SECTION 2.5. INITIAL CAPITAL CONTRIBUTION OF TRUST ESTATE.
The Depositor hereby sells, assigns, transfers, conveys and sets
over to the Eligible Lender Trustee, as of the date hereof, the sum of $10.00.
The Eligible Lender Trustee hereby acknowledges receipt in trust from the
Depositor of the foregoing contribution, which shall constitute the initial
Trust Estate and shall be deposited in the Collection Account. The Depositor
shall pay the organizational expenses of the Trust as they may arise or shall,
upon the request of the Eligible Lender Trustee, promptly reimburse the Eligible
Lender Trustee for any such expenses, including reasonable fees and expenses of
counsel, paid by the Eligible Lender Trustee.
SECTION 2.6. DECLARATION OF TRUST. The Eligible Lender Trustee
hereby declares that it will hold the Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the
Certificateholders, subject to the obligations of the Trust under the other
Basic Documents. It is the intention of the parties hereto that the Trust
constitute a business trust under _________ law and that this Agreement
constitute the governing instrument of such trust. If for any reason it is
determined that the Trust does not qualify as a business trust under
___________, it shall be a trust, nonetheless, under the common law of
__________. It is the intention of the parties hereto that, solely for Federal
income tax purposes, the Trust shall be treated as a partnership, with the
assets of the partnership being the Financed Student Loans and other assets held
by the Trust, the partners of the partnership being the Certificateholders and
the Notes being debt of the partnership. The parties agree that, unless
otherwise required by appropriate Federal tax authorities, they shall treat the
Trust as a partnership for Federal tax purposes, and the Trust will file or
cause to be filed annual or other necessary returns, reports and other forms
consistent with the characterization of the Trust as a partnership for Federal
tax purposes. Effective as of the date hereof, the Eligible Lender Trustee shall
have all rights, powers and duties set forth herein with respect to
accomplishing the purposes of the Trust.
SECTION 2.7. LIABILITY OF THE CERTIFICATEHOLDERS. (a) TMS
Student Holdings, Inc., as holder of no less than a 1% interest in the Trust
Certificates and the Originators' Interests, shall be liable directly to and
will indemnify the injured party for all losses, claims, damages, liabilities
and expenses of the Trust (including Expenses, to the extent not paid out of the
Trust Estate) to the extent that TMS Student Holdings, Inc. would be liable if
the Trust were a partnership under the _____________ Revised Uniform Limited
Partnership Act in which TMS Student Holdings, Inc. were a general partner;
PROVIDED, HOWEVER, that TMS Student Holdings, Inc. shall not be liable for any
principal of or interest on the Certificates, the Originators' Interests or the
Notes. In addition, any third party creditors of the Trust (other than in
connection with the obligations described in the preceding sentence for which
TMS Student Holdings, Inc. shall not be liable) shall be deemed third party
beneficiaries of this paragraph. The obligations of TMS Student Holdings, Inc.
under this paragraph shall be evidenced by the Trust Certificates and the
Originators' Interests described in Section 3.11, which shall be deemed to be a
separate class of Trust Certificates and Originators' Interests from all other
Trust Certificates and Originators' Interests issued by the Trust; PROVIDED that
the rights and obligations evidenced by all Trust Certificates and Originators'
Interests, respectively, regardless of class, except as provided in this
Section, Section 5.1 hereof and Article V of the Sale and Servicing Agreement,
shall be identical.
(b) No Certificateholder, other than to the extent set forth
in paragraph (a), shall have any personal liability for any liability or
obligation of the Trust.
(c) TMS Student Holdings, Inc. shall maintain a minimum
capital value (not including its interest in the Trust or its interest in
[Educaid Student Loan Trust 1994-1]) equal to the greater of (a) $2,000,000 and
(b) two percent of the sum of the Certificate Balance and the [Educaid Student
Loan Trust 1994-1] Certificate Balance.
SECTION 2.8. TITLE TO TRUST PROPERTY. Legal title to all the
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Eligible Lender Trustee, a co-trustee
and/or a separate trustee, as the case may be; provided that legal title to the
Financed Student Loans shall be vested at all times in the Eligible Lender
Trustee on behalf of the Trust.
SECTION 2.9. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents and warrants to the Eligible Lender Trustee and
the Surety Provider that:
(a) The Depositor is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with
corporate power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(b) The Depositor has the corporate power and authority to
execute and deliver this Agreement and to carry out its terms; the
Depositor has full corporate power and authority to sell and assign the
property to be sold and assigned to and deposited with the Trust (or
with the Eligible Lender Trustee on behalf of the Trust) and the
Depositor has duly authorized such sale and assignment and deposit to
the Trust (or to the Eligible Lender Trustee on behalf of the Trust) by
all necessary corporate action; and the execution, delivery and
performance of this Agreement has been duly authorized by the Depositor
by all necessary corporate action.
(c) This Agreement constitutes a legal, valid and binding
obligation of the Depositor enforceable in accordance with its terms,
subject to the effect of applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto and subject to the application of equitable principles in any
proceeding, whether at law or in equity.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under, the articles of incorporation or by-laws of the Depositor, or
any material indenture, agreement or other material instrument to which
the Depositor is a party or by which it is bound; nor result in the
creation or imposition of any Lien upon any of its properties pursuant
to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or,
to the Depositor's knowledge, any order, rule or regulation applicable
to the Depositor of any court or of any Federal or State regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over the Depositor or its properties.
(e) No consent of any Federal or state governmental or
administrative authority is required to be obtained by the Depositor
prior to its entering into this Agreement or in connection with its
consummation of the transactions contemplated by the Basic Documents,
other than those that have been obtained.
SECTION 2.10. FEDERAL INCOME TAX ALLOCATIONS. Net income of
the Trust for any month as determined for Federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation thereof)
shall be allocated:
(a) among the Certificateholders as of the close of business
on the last day of such month, in proportion to their ownership of
principal amount of Trust Certificates on such date, an amount of net
income up to the sum of (i) the portion of the Certificateholders'
Interest Distribution Amount and the Certificateholders' Auction Rate
Interest Carryover, if any, for the related Distribution Date allocable
to such month, (ii) interest on the excess, if any, of the
Certificateholders' Interest Distribution Amount for the preceding
Distribution Date over the amount in respect of interest that is
actually distributed to Certificateholders on such preceding
Distribution Date, to the extent permitted by law, at the Certificate
Rate for such month and (iii) the portion of the market discount on the
Financed Student Loans accrued during such quarter that is allocable to
the excess, if any, of the initial aggregate principal amount of the
Trust Certificates over their initial aggregate issue price; and
(b) to TMS Student Holdings, Inc., in its capacity as a Trust
Certificateholder, to the extent of any remaining net income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in the preceding
sentence. Net losses of the Trust, if any, for any month as determined for
Federal income tax purposes (and each item of income, gain, loss and deduction
entering into the computation thereof) shall be allocated to TMS Student
Holdings, Inc. to the extent TMS Student Holdings, Inc. is reasonably expected
to bear the economic burden of such net losses, and any remaining net losses
shall be allocated among the remaining Certificateholders as of the close of
business on the last day of such month in proportion to their ownership of
principal amount of Trust Certificates on such Record Date. TMS Student
Holdings, Inc. is authorized to modify the allocations in this paragraph if
necessary or appropriate, in its sole discretion, for the allocations to fairly
reflect the economic income, gain or loss to TMS Student Holdings, Inc. or to
the Certificateholders, or as otherwise required by the Code. Moreover, TMS
Student Holdings may modify the allocations upon the issuance of Certificates
pursuant to a Trust Supplement in order to ensure that the allocations reflect
the Certificateholders' economic interests in the partnership.
ARTICLE III
TRUST CERTIFICATES, ORIGINATORS' INTERESTS
AND TRANSFER OF INTERESTS
SECTION 3.1. INITIAL BENEFICIAL OWNERSHIP. Upon the formation
of the Trust by the contribution by the Depositor pursuant to Section 2.5 and
until the initial issuance of the Trust Certificates, the Depositor shall be the
sole beneficial owner of the Trust.
SECTION 3.2. THE TRUST CERTIFICATES. Each Class of Trust
Certificates shall be issued in denominations of $50,000 or in integral
multiples in excess thereof; PROVIDED, HOWEVER, that the Trust Certificates
issued to TMS Student Holdings, Inc. pursuant to Section 3.11 may be issued in
such denomination as to include any residual amount (but in no case less than
$50,000 in principal amount). The Trust Certificates shall be executed on behalf
of the Trust by manual or facsimile signature of an authorized officer of the
Eligible Lender Trustee. Trust Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be valid and
binding obligations of the Trust, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates. No Trust Certificates
may be subdivided for resale into amounts smaller than a unit the initial
offering price of which would have been at least $20,000.
SECTION 3.2.A. THE ORIGINATORS' INTERESTS. The Originators'
Interests shall be issued with minimum offering prices of $20,000. The
Originators' Interests shall be executed on behalf of the Trust by manual or
facsimile signature of an authorized officer of the Eligible Lender Trustee.
Originators' Interests bearing the manual or facsimile signatures of individuals
who were, at the time when such signatures shall have been affixed, authorized
to sign on behalf of the Trust, shall be valid obligations of the Trust,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Originators'
Interests or did not hold such offices at the date of authentication and
delivery of such Owners' Interests. No Originators' Interest may be subdivided
for resale into amounts smaller than a unit the initial offering price of which
would have been at least $20,000.
SECTION 3.3. AUTHENTICATION OF TRUST CERTIFICATES.
Concurrently with the initial sale of Financed Student Loans to the Trust
pursuant to the Sale and Servicing Agreement and the initial sale of the
Certificates to the Initial Purchaser pursuant to the Purchase Agreement, the
Eligible Lender Trustee shall cause the Trust Certificates in an aggregate
principal amount equal to the Initial Certificate Balance to be executed on
behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, without further action by the Depositor, in authorized denominations.
Such Trust Certificates shall be designated as the Class 1 Certificates. From
time to time after such initial issuance of Trust Certificates, with the written
consent of the Surety Provider additional Classes of Trust Certificates may be
issued in an aggregate principal amount and with such terms and designation as
shall be provided in a related Trust Supplement. The Eligible Lender Trustee
shall cause such additional Trust Certificates, if any, to be executed on behalf
of the Trust, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any vice
president, without further action by the Depositor, in authorized denominations.
No Trust Certificate shall entitle its holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Trust Certificate a certificate of authentication substantially in the form set
forth in Exhibit A, executed by the Eligible Lender Trustee by manual signature;
such authentication shall constitute conclusive evidence that such Trust
Certificate shall have been duly authenticated and delivered hereunder. All
Trust Certificates shall be dated the date of their authentication. No further
Trust Certificates shall be issued except pursuant to Section 3.4, 3.5 or 3.14
hereunder. The Final Maturity Date for each Class of Trust Certificates shall
occur later than the Final Maturity Date for each Class of Notes.
SECTION 3.3.A. AUTHENTICATION OF ORIGINATORS' INTERESTS.
Originators' Interests may from time be issued with such terms, including
restrictions on transfer, as may be set forth in a related Trust Supplement. The
Eligible Lender Trustee shall cause such Originators' Interests, if any, to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further action by the Depositor, in
authorized denominations. No Originators' Interest shall entitle its holder to
any benefit under this Agreement, or shall be valid for any purpose, unless
there shall appear on such Originators' Interest a certificate of authentication
substantially in the form set forth in an exhibit to the related Trust
Supplement, executed by the Eligible Lender Trustee by manual signature; such
authentication shall constitute conclusive evidence that such Originators'
Interest shall have been duly authenticated and delivered hereunder. All
Originators' Interest shall be dated the date of their authentication. No
further Originators' Interest shall be issued except pursuant to Section 3.4,
3.5 or 3.14 hereunder.
SECTION 3.4. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST
CERTIFICATES AND ORIGINATORS' INTERESTS. The Certificate Registrar shall keep or
cause to be kept, at the office or agency maintained pursuant to Section 3.8, a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Eligible Lender Trustee shall provide for the registration of
Trust Certificates and Originators' Interests and of transfers and exchanges of
Trust Certificates and Originators' Interests as herein provided. The Eligible
Lender Trustee shall be the Certificate Registrar.
Upon surrender for registration of transfer of any Trust
Certificate or Originators' Interest at the office or agency maintained pursuant
to Section 3.9, and compliance with the provisions set forth in Section 3.5, the
Eligible Lender Trustee shall execute, authenticate and deliver in the name of
the designated transferee or transferees, one or more new Trust Certificates or
Originators' Interests, as the case may be, in authorized denominations of a
like aggregate amount dated the date of authentication by the Eligible Lender
Trustee or any authenticating agent. At the option of a Certificateholder, Trust
Certificates or Originators' Interests, as the case may be, may be exchanged for
other Trust Certificates or Originators' Interests, as the case may be, of
authorized denominations of a like aggregate amount upon surrender of the Trust
Certificates or Originators' Interests, as the case may be, to be exchanged at
the office or agency maintained pursuant to Section 3.8.
Every Trust Certificate or Originators' Interest, as the case
may be, presented or surrendered for registration of transfer or exchange shall
be accompanied by a written instrument of transfer in form satisfactory to the
Eligible Lender Trustee and the Certificate Registrar duly executed by the
Certificateholder or his attorney duly authorized in writing, with such
signature guaranteed by an entity acceptable to the Eligible Lender Trustee.
Each Trust Certificate or Originators' Interest, as the case may be, surrendered
for registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Eligible Lender Trustee in accordance with its customary
practice.
No service charge shall be made for any registration of
transfer or exchange of Trust Certificates or Originators' Interests, as the
case may be, but the Eligible Lender Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Trust Certificates
or Originators' Interests, as the case may be.
The preceding provisions of this Section 3.4 notwithstanding,
the Eligible Lender Trustee shall not be required to make and the Certificate
Registrar need not register transfers or exchanges of Trust Certificates or
Originators' Interests, as the case may be, for a period of 15 days preceding
any Certificate Distribution Date with respect to the Trust Certificates or
Originators' Interests, as the case may be.
SECTION 3.5. RESTRICTIONS ON TRANSFER. (a) Except for the
transfer of Trust Certificates to TMS Student Holdings, Inc. pursuant to Section
3.11, the Trust Certificates may not be offered or sold except to institutional
"accredited investors" (as defined in Rule 501(a)(1)-(3) under the Securities
Act who are U.S. Persons (as defined in Section 7701(a)(30) of the Code) in
reliance on an exemption from the registration requirements of the Securities
Act.
Each purchaser of the Trust Certificates (except, with respect to (i)
below, TMS Student Holdings, Inc.) will be deemed to have represented and agreed
as follows:
(i) It is an institutional "accredited investor" as defined in Rule
501(a)(1)-(3) under the Securities Act and is acquiring the Trust Certificates
for its own institutional account or for the account of an institutional
accredited investor.
(ii) It is not (i) an employee benefit plan, retirement arrangement,
individual retirement account or Keogh plan subject to either Title I of the
Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of
the Internal Revenue Code of 1986, as amended, or (2) an entity (including an
insurance company general account) whose underlying assets include plan assets
by reason of any such plan's arrangements or account's investment in any such
entity.
(iii) It is a U.S. Person as defined in Section 7701(a)(30) of
the Code.
(iv) It understands that the Trust Certificates will be offered in a
transaction not involving any public offering within the meaning of the
Securities Act, and that, if in the future it decides to resell, pledge or
otherwise transfer any Trust Certificates, such Trust Certificates may be
resold, pledged or transferred only (a) to a person who the seller reasonably
believes is an institutional "accredited investor" as defined in Rule
501(a)(1)-(3) under the Securities Act that purchases for its own account or for
the account of another institutional accredited investor or (b) pursuant to an
effective registration statement under the Securities Act.
(v) It understands that except for the Trust Certificate transferred to TMS
Student Holdings, Inc. pursuant to Section 3.11, each Trust Certificate will
bear a legend substantially to the following effect:
"UNLESS THIS TRUST CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE HOLDER HEREOF, BY PURCHASING THIS TRUST CERTIFICATE,
AGREES THAT THIS TRUST CERTIFICATE MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1)
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3) UNDER THE ACT THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR,
OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT.
THIS TRUST CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1)
EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS
OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL
ACCOUNTS) WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH
PLAN'S ARRANGEMENTS OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES. FURTHER, THIS
TRUST CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON WITHIN THE
MEANING OF SECTION 7701(A)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
THIS TRUST CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY."
(b) Each purchaser of Trust Certificates (except for TMS
Student Holdings, Inc.) shall be required, prior to purchasing a Trust
Certificate, to execute an deliver to the Broker-Dealer a Purchaser's Letter
substantially in the form attached hereto as Exhibit C. The Eligible Lender
Trustee shall be under no duty or obligation to ensure compliance with the
provisions of this Section 3.5(b).
(c) Restrictions on transfer relating to the Originators'
Interests will be as set forth in the related Trust Supplements.
SECTION 3.6. MUTILATED, DESTROYED, LOST OR STOLEN TRUST
CERTIFICATES AND ORIGINATORS' INTERESTS. If (a) any mutilated Trust Certificate
or Originators' Interest shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Trust Certificate or Originators' Interest,
and (b) there shall be delivered to the Certificate Registrar, the Eligible
Lender Trustee and the Surety Provider such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Certificate shall have been acquired by a bona fide purchaser,
the Eligible Lender Trustee on behalf of the Trust shall execute and the
Eligible Lender Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Trust Certificate or
Originators' Interest, as the case may be, a new Trust Certificate or
Originators' Interest, as the case may be, of like tenor and denomination. In
connection with the issuance of any new Trust Certificate or Originators'
Interest, as the case may be, under this Section, the Eligible Lender Trustee
and the Certificate Registrar may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Certificate or Originators' Interest, as the case
may be, issued pursuant to this Section shall constitute conclusive evidence of
ownership in the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Trust Certificate or Originators' Interest, as the case may be,
shall be found at any time.
SECTION 3.7. PERSONS DEEMED OWNERS. Prior to due presentation
of a Trust Certificate or Originators' Interest, as the case may be, for
registration of transfer, the Eligible Lender Trustee, the Certificate Registrar
or the Surety Provider and any agent of any thereof may treat the Person in
whose name any Trust Certificate or Originators' Interest, as the case may be,
shall be registered in the Certificate Register as the owner of such Trust
Certificate or Originators' Interest, as the case may be, for the purpose of
receiving distributions pursuant to Section 5.1 and for all other purposes
whatsoever, and neither the Eligible Lender Trustee, the Certificate Registrar,
the Surety Provider nor any agent of any thereof shall be bound by any notice to
the Contrary.
SECTION 3.8. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Eligible Lender Trustee shall furnish or cause to be furnished to
the Depositor or TMS Student Holdings, Inc., as applicable, within 15 days after
receipt by the Eligible Lender Trustee of a request therefor from the Depositor
or TMS Student Holdings, Inc. in writing, a list, in such form as the Depositor
or TMS Student Holdings, Inc. may reasonably require, of the names and addresses
of the Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Certificateholders evidencing not less than
25% of the Certificate Balance apply in writing to the Eligible Lender Trustee,
and such application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Trust Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Eligible Lender
Trustee shall, within five Business Days after the receipt of such application,
afford such applicants access during normal business hours to the current list
of Certificateholders. Upon receipt of any such application, the Eligible Lender
Trustee will promptly notify the Depositor by providing a copy of such
application and a copy of the list of Certificateholders produced in response
thereto. If an Event of Default occurs, the Eligible Lender Trustee shall
furnish to the Surety Provider, upon its request, a copy of the list of
Certificateholders within 5 days of receipt of such request. Each
Certificateholder, by receiving and holding a Trust Certificate or Originators'
Interest, as the case may be, shall be deemed to have agreed not to hold any of
the Depositor, the Certificate Registrar or the Eligible Lender Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 3.9. MAINTENANCE OF OFFICE OR AGENCY. The Eligible
Lender Trustee shall maintain in ________, an office or offices or agency or
agencies where Trust Certificates and Originators' Interests may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Eligible Lender Trustee in respect of the Trust Certificates, the
Originators' Interests and the other Basic Documents may be served. The Eligible
Lender Trustee initially designates its corporate trust office at ________, as
such office. The Eligible Lender Trustee shall give prompt written notice to the
Depositor, the Surety Provider and to the Certificateholders of any change in
the location of the Certificate Register or any such office or agency.
SECTION 3.10. APPOINTMENT OF CERTIFICATE PAYING AGENT. The
Certificate Paying Agent shall make distributions to Certificateholders from the
amounts received from the Indenture Trustee out of the Trust Accounts pursuant
to Section 5.1 and shall report the amounts of such distributions to the
Eligible Lender Trustee. Any Certificate Paying Agent shall have the revocable
power to receive such funds from the Indenture Trustee for the purpose of making
the distributions referred to above. The Eligible Lender Trustee may revoke such
power and remove the Certificate Paying Agent (i) if the Eligible Lender Trustee
determines in its sole discretion that the Certificate Paying Agent shall have
failed to perform its obligations under this Agreement in any material respect,
or (ii) for any other reason with the consent of the Administrator or the Surety
Provider. The Certificate Paying Agent shall initially be the Eligible Lender
Trustee, and any co-paying agent chosen by the Eligible Lender Trustee
acceptable to the Administrator and the Surety Provider, which consent shall not
be unreasonably withheld. The Eligible Lender Trustee shall furnish the
Indenture Trustee and the Surety Provider notice identifying each co-paying
agent within two days of any such appointment. The Eligible Lender Trustee shall
be permitted to resign as Certificate Paying Agent upon 30 days' written notice
to the Eligible Lender Trustee and the Surety Provider. If the Eligible Lender
Trustee shall no longer be the Certificate Paying Agent, the Eligible Lender
Trustee, subject to the prior written consent of the Surety Provider (which
consent shall not be unreasonably withheld), shall appoint a successor to act as
Certificate Paying Agent (which shall be a bank or trust company). The Eligible
Lender Trustee shall cause such successor Certificate Paying Agent or any
additional Certificate Paying Agent appointed by the Eligible Lender Trustee to
execute and deliver to the Eligible Lender Trustee an instrument in which such
successor Certificate Paying Agent or additional Certificate Paying Agent shall
agree with the Eligible Lender Trustee that, as Certificate Paying Agent, such
successor Certificate Paying Agent or additional Certificate Paying Agent will
hold all sums, if any, held by it for payment to the Certificateholders in trust
for the benefit of the Certificateholders entitled thereto until such sums shall
be paid to such Certificateholders. The Certificate Paying Agent shall return
all unclaimed funds to the Eligible Lender Trustee and upon removal of a
Certificate Paying Agent such Certificate Paying Agent shall also return all
funds in its possession to the Eligible Lender Trustee. The provisions of
Sections 7.1, 7.3, 7.4, 7.5 and 8.1 shall apply to the Eligible Lender Trustee
also in its role as Certificate Paying Agent, for so long as the Eligible Lender
Trustee shall act as Certificate Paying Agent and, to the extent applicable, to
any other paying agent appointed hereunder. Any reference in this Agreement to
the Certificate Paying Agent shall include any co-paying agent unless the
context requires otherwise.
SECTION 3.11. DISPOSITION BY TMS STUDENT HOLDINGS, INC. On
each Closing Date, TMS Student Holdings, Inc. shall acquire from the Initial
Purchaser, pursuant to the Purchase Agreement and as agreed to by the Depositor,
and shall thereafter retain, beneficial and record ownership of Trust
Certificates in an amount such that the aggregate amount of Trust Certificates
then owned by TMS Student Holdings, Inc. represents at least 1% of the
Certificate Balance. Such Trust Certificates also shall be deemed to represent
beneficial and record ownership of 1% of each Originators' Interest that may be
issued hereafter. Any attempted transfer of any Trust Certificate that would
reduce TMS Student Holdings, Inc.'s interest below 1% of the Certificate Balance
shall be void. The Eligible Lender Trustee shall cause any Trust Certificate
issued to TMS Student Holdings, Inc. on the Closing Date (and any Trust
Certificate issued in exchange therefor) to contain a legend stating "THIS
CERTIFICATE IS NONTRANSFERABLE".
SECTION 3.12. BOOK-ENTRY CERTIFICATES. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book- Entry Certificates, to be
delivered to the Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Trust; provided, HOWEVER, that one Definitive Certificate (as
defined below) of each Class may be issued to TMS Student Holdings, Inc.
pursuant to Section 3.11 and the Purchase Agreement. Such Book-Entry Certificate
or Book- Entry Certificates shall initially be registered on the Certificate
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Certificate Owner (other than TMS Student Holdings, Inc.) will receive a
Definitive Certificate representing such Certificate Owner's interest in such
Trust Certificate, except as provided in Section 3.14. Unless and until
definitive, fully registered Trust Certificates (the "Definitive Certificates")
have been issued to Certificate Owners pursuant to Section 3.14 and except for
the Trust Certificates issued to TMS Student Holdings, Inc.
pursuant to Section 3.11:
(i) the provisions of this Section shall be in full force
and effect;
(ii) the Certificate Registrar and the Eligible Lender Trustee
shall be entitled to deal with the Clearing Agency for all purposes of
this Agreement (including the payment of principal of and interest on
the Trust Certificates and the giving of instructions or directions
hereunder) as the sole Certificateholder and shall have no obligation
to the Certificate Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Agreement, the provisions of this
Section shall control;
(iv) the rights of Certificate Owners shall be exercised only
through the Clearing Agency and shall be limited to those established
by law and agreements between such Certificate Owners and the Clearing
Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive
Certificates are issued pursuant to Section 3.14, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and
interest on the Trust Certificates to such Clearing Agency
Participants; and
(v) whenever this Agreement requires or permits actions to be
taken based upon instructions or directions of Certificateholders of
Trust Certificates evidencing a specified percentage of the Certificate
Balance, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to such
effect from Certificate Owners and/or Clearing Agency Participants
owning or representing, respectively, such required percentage of the
beneficial interest in the Trust Certificates and has delivered such
instructions to the Eligible lender Trustee.
SECTION 3.13. NOTICES TO CLEARING AGENCY. Whenever a notice or
other communication to the Trust Certificateholders is required under this
Agreement, unless and until Definitive Certificates shall have been issued to
Trust Certificate Owners pursuant to Section 3.14 and except for the Trust
Certificate issued to TMS Student Holdings, Inc. pursuant to Section 3.11, the
Eligible Lender Trustee shall give all such notices and communications specified
herein to be given to Trust Certificateholders to the Clearing Agency, and shall
have no obligations to the Trust Certificate Owners.
SECTION 3.14. DEFINITIVE CERTIFICATES. If (i) the
Administrator advises the Eligible Lender Trustee in writing that the Clearing
Agency is no longer willing or able to discharge properly its responsibilities
with respect to the Trust Certificates, and the Administrator is unable to
locate a qualified successor, (ii) the Administrator at its option advises the
Eligible Lender 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, a Servicer Default or an Administrator Default, Certificate Owners
representing beneficial interests aggregating at least 50.1% of the Certificate
Balance advise the Clearing Agency (which shall then notify the Eligible Lender
Trustee) in writing that the continuation of a book-entry system through the
Clearing Agency is no longer in the best interest of the Certificate Owners,
then the Eligible Lender Trustee shall cause the Clearing Agency to notify all
Certificate Owners of the occurrence of any such event and of the availability
of the Definitive Certificates to Certificate Owners requesting the same. Upon
surrender to the Eligible Lender Trustee of the typewritten Trust Certificate or
Trust Certificates representing the Book-Entry Certificates by the Clearing
Agency, accompanied by registration instructions, the Eligible Lender Trustee
shall execute and authenticate the Definitive Certificates in accordance with
the instructions of the Clearing Agency. Neither the Certificate Registrar nor
the Eligible Lender 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 Certificates, the Eligible
Lender Trustee shall recognize the registered holders of the Definitive
Certificates as Certificateholders. The Definitive Certificates shall, at the
expense of the Depositor, be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Eligible Lender
Trustee, as evidenced by its execution thereof.
SECTION 3.15. DETERMINATION OF INTEREST RATE. Each Class of
Trust Certificates shall accrue interest during each Interest Period at the
Certificate Rate determined in accordance with the Auction Procedures attached
hereto as Annex I or as otherwise set forth in the related Trust Supplement.
ARTICLE IV
ACTIONS BY ELIGIBLE LENDER TRUSTEE
SECTION 4.1. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT
TO CERTAIN MATTERS. With respect to the following matters, the Eligible Lender
Trustee shall not take action unless at least 30 days before the taking of such
action the Eligible Lender Trustee shall have notified the Trust
Certificateholders and the Surety Provider in writing of the proposed action and
neither the Trust Certificateholders nor the Surety Provider shall have notified
the Eligible Lender Trustee in writing prior to the 30th day after such notice
is given that such Trust Certificateholders or the Surety Provider has withheld
consent:
(a) the initiation of any material claim or lawsuit by the
Trust (except claims or lawsuits brought in connection with the
collection of the Financed Student Loans) and the compromise of any
material action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for
collection of Financed Student Loans);
(b) the amendment of the Indenture or a Terms Supplement
by a supplemental indenture in circumstances where the consent of
any Noteholder is required;
(c) the amendment of the Indenture or a Terms Supplement by a
supplemental indenture in circumstances where the consent of any
Noteholder is not required and such amendment materially adversely
affects the interest of the Trust Certificateholders;
(d) the amendment, change or modification of the
Administration Agreement, except to cure any ambiguity or to amend or
supplement any provision in a manner or add any provision that would
not materially adversely affect the interests of the Trust
Certificateholders; or
(e) the appointment pursuant to the Indenture or a Terms
Supplement of a successor Note Registrar or Indenture Trustee or
pursuant to this Agreement of a successor Certificate Registrar or
Certificate Paying Agent, or the consent to the assignment by the Note
Registrar, Certificate Paying Agent or Indenture Trustee or Certificate
Registrar of its obligations under the Indenture or this Agreement, as
applicable.
SECTION 4.2. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. The Eligible Lender Trustee shall not have the power, except
upon the direction of the Surety Provider or, with the Surety Provider's
consent, the Certificateholders, to (a) remove the Servicer or the Administrator
under the Sale and Servicing Agreement pursuant to Section 8.1 thereof or (b)
except as expressly provided in the Basic Documents, sell the Financed Student
Loans after the termination of the Indenture. The Eligible Lender Trustee shall
take the actions referred to in the preceding sentence only upon written
instructions signed by the Surety Provider.
SECTION 4.3. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
BANKRUPTCY. The Eligible Lender Trustee shall not have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust without the unanimous
prior approval of all Certificateholders and the Surety Provider and the
delivery to the Eligible Lender Trustee by each such Certificateholder of a
certificate certifying that such Certificateholder reasonably believes that the
Trust is insolvent.
SECTION 4.4. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Eligible Lender Trustee to take or
refrain from taking any action if such action or inaction would be contrary to
any obligation of the Trust or the Eligible Lender Trustee under this Agreement
or any of the other Basic Documents or would be contrary to Section 2.3 nor
shall the Eligible Lender Trustee be permitted to follow any such direction, if
given.
SECTION 4.5. MAJORITY CONTROL. Except as expressly provided
herein, any action that may be taken by the Certificateholders under this
Agreement may be taken by the Certificateholders evidencing not less than 50.1%
of the Certificate Balance. Except as expressly provided herein, any written
notice of the Certificateholders delivered pursuant to this Agreement shall be
effective if signed by Certificateholders evidencing not less than 50.1% of the
Certificate Balance at the time of the delivery of such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1. APPLICATION OF TRUST FUNDS. (a) No later than the
close of business on the day it receives funds distributed by the Indenture
Trustee pursuant to Sections 5.5, 5.6 and 5.10 of the Sale and Servicing
Agreement, the Certificate Paying Agent will distribute such amounts (i) to
Trust Certificateholders of the applicable Class on a pro rata basis with
respect to interest and pursuant to the procedures set forth in subsection (d)
below with respect to principal and (ii) to holders of the Originators'
Interests, as set forth in the related Trust Supplement; PROVIDED, HOWEVER, that
if the Eligible Lender Trustee receives funds for distribution to
Certificateholders after 11:00 a.m. on any day it shall use all reasonable
efforts to distribute such funds to the applicable Certificateholders on such
day but shall not be liable for any damages if such funds are distributed on the
following Business Day. Notwithstanding the foregoing, all amounts received by
the Eligible Lender Trustee from the Indenture Trustee representing amounts in
the Reserve Account in excess of the Specified Reserve Account Balance shall be
distributed to the holders of the Originators' Interests, if any, and then to
TMS Student Holdings, Inc. (but such distributions shall not reduce the
principal amount of the Trust Certificate held by TMS Student Holdings, Inc. or
its portion of the Originators' Interests) and no other Certificateholder shall
be entitled to or have a claim for such amounts. TMS Student Holdings, Inc.
shall not receive any distributions of principal until all other Trust
Certificateholders have been paid in full.
(b) No later than the Business Day following its receipt
thereof, the Eligible Lender Trustee shall send to each Trust Certificateholder
(and if a distribution is being made to holders of Originators' Interests, to
each such holder) the statement provided to the Eligible Lender Trustee by the
Administrator pursuant to Section 5.7 of the Sale and Servicing Agreement
relating to such Certificate Distribution Date.
(c) If any withholding tax is imposed on the Trust's payment
(or allocations of income) to a Certificateholder, such tax shall reduce the
amount otherwise distributable to the Certificateholder in accordance with this
Section. The Eligible Lender Trustee is hereby authorized to and shall, upon
receipt of written instructions of the Administrator identifying the appropriate
amount, to retain from amounts otherwise distributable to the Certificateholders
sufficient funds for the payment of any tax that is legally owed by the Trust
(but such authorization shall not prevent the Eligible Lender Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a Certificateholder shall
be treated as cash distributed to such Certificateholder at the time it is
withheld by the Trust to be remitted to the appropriate taxing authority. If
there is a possibility that withholding tax is payable with respect to a
distribution (such as a distribution to a non-U.S. Certificateholder), the
Eligible Lender Trustee in its sole discretion may (but unless otherwise
required by law shall not be obligated to) withhold such amounts in accordance
with this paragraph (c). In the event that a Certificateholder wishes to apply
for a refund of any such withholding tax, the Eligible Lender Trustee and the
Administrator shall reasonably cooperate with such Certificateholder in making
such claim so long as such Certificateholder agrees to reimburse the Eligible
Lender Trustee and the Administrator for any out-of-pocket expenses incurred.
(d) The Certificates that will receive payments of principal
on each Certificate Distribution Date after each Class of Notes has been paid in
full will be selected no later than 15 days prior to each such Certificate
Distribution Date by the Eligible Lender Trustee by lot in such manner as the
Eligible Lender Trustee in its discretion may determine and which may provide
for the selection for payment of principal in minimum denominations of $50,000,
and integral multiples in excess thereof.
Notice of the Certificates to receive payments of principal is
to be given by the Eligible Lender Trustee by first-class mail, postage prepaid,
mailed not less than 15 days but no more than 30 days before the applicable
Certificate Distribution Date at the address of the applicable Certificateholder
appearing on the registration books. Any defect in or failure to give such
mailed notice shall not affect the validity of proceedings for the payment of
any other Certificates not affected by such failure or defect. All notices of
payment are to state (i) the applicable Certificate Distribution Date; (ii) the
amount of principal to be paid; and (iii) the Certificates to be paid.
SECTION 5.2. METHOD OF PAYMENT. Subject to Section 9.1(c),
distributions required to be made to Certificateholders on any Certificate
Distribution Date shall be made to each Certificateholder of record on the
applicable Record Date either by wire transfer, in immediately available funds,
to the account of such Certificateholder at a bank or other entity having
appropriate facilities therefore, if such Certificateholder shall have provided
to the Certificate Registrar appropriate written instructions (which may be
standing instructions) at least five Business Days prior to such Distribution
Date and such Certificateholder's Trust Certificates in the aggregate evidence a
denomination of not less than $50,000 (or, in the case of Originators'
Interests, an initial offering amount of not less than $20,000), or, if not, by
check mailed to such Certificateholder at the address of such Certificateholder
appearing in the Certificate Register; provided, however, that, unless
Definitive Certificates have been issued pursuant to Section 3.14, with respect
to Trust Certificates registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), distributions
will be made by wire transfer in immediately available funds to the account
designated by such nominee. Notwithstanding the foregoing, the final
distribution in respect of any Trust Certificate or Originators' Interest
(whether on the Final Maturity Date or otherwise) will be payable only upon
presentation and surrender of such Trust Certificate or Originators' Interest,
as the case may be, at the Corporate Trust Office of the Eligible Lender Trustee
maintained pursuant to Section 3.9 hereof or such other location specified in
writing to the Certificateholder thereof.
SECTION 5.3. SEGREGATION OF MONEYS; NO INTEREST. Subject to
Section 5.1, moneys received by the Eligible Lender Trustee hereunder shall be
deposited in the Certificate Distribution Account and invested in Eligible
Investments in accordance with instructions received from the Administrator. The
Eligible Lender Trustee shall not be liable for any interest thereon.
SECTION 5.4. ACCOUNTING AND REPORTS TO THE NOTEHOLDERS,
CERTIFICATEHOLDERS, THE INTERNAL REVENUE SERVICE AND OTHERS. The Administrator,
on behalf of the Eligible Lender Trustee, shall (a) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis on the accrual
method of accounting, (b) deliver to each Certificateholder (and to each Person
who was a Certificateholder at any time during the applicable calendar year), as
may be required by the Code and applicable Treasury Regulations, such
information as may be required (including Schedule K-1) to enable each such
Certificateholder to prepare its Federal and state income tax returns, (c) file
such tax returns relating to the Trust (including a partnership information
return, Internal Revenue Service Form 1065), and make such elections as may from
time to time be required or appropriate under any applicable state or Federal
statute or rule or regulation thereunder so as to maintain the Trust's
characterization as a partnership for Federal income tax purposes, (d) cause
such tax returns to be signed in the manner required by law and (e) collect or
cause to be collected any withholding tax as described in and in accordance with
Section 5.1(c) with respect to income or distributions to Certificateholders.
The Administrator, on behalf of the Eligible Lender Trustee, shall elect under
Section 1278 of the Code to include in income currently any market discount that
accrues with respect to the Financed Student Loans. Neither the Eligible Lender
Trustee nor the Administrator on behalf of the Eligible Lender Trustee shall
make the election provided under Section 754 of the Code.
SECTION 5.5. SIGNATURE ON RETURNS; TAX MATTERS PARTNER.
(a) TMS Student Holdings, Inc. shall sign on behalf of the Trust the
tax returns of the Trust unless otherwise required by applicable law.
(b) TMS Student Holdings, Inc. shall be designated the
"tax matters partner" of the Trust pursuant to Section 6231(a)(7)(A) of
the Code and applicable Treasury Regulations.
SECTION 5.6. SUBROGATION. Each of the Depositor and the
Eligible Lender Trustee acknowledges that to the extent of any payment made by
the Surety Provider pursuant to any Certificate Surety Bond, the Surety Provider
is to be fully subrogated to the extent of such payment and any additional
interest due on any late payment to the rights of the Holders of the
Certificates to any moneys paid or payable in respect of the Certificates under
this Trust Agreement or otherwise. Each of the Depositor and the Eligible Lender
Trustee agrees to such subrogation and, further, agrees to execute such
instruments and to take such actions as, in the sole judgment of the Surety
Provider, are necessary to evidence such subrogation and, subject to the
priority of payment provision of this Trust Agreement, to perfect the rights of
the Certificateholders to receive any moneys paid or payable in respect of the
Certificateholders under this Trust Agreement or otherwise.
ARTICLE VI
AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE
SECTION 6.1. GENERAL AUTHORITY. The Eligible Lender Trustee is
authorized and directed to execute and deliver the Basic Documents to which the
Trust is to be a party and each certificate or other document attached as an
exhibit to or contemplated by the Basic Documents to which the Trust is to be a
party, in each case, in such form as the Depositor shall approve as evidenced
conclusively by the Eligible Lender Trustee's execution thereof, and, on behalf
of the Trust, to direct the Indenture Trustee to authenticate and deliver such
Notes as may from time to time be authorized by the Indenture and any related
Terms Supplement. The Eligible Lender Trustee is also authorized and directed on
behalf of the Trust (i) to acquire and hold legal title to the Financed Student
Loans from the Depositor or upon the direction of the Depositor and (ii) to take
all actions required pursuant to Section 4.2(c) of the Sale and Servicing
Agreement, and otherwise follow the direction of and cooperate with the
Administrator in submitting, pursuing and collecting any claims to and with the
Department, the Secretary and any Guarantor with respect to any Interest Subsidy
Payments, Special Allowance Payments, HEAL Insurance Payments and any other
payments relating to the Financed Student Loans.
The Eligible Lender Trustee is also authorized and directed on
behalf of the Trust Certificateholders, in the case of any Certificate Surety
Bond, to take any and all action necessary to collect any payments from the
Surety Provider with respect to any Certificate Surety Bond, including the
preparation and submission of the notice to the Surety Provider (a form of which
is attached as an exhibit to each of the Surety Bonds), in accordance with the
Certificate Surety Bonds and Article X of the Sale and Servicing Agreement. Any
money so received by the Eligible Lender Trustee from the Surety Provider
pursuant to a Certificate Surety Bond will be distributed to Trust
Certificateholders in the same manner as amounts received from the Indenture
Trustee pursuant to Section 5.1.
In addition to the foregoing, the Eligible Lender Trustee is
authorized to take all actions required of the Trust pursuant to the Basic
Documents. The Eligible Lender Trustee is further authorized from time to time
to take such action as the Administrator directs or instructs with respect to
the Basic Documents or with respect to the administration of the Trust and is
directed to take such action to the extent that the Administrator is expressly
required pursuant to the Basic Documents to cause the Eligible Lender Trustee to
act.
SECTION 6.2. GENERAL DUTIES. It shall be the duty of the
Eligible Lender Trustee to discharge (or cause to be discharged) all its
responsibilities pursuant to the terms of this Agreement and the other Basic
Documents to which the Trust is a party and to administer the Trust in the best
interests of the Certificateholders, subject to and in accordance with the
provisions of this Agreement and the other Basic Documents. Notwithstanding the
foregoing, the Eligible Lender Trustee shall be deemed to have discharged its
duties and responsibilities hereunder and under the other Basic Documents to the
extent the Administrator has agreed in the Administration Agreement to perform
any act or to discharge any duty of the Eligible Lender Trustee hereunder or
under any other Basic Document, and the Eligible Lender Trustee shall not be
held liable for the default or failure of the Administrator to carry out its
obligations under the Administration Agreement. Except as expressly provided in
the Basic Documents, the Eligible Lender Trustee shall have no obligation to
administer, service or collect the Financed Student Loans or to maintain,
monitor or otherwise supervise the administration, servicing or collection of
the Financed Student Loans.
SECTION 6.3. ACTION UPON INSTRUCTION. (a) Subject to Article
IV, Section 7.1 and in accordance with the terms of the Basic Documents, the
Certificateholders may by written instruction direct the Eligible Lender Trustee
in the management of the Trust, subject to the Surety Provider's approval. Such
direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV, subject to the Surety Provider's
approval.
(b) The Eligible Lender Trustee shall not be required to take
any action hereunder or under any other Basic Document if the Eligible Lender
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Eligible
Lender Trustee or is contrary to the terms hereof or of any other Basic Document
or is otherwise contrary to law.
(c) Whenever the Eligible Lender Trustee is unable to
determine the appropriate course of action between alternative courses of action
permitted or required by the terms of this Agreement or under any other Basic
Document, the Eligible Lender Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Certificateholders
requesting instruction as to the course of action to be adopted, and to the
extent the Eligible Lender Trustee acts in good faith in accordance with any
written instruction received from the Certificateholders of Certificates
evidencing not less than 50.1% of the Certificate Balance at the time of
delivery of such instructions, the Eligible Lender Trustee shall not be liable
on account of such action to any Person. If the Eligible Lender Trustee shall
not have received appropriate instruction within 30 days of such notice (or
within such shorter period of time as reasonably may be specified in such notice
or may be necessary under the circumstances) it may, but shall be under no duty
to, take or refrain from taking such action, not inconsistent with this
Agreement or the other Basic Documents, as it shall deem to be in the best
interests of the Certificateholders, and shall have no liability to any Person
for such action or inaction.
(d) If the Eligible Lender Trustee is unsure as to the
application of any provision of this Agreement or any other Basic Document or
any agreement entered into by the Eligible Lender Trustee on behalf of the Trust
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or if this Agreement
permits any determination by the Eligible Lender Trustee or is silent or is
incomplete as to the course of action that the Eligible Lender Trustee is
required to take with respect to a particular set of facts, the Eligible Lender
Trustee may give notice (in such form as shall be appropriate under the
circumstances) to the Certificateholders requesting instruction and, to the
extent that the Eligible Lender Trustee acts or refrains from acting in good
faith in accordance with any such instruction received from Certificateholders
evidencing not less than 50.1% of the Certificate Balance at the time of
delivery of such instructions, the Eligible Lender Trustee shall not be liable,
on account of such action or inaction, to any Person. If the Eligible Lender
Trustee shall not have received appropriate instruction within 30 days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action, not inconsistent with
this Agreement or the other Basic Documents or such other agreements, as it
shall deem to be in the best interests of the Certificateholders, and shall have
no liability to any Person for such action or inaction.
SECTION 6.4. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT,
THE SALE AND SERVICING AGREEMENT, ANY SUPPLEMENTAL SALE AND SERVICING AGREEMENT
OR IN INSTRUCTIONS. The Eligible Lender Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
service, dispose of or otherwise deal with the Trust Estate, or to otherwise
take or refrain from taking any action under, or in connection with, any
document contemplated hereby to which the Eligible Lender Trustee is a party,
except as expressly provided by the terms of this Agreement, the Sale and
Servicing Agreement, any Supplemental Sale and Servicing Agreement or in any
document or written instruction received by the Eligible Lender Trustee pursuant
to Section 6.3; and no implied duties or obligations shall be read into this
Agreement or any other Basic Document against the Eligible Lender Trustee. The
Eligible Lender Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder or to prepare or file any Commission filing for the Trust or to record
this Agreement or any other Basic Document. The Eligible Lender Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Trust
Estate that result from actions by, or claims against, Dauphin Deposit Bank and
Trust Company in its individual capacity or as the Eligible Lender Trustee that
are not related to the ownership or the administration of the Trust Estate.
SECTION 6.5. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS. The Eligible Lender Trustee shall not manage, control, use, sell,
service, dispose of or otherwise deal with any part of the Trust Estate except
(i) in accordance with the powers granted to and the authority conferred upon
the Eligible Lender Trustee pursuant to this Agreement, (ii) in accordance with
the other Basic Documents to which it is a party and (iii) in accordance with
any document or instruction delivered to the Eligible Lender Trustee pursuant to
Section 6.3.
SECTION 6.6. RESTRICTIONS. The Eligible Lender Trustee shall
not take any action (a) that is inconsistent with the purposes of the Trust set
forth in Section 2.3 or (b) that, to the actual knowledge of the Eligible Lender
Trustee, would result in the Trust's becoming taxable as a corporation for
Federal income tax purposes. The Certificateholders shall not direct the
Eligible Lender Trustee to take any action that would violate the provisions of
this Section.
ARTICLE VII
CONCERNING THE ELIGIBLE LENDER TRUSTEE
SECTION 7.1. ACCEPTANCE OF TRUSTS AND DUTIES. The Eligible
Lender Trustee accepts the trusts hereby created and agrees to perform its
duties hereunder with respect to such trusts but only upon the terms of this
Agreement for the benefit of the Certificateholders. The Eligible Lender Trustee
also agrees to disburse all moneys actually received by it constituting part of
the Trust Estate under the terms of this Agreement and the other Basic
Documents. The Eligible Lender Trustee shall not be answerable or accountable
hereunder or under any other Basic Document under any circumstances, except (i)
for its own willful misconduct or negligence or (ii) in the case of the
inaccuracy of any representation or warranty contained in Section 7.3 expressly
made by the Eligible Lender Trustee. In particular, but not by way of limitation
(and subject to the exceptions set forth in the preceding sentence):
(a) the Eligible Lender Trustee shall not be liable for
any error of judgment made by a responsible officer of the Eligible
Lender Trustee;
(b) the Eligible Lender Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in accordance
with the direction or instructions of the Administrator, the Depositor,
the Surety Provider or Certificateholders of Certificates evidencing
the requisite percentage of the Certificate Balance;
(c) no provision of this Agreement or any other Basic Document
shall require the Eligible Lender Trustee to expend or risk funds or
otherwise incur any financial liability in the performance of any of
its rights or powers hereunder or under any other Basic Document, if
the Eligible Lender Trustee shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Eligible Lender Trustee
be liable for indebtedness evidenced by or arising under any of the
Basic Documents, including the principal of and interest on the Notes
or for any amounts owing under the Trust Certificates or the
Originators' Interest;
(e) the Eligible Lender Trustee shall not be responsible for
or in respect of the validity or sufficiency of this Agreement or for
the due execution hereof by the Depositor or for the form, character
genuineness, sufficiency, value or validity of any of the Trust Estate
or for or in respect of the validity or sufficiency of the Basic
Documents, other than the certificate of authentication on the Trust
Certificates and the Originators' Interests, and the Eligible Lender
Trustee shall in no event assume or incur any liability, duty or
obligation to any Noteholder or to any Certificateholder, other than as
expressly provided for herein and in the other Basic Documents;
(f) the Eligible Lender Trustee shall not be liable for the
action or inaction, default or misconduct of the Depositor,
Administrator, the Seller, TMS Student Holdings, Inc., the Indenture
Trustee or the Master Servicer under this Agreement or any of the other
Basic Documents or otherwise and the Eligible Lender Trustee shall have
no obligation or liability to perform the obligations of the Trust
under this Agreement or the other Basic Documents that are required to
be performed by the Administrator under the Sale and Servicing
Agreement, any Supplemental Sale and Servicing Agreement or the
Administration Agreement, the Indenture Trustee under the Indenture or
any Terms Supplement or the Master Servicer under the Sale and
Servicing Agreement or any Supplemental Sale and Servicing Agreement;
and
(g) the Eligible Lender Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this Agreement,
or to institute, conduct or defend any litigation under this Agreement
or otherwise or in relation to this Agreement or any other Basic
Document, at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the
Eligible Lender Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities that may be incurred by the
Eligible Lender Trustee therein or thereby. The right of the Eligible
Lender Trustee to perform any discretionary act enumerated in this
Agreement or in any other Basic Document shall not be construed as a
duty, and the Eligible Lender Trustee shall not be answerable for other
than its negligence or willful misconduct in the performance of any
such act.
SECTION 7.2. FURNISHING OF DOCUMENTS. The Eligible Lender
Trustee shall furnish to the Certificateholders promptly upon receipt of a
written request therefor duplicates or copies of all reports, notices, requests,
demands, certificates, financial statements and any other instruments furnished
to the Eligible Lender Trustee under the Basic Documents.
SECTION 7.3. REPRESENTATIONS AND WARRANTIES. The
Eligible Lender Trustee hereby represents and warrants to the Depositor, for
the benefit of the Certificateholders, and to the Surety Provider
that:
(a) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of ___________.
It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf, and
when so executed shall be an enforceable obligation of the Eligible
Lender Trustee in accordance with its terms.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will, to its knowledge, contravene any Federal or ________ state law,
governmental rule or regulation governing the banking or trust powers
of the Eligible Lender Trustee or any judgment or order binding on it,
or constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a
party or by which any of its properties may be bound.
(d) It is an "eligible lender", as such term is defined in
Section 435(d) of the Higher Education Act, for purposes of holding
legal title to the Federal Loans as contemplated by this Agreement and
the other Basic Documents.
SECTION 7.4. RELIANCE; ADVICE OF COUNSEL. (a) The
Eligible Lender Trustee shall incur no liability to anyone in acting
upon any signature, instrument, direction, notice, resolution,
request, consent, order, certificate, report, opinion, bond, or other
document or paper believed by it to be genuine and believed by it to
be signed by the proper party or parties. As to any fact or matter
the method of the determination of which is not specifically
prescribed herein, the Eligible Lender Trustee may for all purposes
hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the
relevant party, as to such fact or matter and such certificate shall
constitute full protection to the Eligible Lender Trustee for any
action taken or omitted to be taken by it in good faith in reliance
thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or the
other Basic Documents, the Eligible Lender Trustee (i) may act directly or
through its agents, including the Administrator, or attorneys pursuant to
agreements entered into with any of them, and the Eligible Lender Trustee shall
not be liable for the conduct or misconduct of such agents or attorneys if such
agents or attorneys shall have been selected by the Eligible Lender Trustee with
reasonable care or by the Administrator or Depositor, and (ii) may consult with
counsel, accountants and other skilled persons to be selected with reasonable
care and employed by it or selected and employed by the Administrator or
Depositor. The Eligible Lender Trustee shall not be liable for anything done,
suffered or omitted in good faith by it (including, without limitation, the
making of the representation in Section 7.3(d) hereof that it is an "eligible
lender") in accordance with the opinion or advice of any such counsel,
accountants or other such persons.
SECTION 7.5. NOT ACTING IN INDIVIDUAL CAPACITY. Except
for the representations and warranties set forth in Section 7.3, in
accepting the trusts hereby created Dauphin Deposit Bank and Trust
Company acts solely as Eligible Lender Trustee hereunder and not in
its individual capacity and all Persons having any claim against the
Eligible Lender Trustee by reason of the transactions contemplated by
this Agreement or any other Basic Document shall look only to the
Trust Estate for payment or satisfaction thereof.
SECTION 7.6. ELIGIBLE LENDER TRUSTEE NOT LIABLE FOR TRUST
CERTIFICATES OR FINANCED STUDENT LOANS. The recitals contained herein or in any
Trust Supplement and in the Trust Certificates and the Originators' Interests
(other than the signature and countersignature of the Eligible Lender Trustee on
the Trust Certificates and the Originators' Interests) shall be taken as the
statements of the Depositor and the Eligible Lender Trustee assumes no
responsibility for the correctness thereof. The Eligible Lender Trustee makes no
representations as to the validity or sufficiency of this Agreement, the Trust
Certificates, the Originators' Interests or any other Basic Document (other than
the signature and countersignature of the Eligible Lender Trustee on the Trust
Certificates and the Originators' Interests) or the Notes, or of any Financed
Student Loan or related documents. The Eligible Lender Trustee shall at no time
have any responsibility or liability for or with respect to the legality,
validity, enforceability and eligibility for Guarantee Payments of any Financed
Student Loan, or for or with respect to the sufficiency of the Trust Estate or
its ability to generate the payments to be distributed to Certificateholders
under this Agreement or the Noteholders under the Indenture, including without
limitation: the existence and contents of any computer or other record of any
Financed Student Loan; the validity of the assignment of any Financed Student
Loan to the Trust; the completeness of any Financed Student Loan; the
performance or enforcement (except as expressly set forth in any Basic Document)
of any Financed Student Loan; the compliance by the Depositor, Administrator,
Seller or the Master Servicer with any warranty or representation made under any
Basic Document or in any related document or the accuracy of any such warranty
or representation or any action or inaction of the Depositor, Seller,
Administrator, the Indenture Trustee or the Master Servicer or any subservicer
taken in the name of the Eligible Lender Trustee; and the failure of the
Financed Student Loans to be serviced in conformity with applicable regulations.
SECTION 7.7. ELIGIBLE LENDER TRUSTEE MAY OWN TRUST
CERTIFICATES AND NOTES. The Eligible Lender Trustee in its individual or any
other capacity may become the owner or pledgee of the Trust Certificates,
Originators' Interests or Notes and may deal with the Depositor, the
Administrator, the Indenture Trustee, the Master Servicer and the Guarantors in
banking or trust transactions with the same rights as it would have if it were
not Eligible Lender Trustee, including serving as a trustee of other trusts
dealing in any student loans, including trusts which purchase student loans from
the Trust.
ARTICLE VIII
COMPENSATION OF ELIGIBLE LENDER TRUSTEE
SECTION 8.1. ELIGIBLE LENDER TRUSTEE'S FEES AND EXPENSES. The
Eligible Lender Trustee shall receive as compensation for its services hereunder
such fees as have been separately agreed upon by the Depositor and the Eligible
Lender Trustee on or before the date of acceptance hereof by the Eligible Lender
Trustee, and the Eligible Lender Trustee shall be entitled to be reimbursed by
the Depositor, to the extent provided in such separate agreement, for its other
reasonable Expenses hereunder.
SECTION 8.2. PAYMENTS TO THE ELIGIBLE LENDER TRUSTEE. Any
amounts paid to the Eligible Lender Trustee pursuant to Section 8.1 hereof or
pursuant to Section 6.3 or 7.2 of the Sale and Servicing Agreement shall be
deemed not to be a part of the Trust Estate immediately after such payment.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. TERMINATION OF TRUST AGREEMENT. (a) This
Trust shall terminate upon the earlier of (i) the final distribution by the
Eligible Lender Trustee of all moneys or other property or proceeds of the Trust
Estate in accordance with the terms of the Indenture, any related Terms
Supplement, the Sale and Servicing Agreement, Article V hereof and any Trust
Supplement, whether at the Certificate Final Maturity Date or otherwise, (ii)
the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James, living on the date hereof, and (iii) the time provided
in Section 9.2. The bankruptcy, liquidation, dissolution, death or incapacity of
any Certificateholder, other than TMS Student Holdings, Inc. as described in
Section 9.2, shall not (x) operate to terminate this Agreement or the Trust, nor
(y) entitle such Certificateholder's legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a partition or
winding up of all or any part of the Trust or Trust Estate nor (z) otherwise
affect the rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 9.1(a), neither the
Depositor nor any Certificateholder shall be entitled to revoke or
terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender their Trust
Certificates or Originators' Interests, as the case may be, to the Certificate
Paying Agent for payment of the final distribution and cancellation, shall be
given promptly by the Eligible Lender Trustee by letter to Certificateholders
mailed within five Business Days of receipt of notice of such termination from
the Administrator given pursuant to Section 9.1(c) of the Sale and Servicing
Agreement, stating (i) the Distribution Date upon which final payment of the
Trust Certificates and Originators' Interests shall be made upon presentation
and surrender of the Trust Certificates or Originators' Interests, as the case
may be, at the office of the Certificate Paying Agent therein designated, (ii)
the amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Trust Certificates or Originators'
Interests, as the case may be, at the office of the Certificate Paying Agent
therein specified. The Eligible Lender Trustee shall give such notice to the
Certificate Registrar (if other than the Eligible Lender Trustee) and the
Certificate Paying Agent at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Trust Certificates or Originators'
Interests, as the case may be, the Certificate Paying Agent shall cause to be
distributed to Certificateholders amounts distributable on such Distribution
Date pursuant to Section 5.1 and any related Trust Supplement. Certificates
shall cease to earn interest as of the termination date of the Trust.
If all the Certificateholders shall not surrender their Trust
Certificates or Originators' Interests, as the case may be, for cancellation
within six months after the date specified in the above-mentioned written
notice, the Eligible Lender Trustee shall give a second written notice to the
remaining Certificateholders to surrender their Trust Certificates or
Originators' Interests, as the case may be, for cancellation and receive the
final distribution with respect thereto. If within one year after the second
notice all the Trust Certificates or Originators' Interests, as the case may be,
shall not have been surrendered for cancellation, the Eligible Lender Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates or Originators' Interests, as the case may be, and the cost thereof
shall be paid out of the funds and other assets that shall remain subject to
this Agreement. Any funds remaining in the Trust after exhaustion of such
remedies and no later than five years after the first such notice shall be
distributed by the Eligible Lender Trustee to TMS Student Holdings, Inc..
SECTION 9.2. DISSOLUTION UPON INSOLVENCY OF TMS STUDENT
HOLDINGS, INC.. If an Insolvency Event shall occur with respect to TMS Student
Holdings, Inc., the Trust shall be terminated in accordance with Section 9.1 90
days after the date of such Insolvency Event, unless, before the end of such
90-day period, the Eligible Lender Trustee shall have received written
instructions from the Surety Provider and Certificateholders (other than TMS
Student Holdings, Inc.) representing not less than 50.1% of the Certificate
Balance (not including the principal amount of Trust Certificates held by TMS
Student Holdings, Inc.), to the effect that each such party disapproves of the
liquidation of the Financed Student Loans and termination of the Trust, in which
event the Trust shall continue in accordance with the Basic Documents. Promptly
after the occurrence of any Insolvency Event with respect to TMS Student
Holdings, Inc., (i) TMS Student Holdings, Inc. shall give the Indenture Trustee,
the Eligible Lender Trustee and the Surety Provider written notice of such
Insolvency Event, (ii) the Eligible Lender Trustee shall, upon the receipt of
such written notice from TMS Student Holdings, Inc., give prompt written notice
to the Certificateholders and the Indenture Trustee, of the occurrence of such
event and (iii) the Indenture Trustee shall, upon receipt of written notice of
such Insolvency Event from the Eligible Lender Trustee or TMS Student Holdings,
Inc., give prompt written notice to the Noteholders of the occurrence of such
event; PROVIDED, HOWEVER, that any failure to give a notice required by this
sentence shall not prevent or delay, in any manner, a termination of the Trust
pursuant to the first sentence of this Section 9.2. Upon a termination pursuant
to this Section 9.2, the Eligible Lender Trustee shall direct the Indenture
Trustee promptly to sell the assets of the Trust (other than the Trust Accounts
and the Surety Bonds) in a commercially reasonable manner and on commercially
reasonable terms. The proceeds of such a sale of the assets of the Trust shall
be treated as collections under the Sale and Servicing Agreement.
ARTICLE X
SUCCESSOR ELIGIBLE LENDER TRUSTEES AND
ADDITIONAL ELIGIBLE LENDER TRUSTEES
SECTION 10.1. ELIGIBILITY REQUIREMENTS FOR ELIGIBLE LENDER
TRUSTEE. The Eligible Lender Trustee shall at all times be a corporation or
association (i) qualifying as an "eligible lender" as such term is defined in
Section 435(d) of the Higher Education Act for purposes of holding legal title
to the Federal Loans on behalf of the Trust, with a valid lender identification
number with respect to the Trust from the Department; (ii) being authorized to
exercise corporate trust powers and hold legal title to the Financed Student
Loans; (iii) having in effect Guarantee Agreements with each of the Guaranty
Agencies then guaranteeing Financed Student Loans; (iv) having a combined
capital and surplus of at least $50,000,000 and being subject to supervision or
examination by Federal or state authorities; (v) incorporated or authorized to
do business in the _________ of ____________ or which is a national bank having
an office located within the __________ of _______; and (vi), with respect to
any successor Eligible Lender Trustees, having (or having a parent which has) a
rating of at least Baa3 by Moody's and at least BBB by Standard & Poor's.
Further, prior to the Seller selling any HEAL Loans to the Trust, the Eligible
Lender Trustee shall be qualified as an "eligible lender" within the meaning of
the Public Health Service Act. Also, prior to the Seller selling any Private
Loans to the Trust, the Eligible Lender Trustee shall be qualified under the
applicable Private Loan Program to hold such Private Loans. If the Eligible
Lender Trustee shall publish reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section 10.1, the combined capital and surplus of
the Eligible Lender Trustee shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Eligible Lender Trustee shall cease to be eligible in
accordance with the provisions of this Section 10.1, the Eligible Lender Trustee
shall resign immediately in the manner and with the effect specified in Section
10.2.
SECTION 10.2. RESIGNATION OR REMOVAL OF ELIGIBLE LENDER
TRUSTEE. The Eligible Lender Trustee may at any time resign and be discharged
from the trusts hereby created by giving written notice thereof to the
Administrator and the Surety Provider, and the Surety Provider may dismiss the
Eligible Lender Trustee or any co-paying agent at any time for its failure to
act in accordance with the terms of this Agreement; provided, however, that
prior to any such dismissal, the Surety Provider shall have given the Eligible
Lender Trustee or the co-paying agent, as the case may be, notice identifying
such failure, and shall have given the Eligible Lender Trustee or the co-paying
agent, as the case may be, two Business Days to cure such failure, if such
failure relates to the distribution of funds to Certificateholders, and 30 days
to cure all other failures. Upon receiving such notice of resignation or
dismissal, the Administrator shall promptly appoint, with the Surety Provider's
consent, a successor Eligible Lender Trustee meeting the eligibility
requirements of Section 10.1 by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Eligible Lender Trustee and
one copy to the successor Eligible Lender Trustee. If no successor Eligible
Lender Trustee shall have been so appointed and have accepted appointment within
30 days after the giving of such notice of resignation or dismissal, the
resigning or dismissed Eligible Lender Trustee, as the case may be, may petition
any court of competent jurisdiction for the appointment of a successor Eligible
Lender Trustee; PROVIDED, HOWEVER, that such right to appoint or to petition for
the appointment of any such successor shall in no event relieve the resigning or
dismissed Eligible Lender Trustee, as the case may be, from any obligations
otherwise imposed on it under the Basic Documents until such successor has in
fact assumed such appointment.
If at any time the Eligible Lender Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail to
resign after written request therefor by the Administrator, or if at any time an
Insolvency Event with respect to the Eligible Lender Trustee shall have occurred
and be continuing, then the Administrator may remove the Eligible Lender
Trustee. If the Administrator shall remove the Eligible Lender Trustee under the
authority of the immediately preceding sentence, the Administrator shall
promptly appoint, with the prior approval of the Surety Provider, a successor
Eligible Lender Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Eligible Lender Trustee so removed
and one copy to the successor Eligible Lender Trustee and payment of all fees
owed to the outgoing Eligible Lender Trustee.
Any resignation or removal of the Eligible Lender Trustee and
appointment of a successor Eligible Lender Trustee pursuant to any of the
provisions of this Section shall not become effective until acceptance of
appointment by the successor Eligible Lender Trustee pursuant to Section 10.3
and payment of all fees and expenses owed to the outgoing Eligible Lender
Trustee. The Administrator shall provide notice of such resignation or removal
of the Eligible Lender Trustee to the Surety Provider and to each of the Rating
Agencies.
SECTION 10.3. SUCCESSOR ELIGIBLE LENDER TRUSTEE. Any successor
Eligible Lender Trustee appointed pursuant to Section 10.2 shall execute,
acknowledge and deliver to the Administrator and to its predecessor Eligible
Lender Trustee an instrument accepting such appointment under this Agreement,
and thereupon the resignation or removal of the predecessor Eligible Lender
Trustee shall become effective and such successor Eligible Lender Trustee,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties, and obligations of its predecessor under this
Agreement, with like effect as if originally named as Eligible Lender Trustee.
The predecessor Eligible Lender Trustee shall upon payment of its fees and
expenses deliver to the successor Eligible Lender Trustee all documents,
statements, moneys and properties held by it under this Agreement and shall
assign, if permissible, to the successor Eligible Lender Trustee the lender
identification number obtained from the Department on behalf of the Trust; and
the Administrator and the predecessor Eligible Lender Trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for fully and certainly vesting and confirming in the successor Eligible Lender
Trustee all such rights, powers, duties and obligations.
No successor Eligible Lender Trustee shall accept appointment
as provided in this Section 10.3 unless at the time of such acceptance such
successor Eligible Lender Trustee shall be eligible pursuant to Section 10.1 and
shall have made the representations and warranties set forth in Section 7.3
(with the exception of any references to the _________ of ________) to the
Depositor, for the benefit of the Certificateholders, and to the Surety
Provider.
Upon acceptance of appointment by a successor Eligible Lender
Trustee pursuant to this Section, the Administrator shall mail notice of the
successor of such Eligible Lender Trustee to all Certificateholders, the
Indenture Trustee, the Noteholders, the Surety Provider and the Rating Agencies.
If the Administrator shall fail to mail such notice within 10 days after
acceptance of appointment by the successor Eligible Lender Trustee, the
successor Eligible Lender Trustee shall cause such notice to be mailed at the
expense of the Administrator.
SECTION 10.4. MERGER OR CONSOLIDATION OF ELIGIBLE LENDER
TRUSTEE. Any corporation into which the Eligible Lender Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Eligible Lender
Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Eligible Lender Trustee, shall, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding, be the
successor of the Eligible Lender Trustee hereunder; PROVIDED that such
corporation shall be eligible pursuant to Section 10.1; PROVIDED FURTHER that
the Eligible Lender Trustee shall mail notice of such merger or consolidation to
the Surety Provider and to the Rating Agencies.
SECTION 10.5. APPOINTMENT OF CO-ELIGIBLE LENDER TRUSTEE OR
SEPARATE ELIGIBLE LENDER TRUSTEE. Notwithstanding any other provisions of this
Agreement, at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust may at the time be located, the
Administrator and the Eligible Lender Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Eligible Lender Trustee and the Surety Provider, meeting
the eligibility requirements of clauses (i) through (iii) of Section 10.1, to
act as co-trustee, jointly with the Eligible Lender Trustee, or separate trustee
or separate trustees, of all or any part of the Trust Estate, and to vest in
such Person, in such capacity, such title to the Trust Estate, or any part
thereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Administrator and the Eligible
Lender Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Eligible Lender Trustee alone shall have the power to make
such appointment; provided however, that no such appointment shall be made
without obtaining the Surety Provider's prior written consent. No co-trustee or
separate trustee under this Agreement shall be required to meet the terms of
eligibility as a successor trustee pursuant to clauses (iv), (v) and (vi) of
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3. The expenses incurred in
connection with the retention of any co-trustee shall be deemed an Expense of
the Issuer to be borne by TMS Student Holdings, Inc.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Eligible Lender Trustee shall be conferred upon and
exercised or performed by the Eligible Lender Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Eligible Lender Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed, the Eligible Lender Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
solely at the direction of the Eligible Lender Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Administrator and the Eligible Lender Trustee acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
Any notice, request or other writing given to the Eligible
Lender Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Eligible Lender Trustee or separately, as may be provided
therein, subject to all the provisions of this Agreement, specifically including
every provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Eligible Lender Trustee. Each such
instrument shall be filed with the Eligible Lender Trustee and a copy thereof
given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the
Eligible Lender Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustees shall die, become incapable of acting, resign or be removed, all
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Eligible Lender Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. SUPPLEMENTS AND AMENDMENTS. (a) This Agreement,
including the Exhibits, Attachments and Annexes hereto, may be amended by the
Depositor and the Eligible Lender Trustee, with prior written notice to the
Rating Agencies, without the consent of any of the Noteholders or the
Certificateholders, but with the prior written consent of the Surety Provider,
to cure any ambiguity, to change the registered office of the Trust in
__________ set forth in Section 2.2 hereof, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders, the Certificateholders
or the Surety Provider; PROVIDED, HOWEVER, that such action shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material respect the
interests of any Noteholder, Certificateholder or the Surety Provider.
(b) This Agreement may also be amended from time to time by
the Depositor and the Eligible Lender Trustee, with prior written notice to the
Rating Agencies, with the consent of (i) the Noteholders of Notes evidencing not
less than 50.1% of the Outstanding Amount of the Notes, (ii) the
Certificateholders evidencing not less than 50.1% of the Certificate Balance and
(iii) the Surety Provider, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; PROVIDED, HOWEVER, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Financed Student Loans or distributions that shall be
required to be made for the benefit of the Noteholders or the
Certificateholders, (b) reduce the aforesaid percentage of the Outstanding
Amount of the Notes and the Certificate Balance required to consent to any such
amendment, without the consent of all the outstanding Noteholders and
Certificateholders or (c) modify Sections 2.7 or 3.11 or the last sentence of
Section 3.2 (or any other Sections without an Opinion of Counsel that such
amendment will not cause the Trust to be taxed as a corporation).
Promptly after the execution of any such amendment or consent,
the Eligible Lender Trustee shall furnish written notification of the substance
of such amendment or consent to each Certificateholder, the Indenture Trustee,
each of the Rating Agencies and to the Surety Provider.
It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Indenture Trustee pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents (and any other consents of Certificateholders
provided for in this Agreement or in any other Basic Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Eligible Lender Trustee may
prescribe.
(c) Prior to the execution of any amendment to this Agreement,
the Eligible Lender Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Eligible Lender Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Eligible Lender
Trustee's own rights, duties or immunities under this Agreement or otherwise.
(d) Notwithstanding anything to the contrary contained in this
Section 11.1, or elsewhere in this Agreement, without the consent of any
Certificateholders but with prior notice to the Rating Agencies and the prior
written consent of the Surety Provider, the Depositor and the Eligible Lender
Trustee (upon written direction from the Depositor), at any time and from time
to time, may enter into one or more Trust Supplements to set forth the terms of
any Class of Trust Certificates or Originators' Interests that have not
theretofore been authorized by a Trust Supplement.
(e) Any amendment (including a Trust Supplement) of this
Agreement required to be filed with the _________ Department of State by
_________ shall be so filed and shall become effective upon filing or such later
date and time, if any, as may be set forth in the instrument of amendment. In
any other case, the amendment shall become effective as set forth in the
instrument of amendment.
SECTION 11.2. NO LEGAL TITLE TO TRUST ESTATE IN
CERTIFICATEHOLDERS. The Certificateholders shall not have legal title to any
part of the Trust Estate. The Certificateholders shall be entitled to receive
distributions with respect to their undivided beneficial ownership interest
therein only in accordance with Articles V and IX. No transfer, by operation of
law or otherwise, of any right, title, or interest of the Certificateholders to
and in their beneficial ownership interest in the Trust Estate shall operate to
terminate this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Trust
Estate.
SECTION 11.3. LIMITATIONS ON RIGHTS OF OTHERS. Except for
Section 2.7, the provisions of this Agreement are solely for the benefit of the
Eligible Lender Trustee, the Depositor, the Certificateholders, the
Administrator and, to the extent expressly provided herein, the Surety Provider,
the Indenture Trustee and the Noteholders, and nothing in this Agreement (other
than Section 2.7), whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Trust Estate
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.4. NOTICES. (a) Unless otherwise expressly
specified or permitted by the terms hereof, all notices shall be in writing and
shall be deemed given upon receipt by the intended recipient or three Business
Days after mailing if mailed by certified mail, postage prepaid (except that
notice to the Eligible Lender Trustee shall be deemed given only upon actual
receipt by the Eligible Lender Trustee), if to the Eligible Lender Trustee,
addressed to its Corporate Trust Office at 8 ______________; if to the
Depositor, addressed to Educaid, 3301 C Street, Suite 100A, Sacramento,
California 95816, facsimile # (915) 446-2852, Attention: President; if to the
Surety Provider, addressed to AMBAC Indemnity Corporation, One State Street
Plaza, New York, New York 10004, facsimile # (212) 509- 9190, Attention:
Structured Finance Department/Student Loans, or, as to each party, at such other
address or facsimile number as shall be designated by such party in a written
notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given (i) by first-class mail, postage prepaid, at
the address of such Certificateholder as shown in the Certificate Register, or
(ii) by facsimile if the Certificate Register contains a facsimile number for
such Certificateholder. Any notice so mailed or sent by facsimile within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.5. SEVERABILITY. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 11.6. SEPARATE COUNTERPARTS. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.7. SUCCESSORS AND ASSIGNS. All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Depositor and its successors, the Eligible Lender Trustee and its
successors, each Certificateholder and its successors and permitted assigns and
to the Surety Provider as a third party beneficiary, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by a
Certificateholder shall bind the successors and assigns of such
Certificateholder.
SECTION 11.8. NO PETITION. (a) The Depositor will not at any
time institute against the Trust any bankruptcy proceedings under any United
States Federal or State bankruptcy or similar law in connection with any
obligations relating to the Trust Certificates, the Originators' Interests, the
Notes, this Agreement or any of the other Basic Documents.
(b) The Eligible Lender Trustee (not in its individual
capacity but solely as Eligible Lender Trustee), by entering into this
Agreement, and each Certificateholder, by accepting a Trust Certificate or
Originators' Interest, as the case may be, hereby covenant and agree that they
will not at any time institute against TMS Student Holdings, Inc. or the Trust,
or join in any institution against TMS Student Holdings, Inc. or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency, receivership or
liquidation proceedings, or other proceedings under any United States Federal or
State bankruptcy or similar law in connection with any obligations relating to
the Trust Certificates or Originators' Interest, as the case may be, the Notes,
this Agreement or any of the other Basic Documents.
SECTION 11.9. NO RECOURSE. Each Certificateholder by accepting
a Trust Certificate or Originators' Interest, as the case may be, acknowledges
that such Certificateholder's Trust Certificates or Originators' Interest, as
the case may be, represent beneficial interests in the Trust only and do not
represent interests in or obligations of the Depositor, the Seller, the Master
Servicer, the Administrator, the Eligible Lender Trustee, the Indenture Trustee
or any Affiliate thereof or any officer, director or employee of any thereof and
no recourse may be had against such parties or their assets, except as may be
expressly set forth in this Agreement, the Trust Certificates, the Originators'
Interests or the other Basic Documents.
SECTION 11.10. HEADINGS. The headings of the various
Articles and Sections herein are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 11.11. GOVERNING LAW. This Agreement shall be
construed in accordance with the laws of the _________ of ________, without
reference to its conflict of law provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws. The Trust created by this Agreement shall be a business trust subject to
the _________ business trust statute (________ ET SEQ.). This Agreement and any
amendment or supplement thereto shall be filed after its execution with the
___________ Department of State; PROVIDED, HOWEVER, that any failure to make
such a filing shall not affect in any way the validity of the Trust created
hereby or its status as a business trust under _________ law or the
effectiveness of this Agreement.
SECTION 11.12. RIGHTS OF SURETY PROVIDER. The Surety Provider
is a third-party beneficiary of this Trust Agreement. Any right conferred to the
Surety Provider shall be suspended during any period in which the Surety
Provider is in default in its payment obligations under the Insurance Agreement.
During any period of suspension the Surety Provider's rights hereunder shall
vest in the Certificateholders and shall be exercisable by the Holders of a
majority of the aggregate principal amount of Certificates then Outstanding. At
such time as the Certificates are no longer Outstanding hereunder and the Surety
Provider has been reimbursed for all Required Surety Payments to which it is
entitled under the Basic Documents and has been paid all Premium Amounts due and
owing in respect of the Surety Bonds, the Surety Provider's rights hereunder
shall terminate.
SECTION 11.13. CREATION OF TRUST AND DELIVERY OF TRUST
AGREEMENT. This Trust Agreement shall be deemed for all purposes executed and
delivered at the Eligible Lender Trustee's corporate trust office in
_______________ and the Trust shall be created and effective upon delivery of
this Trust Agreement executed by the Depositor to such office and acceptance
thereof by the Eligible Lender Trustee at such office, which acceptance shall be
evidenced conclusively by the Eligible Lender Trustee's execution hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
-------------------------
ATTEST:
by
- --------------------------- ----------------------------
Name: Name:
Title: Assistant Secretary Title: Senior Vice President
TRANS-WORLD INSURANCE COMPANY,
D/B/A EDUCAID, Depositor,
by
----------------------------
Name:
Title:
Accepted and agreed
with respect to the
provisions relating to
TMS Student Holdings, Inc.
TMS STUDENT HOLDINGS, INC.
by
--------------------
Name:
Title:
<PAGE>
COMMONWEALTH OF ____________)
)SS:
COUNTY OF __________________)
On this, the ____ day of March, 1995, before me, the
undersigned officer, personally appeared _____________________, who acknowledged
himself to be a Senior Vice President of ________________, a __________
corporation, and that he as such Senior Vice President, being authorized to do
so, executed the foregoing for the purpose of creating [Trust 199_-_], with said
_______________ as Trustee, in accordance with the terms of the foregoing
instrument, by signing the name of the corporation by himself as Senior Vice
President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------
Notary Public
(SEAL)
<PAGE>
EXHIBIT A
TO THE TRUST AGREEMENT
FORM OF TRUST CERTIFICATE
SEE REVERSE FOR CERTAIN DEFINITIONS
UNLESS THIS TRUST CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY
PURCHASING THIS TRUST CERTIFICATE, AGREES THAT THIS TRUST CERTIFICATE MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3)
UNDER THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN
INSTITUTIONAL ACCREDITED INVESTOR, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT.
THIS TRUST CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO
(1) EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT
ACCOUNTS OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL
ACCOUNTS) WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH
PLAN'S ARRANGEMENTS OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES. FURTHER, THIS
TRUST CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON WITHIN THE
MEANING OF SECTION 7701(A)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY.
[THIS TRUST CERTIFICATE IS NONTRANSFERABLE.]3
- --------
3 To be included only on the Certificates issued to TMS Student
Holdings, Inc. (as defined below) on the Closing Date and any
Certificates issued in exchange therefor.
<PAGE>
NUMBER
--- $--------------------------
CUSIP NO.
[TRUST 199_-_]
AUCTION RATE ASSET BACKED CERTIFICATES
evidencing a fractional undivided interest in the Trust, as defined
below, the property of which includes a pool of student loans sold to
the Trust by Trans-World Insurance Company, d/b/a Educaid.
(This Trust Certificate does not represent an interest in or obligation
of the Depositor (as defined below), the Master Servicer (as defined
below), the Eligible Lender Trustee (as defined below) or any of their
respective affiliates, except to the extent described below.)
THIS CERTIFIES THAT is the registered owner of dollars
non-assessable, fully-paid, fractional undivided interest in [Trust 199_-_] (the
"Trust"), a trust formed under the laws of the __________ of ___________ by
Trans-World Insurance Company, d/b/a Educaid (the "Depositor"). The Trust was
created pursuant to a Trust Agreement dated as of _______, 199_ (the "Trust
Agreement") between the Depositor and ____________, a ________ bank and trust
company, not in its individual capacity but solely as eligible lender trustee on
behalf of the Trust (the "Eligible Lender Trustee"), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in Appendix A to the Trust Agreement; such Appendix A also contains rules
as to usage that shall be applicable herein.
This Certificate is one of the duly authorized Certificates
designated as "Auction Rate Asset Backed Certificates" (herein called the "Trust
Certificates"). Issued under the Indenture dated as of March 28, 1995, between
the Trust and Bankers Trust Company, as Indenture Trustee, will be one or more
series of notes, each series to be issued under a separate terms agreement (such
notes referred to herein as, collectively, the "Notes"). This Trust Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the holder of this Trust Certificate
by virtue of the acceptance hereof assents and by which such holder is bound.
The property of the Trust includes a pool of student loans (the "Financed
Student Loans"), all moneys paid thereunder on or after March 17, 1995 (or, in
the case of Financed Student Loans that constitute Additional Student Loans, on
or after the respective Subsequent Cut-off Dates), certain bank accounts and the
proceeds thereof and certain other rights under the Trust Agreement and the Sale
and Servicing Agreement and all proceeds of the foregoing. The rights of the
holders of the Trust Certificates to the assets of the Trust (other than the
Certificate Surety Bond) are subordinated to the rights of the holders of the
Notes, as set forth in the Sale and Servicing Agreement.
Under the Trust Agreement, distributions will be made on the
Trust Certificates on each Certificate Distribution Date, commencing on
___________, in the manner set forth in the Trust Agreement and the Sale and
Servicing Agreement. The Final Certificate Maturity Date is __________.
Each holder of this Trust Certificate acknowledges and agrees
that its rights to receive distributions in respect of this Trust Certificate
from Available Funds and amounts on deposit in the Reserve Account are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement and the Indenture.
It is the intent of the Depositor, the Master Servicer, the
Administrator and the Certificateholders that, solely for federal income tax
purposes, the Trust will be treated as a partnership and the Certificateholders
(including TMS Student Holdings, Inc. in its capacity as recipient of
distributions from the Reserve Account) will be treated as partners in that
partnership. TMS Student Holdings, Inc. and the other Certificateholders by
acceptance of a Trust Certificate (and the Certificate Owners by acceptance of a
beneficial interest in a Trust Certificate) or an Originators' Interest, agree
to treat, and to take no action inconsistent with the treatment of, the Trust
Certificates for such federal income tax purposes as partnership interests in
the Trust.
Each Certificateholder or Certificate Owner, by its acceptance
of a Trust Certificate or, in the case of a Certificate Owner, a beneficial
interest in a Trust Certificate, covenants and agrees that such
Certificateholder or Certificate Owner, as the case may be, will not at any time
institute against the Seller or the Trust, or join in any institution against
the Seller or the Trust, any bankruptcy, reorganization, arrangement,
insolvency, receivership or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Trust Certificates, the Notes, the Trust
Agreement or any of the other Basic Documents.
Distributions on this Trust Certificate will be made as
provided in the Trust Agreement by the Eligible Lender Trustee by wire transfer
or by check mailed to the Certificateholder of record in the Certificate
Register without the presentation or surrender of this Trust Certificate or the
making of any notation hereon, except that with respect to Trust Certificates
registered on the Record Date in the name of the nominee of the Clearing Agency
(initially, such nominee to be Cede & Co.), payments will be made by wire
transfer in immediately available funds to the account designated by such
nominee. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Trust Certificate will be made after
due notice by the Eligible Lender Trustee of the pendency of such distribution
and only upon presentation and surrender of this Trust Certificate at the office
or agency maintained for the purpose of the Eligible Lender Trustee in
- --------------.
Reference is hereby made to the further provisions of this
Trust Certificate set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized representative of the Eligible Lender Trustee or
its authenticating agent, by manual signature, this Trust Certificate shall not
entitle the holder hereof to any benefit under the Trust Agreement or the Sale
and Servicing Agreement or be valid for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Eligible Lender Trustee on behalf of
the Trust and not in its individual capacity has caused this Trust Certificate
to be duly executed as of the date set forth below.
[Trust 199_-_]
by ______________,
not in its individual
capacity but solely as
Eligible Lender Trustee,
ATTEST: by
- --------------------- -----------------------------
Authorized Signatory
Date:
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the
within-mentioned Trust Agreement.
________________________, not in its
individual capacity but solely as
Eligible Lender Trustee,
by
-----------------------------
Authorized Representative
Date:
<PAGE>
[Reverse of Trust Certificate]
The Trust Certificates do not represent an obligation of, or
an interest in, the Depositor, the Master Servicer, the Administrator, the
Eligible Lender Trustee or any affiliates of any of them, and no recourse may be
had against such parties or their assets, except as may be expressly set forth
herein, in the Trust Agreement or in the other Basic Documents. In addition,
this Trust Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections
respecting the Financed Student Loans, all as more specifically set forth in the
Sale and Servicing Agreement. A copy of each of the Sale and Servicing Agreement
and the Trust Agreement may be examined during normal business hours at the
principal office of the Seller, and at such other places, if any, designated by
the Seller, by any Certificateholder upon request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Seller and the rights of the Certificateholders under the
Trust Agreement at any time by the Depositor and the Eligible Lender Trustee
with the consent of (i) the holders of the Notes evidencing not less than 50.1%
of the outstanding principal balance of the Notes (ii) the Certificates
evidencing not less than 50.1% of the Certificate Balance and (iii) the Surety
Provider. Any such consent by the holder of this Trust Certificate shall be
conclusive and binding on such holder and on all future holders of this Trust
Certificate and of any Trust Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Trust Certificate. The Trust Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the holders of
any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Trust Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by Dauphin
Deposit Bank and Trust Company in its capacity as Certificate Registrar, or by
any successor Certificate Registrar, accompanied by a written instrument of
transfer in form satisfactory to the Eligible Lender Trustee and the Certificate
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Trust Certificates of
authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee.
The Trust Certificates are issuable only as registered Trust
Certificates without coupons in denominations of $50,000 or in integral
multiples in excess thereof; PROVIDED, HOWEVER, that the Trust Certificates
issued to the TMS Student Holdings, Inc. may be issued in such denominations as
to include any residual amount of the Certificate Balance. As provided in the
Trust Agreement and subject to certain limitations therein set forth, Trust
Certificates are exchangeable for new Trust Certificates of authorized
denominations evidencing the same aggregate denomination, as requested by the
holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Eligible Lender Trustee or the
Certificate Registrar may require payment of a sum sufficient to cover any tax
or governmental charge payable in connection therewith.
The Eligible Lender Trustee, the Certificate Registrar, the
Surety Provider and any agent of the Eligible Lender Trustee, the Certificate
Registrar or the Surety Provider may treat the person in whose name this Trust
Certificate is registered as the owner hereof for all purposes, and none of the
Eligible Lender Trustee, the Certificate Registrar or the Surety Provider or any
such agent shall be affected by any notice to the contrary.
This Trust Certificate may not be transferred directly or indirectly to
(1) employee benefit plans, retirement arrangements, individual retirement
accounts or Keogh plans subject to either Title I of the Employee Retirement
Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue
Code of 1986, as amended, or (2) entities (including insurance company general
accounts) whose underlying assets include plan assets by reason of any such
plan's arrangements or account's investment in such entities. By accepting and
holding this Trust Certificate, the Holder hereof shall be deemed to have
represented and warranted that it is not any of the foregoing entities.
This Trust Certificate may not be transferred to any person
who is not a U.S. Person, as such term is defined in Section 7701(a)(30) of the
Internal Revenue Code, as amended.
Each purchaser of Trust Certificates (except for TMS Student
Holdings, Inc.) shall be required, prior to purchasing a Trust Certificate, to
execute and deliver to the Broker-Dealer a Purchaser's Letter in the form
attached to the Trust Agreement as Exhibit C.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Sale and Servicing Agreement and the disposition of all
property held as part of the Trust. The Depositor may at its option purchase the
corpus of the Trust at a price specified in the Sale and Servicing Agreement,
and such purchase of the Financed Student Loans and other property of the Trust
will effect early retirement of the Trust Certificates; however, such right of
purchase is exercisable only as of any Distribution Date on or after the date on
which the Pool Balance is less than or equal to 10% of the Initial Pool Balance.
This Trust Certificate shall be construed in accordance with
the laws of the __________ of __________, without reference to its conflict of
law provisions, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- ----------------------------------------------------------------
(Please print or type name and address, including postal zip code, of
assignee)
- ----------------------------------------------------------------
the within Trust Certificate, and all rights thereunder, hereby
irrevocably constituting and appointing
_______________________________________________________ Attorney to transfer
said Trust Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:
_ ________________________________*
Signature Guaranteed:
_ ________________________________*
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by an approved eligible guarantor institution, an institution which
is a participant in a Securities Transfer Association recognized signature
guarantee program.
<PAGE>
EXHIBIT B
[TRUST 199_-_]
AUCTION RATE ASSET-BACKED CERTIFICATES
NOTICE OF CHANGE IN AUCTION DATE
Notice is hereby given by SMITH BARNEY INC., as Market
Agent for the captioned Certificates, that with respect to the captioned
Certificates, the Auction Date is hereby changed as follows:
l. With respect to the captioned Certificates, the
definition of "Auction Date" shall be deemed amended by substituting
"_________________ (number) Business Day" in the second line thereof.
2. This change shall take effect on ______________
which shall be the Auction Date for the Auction Period commencing on
- --------------.
3. The Auction Date for the captioned Certificates
shall be subject to further change hereafter as provided in the Trust
Agreement.
4. Terms not defined in this Notice shall have the
meanings set forth in the Trust Agreement.
SMITH BARNEY INC., as Market Agent
Dated: By:
<PAGE>
EXHIBIT C
TO BE SUBMITTED TO YOUR BROKER-DEALER WHO MAY THEN
DELIVER COPIES ON YOUR BEHALF TO THE AUCTION AGENT
PURCHASER'S LETTER
Relating to [Trust 199_-_]
Auction Rate Asset Backed Certificates
[Trust 199_-_]
The Auction Agent
A Broker-Dealer
An Agent Member
Other Persons
Dear Sirs:
We may from time to time offer to purchase, purchase, offer to sell
and/or sell Auction Rate Asset Backed Certificates (the "Certificates"), issued
by [Trust 199_-_], a ____________ business trust (the "Company"), as described
in a private placement memorandum relating to the Certificates, including the
attachments thereto (the "Offering Document"). We agree that this Letter shall
apply to such purchases, sales, and offers and to any Certificates owned by us.
We understand that the Certificate Interest Rate for the Certificates will
generally be based on the results of Auctions as set forth in the Offering
Document. We acknowledge that we have received, and have read and understood,
the Offering Document.
Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Offering Document.
We represent and agree as follows:
(a) We agree that any Bid or Sell Order placed by us shall
constitute an irrevocable offer by us to purchase or sell the
Certificates subject to such Bid or Sell Order, or such lesser
principal amount of Certificates as we shall be required to sell or
purchase as a result of such Auction, at the applicable price, all as
set forth in the Offering Document, and that if we fail to place a Bid
or Sell Order with respect to Certificates owned by us with a
Broker-Dealer on any Auction Date for such Certificates, or a
Broker-Dealer to which we communicate a Bid or Sell Order fails to
submit such Bid or Sell Order to the Auction Agent, we shall be deemed
to have placed a Hold Order with respect to such Certificates as
described in the Offering Document. We authorize any Broker-Dealer that
submits a Bid or Sell Order as our agent in Auctions to execute
contracts for the sale of Certificates covered by such Bid or Sell
Order. We recognize that the payment by such Broker-Dealer for
Certificates purchased on our behalf shall not relieve us of any
liability to such Broker-Dealer for payment for such Certificates.
(b) We hereby confirm that any purchase of Certificates made
by us will be for our own account, or for the account of one or more
parties (each of whom are institutions) for whom we are acting as
trustee or agent with complete investment discretion and with authority
to bind such parties, and not with a view to any public resale or
distribution thereof. We and each other party for whom we are acting
which will acquire Certificates will be (a) an institution that is an
"acredited investor" as defined in Rule 501(a)(1)-(3) under the
Securities Act of 1933, as amended (the "Act"), (b) knowledgeable,
sophisticated and experienced in business and financial matters and (c)
able and prepared to bear the economic risk of investing in and holding
such Certificates.
(c) We understand and expressly acknowledge that the
Certificates have not been registered under the Act and, accordingly,
that the Certificates may not be reoffered, resold or otherwise
pledged, hypothecated or transferred unless so registered or an
applicable exemption from the registration requirements of the Act is
available and only pursuant to the procedures set forth in this Letter.
(d) We agree that, during the applicable period as described
in the Offering Document, dispositions of Certificates can be made only
in the denominations set forth in the Offering Document, and we will
sell, transfer or otherwise dispose of any Certificates held by us from
time to time only pursuant to a Bid or Sell Order placed in an Auction
to or through a Broker-Dealer or, when permitted in the Offering
Document, to a person that has signed and delivered, or caused to be
delivered on its behalf, to the Auction Agent a letter substantially in
the form of this letter (or other applicable purchaser's letter)
provided that in the case of all transfers other than pursuant to
Auctions we or our Broker-Dealer or our Agent Member shall advise the
Auction Agent of such transfer. We agree to comply with any other
transfer restrictions or other related procedures as described in the
Offering Document.
(e) We agree that, during the applicable period as described
in the Offering Document, ownership of Certificates shall be
represented by a global certificate registered in the name of the
applicable securities depository or its nominee, that we will not be
entitled to receive any certificate representing the Certificates and
that our ownership of any Certificates will be maintained in book-entry
form by the securities depository for the account of our Agent Member,
which in turn will maintain records of our beneficial ownership. We
authorize and instruct our Agent Member to disclose to the Auction
Agent such information concerning our beneficial ownership of
Certificates as the Auction Agent shall request.
(f) We acknowledge that the Broker-Dealers that participate in
an Auction may purchase Certificates and submit orders in Auctions with
respect to any Certificates for their own account and that, because all
orders must be submitted through Broker- Dealers, such Broker-Dealers
may have knowledge of orders placed through it in any such Auction.
(g) We understand and agree that in making decisions as to
whether to purchase or sell Certificates, in Auctions or otherwise, we
must rely on our own examination of the terms of the Certificates, and
that neither the Auction Agent nor any Broker-Dealer, by participating
in auctions, shall be deemed to make any recommendation regarding the
merits of any investment in the Certificates or the suitability of an
investment in the Certificates by us, and that neither the Auction
Agent nor any Broker-Dealer has any obligation to supply to us any
information concerning the Certificates.
(h) We acknowledge that partial deliveries of Certificates
purchased in Auctions may be made to us and such deliveries shall
constitute good delivery as set forth in the Offering Document.
(i) We acknowledge that prior to purchasing any Certificates
we shall have received an Offering Document and acknowledge that we
will have had access to such financial and other information, and have
been afforded the opportunity to ask such questions of representatives
of the Representative and the Seller and receive answers thereto, as we
deem necessary in connection with our decision to purchase
Certificates.
(j) We recognize that the Representative, the Seller and
Broker-Dealers will rely upon the truth and accuracy of the foregoing
investment representations and agreements, and we agree that each of
our purchases of Certificates now or in the future shall be deemed to
constitute our concurrence in all of the foregoing which shall be
binding on us and each party for which we are acting as set forth in
paragraph 2 above.
(k) The undersigned is not, and will not acquire Certificates
directly or indirectly on behalf of, (i) an employee benefit plan,
retirement arrangement, individual retirement account or Keogh plan
subject to either Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended (each a "Plan"), or (ii) an entity
(including insurance company general accounts) whose underlying assets
include plan assets as a result of a Plan's investment in such entity.
(l) Our Agent Member of the Securities Depository, now The
Depository Trust Company, currently is ____________________.
(m) We understand that a restrictive legend will be placed on
the Certificates and stop-transfer instructions will be issued to the
transfer agent for the Certificates, all as set forth in the Offering
Document.
(n) Our personnel authorized to place Orders with Broker-
Dealers for the purposes set forth in the Offering Document in Auctions
currently is/are ____________ ______________________, telephone number
(___) ________.
(o) Our taxpayer identification number is ________________.
(p) This Letter is not a commitment by us to purchase any
Certificates.
(q) The descriptions of Auction Procedures set forth in
Appendix I to the Offering Document are incorporated by reference
herein and, in case of any conflict between this Letter and any such
description, such description shall control.
(r) This Letter supersedes any version of this Letter
delivered by us and dated earlier than the date hereof.
Dated:
-------------------------------
(Name of Purchaser)
By:____________________________
Printed Name:
Title:
Mailing address of Purchaser:
<PAGE>
APPENDIX A
DEFINITIONS
A-1
<PAGE>
APPENDIX B
CERTIFICATE AUCTION PROCEDURES
SECTION 1.1. DEFINITIONS
"ALL HOLD RATE" means ninety percent (90%) of One-Month LIBOR.
"AUCTION" means the implementation of the Auction Procedures on an
Auction Date.
"AUCTION AGENT" means the Initial Auction Agent under the Initial
Auction Agent Agreement unless and until a Substitute Auction Agent Agreement
becomes effective, after which "Auction Agent" shall mean the Substitute Auction
Agent.
"AUCTION AGENT AGREEMENT" means the Initial Auction Agent Agreement
unless and until a Substitute Auction Agent Agreement is entered into, after
which "Auction Agent Agreement" shall mean such Substitute Auction Agent
Agreement.
"AUCTION AGENT FEE" has the meaning set forth in the Auction Agent
Agreement.
"AUCTION AGENT FEE RATE" has the meaning set forth in the Auction
Agent Agreement.
"AUCTION DATE" means, initially, April 24, 1995 with respect to the
Class 1 Certificates (or such other date as may be set forth in the Trust
Supplement relating to a Class of Certificates), and thereafter, the Business
Day immediately preceding the first day of each Auction Period for each Class of
Certificates, other than:
(i) each Auction Period commencing after the ownership of
Certificates is no longer maintained in Book-Entry Form by the
Securities Depository;
(ii) each Auction Period commencing after and during the
continuance of an Event of Default; or
(iii) each Auction Period commencing less than two Business Days
after the cure or waiver of an Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to Section 2.2.2 of this Appendix I.
"AUCTION PERIOD" means the Interest Period during which time the
Certificate Rate is determined pursuant to Section 2.2.1 hereof, which Auction
Period (after the Initial Period) initially shall consist generally of 28 days
(except as otherwise set forth in a Trust Supplement), as the same may be
adjusted pursuant to Section 2.2.2 hereof.
"AUCTION PERIOD ADJUSTMENT" means an adjustment to the Auction Period
as provided in Section 2.4 hereof or in the related Trust Supplement.
"AUCTION PROCEDURES" means the procedures set forth in Section 2.2.1
hereof by which the Auction Rate is determined.
"AUCTION RATE" means the rate of interest per annum that results from
implementation of the Auction Procedures and is determined as described in
Section 2.2.1(c)(ii) hereof.
"AUCTION RATE CERTIFICATES" means a Class of Certificates, bearing
interest based upon an Auction Rate.
"AUTHORIZED DENOMINATIONS" means $50,000 and integral multiples of
$50,000 in excess thereof.
"AVAILABLE CERTIFICATES" has the meaning set forth in Section
2.2.1(c)(i)(A) hereof.
"BID" has the meaning set forth in Section 2.2.1(a)(i) hereof.
"BID AUCTION RATE" has the meaning set forth in Section 2.2.1(c)(i)
hereof.
"BIDDER" has the meaning set forth in Section 2.2.1(a)(i) hereof.
"BOND EQUIVALENT YIELD - 91-DAY T-BILL" means, in respect of any
security with a maturity of six months or less the rate for which is quoted in
THE WALL STREET JOURNAL (Eastern Edition) on a bank discount basis, a yield
(expressed as a percentage) calculated in accordance with the following formula
and rounded up to the nearest one one-hundredth of one percent:
Bond Equivalent Yield = Q X N x 100
---------------
360 - (91 x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, and "N" refers to 365 or 366 (days),
as the case may be.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or system under
which (i) the beneficial right to principal and interest may be transferred only
through a book entry, (ii) physical securities in registered form are issued
only to a Securities Depository or its nominee as registered owner, with the
securities "immobilized" to the custody of the Securities Depository, and (iii)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"BROKER-DEALER" means Smith Barney Shearson 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 Trust or the Administrator on behalf of the Eligible Lender Trustee
pursuant to the Trust Agreement 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 Administrator on behalf of the
Issuer, pursuant to which the Broker-Dealer agrees to participate in Auctions as
set forth in the Auction Procedures, as from time to time amended or
supplemented. Each Broker-Dealer Agreement shall be in substantially the form of
the Broker-Dealer Agreement dated as of _______, 199_ between [Bankers Trust
Company], as Auction Agent, and Smith Barney Inc., as Broker-Dealer.
"BROKER-DEALER FEE" has the meaning set forth in the Auction Agent
Agreement.
"BROKER-DEALER FEE RATE" has the meaning set forth in the Auction
Agent Agreement.
"BUSINESS DAY" means any day on which The New York Stock Exchange is
open for trading and any day other than a Saturday, a Sunday or a day on which
banking institutions or trust companies in New York, California, New Jersey or
_______ are authorized or obligated by law, regulation or executive order to
remain closed.
"CERTIFICATE DISTRIBUTION DATE" means, with respect to any Class of
Auction Rate Certificates, the Business Day immediately following the expiration
of each related Auction Period and, with respect to any other Class of
Certificates, the date set forth in the related Trust Supplement.
"CERTIFICATE INITIAL PERIOD" means, for each Class of Certificates,
the period commencing on the Closing Date and continuing through the day
immediately preceding the Certificate Initial Rate Adjustment Date for such
Class.
"CERTIFICATE INITIAL RATE" means (i) with respect to the Class 1
Certificates, the date set forth as such in the Private Placement Memorandum
dated ______, 199_ relating to the offer and sale of the Certificates and (ii)
with respect to each other Class of Certificates, the rate set forth in the
related Trust Supplement.
"CERTIFICATE INITIAL RATE ADJUSTMENT DATE" means ______, 199_, with
respect to the Class 1 Certificates and, with respect to any other Class of
Certificates, the rate set forth in the related Trust Supplement.
"CERTIFICATEHOLDERS' AUCTION RATE INTEREST CARRYOVER" means, with
respect to each Class of Auction Rate Certificates, the excess, if any, of (a)
the amount of interest on such Certificate that would have accrued with respect
to the Interest Period had interest been calculated based on the Auction Rate
over (b) the amount of interest on such Certificate actually accrued with
respect to such Interest Period based on the Net Loan Rate, together with the
unpaid portion of any such excess from prior Interest Periods, together with
interest thereon calculated in accordance with Section 2.2(b) hereof; provided
that any reference to "principal" or "interest" in this Trust Agreement and in
the Certificates shall not include within the meanings of such words any
Certificateholders' Auction Rate Interest Carryover or any interest accrued on
any Certificateholders' Auction Rate Interest Carryover.
"CERTIFICATE RATE" means, with respect to each Class of Auction Rate
Certificates, each variable rate of interest per annum borne by a Certificate
for each Auction Period and determined in accordance with the provisions of
Sections 2.1 and 2.2 hereof; provided, howeve r, that in the event of an Event
of Default, the Certificate Rate shall equal the Non-Payment Rate; provided,
further, however that such Certificate Rate shall in no event exceed the
Certificate Rate Limitation.
"CERTIFICATE RATE LIMITATION" means, for each Class of Certificates, a
rate equal to 18% per annum, except as otherwise set forth in a Trust
Supplement.
"CERTIFICATE RATE ADJUSTMENT DATE" means, with respect to each Class
of Auction Rate Certificates, the date on which an Interest Rate is effective,
a nd means the date of commencement of each Auction Period.
"CERTIFICATE RATE DETERMINATION DATE" means, with respect to each
Class of Auction Rate Certificates, the Auction Date, or if no Auction Date is
app licable, the Business Day immediately preceding the date of commencement of
an Auction Period.
"CLOSING DATE" means (i) with respect to the Class 1 Certificates,
_______, 199_, the date of initial issuance and delivery of such Certificates
and (ii) with respect to any other Class of Certificates, the rate set forth in
the related Trust Supplement.
"EFFECTIVE INTEREST RATE" means, for any Financed Student Loan and any
Collection Period, the per annum rate at which such Financed Student Loan
accrues interest during such Collection Period and, in the case of a Federal
Loan, after giving effect to all applicable Interest Subsidy Payments and
Special Allowance Payments due with respect to such Federal Loan.
"EVENT OF DEFAULT" means with respect to the Certificates, (i) a
default in the due and punctual payment of any installment of interest or
principal on the Certificates, or (ii) a default in the due and punctual payment
of any interest on and principal of the Certificates at their Final Maturity
Date.
"EXISTING CERTIFICATEHOLDER" means (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with an Auction, a
Person who is a Broker-Dealer listed in the Existing Certificateholder Registry
at the close of business on the Business Day immediately preceding such Auction
and (ii) with respect to and for the purpose of dealing with the Broker-Dealer
in connection with an Auction, a Person who is a beneficial owner of any
Certificate.
"EXISTING CERTIFICATEHOLDER REGISTRY" means the registry of Persons
who are owners of the Certificates, maintained by the Auction Agent as provided
in the Auction Agent Agreement.
"FEDERAL FUNDS RATE" means, for any date of determination, the federal
funds effective rate as published on page 118 of the Dow Jones Telerate Service
(or such other page as may replace that page on that service for the purpose of
displaying comparable rates or prices).
"FINAL MATURITY DATE" means _____, with respect to the Class 1
Certificates and, with respect to any other Class of Certificates, the date set
forth in the related Trust Supplement.
"HOLD ORDER" has the meaning set forth in Section 2.2.1(a)(i) hereof.
"INITIAL AUCTION AGENT" means Bankers Trust Company, a New York
banking corporation, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" means the Auction Agent Agreement
dated as of ________, 199_, by and among the Issuer, the Indenture Trustee and
the Initial Auction Agent, including any amendment thereof or supplement
thereto.
"INTEREST PERIOD" means, for each Class of Auction Rate Certificates,
the related Certificate Initial Period and each period commencing on a
Certificate Rate Adjustment Date for such Certificates and ending on the day
before (i) the next Certificate Rate Adjustment Date for such Certificates or
(ii) the Final Maturity Date for such Certificates.
"INTEREST RATE" means, with respect to a Class of Auction Rate
Certificates, the rate of interest per annum borne by such Certificate as of the
time referred to, including, without limitation, the related Certificate Initial
Rate and the Certificate Rate.
"LIBOR DETERMINATION DATE" means for each Interest Period other than
the initial Interest Period, the Business Day prior to the commencement of each
such Interest Period.
"LONDON BANKING DAY" means any Business Day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
"MARKET AGENT" means Smith Barney Inc., New York, New York, in such
capacity under the Broker-Dealer Agreement, or any successor to it in such
capacity hereunder.
"MAXIMUM AUCTION RATE" means, with respect to the Auction Rate
Certificates, (i) for Auction Periods of 34 days or less, either (A) the greater
of X One-Month LIBOR plus 0.60% and (Y) the Fed Funds Rate plus 0.60% (if both
ratings assigned by the Rating Agencies to the Certificates are "Aa3" or "AA-"
or better) or (B) One-Month LIBOR plus 1.50% (if any one of the ratings assigned
by the Rating Agencies to the Certificates, is less than "Aa3" or "AA-") or (ii)
for Auction Periods of greater than or equal to 35 days, either (A) the greater
of One-Month LIBOR or Three-Month LIBOR, plus in either case, 0.60% (if both of
the ratings assigned by the Rating Agencies to the Certificates are "Aa3" or
"AA-" or better) or (B) the greater of One- Month LIBOR or Three-Month LIBOR,
plus in either case, 1.50% (if any one of the ratings assigned by the Rating
Agencies to the Certificates is less than "Aa3" or "AA-"). For purposes of the
Auction Agent and the Auction Procedures, the ratings referred to in this
definition shall be the last ratings of which the Auction Agent has been given
notice pursuant to the Auction Agent Agreement.
"NET LOAN RATE" means, for any Interest Period, the weighted average
Effective Interest Rate for the Collection Period immediately preceding such
Interest Period less 1.60%, or such other amount as may be set forth in a Trust
Supplement.
"NINETY-ONE DAY UNITED STATES TREASURY BILL RATE" means that rate of
interest per annum equal to the Bond Equivalent Yield - 91-Day T-Bill on the
91-Day United States Treasury Bills sold at the last auction thereof that
immediately precedes the Certificate Rate Adjustment Date.
"NON-PAYMENT RATE" means One-Month LIBOR plus 1.50%.
"NOTICE OF FEE RATE CHANGE" means a notice of a change in the Auction
Agent Fee Rate or the Broker-Dealer Fee Rate substantially in the form of
Exhibit E to the Auction Agent Agreement.
"ONE-MONTH LIBOR" means the London interbank offered rate for deposits
in U.S. dollars having a maturity of one month commencing on the related LIBOR
Determination Date (the "Index Maturity") which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of the rates at which deposits in U.S. dollars, having the Index
Maturity and in a principal amount of not less than U.S. $1,000,000, are offered
at approximately 11:00 a.m., London time, on such LIBOR Determination Date to
prime banks in the London interbank market by the Reference Banks. The Auction
Agent will request the principal London office of each of such Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations.
If fewer than two quotations are provided, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Auction Agent, at approximately 11:00 a.m., New York City time, on such
LIBOR Determination Date for loans in U.S. dollars to leading European banks
having the Index Maturity and in a principal amount equal to an amount of not
less than U.S. $1,000,000; provided that if the banks selected as aforesaid are
not quoting as mentioned in this sentence, One-Month LIBOR in effect for the
applicable LIBOR Reset Period will be One-Month LIBOR in effect for the previous
LIBOR Reset Period.
"ORDER" has the meaning set forth in Section 2.2.1(a)(i) hereof.
"RECORD DATE" means, with respect to the Certificates, the close of
business on the second Business Day immediately preceding the related
Certificate Distribution Date.
"REMARKETING AGENT" means a remarketing agent designated under a
Remarketing Agreement.
"REMARKETING AGREEMENT" means any remarketing agreement hereafter
entered into by the Issuer and a remarketing agent with respect to the
Certificates, as originally executed and as from time to time amended or
supplemented in accordance with the terms thereof.
"REUTERS SCREEN LIBOR PAGE" means the display designated as page
"LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBOR page for the purposes of displaying London interbank offered
rates of major banks).
"SELL ORDER" has the meaning set forth in Section 2.2.1(a)(i) hereof.
"SUBMISSION DEADLINE" means 1:00 p.m., eastern time, on any Auction
Date or such other time on any Auction Date by which Broker-Dealers are required
to submit Orders to the Auction Agent as specified by the Auction Agent from
time to time.
"SUBMITTED BID" has the meaning set forth in Section 2.2.1(c)(i)
hereof.
"SUBMITTED HOLD ORDER" has the meaning set forth in Section
2.2.1(c)(i) hereof.
"SUBMITTED ORDER" has the meaning set forth in Section 2.2.1(c)(i)
hereof.
"SUBMITTED SELL ORDER" has the meaning set forth in Section
2.2.1(c)(i) hereof.
"SUBSTITUTE AUCTION AGENT" means the Person with whom the Indenture
Trustee enters into a Substitute Auction Agent Agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" means an auction agent agreement
containing terms substantially similar to the terms of the Initial Auction Agent
Agreement, whereby a qualified Person agrees with the Indenture Trustee and the
Issuer to perform the duties of the Auction Agent under this Trust Agreement.
"SUFFICIENT BIDS" has the meaning set forth in Section 2.2.1(c)(i)
hereof.
"TELERATE PAGE 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"THREE-MONTH LIBOR" means the London interbank offered rate for
deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Three-Month Index Maturity") which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Three Month Index Maturity and in a principal amount of
not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London
time, on such LIBOR Determination Date to prime banks in the London interbank
market by the Reference Banks. The Auction Agent will request the principal
London office of each of such Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Auction Agent, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Three Month Index Maturity and
in a principal amount equal to an amount of not less than U.S. $1,000,000;
provided that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, Three-Month LIBOR in effect for the applicable Interest Period
will be Three-Month LIBOR in effect for the previous Interest Period.
"TRUST AGREEMENT" means this Trust Agreement, as from time to time
amended or supplemented.
"TRUST SUPPLEMENT" means each supplement to the Trust Agreement
pursuant to which a Class of Certificates is authorized.
SECTION 2.1. CERTIFICATES. The Initial Rate Adjustment
Date for each Class of Certificates shall be the related Certificate
Initial Rate Adjustment Date.
During the related Certificate Initial Period, each Class of Auction
Rate Certificates shall bear interest at the Certificate Initial Rate.
Thereafter, except with respect to an Auction Period Adjustment, the
Certificates shall bear interest at a Certificate Rate based on a 28-day Auction
Period (or such other number of days as may be set forth in a Trust Supplement),
as determined pursuant to this Section 2.1 and Section 2.2 hereof.
For the Certificate Initial Period and each Auction Period thereafter,
interest at the Certificate Rate shall accrue daily and shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
The Certificate Rate to be borne by the Certificates after such
Certificate Initial Period for each Auction Period until an Auction Period
Adjustment, if any, shall be determined as herein described. Except as otherwise
set forth in a Trust Supplement, each such Auction Period shall commence on and
include the first Business Day following the expiration of the immediately
preceding Auction Period and terminate on and include the day immediately
preceding the fourth Business Day of the fourth following week, subject to
adjustment as described below in the event that there are fewer than four
Business Days during any such week; provided, however, that in the case of the
Auction Period that immediately follows the Certificate Initial Period for the
Certificates, such Auction Period shall commence on the Certificate Initial Rate
Adjustment Date. The Certificate Rate for each Auction Period shall be the
lesser of the (i) Net Loan Rate in effect for such Auction Period and (ii) the
Auction Rate in effect for such Auction Period as determined in accordance with
Section 2.2.1 hereof; provided that if, on any Certificate Rate Determination
Date, an Auction is not held for any reason, then the Certificate Rate on the
Certificates for the next succeeding Auction Period shall be the Net Loan Rate.
Notwithstanding the foregoing:
a) if the ownership of a Class of Auction Rate Certificates is no
longer maintained in Book-Entry Form, the Certificate Rate for any Certificate
Interest Period commencing after the delivery of certificates representing such
Certificates shall equal the lesser of (i) the Maximum Auction Rate and (ii) the
Net Loan Rate on the Business Day immediately preceding the first day of such
subsequent Certificate Interest Period; or
b) if an Event of Default shall have occurred, the Certificate Rate on
the Auction Rate Certificates for the Interest Period commencing on or
immediately after such Event of Default, and for the Certificate Interest Period
thereafter, to and including the Interest Period, if any, during which, or
commencing less than two Business Days after, such Event of Default is cured in
accordance with this Trust Agreement, shall equal the Non-Payment Rate on the
first day of each such Interest Period.
In accordance with Section 2.2.1(c)(ii) hereof, the Auction Agent
shall promptly give written notice to the Administrator, the Eligible Lender
Trustee and the Surety Provider of the Certificate Rate (unless the Certificate
Rate is the Non-Payment Rate) and either the Auction Rate or the Net Loan Rate,
as the case may be, when such rate is not the Certificate Rate. The Eligible
Lender Trustee shall notify the Certificateholders of the Certificate Rate
applicable to the Certificates for each Auction Period on the second Business
Day of such Auction Period.
In the event that there are fewer than four Business Days in any week
during which the Auction Period for Certificates would otherwise be scheduled to
expire, the expiration date and Certificate Distribution Date for such Auction
Period then in effect, if applicable, and the Certificate Rate Determination
Date and commencement date for the immediately following Interest Period for the
Certificates may be adjusted to fall on such dates as the Market Agent, with the
consent of the Auction Agent, may determine to be appropriate under such
circumstances. The Market Agent shall promptly notify the Eligible Lender
Trustee and the Administrator and the Surety Provider in writing of any such
determination. The Eligible Lender Trustee, upon receipt of such notice, shall
immediately give written notification of such determination to the
Certificateholders.
Notwithstanding any other provision of the Certificates or the Trust
Agreement and except for the occurrence of an Event of Default, interest payable
on each Class of Auction Rate Certificates for an Auction Period shall never
exceed for such Auction Period the amount of interest payable at the Net Loan
Rate (subject to the Certificate Rate Limitation) in effect for such Auction
Period.
If the Auction Rate for a Class of Auction Rate Certificates is
greater than the Net Loan Rate, then the Certificate Rate applicable to such
Class of Certificates for that Interest Period will be the Net Loan Rate. If the
Certificate Rate applicable to such Class of Certificates for any Interest
Period is the Net Loan Rate, the Eligible Lender Trustee shall determine the
Certificateholders' Auction Rate Interest Carryover, if any, with respect to
such Certificates. Such Certificateholders' Auction Rate Interest Carryover
shall bear interest calculated at a rate equal to One-Month LIBOR (as determined
by the Auction Agent, provided the Eligible Lender Trustee has received notice
of One-Month LIBOR from the Auction Agent, and if the Eligible Lender Trustee
shall not have received such notice from the Auction Agent, then as determined
by the Eligible Lender Trustee) from the Certificate Distribution Date for the
Interest Period with respect to which such Certificateholders' Auction Rate
Interest Carryover was calculated, until paid. For purposes of the Trust
Agreement, any reference to "principal" or "interest" herein shall not include
within the meaning of such words Certificateholders' Auction Rate Interest
Carryover or any interest accrued on any such Certificateholders' Auction Rate
Interest Carryover. Such Certificateholders' Auction Rate Interest Carryover
shall be calculated in sufficient time for the Eligible Lender Trustee to give
notice to the Certificateholder of such Certificateholders' Auction Rate
Interest Carryover as required in the next succeeding sentence. On the
Certificate Distribution Date for an Interest Period with respect to which such
Certificateholders' Auction Rate Interest Carryover has been calculated by the
Eligible Lender Trustee, the Eligible Lender Trustee shall give written notice
to the Certificateholders of the Certificateholders' Auction Rate Interest
Carryover applicable to the Certificates, which written notice may be included
in any other written statement sent by the Eligible Lender Trustee to such
Certificateholders, and shall be mailed on such Certificate Distribution Date by
first-class mail, postage prepaid, to each such Certificateholder at such
Certificateholder's address as it appears on the registration books maintained
by the Registrar. Such notice shall state, in addition to such
Certificateholders' Auction Rate Interest Carryover, that, unless and until the
Final Maturity Date for the Certificates has occurred (after which all accrued
Certificateholders Auction Rate Interest Carryover (and all accrued interest
thereon) that remains unpaid shall be cancelled and no Certificateholders'
Auction Rate Interest Carryover (and interest accrued thereon) shall be paid
with respect to the Certificates), (i) the Certificateholders' Auction Rate
Interest Carryover (and interest accrued thereon calculated at a rate equal to
One-Month LIBOR) shall be paid by the Eligible Lender Trustee on the
Certificates on the first occurring Certificate Distribution Date for a
subsequent Interest Period if and to the extent that (1) during such Interest
Period no additional Certificateholders' Auction Rate Interest Carryover is
accruing on the Certificates and (2) moneys are available pursuant to the terms
of the Trust Agreement in an amount sufficient to pay all or a portion of such
Certificateholders' Auction Rate Interest Carryover and (ii) interest shall
accrue on the Certificateholders' Auction Rate Interest Carryover at a rate
equal to One-Month LIBOR until such Certificateholders' Auction Rate Interest
Carryover is paid in full or the Final Maturity Date for the Certificates
occurs.
The Certificateholders' Auction Rate Interest Carryover for a Class of
Auction Rate Certificates shall be paid by the Eligible Lender Trustee on
Outstanding Certificates of such Class on the Certificate Distribution Date
following the first occurring Certificate Distribution Date for a subsequent
Interest Period if and to the extent that (i) during such Interest Period no
additional Certificateholders' Auction Rate Interest Carryover is accruing on
such Class of Certificates and (ii) moneys are available pursuant to the terms
of the Trust Agreement in an amount sufficient to pay all or a portion of such
Certificateholders' Auction Rate Interest Carryover. Any Certificateholders'
Auction Rate Interest Carryover (and any interest accrued thereon) which is due
and payable on the Final Maturity Date for the Certificates, shall be paid to
the Certificateholder thereof on said Certificate Distribution Date to the
extent that moneys are available therefor in accordance with the provisions of
the Trust Agreement; provided, however, that any Certificateholders' Auction
Rate Interest Carryover (and any interest accrued thereon) which is not yet due
and payable on said Final Maturity Date shall be cancelled with respect to said
Class of Certificates on said Final Maturity Date. To the extent that any
portion of the Certificateholders' Auction Rate Interest Carryover for a Class
of Auction Rate Certificates remains unpaid after payment of a portion thereof,
such unpaid portion of the Certificateholders' Auction Rate Interest Carryover
shall be paid in whole or in part as required hereunder until fully paid by the
Eligible Lender Trustee on the next occurring Certificate Distribution Date or
Dates, as necessary, for a subsequent Interest Period or Periods, for such Class
if and to the extent that the conditions in the second preceding sentence are
satisfied. On any Certificate Distribution Date on which the Eligible Lender
Trustee pays only a portion of the Certificateholders' Auction Rate Interest
Carryover on a Class of Certificates, the Eligible Lender Trustee shall give
written notice in the manner set forth in the immediately preceding paragraph to
the Certificateholder receiving such partial payment of the Certificateholders'
Auction Rate Interest Carryover remaining unpaid on such Class of Certificates.
The Certificate Distribution Date in such subsequent Interest Period
on which such Certificateholders' Auction Rate Interest Carryover for a Class of
Auction Rate Certificates shall be paid shall be determined by the Eligible
Lender Trustee in accordance with the provisions of the immediately preceding
paragraph, and the Eligible Lender Trustee shall make payment of the
Certificateholders' Auction Rate Interest Carryover in the same manner as, and
from the same Account from which, it pays interest on the Certificates on a
Certificate Distribution Date.
In the event that the Auction Agent no longer determines, or fails to
determine, when required, the Certificate Rate with respect to a Class of
Auction Rate Certificates, or, if for any reason such manner of determination
shall be held to be invalid or unenforceable, the Certificate Rate for the next
succeeding Interest Period for such Class of Auction Rate Notes shall be the Net
Loan Rate as determined by the Administrator (which is responsible for notifying
the Auction Agent of such Net Loan Rate), for such next succeeding Auction
Period.
SECTION 2.2. CERTIFICATE RATE.
SECTION 2.2.1. DETERMINING THE INTEREST RATE.
By purchasing Auction Rate Certificates, whether in an Auction or
otherwise, each purchaser of the Auction Rate Certificates, or its
Broker-Dealer, must agree and shall be deemed by such purchase to have agreed
(i) to participate in Auctions on the terms described herein, (ii) to have its
beneficial ownership of the Auction Rate Certificates maintained at all times in
Book-Entry Form for the account of its Participant, which in turn will maintain
records of such beneficial ownership and (iii) to authorize such Participant to
disclose to the Auction Agent such information with respect to such beneficial
ownership as the Auction Agent may request.
So long as the ownership of Auction Rate Certificates is maintained in
Book-Entry Form, an Existing Certificateholder may sell, transfer or otherwise
dispose of Auction Rate Certificates only pursuant to a Bid or Sell Order placed
in an Auction or otherwise sell, transfer or dispose of Auction Rate
Certificates through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Certificateholder, its
Broker-Dealer or its Participant advises the Auction Agent of such transfer.
Auctions shall be conducted on each Auction Date, if there is an Auction Agent
on such Auction Date, in the following manner:
(a) (i) Prior to the Submission Deadline on each Auction Date relating
to a Class of Auction Rate Notes:
(A) each Existing Certificateholder of the applicable Class of
Auction Rate Notes may submit to a Broker-Dealer by telephone or
otherwise any information as to:
(1) the principal amount of Outstanding Auction Rate
Certificates of such Class, if any, owned by such Existing
Certificateholder which such Existing Certificateholder desires
to continue to own without regard to the Certificate Rate for the
next succeeding Auction Period;
(2) the principal amount of Outstanding Auction Rate
Certificates of such Class, if any, which such Existing
Certificateholder offers to sell if the Certificate Rate for the
next succeeding Auction Period shall be less than the rate per
annum specified by such Existing Certificateholder; and/or
(3) the principal amount of Outstanding Auction Rate
Certificates of such Class, if any, owned by such Existing
Certificateholder which such Existing Certificateholder offers to
sell without regard to the Certificate Rate for the next
succeeding Auction Period;
and
(B) one or more Broker-Dealers may contact Potential
Certificateholders to determine the principal amount of Auction Rate
Certificates of such Class which each Potential Certificateholder
offers to purchase, if the Certificate Rate for the next succeeding
Auction Period shall not be less than the rate per annum specified by
such Potential Certificateholder.
The statement of an Existing Certificateholder or a Potential
Certificateholder referred to in (A) or (B) of this paragraph (i) is herein
referred to as an "Order," and each Existing Certificateholder and each
Potential Certificateholder placing an Order is herein referred to as a
"Bidder"; an Order described in clause (A)(1) is herein referred to as a "Hold
Order"; an Order described in clauses (A)(2) and (B) is herein referred to as a
"Bid"; and an Order described in clause (A)(3) is herein referred to as a "Sell
Order."
(ii) (A) Subject to the provisions of Section 2.2.1(b)
hereof, a Bid by an Existing Certificateholder shall constitute
an irrevocable offer to sell:
(1) the principal amount of Outstanding Auction Rate
Certificates specified in such Bid if the Certificate Rate
determined as provided in this Section 2.2.1 shall be less than
the rate specified therein; or
(2) such principal amount, or a lesser principal amount of
Outstanding Auction Rate Certificates to be determined as set
forth in Section 2.2.1(d)(i)(D) hereof, if the Certificate Rate
determined as provided in this Section 2.2.1 shall be equal to
the rate specified therein; or
(3) such principal amount, or a lesser principal amount of
Outstanding Auction Rate Certificates to be determined as set
forth in Section 2.2.1(d)(ii)(C) hereof, if the rate specified
therein shall be higher than the Certificate Rate and Sufficient
Bids have not been made.
(B) Subject to the provisions of Section 2.2.1(b) hereof, a Sell
Order by an Existing Certificateholder shall constitute an irrevocable
offer to sell:
(1) the principal amount of Outstanding Auction Rate
Certificates specified in such Sell Order; or
(2) such principal amount, or a lesser principal amount of
Outstanding Auction Rate Certificates set forth in Section
2.2.1(d)(ii)(C) hereof, if Sufficient Bids have not been made.
(C) Subject to the provisions of Section 2.2.1(b) hereof, a Bid
by a Potential Certificateholder shall constitute an irrevocable offer
to purchase:
(1) the principal amount of Outstanding Auction Rate
Certificates specified in such Bid if the Certificate Rate
determined as provided in this Section 2.2.1 shall be higher than
the rate specified in such Bid; or
(2) such principal amount, or a lesser principal amount of
Outstanding Auction Rate Certificates set forth in Section
2.2.1(d)(i)(E) hereof, if the Certificate Rate determined as
provided in this Section 2.2.1 shall be equal to the rate
specified in such Bid.
(b) (i) Each Broker-Dealer shall submit in writing to the Auction
Agent prior to the Submission Deadline on each Auction Date all Orders
obtained by such Broker-Dealer and shall specify with respect to each such
Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate principal amount and Class of Auction Rate
Certificates that are the subject of such Order;
(C) to the extent that such Bidder is an Existing
Certificateholder:
(1) the principal amount and Class of Auction Rate
Certificates, if any, subject to any Hold Order placed by such
Existing Certificateholder;
(2) the principal amount and Class of Auction Rate
Certificates, if any, subject to any Bid placed by such Existing
Certificateholder and the rate specified in such Bid; and
(3) the principal amount and Class of Auction Rate
Certificates, if any, subject to any Sell Order placed by such
Existing Certificateholder;
and
(D) to the extent such Bidder is a Potential Certificateholder,
the rate specified in such Potential Certificateholder's Bid.
(ii) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate
up to the next higher one thousandth (.001) of one percent.
(iii) If an Order or Orders covering all Outstanding Auction Rate
Certificates of the applicable Class owned by an Existing Certificateholder
is not submitted to the Auction Agent prior to the Submission Deadline, the
Auction Agent shall deem a Hold Order to have been submitted on behalf of
such Existing Certificateholder covering the principal amount of
Outstanding Auction Rate Certificates of such Class owned by such Existing
Certificateholder and not subject to an Order submitted to the Auction
Agent.
(iv) Neither the Issuer, the Eligible Lender Trustee nor the Auction
Agent shall be responsible for any failure of a Broker-Dealer to submit an
Order to the Auction Agent on behalf of any Existing Certificateholder or
Potential Certificateholder.
(v) If any Existing Certificateholder submits through a Broker-Dealer
to the Auction Agent one or more Orders covering in the aggregate more than
the principal amount of the Class of Outstanding Auction Rate Certificates
owned by such Existing Certificateholder, such Orders shall be considered
valid as follows and in the following order of priority:
(A) All Hold Orders shall be considered valid, but only up to the
aggregate principal amount of the Class of Outstanding Auction Rate
Certificates owned by such Existing Certificateholder, and if the
aggregate principal amount of the Class of Auction Rate Certificates
subject to such Hold Orders exceeds the aggregate principal amount of
the Class of Auction Rate Certificates owned by such Existing
Certificateholder, the aggregate principal amount of the Class of
Auction Rate Certificates subject to each such Hold Order shall be
reduced pro rata so that the aggregate principal amount of the Class
of Auction Rate Certificates subject to such Hold Order equals the
aggregate principal amount of the Class of Outstanding Auction Rate
Certificates owned by such Existing Certificateholder.
(B) (1) any Bid shall be considered valid up to an amount equal
to the excess of the principal amount of the Class of Outstanding
Auction Rate Certificates owned by such Existing Certificateholder
over the aggregate principal amount of the Class of Auction Rate
Certificates subject to any Hold Order referred to in clause (A) of
this paragraph (v);
(2) subject to subclause (1) of this clause (B), if more than one
Bid with the same rate is submitted on behalf of such Existing
Certificateholder and the aggregate principal amount of the Class of
Outstanding Auction Rate Certificates subject to such Bids is greater
than such excess, such Bids shall be considered valid up to an amount
equal to such excess;
(3) subject to subclauses (1) and (2) of this clause (B), if more
than one Bid with different rates are submitted on behalf of such
Existing Certificateholder, such Bids shall be considered valid first
in the ascending order of their respective rates until the highest
rate is reached at which such excess exists and then at such rate up
to the amount of such excess; and
(4) in any such event, the amount of the Class of Outstanding
Auction Rate Certificates, if any, subject to Bids not valid under
this clause (B) shall be treated as the subject of a Bid by a
Potential Certificateholder at the rate therein specified; and
(C) All Sell Orders shall be considered valid up to an amount
equal to the excess of the principal amount of the Class of
Outstanding Auction Rate Certificates owned by such Existing
Certificateholder over the aggregate principal amount of the Class of
Auction Rate Certificates subject to Hold Orders referred to in clause
(A) of this paragraph (v) and valid Bids referred to in clause (B) of
this paragraph (v).
(vi) If more than one Bid for a Class of Auction Rate Certificates is
submitted on behalf of any Potential Certificateholder, each Bid submitted
shall be a separate Bid with the rate and principal amount therein
specified.
(vii) An Existing Certificateholder of a Class of Auction Rate
Certificates that offers to purchase additional Auction Rate Certificates
is, for purposes of such offer, treated as a Potential Certificateholder.
(viii) Any Bid or Sell Order submitted by an Existing
Certificateholder covering an aggregate principal amount of a Class of
Auction Rate Certificates not equal to an Authorized Denomination shall be
rejected and shall be deemed a Hold Order. Any Bid submitted by a Potential
Certificateholder covering an aggregate principal amount of a Class of
Auction Rate Certificates not equal to an Authorized Denomination shall be
rejected.
(ix) Any Bid specifying a rate higher than the Maximum Auction Rate
will (a) be treated as a Sell Order if submitted by an Existing
Certificateholder and (b) not be accepted if submitted by a Potential
Certificateholder.
(x) Any Bid submitted by an Existing Certificateholder or a Potential
Certificateholder specifying a rate lower than the Minimum Auction Rate
shall be treated as a Bid specifying the Minimum Auction Rate.
(xi) Any Order submitted in an Auction by a Broker-Dealer to the
Auction Agent at the Submission Deadline on any Auction Date shall be
irrevocable.
(c) (i) Not earlier than the Submission Deadline on each Auction Date,
the Auction Agent shall assemble all valid Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being herein referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order," and collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders")
and shall determine for the applicable Class of Auction Rate Notes:
(A) the excess of the total principal amount of Outstanding
Auction Rate Certificates of such Class over the sum of the aggregate
principal amount of Outstanding Auction Rate Certificates of such
Class subject to Submitted Hold Orders (such excess being herein
referred to as the "Available Auction Rate Certificates" of such
Class), and
(B) from the Submitted Orders whether:
(1) the aggregate principal amount of Outstanding Auction
Rate Certificates of such Class subject to Submitted Bids by
Potential Certificateholders specifying one or more rates equal
to or lower than the Maximum Auction Rate;
exceeds or is equal to the sum of:
(2) the aggregate principal amount of Outstanding Auction
Rate Certificates of such Class subject to Submitted Bids by
Existing Certificateholders specifying one or more rates higher
than the Maximum Auction Rate; and
(3) the aggregate principal amount of Outstanding Auction
Rate Certificates of such Class subject to submitted Sell Orders;
(in the event such excess or such equality exists, other than because
all of the Outstanding Auction Rate Certificates of such Class are
subject to Submitted Hold Orders, such Submitted Bids described in
subclause (1) above shall be referred to collectively as "Sufficient
Bids"); and
(C) if Sufficient Bids exist, the "Bid Auction Rate", which shall
be the lowest rate specified in such Submitted Bids such that if:
(1) (x) each Submitted Bid from Existing Certificateholders
specifying such lowest rate and (y) all other Submitted Bids from
Existing Certificateholders specifying lower rates were rejected,
thus entitling such Existing Certificateholders to continue to
own the principal amount of Auction Rate Certificates of such
Class subject to such Submitted Bids; and
(2) (x) each such Submitted Bid from Potential
Certificateholders specifying such lowest rate and (y) all other
Submitted Bids from Potential Certificateholders specifying lower
rates were accepted;
the result would be that such Existing Certificateholders described in
subclause (1) above would continue to own an aggregate principal amount
of Outstanding Auction Rate Certificates of the applicable Class which,
when added to the aggregate principal amount of Outstanding Auction
Rate Certificates of such Class to be purchased by such Potential
Certificateholders described in subclause (2) above, would equal not
less than the Available Auction Rate Certificates of such Class.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Section 2.2.1(c)(i) hereof, the Auction Agent shall advise the
Eligible Lender Trustee of the Net Loan Rate, the Maximum Auction Rate and
the All Hold Rate and the components thereof on the Auction Date and, based
on such determinations, the Auction Rate for the next succeeding Interest
Period for such Class of Auction Rate Certificates as follows:
(A) if Sufficient Bids exist, that the Auction Rate for the next
succeeding Interest Period for such Class of Auction Rate Certificates
shall be equal to the Bid Auction Rate so determined;
(B) if Sufficient Bids do not exist (other than because all of
the Outstanding Auction Rate Certificates of such Class are subject to
Submitted Hold Orders), that the Auction Rate for the next succeeding
Interest Period for such Class of Auction Rate Certificates shall be
equal to the Maximum Auction Rate; or
(C) if all Outstanding Auction Rate Certificates of such Class
are subject to Submitted Hold Orders, that the Auction Rate for the
next succeeding Interest Period for such Class of Auction Rate
Certificates shall be equal to the All Hold Rate.
(iii) Promptly after the Auction Agent has determined the Auction
Rate, the Auction Agent shall determine and advise the Eligible Lender
Trustee of the applicable Certificate Rate, which rate shall be the lesser
of (a) the Auction Rate and (b) the Net Loan Rate; provided, however, that
in no event shall the Certificate Rate exceed the Certificate Rate
Limitation.
(d) Existing Certificateholders shall continue to own the principal
amount of Auction Rate Certificates that are subject to Submitted Hold Orders.
If the Net Loan Rate is equal to or greater than the Bid Auction Rate and if
Sufficient Bids have been received by the Auction Agent, the Bid Auction Rate
will be the Certificate Rate, and Submitted Bids and Submitted Sell Orders will
be accepted or rejected and the Auction Agent will take such other action as
described below in subparagraph (i).
If the Net Loan Rate is less than the Auction Rate, the Net Loan Rate
will be the Certificate Rate. If the Auction Rate and the Net Loan Rate are both
greater than the Certificate Rate Limitation, the Certificate Rate shall be
equal to the Certificate Rate Limitation. If the Auction Agent has not received
Sufficient Bids (other than because all of the Outstanding Auction Rate
Certificates of such Class are subject to Submitted Hold Orders), the
Certificate Rate will be the lesser of the Maximum Auction Rate and the Net Loan
Rate. In any of the cases described above, Submitted Orders will be accepted or
rejected and the Auction Agent will take such other action as described below in
subparagraph (ii).
(i) if Sufficient Bids have been made and the Net Loan Rate is equal
to or greater than the Bid Auction Rate (in which case the Certificate Rate
shall be the Bid Auction Rate), all Submitted Sell Orders shall be accepted
and, subject to the provisions of paragraphs (iv) and (v) of this Section
2.2.1(d), Submitted Bids shall be accepted or rejected as follows in the
following order of priority, and all other Submitted Bids shall be
rejected:
(A) Existing Certificateholders' Submitted Bids specifying any
rate that is higher than the Certificate Rate shall be accepted, thus
requiring each such Existing Certificateholder to sell the aggregate
principal amount of Auction Rate Certificates subject to such
Submitted Bids;
(B) Existing Certificateholders' Submitted Bids specifying any
rate that is lower than the Certificate Rate shall be rejected, thus
entitling each such Existing Certificateholder to continue to own the
aggregate principal amount of Auction Rate Certificates subject to
such Submitted Bids;
(C) Potential Certificateholders' Submitted Bids specifying any
rate that is lower than the Certificate Rate shall be accepted;
(D) Each Existing Certificateholders' Submitted Bid specifying a
rate that is equal to the Certificate Rate shall be rejected, thus
entitling such Existing Certificateholder to continue to own the
aggregate principal amount of Auction Rate Certificates subject to
such Submitted Bid, unless the aggregate principal amount of
Outstanding Auction Rate Certificates subject to all such Submitted
Bids shall be greater than the principal amount of Auction Rate
Certificates of the applicable Class (the "remaining principal
amount") equal to the excess of the Available Auction Rate
Certificates of such Class over the aggregate principal amount of
Auction Rate Certificate of such Class subject to Submitted Bids
described in clauses (B) and (C) of this Section 2.2.1(d)(i), in which
event such Submitted Bid of such Existing Certificateholder shall be
rejected in part, and such Existing Certificateholder shall be
entitled to continue to own the principal amount of such Class of
Auction Rate Certificates subject to such Submitted Bid, but only in
an amount equal to the aggregate principal amount of Auction Rate
Certificates of such Class obtained by multiplying the remaining
principal amount by a fraction, the numerator of which shall be the
principal amount of Outstanding Auction Rate Certificates of such
Class owned by such Existing Certificateholder subject to such
Submitted Bid and the denominator of which shall be the sum of the
principal amount of Outstanding Auction Rate Certificates of such
Class subject to such Submitted Bids made by all such Existing
Certificateholders that specified a rate equal to the Certificate
Rate; and
(E) Each Potential Certificateholder's Submitted Bid specifying a
rate that is equal to the Certificate Rate shall be accepted, but only
in an amount equal to the principal amount of Auction Rate
Certificates of the applicable Class obtained by multiplying the
excess of the aggregate principal amount of Available Auction Rate
Certificates of such Class over the aggregate principal amount of
Auction Rate Certificates of such Class subject to Submitted Bids
described in clauses (B), (C) and (D) of this Section 2.2.1(d)(i) by a
fraction the numerator of which shall be the aggregate principal
amount of Outstanding Auction Rate Certificates of such Class subject
to such Submitted Bid and the denominator of which shall be the sum of
the principal amount of Outstanding Auction Rate Certificates of such
Class subject to Submitted Bids made by all such Potential
Certificateholders that specified a rate equal to the Certificate
Rate.
(ii) If Sufficient Bids have not been made (other than because all of
the Outstanding Auction Rate Certificates of the applicable Class are
subject to submitted Hold Orders), or if the Net Loan Rate is less than the
Bid Auction Rate (in which case the Certificate Rate shall be the Net Loan
Rate), or if the Certificate Rate Limitation applies, subject to the
provisions of Section 2.2.1(d)(iv) hereof, Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids shall be rejected:
(A) Existing Certificateholders' Submitted Bids specifying any
rate that is equal to or lower than the Certificate Rate shall be
rejected, thus entitling such Existing Certificateholders to continue
to own the aggregate principal amount of Auction Rate Certificates
subject to such Submitted Bids;
(B) Potential Certificateholders' Submitted Bids specifying (1)
any rate that is equal to or lower than the Certificate Rate shall be
accepted and (2) any rate that is higher than the Certificate Rate
shall be rejected; and
(C) each Existing Certificateholder's Submitted Bid specifying
any rate that is higher than the Certificate Rate and the Submitted
Sell Order of each Existing Certificateholder shall be accepted, thus
entitling each Existing Certificateholder that submitted any such
Submitted Bid or Submitted Sell Order to sell the Auction Rate
Certificates subject to such Submitted Bid or Submitted Sell Order,
but in both cases only in an amount equal to the aggregate principal
amount of Auction Rate Certificates of the applicable Class obtained
by multiplying the aggregate principal amount of Auction Rate
Certificates subject to Submitted Bids described in clause (B) of this
Section 2.2.1(d)(ii) by a fraction the numerator of which shall be the
aggregate principal amount of Outstanding Auction Rate Certificates of
such Class owned by such Existing Certificateholder subject to such
submitted Bid or Submitted Sell Order and the denominator of which
shall be the aggregate principal amount of Outstanding Auction Rate
Certificates of such Class subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If all Outstanding Auction Rate Certificates of such Class are
subject to Submitted Hold Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the procedures described in paragraph (i) or
(ii) of this Section 2.2.1(d), any Existing Certificateholder would be
entitled or required to sell, or any Potential Certificateholder would be
entitled or required to purchase, a principal amount of Auction Rate
Certificates of the applicable Class that is not equal to an Authorized
Denomination, the Auction Agent shall, in such manner as in its sole
discretion it shall determine, round up or down the principal amount of
Auction Rate Certificates to be purchased or sold by any Existing
Certificateholder or Potential Certificateholder so that the principal
amount of Auction Rate Certificates purchased or sold by each Existing
Certificateholder or Potential Certificateholder shall be equal to an
Authorized Denomination or an integral multiple of $50,000 in excess
thereof.
(v) If, as a result of the procedures described in paragraph (ii) of
this Section 2.2.1(d), any Potential Certificateholder would be entitled or
required to purchase less than an Authorized Denomination of Auction Rate
Certificates of the applicable Class, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate Auction Rate
Certificates of such Class for purchase among Potential Certificateholders
so that only Auction Rate Certificates of such Class in Authorized
Denominations or integral multiples of $50,000 in excess thereof are
purchased by any Potential Certificateholder, even if such allocation
results in one or more of such Potential Certificateholders not purchasing
any Auction Rate Certificates of such Class.
(e) Based on the result of each Auction, the Auction Agent shall
determine the aggregate principal amount of Auction Rate Certificates of the
applicable Class to be purchased and the aggregate principal amount of Auction
Rate Certificates of the applicable Class to be sold by Potential
Certificateholders and Existing Certificateholders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of Auction
Rate Certificates of the applicable Class to be sold differs from such aggregate
principal amount of Auction Rate Certificates of the applicable Class to be
purchased, determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Auction Rate Certificates of
the applicable Class.
(f) Any calculation by the Auction Agent, the Administrator or the
Eligible Lender Trustee, as applicable, of the Certificate Rate, One-Month
LIBOR, Three-Month LIBOR, the Maximum Auction Rate, the All Hold Rate, the Net
Loan Rate and the Non-Payment Rate shall, in the absence of manifest error, be
binding on all other parties.
(g) Notwithstanding anything in the Trust Agreement to the contrary
notwithstanding, no Auction will be held on any Auction Date hereunder on which
there are insufficient moneys held under the Trust Agreement and available to
pay the principal of and interest due on the Certificate Distribution Date
immediately following such Auction Date.
SECTION 2.2.2. CHANGES IN THE AUCTION DATE. The Market Agent, with the
written consent of an Authorized Officer, may specify an earlier Auction Date
(but in no event more than five Business Days earlier) than the Auction Date
that would otherwise be determined in accordance with the definition of "Auction
Date" in Section 1.1 of this Appendix I, or any applicable Trust Supplement,
with respect to one or more specified Auction Periods in order to conform with
then current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be relevant to the
day of the week constituting an Auction Date and the Certificate Rate borne on
the Auction Rate Certificates of the applicable Class. The Market Agent shall
deliver a written request for consent to such change in the length of the
Auction Date to the Issuer not less than three days nor more than 20 days prior
to the effective date of such change together with a certificate demonstrating
the need for change in reliance on such factors. The Market Agent shall provide
notice of its determination to specify an earlier Auction Date for one or more
Auction Periods by means of a written notice delivered at least 10 days prior to
the proposed changed Auction Date to the Eligible Lender Trustee, the Auction
Agent, the Issuer and the Securities Depository. Such notice shall be
substantially in the form of, or contain substantially the information contained
in, Exhibit C to this Trust Agreement.
In connection with any change described in this Section 2.2.2, the
Auction Agent shall provide such further notice to such parties as is specified
in Section 2.2 of the Auction Agent Agreement.
SECTION 2.3. ADDITIONAL PROVISIONS REGARDING THE CERTIFICATE RATES.
The determination of a Certificate Rate by the Auction Agent or any other Person
pursuant to the provisions of this Appendix B shall be conclusive and binding on
the Certificateholders, and the Issuer and the Eligible Lender Trustee may rely
thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on
the Certificates (including interest calculated as provided herein, plus any
other amounts that constitute interest on the Certificates under applicable law,
which are contracted for, charged, reserved, taken or received pursuant to the
Certificates or related documents) calculated from the date of issuance of the
Certificates through any subsequent day during the term of the Certificates or
otherwise prior to payment in full of the Certificates exceed the amount
permitted by applicable law. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the
Certificates or related documents or otherwise contracted for, charged,
reserved, taken or received in connection with the Certificates, or if the
acceleration of the maturity of the Certificates results in payment to or
receipt by the Certificateholder or any former Certificateholder of any interest
in excess of that permitted by applicable law, then, notwithstanding any
provision of the Certificates or related documents to the contrary, all excess
amounts theretofore paid or received with respect to the Certificates shall be
credited on the principal balance of the Certificates (or, if the Certificates
have been paid or would thereby be paid in full, refunded by the recipient
thereof), and the provisions of the Certificates and related documents shall
automatically and immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for under the
Certificates and under the related documents.
SECTION 2.4. CHANGES IN AUCTION PERIOD OR PERIODS.
(a) While any of the Auction Rate Certificates are Outstanding, the
Issuer may, from time to time, convert the length of one or more Auction Periods
(an "Auction Period Adjustment"), in order to conform with then current market
practice with respect to similar securities or to accommodate economic and
financial factors that may affect or be relevant to the length of the Auction
Period and the Certificate Rate borne by the Auction Rate Certificates. The
Issuer shall not initiate an Auction Period Adjustment unless it shall have
received the written consent of the Market Agent and the Surety Provider, which
consent shall not be unreasonably withheld, not less than three days nor more
than 20 days prior to the effective date of an Auction Period Adjustment. The
Issuer shall initiate the Auction Period Adjustment by giving written notice by
Issuer Order to the Indenture Trustee, the Auction Agent, the Market Agent, the
Surety Provider and the Securities Depository in substantially the form of, or
containing substantially the information contained in, Exhibit D to the First
Terms Supplement at least 10 days prior to the Auction Date for such Auction
Period.
(b) Any such adjusted Auction Period shall not be less than 7 days nor
more than 91 days. If any such adjusted Auction Period will be less than the
number of days in the then current Auction Period, the notice described above
will be effective only if it is accompanied by a written statement of the
Eligible Lender Trustee, the Auction Agent and the Securities Depository to the
effect that they are capable of performing their duties, if any, under this
Appendix B, the Auction Agent Agreement and any Broker-Dealer Agreement with
respect to such changed Auction Period.
(c) An Auction Period Adjustment shall take effect only if (A) the
Eligible Lender Trustee and the Auction Agent receive, by 11:00 a.m., eastern
time, on the Business Day before the Auction Date for the first such Auction
Period, an Issuer Certificate in substantially the form attached as, or
containing substantially the same information contained in, Exhibit E to the
First Terms Supplement, authorizing the Auction Period Adjustment specified in
such certificate along with a copy of the certificate of the Market Agent
described above in subparagraph (a) above and, if applicable, the written
statement of the Eligible Lender Trustee, the Auction Agent and the Securities
Depository described in subparagraph (b) above and (B) Sufficient Bids exist as
of the Auction on the Auction Date for such first Auction Period. If the
condition referred to in (A) above is not met, the Certificate Rate for the
applicable Class of Auction Rate Certificates for the next Auction Period shall
be determined pursuant to the above provisions of Section 2.2 and the Auction
Period shall be the Auction Period determined without reference to the proposed
change. If the condition referred to in (A) is met but the condition referred to
in (B) above is not met, the Certificate Rate for the applicable Class of
Auction Rate Certificates for the next Auction Period shall be the lesser of the
Maximum Auction Rate and the Net Loan Rate and the Auction Period shall be the
Auction Period determined without reference to the proposed change.
In connection with any Auction Period Adjustment, the Auction Agent
shall provide such further notice to such parties as is specified in Section 2.2
of the Auction Agent Agreement.
______ SUPPLEMENTAL
SALE AND SERVICING AGREEMENT
Dated as of _______, 199_
among
[TRUST 199_-_]
as Issuer,
TRANS-WORLD INSURANCE COMPANY D/B/A EDUCAID
as Seller, Master Servicer and Administrator,
DAUPHIN DEPOSIT BANK AND TRUST COMPANY
not in its individual capacity but solely
as Eligible Lender Trustee,
and
THE MONEY STORE INC.,
to
SALE AND SERVICING AGREEMENT
Dated as of _____, 199_
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
Definitions and Usage................................................2
ARTICLE II.
CONVEYANCE OF FINANCED STUDENT LOANS
SECTION 2.1. Conveyance of Initial Financed Student Loans.....2
SECTION 2.2. Conveyance of Additional Financed Student Loans..3
SECTION 2.3. Conveyance of Certain Financed Student Loans
by the Eligible Lender Trustee to the Seller.....5
SECTION 2.4. Security Agreement................................6
ARTICLE III.
THE FINANCED STUDENT LOANS
SECTION 3.1. Representations and Warranties of TMSI and Seller with
Respect to the Financed Student Loans............6
SECTION 3.2. Purchase upon Breach; Reimbursement................11
SECTION 3.3. Custody of Financed Student Loan Files............12
SECTION 3.4. Duties of Master Servicer as Custodian........ ...13
SECTION 3.5. Instructions; Authority to Act....................14
SECTION 3.6. Custodian's Indemnification.......................14
SECTION 3.7. Effective Period and Termination..................15
SECTION 3.8. Appointment of Subcustodian...................... 15
ARTICLE IV.
ADMINISTRATION AND SERVICING OF FINANCED STUDENT LOANS
SECTION 4.1. Duties of Master Servicer...........................16
SECTION 4.2. Collection of Financed Student Loan Payments.......17
SECTION 4.3. Realization upon Financed Student Loans............19
SECTION 4.4. No Impairment.......................................19
SECTION 4.5. Purchase of Financed Student Loans;
Reimbursement.....................................19
SECTION 4.6. Servicing Fee; Servicing Fee Carryover..............21
SECTION 4.7. Administrator's Certificate.........................21
SECTION 4.8. Annual Statement as to Compliance;
Notice of Default................................22
SECTION 4.9. Annual Independent Certified Public
Accountants' Report.............................23
SECTION 4.10. Access to Certain Documentation and
Information Regarding Financed Student Loans....23
SECTION 4.11. Master Servicer and Administrator Expenses.........24
SECTION 4.12. Appointment of Subservicer..........................24
ARTICLE V.
Distributions; Reserve Account;
STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS
SECTION 5.1. Establishment of Trust Accounts........................25
SECTION 5.2. Collections............................................27
SECTION 5.3. Application of Collections.............................28
SECTION 5.4. Additional Deposits....................................28
SECTION 5.5. Distributions..........................................29
SECTION 5.6. Reserve Account........................................33
SECTION 5.7. Statements to Certificateholders and Noteholders.......35
SECTION 5.8. Pre-Funding Account....................................38
SECTION 5.9. Capitalized Pre-Funding Account........................39
SECTION 5.10. Capitalized Interest Account...........................39
SECTION 5.11. Expense Account........................................39
SECTION 5.12. Note Distribution Accountand Certificate
Distribution Account...............................39
SECTION 5.13. Monthly Advances.......................................40
ARTICLE VI.
THE SELLER AND THE MASTER SERVICER
SECTION 6.1. Representations of Seller and Master Servicer..........40
SECTION 6.2. Existence..............................................42
SECTION 6.3. Liability and Indemnities..............................43
SECTION 6.4. [Reserved].............................................45
SECTION 6.5. Merger or Consolidation of, or Assumption of the
Obligations of, the Seller, the Administrator or
the Master Servicer...................................45
SECTION 6.6. Limitation on Liability of Seller, Master
Servicer and Others.................................46
SECTION 6.7. Seller May Own Certificate or Notes.....................46
SECTION 6.8. Master Servicer Not to Resign...........................47
ARTICLE VII.
The Administrator
SECTION 7.1. Representations of the Administrator....................47
SECTION 7.2. Liabilities and Indemnities.............................49
SECTION 7.3. Administrator Not to Resign.............................49
ARTICLE VIII.
Default
SECTION 8.1. Master Servicer Default; Administrator Default..........50
SECTION 8.2. Appointment of Successor................................53
SECTION 8.3. Notification to Noteholders and Certificateholders......55
SECTION 8.4. Waiver of Past Defaults.................................55
ARTICLE IX
Termination
SECTION 9.1. Termination............................................55
ARTICLE X.
Surety Bonds
SECTION 10.1. Surety Bonds............................................58
SECTION 10.2. Further Assurances; Surety Provider Default; etc.......59
ARTICLE XI.
Miscellaneous
SECTION 11.1. Amendment..............................................60
SECTION 11.2. Protection of Interests in Trust.......................61
SECTION 11.3. Notices................................................64
SECTION 11.4. Assignment.............................................65
SECTION 11.5. Limitations on Rights of Others........................65
SECTION 11.6. Severability...........................................65
SECTION 11.7. Separate Counterparts..................................65
SECTION 11.8. Headings...............................................65
SECTION 11.9. Governing Law..........................................66
SECTION 11.10. Assignment to Indenture Trustee........................66
SECTION 11.11. Nonpetition Covenants..................................66
SECTION 11.12. Limitation of Liability of Eligible Lender
Trustee and Indenture Trustee.......................66
SECTION 11.13. Rights to Surety Provider..............................67
SECTION 11.14. Conflicts with Other Documents.........................67
APPENDIX A Definitions and Usage
SCHEDULE A Schedule of Financed Student Loans
SCHEDULE B Location of Financed Student Loan Files
EXHIBIT A Form of Report to Noteholders
EXHIBIT B Form of Report to Certificateholders
EXHIBIT C Form of Administrator's Certificate
EXHIBIT D Form of Assignment for Initial Financed
Student Loans
EXHIBIT E Form of Assignment for Additional Financed
Student Loans
<PAGE>
____ SUPPLEMENTAL SALE AND SERVICING AGREEMENT (the "Agreement") dated as of
______, 199_, among [TRUST 199_-_], a [Pennsylvania] business trust (the
"Issuer"), TRANS-WORLD INSURANCE COMPANY, D/B/A EDUCAID, an Arizona corporation
(the "Seller," the "Master Servicer" or the "Administrator"), ____________,
a [Pennsylvania] bank and trust company, solely as eligible lender trustee
and not in its individual capacity (the "Eligible Lender Trustee"), and
THE MONEY STORE INC., a New Jersey corporation ("TMSI").
WHEREAS the parties hereto entered into a Sale and Servicing
Agreement dated as of ______, 199_ in connection with the issuance by the Issuer
of its Auction Rate Asset Backed Certificates (the "Certificates") and its
Series 199_-_ Auction Rate Asset Backed Notes, Class A-1, Class A-2 and Class
A-3 (the "Series 199_-_ Notes"); and
WHEREAS the parties hereto entered into a First Supplemental
Sale and Servicing Agreement dated as of _____, 199_ in connection with the
issuance by the Issuer of its Series 199_- _ Asset Backed Notes, Class A-4,
Class A-5 and Class A-6 (the "Series 199_-_ Notes"); and
WHEREAS the parties hereto entered into a Second Supplemental Sale and
Servicing Agreement dated as of _____, 199_ (together with the Sale and
Servicing Agreement and as amended and supplemented from time to time, the "Sale
and Servicing Agreement") in connection with the issuance by the Issuer of its
Series 199_-_ Asset Backed Notes, Class A-7 and Class A-8 (the "Series 199_-_
Notes"); and
WHEREAS the Issuer is authorizing on the date hereof for
issuance its Series 199_-_ Asset Backed Notes, Class A-9 (the "Series 199_-_
Notes"); and
WHEREAS the Issuer also has authorized for issuance
certificates designated as the Issuer's Series 199_-_ Certificates (the "Series
199_-_ Certificates") pursuant to a Third Trust Supplement between Trans-World
Insurance Company d/b/a Educaid and the Eligible Lender Trustee; and
WHEREAS the parties hereto are entering into this Third Supplemental Sale
and Servicing Agreement in connection with the Series 199_-_ Notes.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
Capitalized terms used but not defined herein are defined in
Appendix A hereto, which also contains rules as to usage and construction that
shall be applicable herein.
ARTICLE II
CONVEYANCE OF FINANCED STUDENT LOANS
SECTION 2.1 CONVEYANCE OF INITIAL FINANCED STUDENT Loans. (a) In
consideration of the Issuer's delivery to or upon the order of the Seller
of the Series 199_-_ Certificates, the Seller agrees to, and the Seller
does hereby, as evidenced by a duly executed written assignment and bill of
sale in the form of Exhibit D, contribute, transfer, assign, set over and
otherwise convey to the Eligible Lender Trustee on behalf of the Issuer,
without recourse (subject to the obligations herein):
(i) all right, title and interest in and to the Financed Student Loans
(other than the Additional Financed Student Loans) (the "Initial Financed
Student Loans") listed on Schedule A to this Agreement and all obligations
of the Obligors thereunder, including all moneys paid thereunder, and all
written communications received by the Seller with respect thereto
(including borrower correspondence, notices of death, disability or
bankruptcy and requests for deferrals or forbearance), on or after the
Cut-off Date relating to the Series 199_-_ Notes;
(ii) all right, title and interest in all funds on deposit from time
to time in the Trust Accounts and in all investments and proceeds thereof
(including all income thereon);
(iii) the proceeds of any and all of the foregoing; and
(iv) the amounts specified in Sections 5.8, 5.9 and 5.10 hereof.
(b) In connection with the contribution and assignment of Financed
Student Loans to the Eligible Lender Trustee on behalf of the Issuer, on or
prior to the Closing Date relating to the Series 199_-_ Notes, the Seller
shall cause the Surety Provider to deliver the Note Surety Bond relating to
the Series 199_-_ Notes to the Eligible Lender Trustee on behalf of the
related Noteholders.
(c) On the Closing Date relating to the sale of the Series 199_-_
Notes, the Seller shall have delivered (A) to the Rating Agencies and the
Surety Provider an Opinion of Counsel with respect to the transfer of the
Initial Financed Student Loans and the Additional Financed Student Loans to
be transferred on each Transfer Date, and (B) to the Eligible Lender
Trustee, the Surety Provider and the Indenture Trustee the Opinion of
Counsel required by Section 11.2(i)(1).
(d) In connection with the contribution of the Initial Financed
Student Loans, on the Closing Date relating to the Series 199_-_ Notes the
Seller and the Issuer shall execute a cross-receipt, which will evidence
receipt by the Seller of the Series 199_-_ Certificates, and receipt by the
Issuer of the Initial Financed Student Loans.
SECTION 2.2. CONVEYANCE OF ADDITIONAL FINANCED STUDENT LOANS. (a)
Subject to the conditions set forth in paragraph (b) below, in
consideration of the Issuer's delivery on the related Transfer Date to or
upon the order of the holder of the Series 199_-_ Certificates of the
amount described in Section 5.8(a) to be delivered on such Transfer Date,
the Seller does hereby, contribute, transfer, assign, set over and
otherwise convey to the Eligible Lender Trustee on behalf of the Issuer,
without recourse (subject to the obligations herein) all right, title and
interest of the Seller in and to each Additional Financed Student Loan, and
all moneys received thereon, and all written communications received by the
Seller with respect thereto (including borrower correspondence, notices of
death, disability or bankruptcy and requests for deferrals or
forbearances), on and after the related Subsequent Cut-off Date, made from
time to time during the Funding Period relating to the Series 199_-_ Notes.
(b) The Seller shall transfer to the Issuer the Additional Financed
Student Loans for a given Transfer Date and the other property and rights
related thereto described in paragraph (a) above only upon the satisfaction
of each of the following conditions on or prior to such Transfer Date:
(i) the Seller shall have delivered to the Eligible Lender Trustee and
the Indenture Trustee, with a copy to the Surety Provider, a duly executed
written assignment in substantially the form of Exhibit E (each, a
"Transfer Agreement"), which shall include supplements to Schedule A
hereto, listing such Additional Financed Student Loans;
(ii) the Seller shall have delivered, at least 2 Business Days prior
to such Transfer Date, notice of such transfer to the Eligible Lender
Trustee and the Indenture Trustee, with a copy to the Surety Provider,
including a listing of the type and the aggregate principal balance of such
Additional Financed Student Loans;
(iii) the Seller shall, to the extent required by Section 5.2 of this
Agreement and the Sale and Servicing Agreement, have deposited in the
Collection Account all collections in respect of the Additional Financed
Student Loans on and after each applicable Subsequent Cut-off Date;
(iv) as of each Transfer Date, the Seller was not insolvent nor will
it have been made insolvent by such transfer nor is it aware of any pending
insolvency;
(v) as of each Transfer Date, the Seller was in compliance with all
applicable provisions of the Insurance Agreement and no default, or event
which with notice or the passage of time, or both, would constitute a
default, thereunder has occurred;
(vi) such addition will not result in a material adverse Federal or
[Pennsylvania] tax consequence to the Issuer, the Noteholders or the
Certificateholders;
(vii) the Funding Period relating to the Series 199_-_ Notes shall not
have terminated;
(viii) the Seller shall have taken any action required to maintain the
first perfected ownership interest of the Issuer in the Trust Estate and
the first perfected security interest of the Indenture Trustee in the
Indenture Trust Estate; and
(ix) no selection procedures believed by the Seller to be adverse to
the interests of the Certificateholders, the Noteholders or the Surety
Provider shall have been utilized in selecting the Additional Financed
Student Loans.
(c) In addition to Additional Financed Student Loans originated by the
Seller, with the prior consent of the Surety Provider, the Seller may
direct the Eligible Lender Trustee to acquire one or more portfolios of
specified student loans as Additional Financed Student Loans hereunder
subject to satisfaction of the conditions specified in Section 2.2(b);
PROVIDED, HOWEVER, that the Transfer Agreement delivered by the Seller may
be modified to reflect the contribution to the Issuer by the Seller of its
rights to acquire such Additional Financed Student Loans.
SECTION 2.3. CONVEYANCE OF CERTAIN FINANCED STUDENT LOANS BY THE ELIGIBLE
LENDER TRUSTEE TO THE SELLER. (a) Upon receipt of written notice (or
telephonic or facsimile notice followed by written notice) from the Seller
(or from the Master Servicer on behalf of the Seller) by the Eligible
Lender Trustee and the Indenture Trustee, a copy of such notice to be
concurrently delivered to the Surety Provider, the Eligible Lender Trustee
will convey to the Seller the Financed Student Loans identified in such
notice, which are to be repaid with proceeds of the Consolidation Loans to
be made by or on behalf of the Seller. Simultaneously with each such
conveyance by the Eligible Lender Trustee and the making by the Seller of
each such Consolidation Loan, the Seller shall deposit into the Collection
Account an amount equal to the aggregate Purchase Amount of such Financed
Student Loans, as payment for such conveyance.
(b) Upon receipt of written notice (or telephonic or facsimile notice
followed by written notice) from the Seller (or from the Master Servicer on
behalf of the Seller) by the Eligible Lender Trustee and the Indenture
Trustee, that a Financed Student Loan that is a Serial Loan is to be
conveyed to the holder of one or more student loans to which such Financed
Student Loan is serial, a copy of such notice to be concurrently delivered
to the Surety Provider, the Eligible Lender Trustee shall convey to the
order of the Seller's designee the Financed Student Loan(s) identified in
such notice. Within 75 days of each such conveyance by the Eligible Lender
Trustee, the Seller shall either (i) cause the transferee of such Financed
Student Loan(s) to pay into the Collection Account an amount at least equal
to the aggregate Purchase Amount of such Financed Student Loan(s) in
consideration for such conveyance or (ii) reconvey to the Eligible Lender
Trustee such Financed Student Loan(s). Until such time, if any, as the
amount set forth in clause (i) above is deposited into the Collection
Account, all payments received on or with respect to such Financed Student
Loan shall remain an asset of the Trust. The Seller, on behalf of the
Trust, shall cause to be remitted to TMS Student Holdings, Inc., in its
capacity as holder of a 1% interest in the Certificates and holder of the
Series 199_-_ Certificates, any amount paid by the transferee of such
Financed Student Loan(s) in excess of the aggregate Purchase Amount.
(c) Upon receipt of written notice (or telephonic or facsimile notice
followed by written notice) from the Master Servicer by the Eligible Lender
Trustee and the Indenture Trustee, a copy of such notice to be concurrently
delivered to the Surety Provider, the Eligible Lender Trustee will convey
to the Master Servicer the Financed Student Loans identified in such
notice, which are to be transferred to a Guarantor in consideration of a
related Guarantee Payment. Within one Business Day of its receipt of the
related Guarantee Payment, the Master Servicer shall deposit, or cause to
be deposited, into the Collection Account an amount equal to such Guarantee
Payment, as payment of such conveyance.
SECTION 2.4. SECURITY AGREEMENT. Although it is the intent of the
parties to this Agreement that the conveyance of the Seller's right, title and
interest in and to the Financed Student Loans pursuant to this Agreement shall
constitute a contribution and assignment and not a loan, in the event that such
conveyance is deemed to be a loan, it is the intent of the parties to this
Agreement that the Seller shall be deemed to have granted to the Eligible Lender
Trustee, on behalf of the Issuer, a first priority perfected security interest
in all of the Seller's right, title and interest in, to and under the Financed
Student Loans and the proceeds thereof, and that this Agreement shall constitute
a security agreement under applicable law.
ARTICLE III
THE FINANCED STUDENT LOANS
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF TMSI AND
------------------------------------------- SELLER WITH RESPECT TO THE
FINANCED STUDENT LOANS. TMSI and the Seller, jointly and severally, make
the following representations and warranties as to the Financed Student
Loans being transferred to the Eligible Lender Trustee on the Closing Date
relating to the Series 199_-_ Notes and the Financed Student Loans to be
transferred to the Eligible Lender Trustee during the Funding Period for
the Series 199_-_ Notes, on which the Issuer is deemed to have relied in
acquiring (through the Eligible Lender Trustee) such Financed Student
Loans. Such representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date relating to the
Series 199_-_ Notes, in the case of the Initial Financed Student Loans, and
as of the applicable Transfer Date, in the case of the Additional Financed
Student Loans, but shall survive the sale, transfer and assignment of such
Financed Student Loans to the Eligible Lender Trustee on behalf of the
Issuer and the pledge thereof to the Indenture Trustee pursuant to the
Indenture. As used in this Article III, unless otherwise indicated the term
"Financed Student Loans" shall include only the Financed Student Loans
being transferred to the Eligible Lender Trustee on the Closing Date for
the Series 199_-_ Notes and the Financed Student Loans to be transferred to
the Eligible Lender Trustee during the Funding Period for the Series 199_-_
Notes. Accordingly, unless otherwise indicated, the term "Financed Student
Loan" shall not be deemed to include Financed Student Loans transferred to
the Eligible Lender Trustee prior to the Closing Date for the Series 199_-_
Notes.
(i) CHARACTERISTICS OF FINANCED STUDENT LOANS. Each Financed Student
Loan (A) 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, (B) was originated or acquired by the
Seller in the ordinary course of its business, (C) has been serviced since
the date of its origination in accordance with all applicable requirements
of the applicable Guarantor and the Higher Education Act and (D) provides
or, when the payment schedule with respect thereto is determined, will
provide for payments on a periodic basis that fully amortize the principal
amount of such Financed Student Loan by its maturity and yields interest at
the rate applicable thereto, as such maturity may be modified in accordance
with any applicable deferral or forbearance periods granted in accordance
with applicable laws and restrictions, including those of the Higher
Education Act or any Guarantee Agreement. Each Financed Student Loan that
is a Stafford Loan qualifies the holder thereof to receive Interest Subsidy
Payments and Special Allowance Payments from the Department. Each Financed
Student Loan that is a Consolidation Loan qualifies the holder thereof to
receive Interest Subsidy Payments and Special Allowance Payments from the
Department to the extent applicable. Each Financed Student Loan that is a
PLUS Loan, a SLS Loan or an Unsubsidized Stafford Loan qualifies the holder
thereof to receive Special Allowance Payments from the Department to the
extent applicable. Each Financed Student Loan qualifies the holder thereof
to receive Guarantee Payments from the applicable Guarantor.
(ii) SCHEDULE OF FINANCED STUDENT LOANS. The information concerning
the Initial Financed Student Loans set forth in Schedule A to this
Agreement and Schedule A to the related Transfer Agreement is true and
correct in all material respects as of the opening of business on the
Cutoff Date relating to the Series 199_-_ Notes or each applicable
Subsequent Cut-off Date, as applicable, and no selection procedures
believed to be adverse to the Noteholders, the Certificateholders or the
Surety Provider were utilized in selecting the Initial Financed Student
Loans or the Additional Financed Student Loans, as applicable. The computer
tape or electronic data transmission regarding the Initial Financed Student
Loans made available to the Issuer and its assigns and the Surety Provider
is true and correct in all respects as of the Cut- off Date relating to the
Series 199_-_ Notes.
(iii) COMPLIANCE WITH LAW. Each Financed Student Loan complied at the
time it was originated or made and at the execution of this Agreement or
the applicable Transfer Agreement, as the case may be, complies, and the
Seller and its agents, with respect to each such Financed Student Loan,
have at all times complied, in all material respects with all requirements
of applicable Federal, State and local laws and regulations thereunder,
including the Higher Education Act, the Equal Credit Opportunity Act, the
Federal Reserve Board's Regulation B and other applicable consumer credit
laws and equal credit opportunity laws.
(iv) BINDING OBLIGATION. Each Financed Student Loan represents the
genuine, legal, valid and binding payment obligation in writing of the
related Obligor, enforceable by or on behalf of the holder thereof against
the related Obligor in accordance with its terms, and no Financed Student
Loan has been satisfied, subordinated or rescinded.
(v) NO DEFENSES. No right of rescission, setoff, counterclaim or
defense has been asserted or threatened with respect to any Financed
Student Loan. No counterclaim, offset, defense or right of rescission
exists with respect to any Financed Student Loan which could be asserted
and maintained, or which, with notice, lapse of time, or the occurrence or
failure to occur of any act or event, could be asserted and maintained by
the borrower against the Eligible Lender Trustee as a result of any act or
omission to act on the part of the Seller, the Master Servicer, the
Servicer, the Administrator, the Eligible Lender Trustee, the Indenture
Trustee or any of their respective agents, employees or other designees.
(vi) NO DEFAULT. No Financed Student Loan has a payment that is more
than 90 days overdue as of the Cut-off Date relating to the Series 199_-_
Notes or the applicable Subsequent Cut-off Date, as the case may be, and,
except as permitted in this paragraph, no default, breach, violation or
event permitting acceleration under the terms of any Financed Student Loan
has occurred; and, except for payment defaults continuing for a period of
not more than 90 days, no 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 any Financed Student Loan
has arisen; and the Seller has not waived and shall not waive any of the
foregoing other than as permitted by the Basic Documents.
(vii) TITLE. The transfer and assignment herein contemplated
constitutes a sale of the Financed Student Loans from the Seller to the
Eligible Lender Trustee on behalf of the Issuer and the beneficial interest
in and title to such Financed Student Loans shall not be part of the
debtor's estate in the event of the appointment of a receiver with respect
to the Seller. No Financed Student Loan has been sold, transferred,
assigned or pledged by the Seller to any Person other than the Eligible
Lender Trustee on behalf of the Issuer or any such assignment or pledge has
been released. Immediately prior to the transfer and assignment herein
contemplated, the Seller had good title to each Financed Student Loan, free
and clear of all Liens and, immediately upon the transfer thereof, the
Eligible Lender Trustee on behalf of the Issuer shall have good title to
each such Financed Student Loan, free and clear of all Liens, and the
transfer to the Indenture Trustee, shall have been perfected under the UCC.
(viii) LAWFUL ASSIGNMENT. No Financed Student Loan has been originated
in, or is subject to the laws of, any jurisdiction under which the sale,
transfer and assignment of such Financed Student Loan or any Financed
Student Loan under this Agreement, each Transfer Agreement or the Indenture
is unlawful, void or voidable.
(ix) ALL FILINGS MADE. All filings (including UCC filings) necessary
in any jurisdiction to give the Issuer a first perfected ownership interest
in the Financed Student Loans, and to give the Indenture Trustee a first
perfected security interest therein, shall have been made.
(x) ONE ORIGINAL. There is only one original executed copy (which may
be in counterparts) of each promissory note evidencing a Financed Student
Loan.
(xi) PRINCIPAL BALANCE. The aggregate principal balance of the Initial
Financed Student Loans, plus accrued interest to be capitalized with
respect thereto, as of the Cut-off Date relating to the Series 199_-_ Notes
is $-----------.
(xii) [Reserved]
(xiii) INTEREST ACCRUING. Each Financed Student Loan is accruing
interest (whether or not such interest is being paid currently, by the
Obligor or by the Department, or is being capitalized), except as otherwise
expressly permitted by the Basic Documents.
(xiv) SELLER'S REPRESENTATIONS. The representations and warranties of
the Seller contained in Section 6.1 are true and correct.
(xvii) COMPLIANCE WITH REQUIREMENTS OF GUARANTORS. Each Financed
Student Loan will be maintained and serviced in all material respects in
compliance with all applicable requirements of the applicable Guarantor and
the Department and is or will be represented by one or more promissory
notes or other written agreements that adequately document such Financed
Student Loans.
(xvi) NO ADVERSE EFFECTS. The sale and assignment of Financed Student
Loans to the Eligible Lender Trustee by the Seller pursuant to this
Agreement or the applicable Transfer Agreement will not, by reason thereof,
have any adverse effect upon the validity, legality or enforceability of
the Financed Student Loans.
(xvii) GUARANTEES IN EFFECT. On the dates of making thereof and of
transfer thereof to the Eligible Lender Trustee, each Financed Student Loan
will be guaranteed by a Guarantor and covered by a federal reimbursement
contract between such Guarantor and the Department and each such guarantee
and federal reimbursement contract will be in full force and effect. All
guarantee fees and origination fees with respect to each Financed Student
Loan shall have been timely paid or will be timely paid. The guarantee with
respect to each Financed Student Loan will be freely transferable as an
incident to the sale of each Student Loan to the Eligible Lender Trustee,
and the Eligible Lender Trustee will be entitled to the benefits of such
guarantee, and none of the Financed Student Loans will at any time prior to
its transfer to the Eligible Lender Trustee have been tendered to either
the Department, the Secretary of Education or the applicable Guarantor for
payment.
(xviii) GUARANTEE AGREEMENTS. The Eligible Lender Trustee is party to
a valid and binding Guarantee Agreement with each Guarantee Agency
guaranteeing a Financed Student Loan.
(xix) INTEREST ON CONSOLIDATION LOANS. No Financed Student Loan that
is a Consolidation Loan shall bear a rate of interest below that provided
for in the Higher Education Act.
SECTION 3.2. PURCHASE UPON BREACH; REIMBURSEMENT. The
----------------------------------- Seller, TMSI, the Master Servicer or
the Eligible Lender Trustee, as the case may be, shall inform the other
parties to this Agreement, the Indenture Trustee and the Surety Provider
promptly, in writing, upon the discovery of any breach of the
representations and warranties made pursuant to Section 3.1. Unless any
such breach shall have been cured within 60 days following the discovery
thereof by the Seller or TMSI or receipt by the Seller or TMSI of written
notice from the Eligible Lender Trustee, the Surety Provider, TMSI or the
Master Servicer of such breach, the Seller shall purchase any Financed
Student Loan in which the interests of the Noteholders, the
Certificateholders or the Surety Provider are materially and adversely
affected by any such breach as of the first day succeeding the end of such
60-day period that is the last day of a Collection Period; provided that it
is understood that any such breach that does not affect any Guarantor's
obligation to guarantee payment of such Financed Student Loan to the
Eligible Lender Trustee will not be considered to have a material adverse
effect for this purpose. In consideration of and simultaneously with the
purchase of the Financed Student Loan, the Seller shall remit the Purchase
Amount, in the manner specified in Section 5.4, and the Issuer shall
execute such assignments and other documents reasonably requested by the
Seller in order to effect such transfer. If the Seller fails to purchase
within the time period provided hereby any Financed Student Loan it is
required to purchase hereunder, TMSI shall remit, or cause to be remitted,
no later than the date the Seller would be required to remit such amount,
the Purchase Amount for such Financed Student Loan, in the manner specified
in Section 5.4, and the Issuer shall execute such assignments and other
documents reasonably requested by TMSI or its designee in order to effect
such transfer; provided, however, that if a designee of TMSI purchases any
Financed Student Loans, such designee shall not have any pre-existing debt
with respect to such purchase, and any transfer of a Financed Student Loan
pursuant to this Section shall be made contemporaneously with repayment or
the incurrence of the repayment obligation. Upon any such transfer of a
Financed Student Loan, legal title to, and beneficial ownership and control
of, the related Financed Student Loan File will thereafter belong to the
Seller or TMSI's designee, as the case may be. In addition, if any such
breach does not trigger such a purchase obligation but does result in the
refusal by a Guarantor to guarantee the applicable portion of the accrued
interest, or the loss of (including any obligation of the Issuer to repay
to the Department) certain Interest Subsidy Payments and Special Allowance
Payments, with respect to a Financed Student Loan, then, unless such
breach, if curable, is cured within 60 days, the Seller shall, at its
option, either purchase such Financed Student Loan at the applicable
Purchase Amount or reimburse the Issuer by remitting an amount equal to the
sum of all amounts that would have been payable if not for such breach in
the manner specified in Section 5.4 not later than the last day of the
Collection Period in which such 60th day occurs. If the Seller fails to
purchase such Financed Student Loan or reimburse the Issuer such amount,
TMSI shall reimburse the Issuer such amount in the manner specified in
Section 5.4 no later than the date the Seller would be required to remit
such amount. Subject to the provisions of Section 5.6 and Section 6.3 and
the Insurance Agreement, the sole remedy of the Issuer, the Eligible Lender
Trustee, the Indenture Trustee, the Noteholders, the Certificateholders or
the Surety Provider with respect to a breach of representations and
warranties pursuant to Section 3.1 and the agreement contained in this
Section 3.2 shall be to require the Seller, TMSI or TMSI's designee, as the
case may be, to purchase Financed Student Loans or to reimburse the Issuer
as provided above pursuant to this Section 3.2, subject to the conditions
contained herein.
SECTION 3.3. CUSTODY OF FINANCED STUDENT LOAN FILES. To assure uniform
quality in servicing the Financed Student Loans and to reduce
administrative costs, the Issuer hereby revocably appoints the Master
Servicer, and the Master Servicer hereby accepts such appointment, to act
for the benefit of the Issuer and the Indenture Trustee, as custodian of
the following documents or instruments which are hereby constructively
delivered to the Indenture Trustee, as pledgee of the Issuer (or, in the
case of the Additional Financed Student Loans, will as of the applicable
Transfer Date be constructively delivered to the Indenture Trustee, as
pledgee of the Issuer) with respect to each Financed Student Loan (such
documents are referred to collectively as the "Financed Student Loan
File").
(a) the original fully executed copy of the note evidencing the
Financed Student Loan (which may be included in the application) unless
such note is in the custody of a Guarantor;
(b) to the extent the Seller has retained it on hard copy, the
original loan application fully executed by the Obligor (which may be
included in the note evidencing a Financed Student Loan);
(c) the notice of guarantee; and
(d) any and all other documents and computerized records that any of
the Master Servicer, the Administrator or the Seller shall keep on file, in
accordance with its customary procedures, relating to such Financed Student
Loan or any Obligor with respect thereto.
Notwithstanding the foregoing, the Master Servicer shall transfer possession of
the Financed Student Loan Files in accordance with Section 2.02(r) of the
Insurance Agreement. Moreover, notwithstanding the foregoing, if set forth in a
supplement to this Agreement approved by the Surety Provider, with respect to
Financed Student Loans originated by third parties and subsequently purchased by
the Seller, the originators of such Financed Student Loans or another party may
act as custodian of the Financed Student Loan Files for such Financed Student
Loans.
SECTION 3.4. DUTIES OF MASTER SERVICER AS CUSTODIAN.
(a) SAFEKEEPING. Either the Master Servicer, as custodian, or a
subcustodian appointed pursuant to Section 3.8, shall hold the Financed Student
Loan Files for the benefit of the Issuer and maintain such accurate and complete
accounts, records and computer systems pertaining to each Financed Student Loan
File as shall enable the Issuer to comply with this Agreement and the other
Basic Documents. In performing its duties as custodian, the Master Servicer
shall act with reasonable care, using that degree of skill and attention that
the Master Servicer exercises with respect to the student loan files relating to
all comparable student loans that the Master Servicer services for itself or
others and shall ensure that it complies fully and completely with all
applicable Federal and State laws, including the Higher Education Act, with
respect thereto. The Master Servicer shall cause to be conducted periodic audits
of the Financed Student Loan Files held by it under this Agreement and of the
related accounts, records and computer systems, in such a manner as shall enable
the Issuer or the Indenture Trustee to verify the accuracy of the Master
Servicer's record keeping. The Master Servicer shall promptly report to the
Issuer, the Indenture Trustee, the Rating Agencies and the Surety Provider any
failure on its part to hold the Financed Student Loan Files and maintain its
accounts, records and computer systems as herein provided and promptly take
appropriate action to remedy any such failure. Nothing herein shall be deemed to
require an initial review (other than as specified in the Insurance Agreement)
or any periodic review by the Issuer, the Eligible Lender Trustee or the
Indenture Trustee of the Financed Student Loan Files.
(b) MAINTENANCE OF AND ACCESS TO RECORDS. The Master Servicer shall
maintain each Financed Student Loan File at its office located at 3301 C Street,
Suite 100-A, Sacramento, California 95816 or at such other office as shall be
specified by written notice to the Issuer, the Surety Provider and the Indenture
Trustee not later than 30 days prior to any change in location. The Financed
Student Loan Files relating to all Financed Student Loans subject to the Lien of
the Indenture in the custody of the Master Servicer shall be segregated by the
Master Servicer from other comparable files, by maintaining such Files in file
cabinets that are physically segregated from such other comparable files and are
clearly marked to indicate that the files contained therein have been sold to
the Issuer and that a security interest has been granted in favor of the
Indenture Trustee and either (i) each original note evidencing a Financed
Student Loan shall be stamped with a signed endorsement of the note in blank or
(ii) Financed Student Loans not originated by the Seller and not indorsed
pursuant to (i) above will, with the consent of the Surety Provider, be indorsed
utilizing a blanket indorsement. Upon reasonable prior notice, the Master
Servicer shall make available to the Issuer, the Surety Provider and the
Indenture Trustee or their respective duly authorized representatives, attorneys
or auditors the Financed Student Loan Files and the related accounts, records
and computer systems maintained by the Master Servicer at such times during
normal business hours as the Issuer, the Surety Provider or the Indenture
Trustee shall instruct.
SECTION 3.5. INSTRUCTIONS; AUTHORITY TO ACT. The Master Servicer
shall be deemed to have received proper instructions with respect to the
Financed Student Loan Files upon its receipt of written instructions signed by a
Responsible Officer of the Indenture Trustee.
SECTION 3.6. CUSTODIAN'S INDEMNIFICATION. The Master Servicer, as
custodian, shall pay from its own funds for any loss, liability or expense,
including reasonable attorneys' fees, that may be imposed on, incurred by or
asserted against the Issuer, the Eligible Lender Trustee, the Surety Provider or
the Indenture Trustee or any of their officers, directors, employees and agents
as the result of any improper act or omission in any way relating to the
maintenance and custody by the Master Servicer as custodian of the Financed
Student Loan Files where the final determination that any such improper act or
omission by the Master Servicer resulted in such loss, liability or expense is
established by a court of law, by an arbitrator or by way of settlement agreed
to by the Master Servicer; PROVIDED, HOWEVER, that the Master Servicer shall not
be liable to the Eligible Lender Trustee for any portion of any such amount
resulting from the willful misfeasance, bad faith or negligence of the Eligible
Lender Trustee and the Master Servicer shall not be liable to the Indenture
Trustee or the Surety Provider, as the case may be, for any portion of any such
amount resulting from the willful misfeasance, bad faith or negligence of the
Indenture Trustee or the Surety Provider, as the case may be. This provision
shall not be construed to limit the Master Servicer's or any other party's
rights, obligations, liabilities, claims or defenses which arise as a matter of
law or pursuant to any other provision of this Agreement.
SECTION 3.7. EFFECTIVE PERIOD AND TERMINATION. The Master Servicer's
appointment as custodian of the Financed Student Loans being conveyed hereunder
shall become effective as of the Closing Date relating to the Series 199_-_
Notes and shall continue in full force and effect for so long as the Master
Servicer shall remain the Master Servicer hereunder and under the Sale and
Servicing Agreement. If the Master Servicer or any successor Master Servicer
shall resign as Master Servicer in accordance with the provisions of this
Agreement or the Sale and Servicing Agreement or if all the rights and
obligations of the Master Servicer or any such successor Master Servicer shall
have been terminated under Section 8.1 of this Agreement or the Sale and
Servicing Agreement, the appointment of the Master Servicer or such successor
Master Servicer as custodian shall be terminated simultaneously with the
effectiveness of such termination. As soon as practicable on or after any
termination of such appointment (and in any event within (i) 10 Business Days,
with respect to that portion of the Financed Student Loan Files consisting of
electronic records and information, and (ii) 30 Business Days, with respect to
the remaining portion of the Financed Student Loan Files), the Master Servicer
shall deliver the Financed Student Loan Files to the Indenture Trustee or the
Indenture Trustee's agent at such place or places as the Indenture Trustee may
reasonably designate.
SECTION 3.8. APPOINTMENT OF SUBCUSTODIAN. With the consent of the
Surety Provider, the Master Servicer may at any time appoint a subcustodian to
perform all or any portion of its obligations as custodian hereunder; PROVIDED,
HOWEVER, that the Master Servicer shall remain obligated and be liable to the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders, the Noteholders and the Surety Provider for the custodial
services with respect to the Financed Student Loan Files in accordance with the
provisions hereof without diminution of such obligation and liability by virtue
of the appointment of such subcustodian and to the same extent and under the
same terms and conditions as if the Master Servicer alone were performing the
custodial services. The fees and expenses of the subcustodian shall be as agreed
between the Master Servicer and its subcustodian from time to time and none of
the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders, the Noteholders or the Surety Provider shall have any
responsibility therefor.
ARTICLE IV.
ADMINISTRATION AND SERVICING OF FINANCED STUDENT LOANS
SECTION 4.1. DUTIES OF MASTER SERVICER. The Master Servicer, for the
benefit of the Issuer (to the extent provided herein), shall manage, service,
administer and make collections on the Financed Student Loans with reasonable
care, using that degree of skill and attention that the Master Servicer
exercises with respect to all comparable student loans that it services for
itself and others. Without limiting the generality of the foregoing or of any
other provision set forth in this Agreement and notwithstanding any other
provision to the contrary set forth herein, the Master Servicer shall manage,
service, administer and make collections with respect to the Financed Student
Loans including collection of any Interest Subsidy Payments and Special
Allowance Payments in accordance with all applicable Federal and State laws,
including all applicable standards, guidelines and requirements of the Higher
Education Act and any Guarantee Agreement, the failure to comply with which
would adversely affect the eligibility of one or more of the Financed Student
Loans for Interest Subsidy Payments, Special Allowance Payments or Guarantee
Payments or would have an adverse effect on the Certificateholders, the
Noteholders or the Surety Provider. The Master Servicer also hereby acknowledges
that its obligation to service the Financed Student Loans includes those
Additional Financed Student Loans conveyed by the Seller to the Eligible Lender
Trustee on behalf of the Issuer pursuant to Section 2.2 and the related Transfer
Agreement, a copy of which (if the Master Servicer is not the Seller) shall be
delivered to the Master Servicer by the Seller promptly upon execution thereof;
PROVIDED that any failure by the Seller to so deliver a Transfer Agreement shall
not affect the Master Servicer's obligations hereunder to service all the
Financed Student Loans.
The Master Servicer's duties shall include collection and posting of
all payments, responding to inquiries of borrowers on such Financed Student
Loans, monitoring borrowers' status, making required disclosures to borrowers,
investigating delinquencies, sending bills or payment coupons to borrowers and
otherwise establishing repayment terms, reporting tax information to borrowers,
if applicable, accounting for collections and furnishing monthly and annual
statements with respect thereto to the Administrator. Subject to the provisions
of Section 4.2, the Master Servicer shall follow its customary standards,
policies and procedures in performing its duties as Master Servicer. Without
limiting the generality of the foregoing, the Master Servicer is authorized and
empowered to execute and deliver, on behalf of itself, the Issuer, the Eligible
Lender Trustee, the Indenture Trustee, the Certificateholders, the Noteholders
and the Surety Provider or any of them, instruments of satisfaction or
cancellation, or partial or full release or discharge, and all other comparable
instruments, with respect to such Financed Student Loans; PROVIDED, HOWEVER,
that the Master Servicer agrees that it will not (a) permit any rescission or
cancellation of a Financed Student Loan except as ordered by a court of
competent jurisdiction or governmental authority or as otherwise consented to in
writing by the Eligible Lender Trustee, the Surety Provider and the Indenture
Trustee or (b) reschedule, revise, defer or otherwise compromise with respect to
payments due on any Financed Student Loan except pursuant to any applicable
deferral or forbearance periods or otherwise in accordance with all applicable
standards, guidelines and requirements with respect to the servicing of the
Financed Student Loans (notwithstanding the foregoing, the Master Servicer may,
in its sole discretion, without having to obtain the consent or approval of any
other party, waive amounts owing under a Financed Student Loan up to and
including $50.00); PROVIDED FURTHER, HOWEVER, that the Master Servicer shall not
agree to any decrease of the interest rate on (other than as provided in the
Master Servicer's Reduced Interest Rate Program), or the principal amount
payable with respect to, any Financed Student Loan. The Master Servicer also
shall be responsible for maintaining each Guarantee Agreement, including
advising the Eligible Lender Trustee and the Indenture Trustee of any action
required to be taken to maintain each such Guarantee Agreement. The Eligible
Lender Trustee on behalf of the Issuer hereby grants a power of attorney and all
necessary authorization to the Master Servicer to sign endorsements of the notes
relating to the Financed Student Loans on behalf of the Eligible Lender Trustee
in connection with conveyances pursuant to Section 2.3 hereof and to maintain
any and all collection procedures with respect to the Financed Student Loans,
including filing, pursuing and recovering claims against the Guarantors for
Guarantee Payments and taking any steps to enforce such Financed Student Loan
such as commencing a legal proceeding to enforce a Financed Student Loan in the
name of the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders, the Noteholders or the Surety Provider. The Eligible Lender
Trustee or the Indenture Trustee shall upon the written request of the Master
Servicer or the Administrator furnish the Master Servicer or the Administrator
with any other powers of attorney and other documents reasonably necessary or
appropriate to enable the Master Servicer or the Administrator to carry out its
servicing and administrative duties hereunder.
SECTION 4.2. COLLECTION OF FINANCED STUDENT LOAN Payments. (a) The
Master Servicer shall make reasonable efforts (including all efforts that may be
specified under the Higher Education Act or any Guarantee 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 and shall follow such collection
procedures as it follows with respect to all comparable student loans that it
services for itself and others. The Master Servicer may in its discretion waive
any late payment charge or any other fees that may be collected in the ordinary
course of servicing a Financed Student Loan.
(b) The Master Servicer shall make reasonable efforts to claim, pursue
and collect all Guarantee Payments from the Guarantors pursuant to the Guarantee
Agreements with respect to any of the Financed Student Loans as and when the
same shall become due and payable, shall comply with all applicable laws and
agreements with respect to claiming, pursuing and collecting such payments and
shall follow such practices and procedures as it follows with respect to all
comparable guarantee agreements and student loans that it services for itself
and others. In connection therewith, the Master Servicer is hereby authorized
and empowered to convey to any Guarantor the note and the related Financed
Student Loan File representing any Financed Student Loan in connection with
submitting a claim to such Guarantor for a Guarantee Payment in accordance with
the terms of the applicable Guarantee Agreement whereupon the Lien of the
Indenture Trustee relating to such Financed Student Loan shall be released.
(c) The Master Servicer shall, on behalf of the Issuer, make
reasonable efforts to claim, pursue and collect all Interest Subsidy Payments
and Special Allowance Payments from the Department with respect to any of the
Financed Student Loans as and when the same shall become due and payable, shall
comply with all applicable laws and agreements with respect to claiming,
pursuing and collecting such payments and shall follow such practices and
procedures as the Master Servicer follows with respect to its own student loans.
All amounts so collected by the Eligible Lender Trustee shall constitute
Available Funds for the applicable Collection Period and shall be deposited into
the Collection Account in accordance with Section 5.4. In connection therewith,
the Master Servicer shall prepare and file with the Department on a timely basis
all claims, forms and other documents and filings necessary or appropriate in
connection with the claiming of Interest Subsidy Payments and Special Allowance
Payments on behalf of the Eligible Lender Trustee and shall otherwise assist the
Eligible Lender Trustee in pursuing and collecting such Interest Subsidy
Payments and Special Allowance Payments from the Department. The Eligible Lender
Trustee shall, upon the written request of the Master Servicer, furnish the
Master Servicer with any power of attorney and other documents reasonably
necessary or appropriate to enable the Master Servicer to prepare and file such
claims, forms and other documents and filings.
SECTION 4.3. REALIZATION UPON FINANCED STUDENT LOANS. For the
benefit of the Issuer, the Master Servicer shall use reasonable efforts
consistent with its customary servicing practices and procedures and including
all efforts that may be specified under the Higher Education Act or any
Guarantee Agreement in its servicing of any delinquent Financed Student Loans.
SECTION 4.4. NO IMPAIRMENT. The Master Servicer shall
not impair the rights of the Issuer, the Eligible Lender
Trustee, the Indenture Trustee, the Certificateholders, the
Noteholders or the Surety Provider in the Financed Student
Loans.
SECTION 4.5. PURCHASE OF FINANCED STUDENT LOANS; REIMBURSEMENT. TMSI,
the Master Servicer or the Eligible Lender Trustee, as the case maybe, shall
inform the other parties to this Agreement, the Indenture Trustee and the Surety
Provider promptly, in writing, upon the discovery of any breach of an obligation
under Section 4.1, 4.2, 4.3 or 4.4 hereof. Unless any such breach shall have
been cured within 60 days following the discovery thereof by the Master Servicer
or TMSI or receipt by the Master Servicer or TMSI of written notice from the
Eligible Lender Trustee, TMSI, the Master Servicer or the Surety Provider of
such breach (or, at the Master Servicer's election, the last day of the first
month following such discovery), the Master Servicer shall purchase any Financed
Student Loan in which the interests of the Noteholders, the Certificateholders
or the Surety Provider are materially and adversely affected by such breach as
of the first day succeeding the end of such 60-day period that is the last day
of a Collection Period; provided that it is understood that any such breach that
does not affect any Guarantor's obligation to guarantee payment of such Financed
Student Loan to the Eligible Lender Trustee will not be considered to have a
material adverse effect for this purpose. If the Master Servicer takes any
action or fails to take any action during any Collection Period pursuant to the
sections referred to above that impairs the rights of the Issuer, the Indenture
Trustee, the Eligible Lender Trustee, the Certificateholders, the Noteholders or
the Surety Provider in any Financed Student Loan or otherwise than as provided
in such sections, the Master Servicer shall purchase such Financed Student Loan
as of the last day of such Collection Period. In consideration of and
simultaneously with the purchase of any such Financed Student Loan pursuant to
either of the two preceding sentences, the Master Servicer shall remit the
Purchase Amount in the manner specified in Section 5.4, and the Issuer shall
execute such assignments and other documents reasonably requested by the Master
Servicer in order to effect such transfer. If the Master Servicer fails to
purchase within the time period provided hereby any Financed Student Loan it is
required to purchase hereunder, TMSI shall remit, or cause to be remitted, no
later than the date the Master Servicer would be required to remit such amount,
the Purchase Amount for such Financed Student Loan, in the manner specified in
Section 5.4, and the Issuer shall execute such assignments and other documents
reasonably requested by TMSI or its designee in order to effect such transfer;
provided, however, that if a designee of TMSI repurchases any Financed Student
Loans, such designee shall not have any pre-existing debt with respect to such
purchase, and any transfer of a Financed Student Loan pursuant to this Section
shall be made contemporaneously with the repurchase or the incurrence of the
repurchase obligation. Upon any such transfer of a Financed Student Loan, legal
title to, and beneficial ownership and control of, the related Financed Student
Loan File will thereafter belong to the Master Servicer or TMSI's designee, as
the case may be. In addition, if any such breach by the Master Servicer does not
trigger such a purchase obligation but does result in the refusal by a Guarantor
to guarantee the applicable portion of the accrued interest, or the loss of
(including any obligation of the Issuer to repay to the Department) certain
Interest Subsidy Payments and Special Allowance Payments, with respect to a
Financed Student Loan, then, unless such breach, if curable, is cured within 60
days, the Master Servicer shall, at its option, either purchase such Financed
Student Loan at the applicable Purchase Amount or reimburse the Issuer by
remitting an amount equal to the sum of all amounts that would have been payable
if not for such breach in the manner specified in Section 5.4. If the Master
Servicer fails to repurchase such Financed Student Loan or reimburse the Issuer
such amount, TMSI shall reimburse the Issuer such amount in the manner specified
in Section 5.4 not later than the last day of the Collection Period in which
such 60th day occurs. Subject to the provisions of Sections 5.6 and 6.3 and the
Insurance Agreement, the sole remedy of the Issuer, the Eligible Lender Trustee,
the Indenture Trustee, the Certificateholders, the Noteholders or the Surety
Provider with respect to a breach pursuant to Section 4.1, 4.2, 4.3 or 4.4 and
the agreement contained in this Section 4.5 shall be to require the Master
Servicer, TMSI or TMSI's designee, as the case may be, to purchase Financed
Student Loans or to reimburse the Issuer as provided above pursuant to this
Section 4.5, subject to the conditions contained herein. The Eligible Lender
Trustee shall have no duty to conduct any affirmative investigation as to the
occurrence of any condition requiring the purchase of any Financed Student Loan
or the reimbursement for any interest penalty pursuant to this Section 4.5.
Notwithstanding anything contained in this Section 4.5 to the
contrary, with respect to any purchase obligation arising as a result of a
Guarantor denying a Guarantee Payment on a Financed Student Loan, neither the
Master Servicer, nor TMSI, nor TMSI's designee shall be required to purchase
such Financed Student Loan pursuant to this Section 4.5 until the last day of
the Collection Period occurring seven months after the date a claim is rejected.
SECTION 4.6. SERVICING FEE; SERVICING FEE CARRYOVER. For its
services hereunder, the Master Servicer shall be entitled to receive the
Servicing Fee and any Servicing Fee Carryover in the manner set forth in Section
5.5. Notwithstanding anything to the contrary contained herein or in any other
Basic Document, the Master Servicer shall only be entitled to receive any
Servicing Fee Carryover on any applicable Note Distribution Date or Certificate
Distribution Date if and to the extent that sufficient funds are available
pursuant to Section 5.5(e)(iii), 5.6(b)(A) or 5.6(c).
SECTION 4.7. ADMINISTRATOR'S CERTIFICATE. (a) On each
- --------------------------- Determination Date, the Administrator will advise
the Indenture Trustee in writing of the applicable Noteholders' Interest
Distribution Amount or Certificateholders' Interest Distribution Amount.
Additionally, no later than 16 days prior to each Note Distribution Date for the
Class of Notes then entitled to receive payments of principal (or, after all
Notes have been paid in full, no later than 16 days prior to each Certificate
Distribution Date) the Administrator will advise the Indenture Trustee in
writing of the applicable Noteholders' Principal Distribution Amount (or, after
all the Notes have been paid in full, for the Class of Certificates with the
earliest Final Maturity Date, the Certificateholders' Principal Distribution
Amount). Further, on the Determination Date relating to the first Certificate
Distribution Date occurring each month (or for each month in which a Note
Distribution Date occurs earlier than the Certificate Distribution Date, on the
Determination Date relating to such earlier Note Distribution Date), the
Administrator will advise the Indenture Trustee in writing of Transaction Fees
(separately and in the aggregate) for the preceding month.
(b) On each Determination Date, the Administrator also shall deliver
to the Eligible Lender Trustee, the Indenture Trustee and the Seller (if the
Seller is not also the Administrator), with a copy to the Surety Provider and to
the Rating Agencies, an Administrator's Certificate containing all information
necessary to make the distributions pursuant to Sections 5.5, 5.6 and 5.8(b), if
applicable, for the upcoming Note Distribution Date or Certificate Distribution
Date. Such Administrator's Certificate also shall include the amount, if any, of
Note Surety Bond Payments or Certificate Surety Bond Payments required to be
made on the upcoming Note Distribution Date or Certificate Distribution Date.
Financed Student Loans to be repurchased by the Seller (whether pursuant to
Section 2.3 or 3.2), purchased by the Master Servicer, TMSI or TMSI's designee
or acquired by any Guarantor shall be identified by the Administrator by type of
loan and borrower social security number with respect to such Financed Student
Loan (as specified in Schedule A).
(c) On or before the 15th day of each month, the Administrator
shall deliver to the Eligible Lender Trustee, the Indenture Trustee and the
Seller (if the Seller is not also the Administrator), with a copy to the Surety
Provider and the Rating Agencies, a report setting forth by component the
Available Funds for the immediately preceding Collection Period.
SECTION 4.8. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT. (a)
Each of the Master Servicer and the Administrator shall deliver to the Seller,
the Eligible Lender Trustee and the Indenture Trustee, on or before April 30 of
each year beginning April 30, 1998, an Officer's Certificate of the Master
Servicer or the Administrator, as the case may be, dated as of December 31 of
the preceding year, stating that (i) a review of the activities of the Master
Servicer or the Administrator, as the case may be, during the preceding 12-month
period and of its performance under this Agreement, the Sale and Servicing
Agreement and any other Supplemental Sale and Servicing Agreements has been made
under such officers' supervision and (ii) to the best of such officers'
knowledge, based on such review, the Master Servicer or the Administrator, as
the case may be, has fulfilled all its obligations under such Agreements, or
under such Agreements and the Administration Agreement, respectively, throughout
such year or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Pursuant to the Indenture, the Indenture Trustee shall send
a copy of each such Officers' Certificate and each report referred to in Section
4.9 to the Rating Agencies, and the Eligible Lender Trustee shall send a copy of
each such Officers' Certificate and each such report to the Surety Provider. A
copy of each such Officers' Certificate and each report referred to in Section
4.9 may be obtained by any Certificateholder, Certificate Owner, Noteholder or
Note Owner by a request in writing to the Eligible Lender Trustee addressed to
its Corporate Trust Office, together with evidence satisfactory to the Eligible
Lender Trustee that such Person is one of the foregoing parties. Pursuant to the
Indenture, upon the telephone request of the Eligible Lender Trustee, the
Indenture Trustee will promptly furnish the Eligible Lender Trustee a list of
Noteholders as of the date specified by the Eligible Lender Trustee.
(b) The Master Servicer shall deliver to the Eligible Lender Trustee,
the Indenture Trustee, the Seller, the Surety Provider and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an Officer's Certificate of the
Master Servicer of any event which with the giving of notice or lapse of time,
or both, would become a Master Servicer Default under Section 8.1(a).
(c) The Administrator shall deliver to the Eligible Lender Trustee,
the Indenture Trustee, the Master Servicer, the Surety Provider and the Rating
Agencies, promptly after having obtained knowledge thereof, but in no event
later than five Business Days thereafter, written notice in an Officer's
Certificate of the Administrator of any event which with the giving of notice or
lapse of time, or both, would become an Administrator Default under Section
8.1(b)(1), (2) or (3).
SECTION 4.9. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
REPORT. Each of the Master Servicer and the Administrator shall cause Deloitte &
Touche, KPMG Peat Marwick, or any other firm of independent certified public
accountants approved by the Surety Provider, to deliver to the Seller, the
Eligible Lender Trustee, the Indenture Trustee and the Surety Provider on or
before April 30 of each year beginning April 30, 1998, a report addressed to the
Master Servicer and to the Seller, the Eligible Lender Trustee and the Indenture
Trustee, to the effect that such firm has examined certain documents and
records relating to the servicing of the Financed Student Loans, for the
administration of the Financed Student Loans and of the Trust, as the case may
be, during the preceding calendar year and that, on the basis of the accounting
and auditing procedures considered appropriate under the circumstances, such
firm is of the opinion that such servicing or administration was conducted in
compliance with the terms of this Agreement, the Sale and Servicing Agreement,
any other Supplemental Sale and Servicing Agreements, or with the terms of such
Agreements and the Administration Agreement, as the case may be, except for (i)
such exceptions as such firm shall believe to be immaterial and (ii) such other
exceptions as shall be set forth in such report.
Such report will also indicate that the firm is independent of
the Master Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
SECTION 4.10. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING FINANCED STUDENT LOANS. Upon reasonable prior notice, the Master
Servicer shall provide access to the Financed Student Loan Files (i) to the
Surety Provider and the Eligible Lender Trustee and (ii) to the
Certificateholders or the Noteholders in such cases where the Certificateholders
or the Noteholders shall be required by applicable statutes or regulations to
review such documentation, as demonstrated by evidence satisfactory to the
Master Servicer in its reasonable judgment. Access shall be afforded without
charge, but only upon reasonable request and during the normal business hours at
the respective offices of the Master Servicer.
SECTION 4.11. MASTER SERVICER AND ADMINISTRATOR Expenses. The Master
Servicer and the Administrator shall be severally required to pay all expenses
incurred by them in connection with their respective activities hereunder and
under the Sale and Servicing Agreement and all other Supplemental Sale and
Servicing Agreements, including fees and disbursements of independent
accountants, taxes imposed on the Master Servicer or the Administrator, as the
case may be, and expenses incurred in connection with distributions and reports
to the Administrator or to the Certificateholders, the Noteholders, the Eligible
Lender Trustee and the Surety Provider, as the case may be.
SECTION 4.12. APPOINTMENT OF SUBSERVICER. The Master Servicer may at
any time, upon the written consent of the Surety Provider, appoint a subservicer
to perform all or any portion of its obligations as Master Servicer hereunder
and under the Sale and Servicing Agreement and any other Supplemental Sale and
Servicing Agreements; PROVIDED, HOWEVER, that the Rating Agency Condition shall
have been satisfied in connection therewith; PROVIDED FURTHER that the Master
Servicer shall remain obligated and be liable to the Issuer, the Eligible Lender
Trustee, the Indenture Trustee, the Certificateholders, the Noteholders and the
Surety Provider for the servicing and administering of the Financed Student
Loans in accordance with the provisions hereof and of the Sale and Servicing
Agreement and any other Supplemental Sale and Servicing Agreements without
diminution of such obligation and liability by virtue of the appointment of such
subservicer and to the same extent and under the same terms and conditions as if
the Master Servicer alone were servicing and administering the Financed Student
Loans. The Surety Provider may, pursuant to and in accordance with Section 4.08
of the Insurance Agreement, direct the Master Servicer, which shall act in
accordance with such direction within a reasonable period of time after receipt
thereof, to remove any subservicer. The fees and expenses of the subservicer
shall be as agreed between the Master Servicer and its subservicer from time to
time and none of the Issuer, the Eligible Lender Trustee, the Indenture Trustee,
the Certificateholders, the Noteholders or the Surety Provider shall have any
responsibility therefor.
ARTICLE V
DISTRIBUTIONS; RESERVE ACCOUNT;
STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS
SECTION 5.1. ESTABLISHMENT OF TRUST ACCOUNTS. (a) Pursuant to the Sale
and Servicing Agreement, the Indenture Trustee, for the benefit of the
Noteholders, has established and maintains in the name of the Indenture Trustee
each of the Collection Account, the Note Distribution Account, the Reserve
Account, the Pre-Funding Account, the Capitalized Interest Account, the
Capitalized Pre-Funding Account, the Expense Account and the Monthly Advance
Account. The Eligible Lender Trustee, for the benefit of the Certificateholders,
has established and maintains in the name of the Eligible Lender Trustee the
Certificate Distribution Account and the Certificate Monthly Advance Account.
The foregoing accounts are referred to collectively as the "Trust Accounts".
Each such Trust Account shall be an Eligible Deposit Account and, except for the
Certificate Distribution Account and the Certificate Monthly Advance Account,
shall be entitled as follows: "[Name of Account] for the benefit of [Trust
199_-_] and Bankers Trust Company, as Indenture Trustee, as their interests may
appear." The Certificate Distribution Account and the Certificate Monthly
Advance Account shall be entitled as follows: "[Trust 199_-_] [Certificate
Distribution Account][Certificate Monthly Advance Account]."
(b) Funds on deposit in the Trust Accounts shall be invested by the
Indenture Trustee and, in the case of the Certificate Distribution Account and
the Certificate Monthly Advance Account, the Eligible Lender Trustee in Eligible
Investments pursuant to written instructions from the Administrator, on behalf
of the Issuer; PROVIDED, HOWEVER, it is understood and agreed that the Indenture
Trustee and the Eligible Lender Trustee shall not be liable for any loss arising
from such investment in Eligible Investments. All such Eligible Investments
shall be held by the Indenture Trustee and the Eligible Lender Trustee for the
benefit of the Issuer; provided that all interest and other investment income
(net of losses and investment expenses) on funds on deposit therein shall be
deposited into the Collection Account and shall be deemed to constitute a
portion of the Available Funds for the related Note Distribution Date or
Certificate Distribution Date. Funds on deposit in the Trust Accounts shall be
invested in Eligible Investments that will mature so that such funds will be
available at the close of business on the Business Day preceding the day on
which funds in the applicable Trust Account may be required to be withdrawn;
PROVIDED, HOWEVER, that funds on deposit in such Trust Accounts may be invested
in Eligible Investments of the Indenture Trustee or of the Eligible Lender
Trustee, in the case of the Certificate Distribution Account and Certificate
Monthly Advance Account, which may mature so that such funds will be available
on the following Business Day. Funds deposited in a Trust Account on a Business
Day which immediately precedes a Note Distribution Date or Certificate
Distribution Date upon the maturity of any Eligible Investments are not required
to be invested overnight.
(c) (i) The Indenture Trustee (or the Eligible Lender Trustee
with respect to the Certificate Distribution Account and the
Certificate Monthly Advance Account) shall possess all right, title and
interest in all funds on deposit from time to time in the Trust
Accounts and in all proceeds thereof (including all income thereon) and
all such funds, investments, proceeds and income shall be part of the
Trust Estate. The Trust Accounts shall be under the sole dominion and
control of the Indenture Trustee (or the Eligible Lender Trustee with
respect to the Certificate Distribution Account and Certificate Monthly
Advance Account) for the benefit of the Issuer. If, at any time, any of
the Trust Accounts ceases to be an Eligible Deposit Account, the
Administrator, on behalf of the Issuer, agrees that it shall within 10
Business Days (or such longer period, not to exceed 30 calendar days,
as to which the Surety Provider may consent) establish a new Trust
Account as an Eligible Deposit Account and shall transfer any cash
and/or any investments to such new Trust Account. In connection with
the foregoing, the Administrator, on behalf of the Issuer, agrees that,
in the event that any of the Trust Accounts are not accounts with the
Indenture Trustee (or the Eligible Lender Trustee with respect to the
Certificate Distribution Account and the Certificate Monthly Advance
Account), the Administrator shall notify the Indenture Trustee and the
Eligible Lender Trustee in writing promptly upon any of such Trust
Accounts ceasing to be an Eligible Deposit Account.
(ii) With respect to the Trust Account Property, the Indenture
Trustee agrees (or, with respect to the Certificate Distribution
Account and the Certificate Monthly Advance Account, the Eligible
Lender Trustee agrees), by its acceptance thereof, that:
(A) any Trust Account Property that is held in deposit
accounts shall be held solely in Eligible Deposit Accounts, subject
to the last sentence of Section 5.1(c)(i); and each such Eligible
Deposit Account shall be subject to the exclusive custody and
control of the Indenture Trustee (or the Eligible Lender Trustee with
respect to the Certificate Distribution Account and the Certificate
Monthly Advance Account), and the Indenture Trustee (or the Eligible
Lender Trustee with respect to the Certificate Distribution Account
and the Certificate Monthly Advance Account) shall have sole signature
authority with respect thereto;
(B) any Trust Account Property that constitutes
Physical Property shall be Delivered to the Indenture Trustee
in accordance with paragraph (a) of the definition of
"Delivery" and shall be held, pending maturity or disposition,
solely by the Indenture Trustee or a financial intermediary
(as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(C) any Trust Account Property that is a book-entry
security held through the Federal Reserve System
pursuant to Federal book-entry regulation shall be Delivered
in accordance with paragraph (b) of the definition of
"Delivery" and shall be maintained by the Indenture Trustee,
pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in
such paragraph; and
(D) any Trust Account Property that is an
"uncertificated security" under Article VIII of the UCC
and that is not governed by clause (C) above shall be
Delivered to the Indenture Trustee in accordance with
paragraph (c) of the definition of "Delivery" and
shall be maintained by the Indenture Trustee, pending
maturity or disposition, through continued
registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
(iii) The Administrator shall have the power, revocable for cause or
upon the occurrence and during the continuance of an Administrator Default
by the Indenture Trustee or by the Eligible Lender Trustee with the
consent of the Indenture Trustee, to instruct the Indenture Trustee to
make withdrawals and payments from the Trust Accounts (or the Eligible
Lender Trustee with respect to the Certificate Distribution Account
and the Certificate Monthly Advance Account) for the purpose of
permitting the Master Servicer, the Administrator or the Eligible
Lender Trustee to carry out its respective duties hereunder or under
the Trust Agreement or permitting the Indenture Trustee to carry out
its duties under the Indenture.
SECTION 5.2. COLLECTIONS. The Master Servicer shall
remit to the Collection Account all payments by or on behalf of
the Obligors with respect to the Financed Student Loans for which it, rather
than a subservicer, is acting as Primary Servicer (other than Purchased Student
Loans), (i) within one Business Day after it has received an aggregate of
$30,000 during any Collection Period and (ii) on the last Business Day of each
Collection Period, all other collections received during such Collection Period.
The Master Servicer shall cause each other Servicer to remit to the Collection
Account, within one Business Day of receipt thereof, all payments by or on
behalf of the Obligors with respect to the Financed Student Loans for which such
other Servicer is acting as Primary Servicer. For purposes of this Article V,
the phrase "payments by or on behalf of Obligors" shall mean payments made with
respect to the Financed Student Loans by or on behalf of borrowers thereof and
the Guarantors.
SECTION 5.3. APPLICATION OF COLLECTIONS. With respect to each
Financed Student Loan, all collections (including all Guarantee Payments) with
respect thereto shall be applied in accordance with regulations of the
Department and the applicable Guarantor.
SECTION 5.4. ADDITIONAL DEPOSITS. Within two Business Days after
receipt thereof, the Eligible Lender Trustee (or the Master Servicer on its
behalf) shall deposit in the Collection Account the aggregate amount of Interest
Subsidy Payments and Special Allowance Payments received by it with respect to
the Financed Student Loans, and the Seller shall deposit in the Collection
Account any amount owed pursuant to Section 3.2 no later than the last day of
the Collection Period during which any such amount is owed. The Master Servicer
or TMSI shall deposit or cause to be deposited in the Collection Account the
aggregate Purchase Amount with respect to Purchased Student Loans and all other
amounts to be paid by the Master Servicer or TMSI under Section 4.5 when such
amounts are due, and the Seller or TMSI shall deposit or cause to be deposited
therein the aggregate Purchase Amount with respect to Purchased Student Loans
and all other amounts to be paid by the Seller or TMSI under Sections 3.2 or the
Seller under Section 9.1 when such amounts are due. The Seller, the Master
Servicer and the Administrator also shall deposit in the Collection Account all
amounts required to be deposited therein pursuant to, and within the time
periods provided by, Section 2.3. Notwithstanding the foregoing, the Master
Servicer shall deposit, or cause to be deposited, directly into the Reserve
Account any payments of or with respect to principal relating to a Financed
Student Loan for which a Realized Loss was previously allocated (but only up to
the amount of such Realized Loss), and shall deposit, or cause to be deposited,
directly into the Collection Account any payments of or with respect to interest
relating to a Financed Student Loan for which a Realized Loss was previously
allocated.
TMSI also shall, in its sole discretion, deposit into the
Monthly Advance Account the amount of any Monthly Advances determined to be made
by TMSI pursuant to Section 5.13 no later than the Determination Date relating
to the Note Distribution Date or Certificate Distribution Date, as the case may
be, when such amounts are to be applied as a payment of interest. On each
related Certificate Distribution Date, the Indenture Trustee will transfer from
the Monthly Advance Account to the Eligible Lender Trustee, by wire transfer no
later than 11:00 a.m. New York time, for deposit into the Certificate Monthly
Advance Account the Monthly Advance for such Certificate Distribution Date.
Pursuant to Section 5.13, if after making a Monthly Advance the Master Servicer
receives the Guarantee Payment, Special Allowance Payment or Interest Subsidy
Payment for which such Monthly Advance was made, the Master Servicer may
reimburse TMSI, immediately upon demand, from such Guarantee Payment, Special
Allowance Payment or Interest Subsidy Payment, as the case may be, on deposit in
the Collection Account up to the amount of the related Monthly Advance.
SECTION 5.5. DISTRIBUTIONS. (a) On each Note Distribution Date
relating to the Series 199_-_ Notes, pursuant to the Administrator's
instructions, the Indenture Trustee will transfer from the Collection Account to
the Note Distribution Account, from payments received on or with respect to the
Financed Student Loans during the Collection Period immediately preceding the
month of such Note Distribution Date (or, for such Collection Periods as may be
set forth in a Terms Supplement), an amount up to the related Noteholders'
Interest Distribution Amount. If a Class of Series 199_-_ Notes has the earliest
Final Maturity Date of all Classes of Notes then Outstanding, for the Class of
Series 199_-_ Notes with the earliest Final Maturity Date, on the first Note
Distribution Date for such Class occurring in each month, commencing January
1997, after making the transfer set forth in the prior sentence, the Indenture
Trustee will transfer from the Collection Account to the Note Distribution
Account from payments received on or with respect to the Financed Student Loans
during the Collection Period immediately preceding the month prior to the month
of such Note Distribution Date (or for such other Collection Periods as may be
set forth in a Terms Supplement), an amount up to the Noteholders' Principal
Distribution Amount; provided, however, that for each month in which the first
Note Distribution Date for any Series of Notes occurs prior to the Certificate
Distribution Date in such month, prior to transferring amounts to the Note
Distribution Account, the Indenture Trustee will transfer to the Expense
Account, from payments received on or with respect to the Financed Student Loans
during the immediately preceding Collection Period, an amount up to the
Transaction Fees for the month preceding such Note Distribution Date and all
overdue Transaction Fees from prior months.
(b) On each Certificate Distribution Date, pursuant to
information contained in the Administrator's Certificate delivered in accordance
with Section 4.7, the Indenture Trustee will transfer from the Collection
Account, from payments received on or with respect to the Financed Student Loans
during the immediately preceding Collection Period, (i) to the Expense Account,
an amount up to the excess, if any, of the Transaction Fees for the month
preceding such Certificate Distribution Date and all overdue Transaction Fees
from prior months over the amount, if any, previously transferred to the Expense
Account during the month of such Certificate Distribution Date and (ii) to the
Eligible Lender Trustee, by wire transfer no later than 11:00 a.m. New York
time, for deposit in the Certificate Distribution Account, an amount up to the
related Certificateholders' Interest Distribution Amount. Additionally, after
each Class of Notes has been paid in full, on each Certificate Distribution Date
relating to the Class of Certificates with the earliest Final Maturity Date, the
Indenture Trustee will transfer from the Collection Account to the Eligible
Lender Trustee, by wire transfer no later than 11:00 a.m. New York time, for
deposit in the Certificate Distribution Account, from payments received on or
with respect to the Financed Student Loans during the Collection Period
immediately preceding the month prior to such Certificate Distribution Date, an
amount up to the applicable Certificateholders' Principal Distribution Amount.
(c) On the first Note Distribution Date for any Series of
Notes occurring in March, June, September and December, or in the case of clause
(iii) below on the first Note Distribution Date occurring in each month (or if
in any such month a Certificate Distribution Date occurs prior to such first
Note Distribution Date, on such Certificate Distribution Date), the Indenture
Trustee, pursuant to information contained in the Administrator's Certificate
delivered in accordance with Section 4.7, will distribute from the Expense
Account (in addition to any amounts transferred from the Reserve Account
pursuant to Section 5.6) the following amounts in the following order of
priority: (i) to the Master Servicer, the Servicing Fee and all overdue
Servicing Fees, (ii) to the Administrator, the Administration Fee and all
overdue Administration Fees, (iii) to the Auction Agent, the Auction Agent Fee
and all overdue Auction Agent Fees, (iv) to the Indenture Trustee, the Indenture
Trustee Fee and all overdue Indenture Trustee Fees, (v) to the Eligible Lender
Trustee, the Eligible Lender Trustee Fee and all overdue Eligible Lender Trustee
Fees and (vi) to the Surety Provider, the Surety Provider Fee and all overdue
Surety Provider Fees.
(d) On each Note Distribution Date, the Indenture Trustee will
distribute to the Noteholders of the applicable Class as of the related Record
Date all amounts transferred to the Note Distribution Account as set forth above
(in addition to any amounts transferred from the Capitalized Interest Account,
the Capitalized Pre-Funding Account, the Pre-Funding Account and the Reserve
Account, each as set forth below in this Article V, any amounts received under
the applicable Note Surety Bond pursuant to Section 10.1(a) and any Monthly
Advances deposited into the Monthly Advance Account pursuant to Section 5.4).
On each Certificate Distribution Date, the Eligible Lender Trustee will
distribute to the Certificateholders as of the related Record Date all amounts
transferred to the Certificate Distribution Account as set forth above
(in addition to any amounts transferred from the Capitalized Interest Account
and the Reserve Account, each as set forth below in this Article V, any amounts
received under the Certificate Surety Bond pursuant to Section 10.1(b) and any
Monthly Advances deposited into the Certificate Monthly Advance Account pursuant
to Section 5.4).
(e) On the last Note Distribution Date occurring in January,
April, July and October (or if in any such month a Certificate Distribution Date
occurs after such last Note Distribution Date, on such Certificate Distribution
Date), after making all required transfers to the Note Distribution Account
and, if applicable, the Certificate Distribution Account and the
Expense Account, the Indenture Trustee, pursuant to information
contained in the Administrator's Certificate delivered in
accordance with Section 4.7, will transfer any amounts remaining in the
Collection Account (other than amounts representing
payments received during such month or payments of or with respect to principal
received in the immediately preceding month) in the following order of priority:
(i) to the Surety Provider, the amount, if any, necessary to reimburse the
Surety Provider for prior Note and Certificate Surety Bond Payments, together
with interest thereon at the rate set forth in the Insurance Agreement, (ii) to
the Reserve Account, the amount, if any, necessary to increase the balance
thereof to the Specified Reserve Account Balance, (iii) to the Master Servicer,
the aggregate unpaid amount of the Servicing Fee Carryover, if any, (iv) to the
Note Distribution Account, the aggregate unpaid amount of Noteholders' Interest
Carryover, if any, and (v) to the Certificate Distribution Account, the
aggregate unpaid amount of Certificateholders' Interest Carryover, if any. Any
amounts remaining in the Collection Account after such transfers (other than
amounts representing payments received during such month or payments of or with
respect to principal received in the immediately preceding month) will be
transferred to the Reserve Account. Amounts transferred to the Note Distribution
Account or the Certificate Distribution Account pursuant to clauses (iv) and (v)
above, respectively, will be paid to the applicable Class of Notes or
Certificates on the next Note Distribution Date or Certificate Distribution Date
relating to such Class of Notes or Certificates. Notwithstanding the foregoing,
if the amount on deposit in the Reserve Account, after giving effect to all
distributions otherwise required to be made on such date, equals
the greater of (i) 1% of the then outstanding principal balance
of the Notes and the Certificates and (ii) $1,500,000 (but in
no event greater than the then outstanding principal balance of the Notes and
the Certificates), amounts otherwise required to be deposited into the Reserve
Account pursuant to clause (ii) above may, instead, be applied as an Additional
Principal Payment on the next applicable Note Distribution Date for which a
payment of principal is to be made on the Class of Notes with the earliest Final
Maturity Date (or, after all the Notes have been paid in full, on the next
Certificate Distribution Date).
(f) Notwithstanding the foregoing, if there has been an Event
of Default with respect to payment of the Notes, the Certificateholders will not
be entitled to any payments of principal or interest until each outstanding
Class of Notes has been paid in full.
(g) Notwithstanding the foregoing, if during a Collection
Period a Serial Loan was transferred by the Trust to the Seller's designee
pursuant to Section 2.3(b), Student Holdings, in its capacity as a holder of a
1% interest in the Certificates, shall receive on the Note Distribution Date or
Certificate Distribution Date, as the case may be, when the related Purchase
Amount is distributed to Noteholders or Certificateholders, as applicable, any
proceeds received by the Trust in excess of the Purchase Amount of the
transferred Financed Student Loan.
(h) Distributions on a Note Distribution Date or Certificate
Distribution Date shall be initiated by 11:00 a.m. (New York City time) on such
Note Distribution Date or Certificate Distribution Date; provided, however, that
any distributions from the Certificate Distribution Account shall be
made at the times set forth in Section 5.1 of the Trust
Agreement.
Notwithstanding the foregoing, principal payments will be made
to each Class of Notes (other than the Class A-7 and
Class A-9 Notes) and the Certificates only in amounts equal to
$50,000 and integral multiples in excess thereof. If the amount
in the Note Distribution Account or the Certificate Distribution Account
otherwise required to be applied as a payment of principal to a Class of Notes
(other than the Class A-7 and Class A-9 Notes) or the Certificates either (i) is
less than $50,000 or (ii) exceeds an even multiple of $50,000, then, in the case
of (i), such entire amount or, in the case of (ii), such excess amount, will not
be paid as principal on the upcoming Note Distribution Date or Certificate
Distribution Date, as the case may be, but will be retained in the Note
Distribution Account or the Certificate Distribution Account, as the case may
be, until the amount therein available for payment of principal (including any
amounts transferred from the Reserve Account) equals $50,000 or any integral
multiple thereof. On each note Distribution Date for which a Class A-7 or Class
A-9 Notes is receiving a payment of principal, such principal will be
distributed pro rata among all Note Owners of such Class A-7 or Class A-9 Notes
as of the related Record Date based on the Outstanding Amount of such Class of
Notes owned, and such distributions may be made in amounts less than $50,000.
SECTION 5.6. RESERVE ACCOUNT. (a) On the Closing Date relating to
the Series 199_-_ Notes, the Seller shall deposit the Reserve Account Initial
Deposit, if any, into the Reserve Account.
(b) If the amount on deposit in the Reserve Account on the
last Note Distribution Date occurring in January, April, July and October (or if
in any such month a Certificate Distribution Date occurs after such last Note
Distribution Date, on such Certificate Distribution Date) (after giving effect
to all deposits or withdrawals therefrom on such Note Distribution Date or
Certificate Distribution Date) is greater than the then applicable Specified
Reserve Account Balance, the Administrator shall instruct the Indenture Trustee
(A) to pay to the Master Servicer out of such excess an amount equal to the
amount described in Section 5.5(e)(iii) for such Note Distribution Date or
Certificate Distribution Date (to the extent not otherwise paid to the Master
Servicer on such Note Distribution Date or Certificate Distribution Date), (B)
to pay to the Note Distribution Account out of such remaining excess an amount
equal to the amount described in Section 5.5(e)(iv) for such Note Distribution
Date or Certificate Distribution Date (to the extent not otherwise paid to the
Note Distribution Account on such Note Distribution Date or Certificate
Distribution Date), (C) to pay to the Certificate Distribution Account out of
such remaining excess an amount equal to the amount described in Section
5.5(e)(v) for such Distribution Date (to the extent not otherwise paid to the
Certificate Distribution Account on such Distribution Date), (D) to pay to the
Surety Provider any amounts remaining unpaid and owing pursuant to Section
2.02(p) of the Insurance Agreement, (E) to pay to the Collection Account any
amounts required to be paid by the Seller, the Master Servicer or TMSI pursuant
to Sections 3.2 or 4.5 as a result of breaches of representations and warranties
made in Section 3.1, 4.1, 4.2, 4.3 or 4.4 to the extent the Seller or TMSI has
not made such payments within the required time period, and (F) to distribute
the remaining amount of such excess to TMS Student Holdings, Inc. as holder of a
1% interest in the Certificates and holder of the Series 199_-_ Certificates, or
its permitted successors or assigns ("Student Holdings"). Amounts properly
distributed pursuant to this paragraph (b) shall be deemed released from the
Trust Estate and the security interest therein granted to the Indenture Trustee,
and Student Holdings shall in no event thereafter be required to refund any such
distributed amounts. Notwithstanding the foregoing, if set forth in a supplement
to this Agreement or a Trust Supplement, holders of Originators' Interests may
receive amounts otherwise distributed to TMS Student Holdings, Inc. pursuant to
subclause (F) above.
(c) Following the payment in full of the aggregate outstanding
principal amount of the Notes and the Certificates and of all other amounts
owing or to be distributed hereunder or under the Indenture or the Trust
Agreement to Noteholders, Certificateholders, the Master Servicer, the
Administrator or the Surety Provider and the termination of the Trust
(including any Servicing Fee Carryovers, Noteholders' Interest Carryover and
Certificateholders' Interest Carryover), any amount remaining on deposit in
the Reserve Account shall be distributed to Student Holdings. Student Holdings
shall in no event be required to refund any amounts properly distributed
pursuant to this Section 5.6(c).
(d) (i) In the event that on the first Note Distribution Date
for any Series of Notes occurring in March, June, September and
December, or with respect to Section 5.5(c)(iii) on the first Note
Distribution Date occurring in each month (or if in any such month a
Certificate Distribution Date occurs prior to such first Note
Distribution Date, on such Certificate Distribution Date), any amounts
to be distributed as calculated pursuant to Section 5.5(c)(i)-(vi)
exceed the amount on deposit in the Expense Account available for such
purposes, the Administrator shall instruct the Indenture Trustee to
withdraw from the Reserve Account the lesser of such excess
and the amount on deposit in the Reserve Account (after giving effect
to each withdrawal in the order specified in Section 5.5(c)(i)-(vi))
and deposit such withdrawn amount in the Expense Account for
distribution as provided in Section 5.5; PROVIDED, HOWEVER, that,
except as provided in Sections 5.6(b)(A) and 5.6(c), amounts on deposit
in the Reserve Account will not be available to cover any unpaid
Servicing Fee Carryover to the Master Servicer.
(ii) In the event that the Noteholders' Distribution Amount
for a Note Distribution Date exceeds the amount in the Note
Distribution Account for such Note Distribution Date available for such
purposes, the Administrator shall instruct the Indenture Trustee to
withdraw from the Reserve Account an amount equal to the lesser of such
excess (after giving effect to any transfers from the Capitalized
Interest Account and the Capitalized Pre-Funding Account on such Note
Distribution Date) and the amount on deposit in the Reserve Account,
(after giving effect to paragraph (d)(i) above), and deposit such
withdrawn amount in the Note Distribution Account for distribution as
provided in Section 5.5.
(iii) In the event that the Certificateholders' Distribution
Amount for a Certificate Distribution Date exceeds the amount for such
Certificate Distribution Date available for such purposes, the
Administrator shall instruct the Indenture Trustee on such Distribution
Date to withdraw from the Reserve Account an amount equal to the
lesser of such excess (after giving effect to any transfers
from the Capitalized Interest Account on such Certificate Distribution
Date), and the amount on deposit in the Reserve Account (after giving
effect to paragraphs (d)(i) through (d)(ii) above), and to deposit such
withdrawn amount in the Certificate Distribution Account for
distribution as provided in Section 5.5.
SECTION 5.7. STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS.
On each Determination Date preceding a Note Distribution Date and a Certificate
Distribution Date, the Master Servicer or the Administrator shall provide to the
Indenture Trustee (with a copy to the Surety Provider and to the Rating
Agencies) for the Indenture Trustee to forward on such succeeding Note
Distribution Date to each Noteholder of the applicable Class of record and to
the Eligible Lender Trustee for the Eligible Lender Trustee to forward on such
succeeding Certificate Distribution Date to each Certificateholder of the
applicable Class of record, a statement substantially in the form of Exhibits A
and B, respectively, setting forth at least the following information with
respect to such Note Distribution Date and Certificate Distribution Date or the
preceding Collection Period, to the extent applicable (provided, however, that
with respect to each Note Distribution Date other than the first Note
Distribution Date occurring in each month, such statement need only contain the
information set forth in clauses (ii), (iii), (v), (vi) and (xii) below):
(i) the amount of such distribution allocable to
principal;
(ii) the amount of the distribution allocable to
interest;
(iii) the amount, if any, of the distribution allocable to any
Noteholders' Auction Rate Interest Carryover, any Noteholders' LIBOR
Rate Interest Carryover, any Certificateholders' Auction Rate Interest
Carryover and any Certificateholders' LIBOR Rate Interest Carryover,
together with any remaining outstanding amount of each thereof;
(iv) the Pool Balance as of the close of business on the
last day of the preceding Collection Period;
(v) the aggregate outstanding principal amount of the Notes of
each Class and the Certificates of each Class as of such Note
Distribution Date or Certificate Distribution
Date, after giving effect to payments allocated to
principal reported under clause (i) above;
(vi) the Class Interest Rate for the applicable Class of
Notes and the Certificate Rate for the applicable Class of
Certificates with respect to each distribution referred to
in clause (ii) above, indicating whether such interest
rate is calculated based on the Net Loan Rate or based on
the applicable Auction Rate or LIBOR Rate, as the case may
be, and specifying what each such interest would have been
using the alternate basis for such calculation;
(vii) the amount of the Servicing Fee and any Servicing Fee
Carryover allocated to the Master Servicer with respect to the related
Collection Period, and the amount, if any, of the Servicing Fee
Carryover remaining unpaid after giving effect to any such allocation;
(viii) the amount of the Administration Fee, the Auction
Agent Fee, the Indenture Trustee Fee, the Eligible Lender
Trustee Fee and the Surety Provider Fee allocated in
respect of the preceding Collection Period;
(ix) the amount of payment to the Surety Provider in
reimbursement of prior draws under any Note Surety Bond or the
Certificate Surety Bond including interest thereon;
(x) the amount of the aggregate Realized Losses, if any, for
such Collection Period and any recoveries of principal and interest
received during such Collection Period relating to Financed Student
Loans for which a Realized Loss was previously allocated;
(xi) the amount of the distribution attributable to amounts in
the Reserve Account, the amount of any other withdrawals from the
Reserve Account for such Note Distribution Date or Certificate
Distribution Date and the balance of the Reserve Account on such
Distribution Date, after giving effect to changes therein on such Note
Distribution Date or Certificate Distribution Date;
(xii) the amount of any draw required to be made under
the applicable Note Surety Bond or the applicable
Certificate Surety Bond;
(xiii) for Note Distribution Dates during the Funding Period, the
portion, if any, of the distribution attributable to amounts on deposit
in the Pre-Funding Account and the Capitalized Pre-Funding Account and
the remaining Pre-Funded Amount;
(xiv) for Note Distribution Dates during the Funding Period, the
aggregate amount, if any, paid by the Eligible Lender Trustee on behalf
of the Trust for Additional Financed Student Loans during the preceding
Collection Period;
(xv) for the first Note Distribution Date on or immediately
following the end of the Funding Period, the amount of any remaining
Pre-Funded Amount that has not been
used to make Additional Fundings and is being paid out to
Noteholders;
(xvi) the aggregate amount, if any, paid for Financed
Student Loans purchased from the Trust during the preceding
Collection Period;
(xvii) the number and principal amount of Financed Student Loans,
as of the end of the preceding Collection Period, that are (i) 30 to 60
days delinquent, (ii) 61 to 90 days delinquent, (iii) 91 to 120 days
delinquent, (iv) more than 120 days delinquent and (v) for which claims
have been filed with the appropriate Guarantor and which are
awaiting payment; and
(xviii) the Parity Percentage, including the numerator and
denominator used in determining such Parity Percentage.
Each amount set forth pursuant to paragraph (i), (ii), (vii), and (viii) above
shall be expressed as a dollar amount per $50,000 of original principal balance
of a Certificate or Note, as applicable. A copy of the statements referred to
above may be obtained by any Certificate Owner or Note Owner by a written
request to the Eligible Lender Trustee or the Indenture Trustee, respectively,
addressed to the respective Corporate Trust Office.
The statements referred to above will not be provided to holders
of Originators' Interests. Any Trust Supplement authorizing the issuance of one
or more Originators' Interests also will set forth the information respecting
such Originators' Interests to be provided by the Master Servicer to the
Eligible Lender Trustee for the Eligible Lender Trustee to forward to the
holders of such Originators' Interests. So long as any Note or Certificate is a
"restricted security" within the meaning of Rule 144(a)(3) under the Securities
Act, the Master Servicer shall provide, upon request of a Holder of any such
Note or Certificate and a prospective purchaser designated by such Holder, the
information which is required to be delivered under Rule 144A(d)(4) under the
Securities Act, if at the time of the request the Issuer is not a reporting
company under Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended.
SECTION 5.8. PRE-FUNDING ACCOUNT. (a) On the Closing Date relating
to the Series 199_-_ Notes, the Issuer will deposit in the Pre-Funding Account
$_________ from the net proceeds of the sale of the Series 199_-_ Notes. On each
Transfer Date, the Administrator shall instruct the Indenture Trustee to
withdraw from the Pre-Funding Account an amount equal to ______% of the
principal balance of, plus accrued interest from the Subsequent Cut-off Date to
the Transfer Date on, 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 holder of the Series 199_-_
Certificates, upon satisfaction of the conditions set forth in Section 2.2 with
respect to such transfer.
(b) If (x) the Pre-Funded Amount has not been reduced
to zero on the last day of the Funding Period relating to the
Series 199_-_ Notes (or, if such Funding Period ends prior to such Note
Distribution Date, on the first Note Distribution Date for the Class of Notes
with the earliest Final Maturity Date following the end of the Funding Period)
or (y) the Pre-Funded Amount has been reduced to $100,000
or less on any Note Distribution Date, in either case after giving effect to any
reductions in the Pre-Funded Amount on such Distribution Date pursuant to
paragraph (a) above, the Administrator shall instruct the Indenture Trustee
pursuant to Section 4.7(b) to withdraw from the Pre-Funding Account on the next
Note Distribution Date relating to the Class of Notes with the earliest Final
Maturity Date an amount equal to the Pre-Funded Amount and to distribute such
amount to Noteholders of the Class of Notes with the earliest Final Maturity
Date as a payment of principal in the same manner as the Noteholders' Principal
Distribution Amount is distributed.
SECTION 5.9. CAPITALIZED PRE-FUNDING ACCOUNT. On the Closing Date
relating to the Series 199_-_ Notes, the Administrator shall instruct the
Indenture Trustee to withdraw all amounts on deposit in the Capitalized
Pre-Funding Account and transfer such amounts to the Capitalized Interest
Account.
SECTION 5.10. CAPITALIZED INTEREST ACCOUNT. On the
Closing Date relating to the Series 199_-_ Notes, (i) the Seller
shall deposit $_________ in the Capitalized Interest Account and (ii) the
Administrator shall instruct the Indenture Trustee to deposit in the Capitalized
Interest Account all amounts transferred from the Capitalized Pre-Funding
Account pursuant to Section 5.9. On each Note Distribution Date, for so long as
funds remain therein, the Indenture Trustee shall withdraw from the Capitalized
Interest Account for deposit into the Note Distribution Account an amount up to
the excess, if any, of the Noteholders' Interest Distribution Amount for such
Note Distribution Date over the sum of the amounts transferred to the
Note Distribution Account pursuant to Sections 5.5(a) and 5.9.
Also, on each Certificate Distribution Date, for so long as
funds remain therein, the Indenture Trustee shall withdraw from the Capitalized
Interest Account and transfer to the Eligible Lender Trustee, by wire transfer
no later than 11:00 a.m. New York time, for deposit in the Certificate
Distribution Account an amount up to the excess, if any, of the
Certificateholders' Interest Distribution Amount for such Certificate
Distribution Date over the amount transferred to the Certificate Distribution
Account pursuant to Section 5.5(b). On the last Note Distribution Date occurring
in [__________] for any Series of Notes (after giving effect to all withdrawals
from the Capitalized Interest Account and the Certificate Monthly Advance
Account), the Administrator shall instruct the Indenture Trustee to withdraw any
amounts remaining in the Capitalized Interest Account and transfer such amounts
to the Reserve Account or, with the consent of the Surety Provider, apply such
amounts as Additional Principal Payments.
SECTION 5.11. EXPENSE ACCOUNT. The Administrator shall instruct the
Indenture Trustee to deposit funds into, and withdraw funds from, the Expense
Account as set forth in Sections 5.5 and 5.6. Any funds remaining in the Expense
Account upon termination of the Trust shall be distributed to the Master
Servicer as additional servicing compensation.
SECTION 5.12. NOTE DISTRIBUTION ACCOUNT AND CERTIFICATE DISTRIBUTION
ACCOUNT. The Administrator shall instruct the Indenture Trustee to deposit funds
into, and withdraw funds from, the Note Distribution Account and the Certificate
Distribution Account as set forth in Sections 5.5, 5.6, 5.8,
5.9, 5.10 and 10.1.
SECTION 5.13. MONTHLY ADVANCES. If the Master Servicer has applied
for a Guarantee Payment from a Guarantor or an Interest Subsidy Payment or a
Special Allowance Payment from the Department, and the Master Servicer has not
received the related payment prior to the end of the Collection Period
immediately preceding the Note Distribution Date or Certificate Distribution
Date on which such amount would be required to be distributed as a payment of
interest, TMSI may, no later than the Determination Date relating to such Note
Distribution Date or Certificate Distribution Date, as the case may be, in its
sole discretion, deposit into the Monthly Advance Account an amount up to the
amount of such payments applied for but not received (such deposits by the
Master Servicer are referred to herein as "Monthly Advances"). Such Monthly
Advances are recoverable by the TMSI from the Guarantee Payment, Interest
Subsidy Payment or Special Allowance Payment, as the case may be, for which such
Monthly Advance was made. TMSI 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 TMSI, legal or otherwise, to
make any future Monthly Advances.
ARTICLE VI.
THE SELLER AND THE MASTER SERVICER
SECTION 6.1. REPRESENTATIONS OF SELLER AND MASTER SERVICER. The
Seller and Master Servicer make the following representations on which the
Issuer is deemed to have relied in acquiring (through the Eligible Lender
Trustee) the Financed Student Loans being conveyed pursuant to this Agreement.
The representations speak as of the execution and delivery of this Agreement in
the case of the Initial Financed Student Loans, and
as of the applicable Transfer Date, in the case of the Additional Financed
Student Loans, but shall survive the sale, transfer and assignment of the
Financed Student Loans to the Eligible Lender Trustee on behalf of the Issuer
and the pledge thereof to the Indenture Trustee pursuant to the Indenture.
(a) ORGANIZATION AND GOOD STANDING. Each of the Seller, TMSI and
the Master Servicer is duly incorporated and validly existing as a corporation
in good standing under the laws of the state of its incorporation, with the
power and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted, and had
at all relevant times, and has, the power, authority and legal right, in the
case of the Seller, to originate, acquire and own the Financed Student Loans,
and in the case of the Master Servicer, to service the Financed Student Loans
and hold the Financed Student Loan Files as custodian.
(b) DUE QUALIFICATION. The Master Servicer is duly
qualified to do business and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership and lease of property
or the conduct of its business (including the servicing of the Financed Student
Loans as required by this Agreement) shall require such qualifications.
(c) POWER AND AUTHORITY. Each of the Seller, the Master Servicer
and TMSI has the corporate power and authority to execute and deliver this
Agreement and to carry out its terms; the Seller has full corporate power and
authority to contribute and assign the property to be sold and assigned to and
deposited with the Issuer (or with the Eligible Lender Trustee on behalf of the
Issuer) and the Seller has duly authorized such contribution and assignment to
the Issuer (or to the Eligible Lender Trustee on behalf of the Issuer) by all
necessary corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Seller, the Master Servicer and TMSI
by all necessary corporate action.
(d) BINDING OBLIGATION. This Agreement constitutes a
legal, valid and binding obligation of the Seller, TMSI and the
Master Servicer, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and
similar laws relating to creditors' rights generally or and subject to general
principles of equity.
(e) NO VIOLATION. The consummation of the
transactions contemplated by this Agreement and the fulfillment
of the terms hereof or thereof do not conflict with, result in
any breach of any of the terms and provisions of, nor constitute
(with or without notice or lapse of time or both) a default under, the articles
of incorporation or by-laws of the Seller, TMSI or the Master Servicer, or any
indenture, agreement or other instrument to which the Seller, TMSI or the Master
Servicer is a party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to the Basic
Documents); nor violate any law or, to the knowledge of either the Seller, TMSI
or the Master Servicer, any order, rule or regulation applicable to it of any
court or of any Federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller, TMSI or the
Master Servicer or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending against the Seller, the Master Servicer or TMSI or, to its best
knowledge, threatened against the Seller, the Master Servicer or TMSI, before
any court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over it or its properties: (i) asserting the
invalidity of this Agreement, the Indenture or any of the other Basic Documents,
the Notes or the Certificates, (ii) seeking to prevent the issuance of the Notes
or the Certificates or the consummation of any of the transactions contemplated
by this Agreement, the Indenture or any of the other Basic Documents, (iii)
seeking any determination or ruling that could reasonably be expected to have a
material and adverse effect on the performance by either the Seller, the Master
Servicer or TMSI of its obligations under, or the validity or enforceability of,
this Agreement, the Indenture, any of the other Basic Documents, the Notes or
the Certificates or (iv) seeking to affect adversely the Federal or State income
tax attributes of the Issuer, the Notes or the Certificates.
(g) ALL CONSENTS. All authorizations, consents,
orders or approvals of or registrations or declarations with any
court, regulatory body, administrative agency or other government
instrumentality required to be obtained, effected or given by either the Seller,
TMSI or the Master Servicer in connection with the execution and delivery by
either the Seller, TMSI or the Master Servicer of this Agreement and the
performance by either the Seller, TMSI or the Master Servicer of the
transactions contemplated by this Agreement, have been duly obtained, effected
or given and are in full force and effect.
(h) NO AMENDMENT OR WAIVER. No provision of a Financed Student Loan
has been waived, altered or modified in any respect, except pursuant to a
document, instrument or writing included in the Financed Student Loan File, and
no such amendment, waiver, alteration or modification causes such Financed
Student Loan not to conform to the other warranties contained in this Section
or those of the Seller contained in Section 3.1.
(i) Location of Financed Student Loan Files. The
Financed Student Loan Files are kept in the office of the Master
Servicer specified in, or in accordance with, Section 3.4(b).
SECTION 6.2. EXISTENCE. During the term of this
Agreement, each of the Seller, the Master Servicer and TMSI will
keep in full force and effect its existence, rights and franchises as a
corporation under the laws of the jurisdiction of its organization.
SECTION 6.3. LIABILITY AND INDEMNITIES. (a) Each of the Seller, the
Master Servicer and TMSI shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Seller, the Master
Servicer or TMSI, as the case may be, under this Agreement.
(b) The Seller and TMSI shall jointly and severally indemnify,
defend and hold harmless the Issuer, the Eligible Lender Trustee and the
Indenture Trustee and their officers, directors, employees and agents from and
against any taxes that may at any time be asserted against any such Person with
respect to the transactions contemplated herein (except any such income
taxes arising out of fees paid to the Eligible Lender Trustee
or the Indenture Trustee), including any sales, gross receipts,
general corporation, tangible personal property, privilege or
license taxes and costs and expenses in defending against the same.
(c) The Seller and TMSI shall jointly and severally indemnify,
defend and hold harmless the Issuer, the Eligible Lender Trustee, the Indenture
Trustee, the Certificateholders, the Noteholders and the Surety Provider and the
officers, directors, employees and agents of the Issuer, the Eligible Lender
Trustee, the Indenture Trustee and the Surety Provider from and against any and
all costs, expenses, losses, claims, damages and liabilities arising out of, or
imposed upon such Person through, (i) the Seller's willful misfeasance, bad
faith or negligence in the performance of its duties under this Agreement, or by
reason of reckless disregard of its obligations and duties under this Agreement
and (ii) the Seller's, the Issuer's or the Eligible Lender Trustee's violation
of Federal or state securities laws in connection with the offering and sale
of the Notes and the Certificates.
(d) The Seller and TMSI shall be liable as primary obligors
for, and shall indemnify, defend and hold harmless the Eligible Lender Trustee
and its officers, directors, employees and agents from and against, all costs,
expenses, losses, claims, damages, obligations and liabilities arising out of,
incurred in connection with or relating to the Trust Agreement, the other Basic
Documents, the Trust Estate, the acceptance or performance of the trusts and
duties set forth herein and in the Trust Agreement or the action or the inaction
of the Eligible Lender Trustee hereunder and under the Trust Agreement, except
to the extent that such cost, expense, loss, claim, damage, obligation or
liability: (i) shall be due to the willful misfeasance, bad faith or negligence
(except for errors in judgment) of the Eligible Lender Trustee, (ii) shall arise
from any breach by the Eligible Lender Trustee of its covenants under any of the
Basic Documents; or (iii) shall arise from the breach by the Eligible Lender
Trustee of any of its representations or warranties set forth in Section 7.3 of
the Trust Agreement. In the event of any claim, action or proceeding for which
indemnity will be sought pursuant to this paragraph, the Eligible Lender
Trustee's choice of legal counsel shall be subject to the approval of the
Seller, which approval shall not be unreasonably withheld.
(e) The Seller shall pay any and all taxes levied or assessed
upon all or any part of the Trust Estate (other than those taxes expressly
excluded from the Seller's responsibilities pursuant to the parentheticals in
paragraph (a) above).
(f) Pursuant to Section 6.7 of the Indenture, and subject to
the limitations therein, the Seller and TMSI shall pay reasonable compensation
to the Indenture Trustee and shall reimburse the Indenture Trustee for all
reasonable expenses, disbursements and advances, and indemnify, defend and hold
harmless the Indenture Trustee and its officers, directors, employees and agents
from and against all costs, expenses, losses, claims, damages and liabilities,
to the extent and in the manner provided in the Indenture.
(g) The Master Servicer and TMSI shall indemnify, defend and
hold harmless the Issuer, the Eligible Lender Trustee, the Indenture Trustee,
the Certificateholders, the Noteholders and the Surety Provider and the
officers, directors, employees and agents of the Issuer, the Eligible Lender
Trustee, the Indenture Trustee and the Surety Provider from and against any and
all costs, expenses, losses, claims, damages and liabilities arising out of, or
imposed upon such Person through, the Master Servicer's or TMSI's willful
misfeasance, bad faith or negligence in the performance of its duties under this
Agreement. Notwithstanding the foregoing, if the Master Servicer or TMSI is
rendered unable, in whole or part, by a force outside the control of the parties
hereto (including acts of God, acts of war, fires, earthquakes and other
disasters) to satisfy its obligations under this Agreement, the Master Servicer
and TMSI shall not be deemed to have breached any such obligation upon delivery
of written notice of such event to the other parties hereto, for so long as
the Master Servicer or TMSI remains unable to perform such obligation as a
result of such event.
(h) Indemnification under this Section shall survive
the resignation or removal of the Eligible Lender Trustee or the
Indenture Trustee and the termination of this Agreement or the Indenture or the
Trust Agreement, as applicable, and shall include reasonable fees and expenses
of counsel and expenses of litigation. If the Seller, TMSI or the Master
Servicer, as the case may be, shall have made any indemnity payments pursuant to
this Section and the Person to or on behalf of whom such payments are made
thereafter shall collect any of such amounts from others, such Person shall
promptly repay such amounts to the Seller, TMSI or the Master Servicer, as the
case may be without interest.
SECTION 6.4. [Reserved]
SECTION 6.5. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SELLER, THE ADMINISTRATOR OR THE MASTER SERVICER. Any Person
(a) into which the Seller, the Administrator or the Master Servicer, as the case
may be, may be merged or consolidated, (b) which may result from any merger or
consolidation to which the Seller, the Administrator or the
Master Servicer, as the case may be, shall be a party or (c) which may succeed
to the properties and assets of the Seller, the Administrator or the Master
Servicer, as the case may be, substantially as a whole, shall be the successor
to the Seller, the Administrator or the Master Servicer, as the case may be,
without the execution or filing of any document or any further act by any of the
parties to this Agreement; PROVIDED, HOWEVER, that each of the Seller, the
Administrator and the Master Servicer hereby covenants that it will not
consummate any of the foregoing transactions except upon satisfaction of the
following: (i) the surviving Seller, Administrator or Master Servicer, as the
case may be, if other than Trans-World Insurance Company, executes an agreement
of assumption to perform every obligation of the Seller, the Administrator or
the Master Servicer, as the case may be, under this Agreement, (ii) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.1 or 6.1 shall have been breached, (iii) the Seller, the
Administrator or the Master Servicer, as the case may be, shall have delivered
to the Eligible Lender Trustee, the Surety Provider and the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this Section and that all conditions precedent, if any, provided for in this
Agreement relating to such transaction have been complied with, and that the
Rating Agency Condition shall have been satisfied with respect to such
transaction, (iv) the surviving Seller, Administrator or Master Servicer, as the
case may be, shall have a consolidated net worth at least equal to that of the
predecessor Seller, Administrator or Master Servicer as of the date hereof, as
the case may be, (v) such transaction will not result in a material adverse
Federal or state tax consequence to the Issuer, the Noteholders or the
Certificateholders and (vi) unless Trans-World Insurance Company
is the surviving entity, the Seller, the Administrator or the
Master Servicer, as the case may be, shall have delivered to the
Eligible Lender Trustee, the Surety Provider and the Indenture Trustee an
Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary fully to
preserve and protect the interest of the Eligible Lender Trustee and Indenture
Trustee, respectively, in the Financed Student Loans and reciting the details of
such filings, or (B) stating that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interests.
SECTION 6.6. LIMITATION ON LIABILITY OF SELLER, MASTER
SERVICER AND OTHERS. (a) The Seller, the Master Servicer and
any director or officer or employee or agent of either may rely
in good faith on the advice of counsel or on any document of any
kind, prima facie properly executed and submitted by any Person respecting any
matters arising hereunder.
(b) Neither the Seller, the Master Servicer nor any of its
directors, officers, employees or agents shall be under any liability to the
Issuer, the Surety Provider, the Noteholders or the Certificateholders, the
Indenture Trustee or the Eligible Lender Trustee except as provided under this
Agreement for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment; PROVIDED, HOWEVER, that
this provision shall not protect the Seller or Master Servicer or any such
person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under this Agreement.
Except as provided in this Agreement, the Seller and the
Master Servicer shall not be under any obligation to appear in, prosecute or
defend any legal action that shall not be incidental to its duties in accordance
with this Agreement, and that in its opinion may involve it in any expense or
liability; PROVIDED, HOWEVER, that the Seller or the Master Servicer may
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement and the other Basic Documents and the rights and
duties of the parties to this Agreement and the other Basic Documents and the
interests of the Certificateholders and the Surety Provider under this Agreement
and the Noteholders under the Indenture.
SECTION 6.7. SELLER MAY OWN CERTIFICATE OR NOTES. The Seller and
any Affiliate thereof may in its individual or any other capacity become the
owner or pledgee of Certificates or Notes with the same rights as it would have
if it were not the Seller or an Affiliate thereof, except as expressly provided
herein or in any other Basic Document.
SECTION 6.8 MASTER SERVICER NOT TO RESIGN. Subject to the
provisions of Section 6.5, Trans-World Insurance Company shall not resign from
the obligations and duties imposed on it as Master Servicer under this
Agreement except upon determination that the performance of its duties under
this Agreement shall no longer be permissible under applicable law
or shall violate any final order of a court or administrative
agency with jurisdiction over it or its properties. Notice of
any such determination permitting resignation shall be
communicated to the Eligible Lender Trustee, the Indenture
Trustee and the Surety Provider at the earliest practicable
time (and, if such communication is not in writing, shall be
confirmed in writing at the earliest practicable time) and any
such determination shall be evidenced by an Opinion of Counsel
to such effect delivered to the Eligible Lender Trustee, the
Indenture Trustee and the Surety Provider concurrently with or
promptly after such notice. No such resignation shall become
effective until the Indenture Trustee or a successor Master
Servicer shall have assumed the responsibilities and
obligations of Trans-World Insurance Company in accordance with
Section 8.2.
ARTICLE VII.
THE ADMINISTRATOR
SECTION 7.1. REPRESENTATIONS OF THE ADMINISTRATOR. The
Administrator makes the following representations on which the Issuer is deemed
to have relied in acquiring (through the Eligible Lender Trustee) the Financed
Student Loans being conveyed pursuant to this Agreement. The representations
speak as of the execution and delivery of this Agreement in the case of the
Initial Financed Student Loans, and as of the applicable
Transfer Date, in the case of the Additional Financed Student Loans, but shall
survive the sale, transfer and assignment of the Financed Student Loans to the
Eligible Lender Trustee on behalf of the Issuer and the pledge thereof to the
Indenture Trustee pursuant to the Indenture.
(a) ORGANIZATION AND GOOD STANDING. The Administrator is duly
incorporated and validly existing as a corporation in good standing under the
laws of the state of its incorporation, with the power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the power, authority and legal right, to administer the Financed Student
Loans.
(b) POWER AND AUTHORITY OF THE ADMINISTRATOR. The
Administrator has the corporate power and authority to execute
and deliver this Agreement and the Administration Agreement and
to carry out their respective terms; and the execution, delivery
and performance of this Agreement and the Administration Agreement have been
duly authorized by the Administrator by all necessary corporate action.
(c) BINDING OBLIGATION. This Agreement and the Administration
Agreement each constitutes a legal, valid and binding obligation of the
Administrator, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and similar laws relating to creditors'
rights generally or and subject to general principles
of equity.
(d) NO VIOLATION. The consummation of the
transactions contemplated by this Agreement and the
Administration Agreement and the fulfillment of the terms hereof
or thereof do not conflict with, result in any breach of any of
the terms and provisions of, nor constitute (with or without
notice of lapse of time or both) a default under, the articles of incorporation
or by-laws of the Administrator, or any indenture, agreement or other instrument
to which the Administrator is a party or by which it shall be bound; nor result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); nor violate any law or, to the knowledge of
the Administrator, any order, rule or regulation applicable to it of any court
or of any Federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Administrator or its
properties.
(e) NO PROCEEDINGS. There are no proceedings or
investigations pending against the Administrator or, to its best
knowledge, threatened against the Administrator, before any court, regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over it or its properties: (i) asserting the invalidity of this
Agreement or the Administration Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or the
Administration Agreement or (iii) seeking any determination or ruling that could
reasonably be expected to have a material and adverse effect on the performance
by the Administrator of its obligations under, or the validity or enforceability
of, this Agreement or the Administration Agreement.
(f) ALL CONSENTS. All authorizations, consents,
orders or approvals of or registrations or declarations with
any court, regulatory body, administrative agency or other government
instrumentality required to be obtained, effected or given by the Administrator
in connection with the execution and delivery by the Administrator of this
Agreement or the Administration Agreement and the performance by the
Administrator of the transactions contemplated by this Agreement or the
Administration Agreement, have been duly obtained, effected or given and are in
full force and effect.
SECTION 7.2. LIABILITY AND INDEMNITIES. (a) The
Administrator shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Administrator under
this Agreement or the Administration Agreement.
(b) The Administrator and TMSI shall indemnify, defend and
hold harmless from their respective funds, the Issuer, the Eligible Lender
Trustee, the Indenture Trustee, the Master Servicer, the Certificateholders, the
Noteholders and the Surety Provider and the officers, directors, employees and
agents of the Issuer, the Eligible Lender Trustee, the Indenture Trustee and the
Surety Provider from and against any and all costs, expenses, losses, claims,
damages and liabilities arising out of, or imposed upon such Person through, the
Administrator's willful misfeasance, bad faith or negligence in the performance
of its duties under this Agreement or the Administration Agreement, or by reason
of reckless disregard of its obligations and duties under this Agreement or the
Administration Agreement.
(c) Indemnification under this Section shall survive
the resignation or removal of the Eligible Lender Trustee or the
Indenture Trustee and the termination of this Agreement or the Indenture or the
Trust Agreement, as applicable, and shall include reasonable fees and expenses
of counsel and expenses of litigation. If the Administrator shall have made any
indemnity payments pursuant to this Section and the Person to or on behalf
of whom such payments are made thereafter shall collect any of such amounts
from others, such Person shall promptly repay such amounts to the Administrator
without interest.
SECTION 7.3. ADMINISTRATOR NOT TO RESIGN. Subject to the provisions
of Section 6.5, Trans-World Insurance Company shall not resign from the
obligations and duties imposed on it as Administrator under this Agreement
except upon determination that the performance of its duties under this
Agreement shall no longer be permissible under applicable law or shall violate
any final order of a court or administrative agency with jurisdiction over it or
its properties. Notice of any such determination permitting resignation shall be
communicated to the Eligible Lender Trustee, the Indenture Trustee and the
Surety Provider at the earliest practicable time (and, if such communication is
not in writing, shall be confirmed in writing at the earliest practicable time)
and any such determination shall be evidenced by an Opinion of Counsel to such
effect delivered to the Eligible Lender Trustee, the Indenture Trustee and the
Surety Provider concurrently with or promptly after such notice. No such
resignation shall become effective until the Indenture Trustee or a successor
Administrator shall have assumed the responsibilities and obligations of
Trans-World Insurance Company in accordance with Section 8.2.
ARTICLE VIII.
DEFAULT
SECTION 8.1. MASTER SERVICER DEFAULT; ADMINISTRATOR
DEFAULT. (a) If any one of the following events (a "Master
Servicer Default") shall occur and be continuing:
(1) any failure by the Master Servicer (i) to deliver
to the Indenture Trustee for deposit in any of the Trust
Accounts any payment required by the Basic Documents or (ii) in the
event that daily deposits into the Collection Account are not required,
to deliver to the Administrator any payment, required by the Basic
Documents, which failure in case of either clause (i) or (ii) continues
unremedied for two Business Days after written notice of such failure
is received by the Master Servicer from the Eligible Lender Trustee,
the Indenture Trustee, the Surety Provider or the Administrator or
after discovery of such failure by an officer of the Master Servicer;
or
(2) any failure by the Master Servicer or TMSI duly
to observe or to perform in any material respect any other
covenants or agreements of the Master Servicer or TMSI set forth in
this Agreement or any other Basic Document, which failure shall (i)
materially and adversely affect the rights of Noteholders,
Certificateholders or the Surety Provider and
(ii) continues unremedied for a period of 60 days after the date on
which written notice of such failure, requiring the same to be
remedied, shall have been given (A) to the Master Servicer or TMSI, as
the case may be, by the Indenture Trustee, the Eligible Lender Trustee,
the Surety Provider or the Administrator or (B) to the Master Servicer
or TMSI, as the case may be, and to the Indenture Trustee and the
Eligible Lender Trustee by the Noteholders or Certificateholders, as
applicable, representing not less than 25% of the Outstanding Amount of
the Notes or 25% of the outstanding Certificate Balance; or
(3) an Insolvency Event occurs with respect to the
Master Servicer;
then, and in each and every case, so long as the Master Servicer Default shall
not have been remedied, either the Surety Provider or, with the written consent
of the Surety Provider, the Indenture Trustee or the Noteholders of Notes
evidencing not less than 25% of the Outstanding Amount of the Notes, by notice
then given in writing to the Master Servicer (and to the Indenture Trustee and
the Eligible Lender Trustee if given by the Noteholders or the Surety Provider)
may terminate all the rights and obligations (other than the obligations set
forth in Section 6.3 hereof) of the Master Servicer under this Agreement. On or
after the receipt by the Master Servicer of such written notice, all authority
and power of the Master Servicer under this Agreement, whether with respect to
the Notes, the Certificates or the Financed Student Loans or otherwise, shall,
without further action, pass to and be vested in the Indenture Trustee or such
successor Master Servicer as may be appointed under Section 8.2, and, without
limitation, the Indenture Trustee and the Eligible Lender Trustee are hereby
authorized, obligated and empowered to execute and deliver, for the benefit of
the predecessor Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Financed
Student Loans and related documents, or otherwise. The predecessor Master
Servicer shall cooperate with the successor Master Servicer, the Indenture
Trustee and the Eligible Lender Trustee in effecting the termination of the
responsibilities and rights of the predecessor Master Servicer under this
Agreement, including the transfer to the successor Master Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Master Servicer for deposit, or shall thereafter be received by it
with respect to a Financed Student Loan. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring the
Financed Student Loan Files from a current Master Servicer to the successor
Master Servicer and amending this Agreement and any other Basic Documents to
reflect such succession as Master Servicer pursuant to this Section shall be
paid by the predecessor Master Servicer upon presentation of reasonable
documentation of such costs and expenses. Upon receipt of notice of the
occurrence of a Master Servicer Default, the Eligible Lender Trustee shall give
notice thereof to the Surety Provider and the Rating Agencies.
(b) ADMINISTRATOR DEFAULT. If any one of the following events
(an "Administrator Default") shall occur and be continuing:
(1) any failure by the Administrator to direct the Indenture
Trustee or the Eligible Lender Trustee, as applicable, to make any
required distributions from any of the Trust Accounts, which failure
continues unremedied for two Business Days after written notice of such
failure is received by the Administrator from the Indenture Trustee,
the Eligible Lender Trustee or the Surety Provider or after
discovery of such failure by an officer of the
Administrator; or
(2) any failure by the Administrator duly to observe or to
perform in any material respect any other covenants or agreements of
the Administrator set forth in this Agreement, the Administration
Agreement or any other Basic Document, which failure shall (i)
materially and adversely affect the rights of Noteholders,
Certificateholders, or the Surety Provider and (ii) continues
unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given (A) to the Administrator by the Surety Provider, the
Indenture Trustee or the Eligible Lender Trustee or (B) to the
Administrator and to the Indenture Trustee and the Eligible Lender
Trustee by the Noteholders or Certificateholders, as applicable,
representing not less than 25% of the Outstanding Amount of the Notes
or 25% of the outstanding Certificate Balance; or
(3) an Insolvency Event occurs with respect to the
Administrator;
then, and in each and every case, so long as the Administrator Default shall not
have been remedied, either the Surety Provider
or, with the written consent of the Surety Provider, the Indenture Trustee or
the Noteholders evidencing not less than 25% of the Outstanding Amount of the
Notes, by notice then given in writing to the Administrator (and to the
Indenture Trustee and the Eligible Lender Trustee if given by the Noteholders or
the Surety Provider) may terminate all the rights and obligations (other than
the obligations set forth in Sections 6.3 and 7.2 hereof) of the Administrator
under this Agreement and the Administration Agreement. On or after the receipt
by the Administrator of such written notice, all authority and power of the
Administrator under this Agreement and the Administration Agreement, whether
with respect to the Notes, the Certificates or the Financed Student Loans or
otherwise, shall, without further action, pass to and be vested in the Indenture
Trustee or such successor Administrator as may be appointed under Section 8.2;
and, without limitation, the Indenture Trustee and the Eligible Lender Trustee
are hereby authorized and empowered to execute and deliver, for the benefit of
the predecessor Administrator, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination. The predecessor Administrator shall cooperate with
the successor Administrator, the Indenture Trustee and the Eligible Lender
Trustee in effecting the termination of the responsibilities and rights of the
predecessor Administrator under this Agreement and the Administration Agreement.
All reasonable costs and expenses (including attorneys' fees) incurred in
connection with amending this Agreement and the Administration Agreement to
reflect such succession as Administrator pursuant to this Section shall be paid
by the predecessor Administrator upon presentation of reasonable documentation
of such costs and expenses. Upon receipt of notice of the occurrence of a
Administrator Default, the Eligible Lender Trustee shall give notice thereof to
the Surety Provider and the Rating Agencies.
SECTION 8.2. APPOINTMENT OF SUCCESSOR. (a) Upon
receipt by the Master Servicer or the Administrator, as the case
may be, of notice of termination pursuant to Section 8.1, or the resignation by
the Master Servicer or the Administrator, as the case may be, in accordance with
the terms of this Agreement, the predecessor Master Servicer or the
Administrator, as the case may be, shall continue to perform its functions as
Master Servicer or Administrator, as the case may be, under this Agreement in
the case of termination, only until the date specified in such termination
notice or, if no such date is specified in a notice of termination, until
receipt of such notice and, in the case of resignation, until the later of (x)
the date 120 days from the delivery to the Eligible Lender Trustee and the
Indenture Trustee of written notice of such resignation (or written confirmation
of such notice) in accordance with the terms of this Agreement and (y) the date
upon which the predecessor Master Servicer or Administrator, as the case may be,
shall become unable to act as Master Servicer or Administrator, as the case may
be, as specified in the notice of resignation and accompanying Opinion of
Counsel. In the event of the termination hereunder of the Master Servicer or
the Administrator, as the case may be, the Issuer shall appoint a successor
Master Servicer or Administrator, as the case may be, acceptable to the
Indenture Trustee and reasonably acceptable to the Surety Provider, and the
successor Master Servicer or Administrator, as the case may be, shall accept
its appointment by a written assumption in form acceptable to the Indenture
Trustee and the Surety Provider. In the event that a successor Master Servicer
or Administrator, as the case may be, has not been appointed at the time when
the predecessor Master Servicer or Administrator, as the case may be, has
ceased to act as Master Servicer or Administrator, as the case may be, in
accordance with this Section, the Indenture Trustee without further action shall
automatically be appointed the successor Master Servicer or Administrator, as
the case may be, and the Indenture Trustee shall be entitled to the Master
Servicing Fee and any Servicing Fee Carryover or the Administration Fee, as the
case may be in accordance with the provisions of the Basic Documents.
Notwithstanding the above, the Indenture Trustee shall, if it shall be unwilling
or legally unable so to act, appoint or petition a court of competent
jurisdiction to appoint, any established institution whose regular business
shall include the servicing of student loans, as the successor to the Master
Servicer or Administrator, as the case may be, under this Agreement;
PROVIDED, HOWEVER, that such right to appoint
or to petition for the appointment of any such successor servicer shall in no
event relieve the Indenture Trustee from any obligations otherwise imposed on it
under the Basic Documents until such successor has in fact assumed such
appointment.
(b) Upon appointment, the successor Master Servicer or
Administrator, as the case may be, (including the Indenture Trustee acting as
successor Master Servicer or Administrator as the case may be), shall be the
successor in all respects to the predecessor Master Servicer or Administrator,
as the case may be, and shall be subject to all the responsibilities, duties and
liabilities arising thereafter relating thereto placed on the predecessor Master
Servicer or Administrator, as the case may be, and shall be entitled to an
amount agreed to by such successor Master Servicer or Administrator as the case
may be, in accordance with the provisions of the Basic Documents (which
shall not exceed the Master Servicing Fee and any Servicing Fee
Carryover or Administration Fee, as the case may be, unless
such compensation arrangements are approved in writing by the Surety Provider
and will not result in a downgrading of the Notes or the Certificates by any
Rating Agency) and all the rights granted to the predecessor Master Servicer or
Administrator, as the case may be, by the terms and provisions of this
Agreement.
(c) Neither the Master Servicer nor the Administrator
may resign unless it is prohibited from serving as such by law
as evidenced by an Opinion of Counsel to such effect delivered to the Indenture
Trustee, the Eligible Lender Trustee and the Surety Provider. Notwithstanding
the foregoing or anything to the contrary herein or in the other Basic
Documents, the Indenture Trustee, to the extent it is acting as successor Master
Servicer or Administrator, as the case may be, pursuant hereto shall be entitled
to resign to the extent a qualified successor Master Servicer or Administrator,
as the case may be, has been appointed and has assumed all the obligations of
the Master Servicer or Administrator, as the case may be, in accordance with the
terms of this Agreement and the other Basic Documents.
(d) Any successor Master Servicer shall assume all the
obligations and responsibilities of the Master Servicer under each sub-servicing
agreement with a Servicer and shall only be able to modify or terminate such
sub-servicing agreements pursuant to the provisions thereof.
SECTION 8.3. NOTIFICATION TO NOTEHOLDERS AND CERTIFICATEHOLDERS.
Upon any termination of, or appointment of a successor to, the Master Servicer
or Administrator, as the case may be, pursuant to this Article VIII, the
Eligible Lender
Trustee shall give prompt written notice thereof to Certificateholders and the
Indenture Trustee shall give prompt written notice thereof to Noteholders, the
Surety Provider and the Rating Agencies (which, in the case of any such
appointment of a successor, shall consist of prior written notice thereof to
the Surety Provider and the Rating Agencies).
SECTION 8.4. WAIVER OF PAST DEFAULTS. The Surety Provider may or,
with the prior written consent of the Surety Provider, the Noteholders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes (or
the Certificateholders of Certificates evidencing not less than a majority of
the outstanding Certificate Balance, in the case of any default which does not
adversely affect the Indenture Trustee or the Noteholders) may, on behalf of all
Noteholders and Certificateholders, waive in writing any default by the Master
Servicer or Administrator, as the case may be, in the performance of its
obligations hereunder and any consequences thereof, except a default in making
any required deposits to or payments from any of the Trust Accounts (or giving
instructions regarding the same) in accordance with this Agreement. Upon any
such waiver of a past default, such default shall cease to exist, and any Master
Servicer Default or Administrator Default, as the case may be, arising therefrom
shall be deemed to have been remedied for every purpose of this Agreement. No
such waiver shall extend to any subsequent or other default or impair any right
consequent thereto.
ARTICLE IX.
TERMINATION
SECTION 9.1. TERMINATION. (a) OPTIONAL PURCHASE OF ALL
FINANCED STUDENT LOANS. As of the last day of any Collection
Period immediately preceding a Note Distribution Date or, if the
Notes are no longer Outstanding, a Certificate Distribution Date as of which
the then outstanding Pool Balance is 10% or less of the Aggregate Pool Balance,
the Seller shall have the option, with the prior written consent of the Surety
Provider, to purchase the Indenture Trust Estate, other than the Trust Accounts;
PROVIDED, HOWEVER, that, unless Moody's agrees otherwise, the Seller may not
effect any such purchase so long as the rating on its long-term debt obligations
is less than Baa3 by Moody's, unless the Eligible Lender Trustee and the
Indenture Trustee shall have received an Opinion of Counsel to the effect that
such purchase would not constitute a fraudulent conveyance. To exercise such
option, the Seller shall deposit pursuant to Section 5.4 in the Collection
Account an amount equal to the aggregate Purchase Amount for the Financed
Student Loans and the related rights with respect thereto, plus the appraised
value of any such other property held by the Trust, such value to be determined
by an appraiser mutually agreed upon by the Seller, the Eligible Lender Trustee
and the Indenture Trustee, and shall succeed to all interests in and to the
Trust; PROVIDED, HOWEVER, that the Seller may not effect such purchase if the
aggregate Purchase Amount to be so deposited in the Collection Account does not
equal or exceed an amount equal to the sum of (x) the unpaid principal balance
of the Notes plus accrued and unpaid interest thereon at the related Class
Interest Rate to the last day of the Collection Period during which such
purchase occurs and the amount of unpaid Noteholders' Interest Carryover with
respect thereto, (y) the unpaid Certificate Balance, plus accrued and unpaid
interest thereon at the related Certificate Rate to the last day of the
Collection Period during which such purchase occurs and the amount of unpaid
Certificateholders' Interest Carryover with respect thereto, and (z) the unpaid
Transaction Fees, if any.
(b) INSOLVENCY OF TMS STUDENT HOLDINGS, INC. Upon any sale of
the assets of the Trust pursuant to Section 9.2 of the Trust Agreement, the
Master Servicer shall instruct the Indenture Trustee to deposit the net proceeds
from such sale after all payments and reserves therefrom (including the expenses
of such sale) have been made (the "Insolvency Proceeds") in the Collection
Account. On the applicable Note Distribution Date or Certificate Distribution
Date, or, if such proceeds are not so deposited on a Note Distribution Date or
Certificate Distribution Date, on the first applicable Note Distribution Date or
Certificate Distribution Date following the date on which the Insolvency
Proceeds are deposited in the Collection Account, the Master Servicer shall
instruct the Indenture Trustee to make the following distributions (after the
application on such Note Distribution Date or Certificate Distribution Date of
the amount of Available Funds and amounts on deposit in the Reserve Account
pursuant to Sections 5.5 and 5.6) from the Insolvency Proceeds and any funds
remaining on deposit in the Reserve Account (including the proceeds of any sale
of investments therein as described in the following sentence):
(i) to the Noteholders, any portion of the Noteholders'
Interest Distribution Amount not otherwise distributed to
the Noteholders on such Note Distribution Date;
(ii) to the Noteholders, the outstanding principal amount
of the Notes (after giving effect to the reduction in the outstanding
principal amount of the Notes to result from the distributions to
Noteholders on such Note Distribution Date and on prior Note
Distribution Dates);
(iii) to the Certificateholders, any portion of the
Certificateholders' Interest Distribution Amount not
otherwise distributed to the Certificateholders on such
Certificate Distribution Date;
(iv) to the Certificateholders, the Certificate Balance
after giving effect to the reduction in the Certificate Balance to
result from the distributions to Certificateholders on such
Certificate Distribution Date);
(v) to the Indenture Trustee, any unpaid Indenture Trustee
Fees and other amounts owed the Indenture Trustee hereunder or under
any other Transaction Document and not otherwise paid on such Note
Distribution Date or Certificate Distribution Date;
(vi) to the Surety Provider, an amount equal to all
unreimbursed Certificate Surety Bond Payments and Note Surety Bond
Payments made on prior Note Distribution Dates and Certificate
Distribution Dates not otherwise reimbursed on such Note Distribution
Date or Certificate Distribution Date, together with accrued interest
thereon at the rate set forth in the Insurance Agreement and unpaid
premiums;
(vii) to the Master Servicer, any unpaid Servicing Fee
Carryovers not otherwise paid on such Note Distribution
Date or Certificate Distribution Date;
(viii) to the Noteholders, any unpaid Noteholders' Auction
Rate Interest Carryover or Noteholders' LIBOR Rate Interest Carryover
not otherwise distributed to the Noteholders on such Note Distribution
Date; and
(ix) to the Certificateholders, any unpaid
Certificateholders' Auction Rate Interest Carryover or
Certificateholders' LIBOR Rate Interest Carryover not otherwise
distributed to the Certificateholders on such Certificate Distribution
Date.
Any investments on deposit in the Reserve Account which will not mature on or
before the Note Distribution Date or Certificate
Distribution Date when needed shall be sold by the Indenture Trustee at such
time as will result in the Indenture Trustee receiving the proceeds from such
sale not later than the Business Day preceding such Note Distribution Date or
Certificate Distribution Date. Any Insolvency Proceeds remaining after the
deposits described above shall be paid (i) first, to the holders of Originators'
Interests any unpaid amounts due to them pursuant to the terms of the related
Trust Supplement and (ii) then to the Seller.
(c) NOTICE. As described in Article IX of the Trust
Agreement, notice of any termination of the Trust shall be given
by the Administrator to the Master Servicer, the Eligible Lender Trustee, the
Indenture Trustee and the Surety Provider as soon as practicable after the
Administrator has received notice thereof.
(d) SUCCESSION. Following the satisfaction and discharge of
the Indenture and the payment in full of the principal of and interest on the
Notes, the Certificateholders will succeed to the rights of the Noteholders
hereunder other than Section 5.6(b) and the Eligible Lender Trustee will succeed
to the rights of, and assume the obligations of, the Indenture Trustee pursuant
to this Agreement and any other Basic Documents. Following the payment in full
of the principal of and interest on the Certificates by the Surety Provider
pursuant to the Surety Bond, the Surety Provider (or its assignee) will succeed
to the rights of the Certificateholders.
ARTICLE X.
SURETY BONDS
SECTION 10.1 SURETY BONDS. (a) If for any Note Distribution Date
for a Class of Notes, a Note Surety Bond Payment is required to be made under
the terms of the related Note Surety Bond, the Indenture Trustee shall submit
the notice in the form of Attachment I to the applicable Note Surety Bond in
accordance with the terms and conditions of such Note Surety Bond in the amount
of such Note Surety Bond Payment to the Surety Provider and, if one has been
designated, to the fiscal agent for the Surety Provider no later than 12:00
noon, New York City time, on the Business Day prior to such Note Distribution
Date. Upon receipt of payment from the Surety Provider in accordance with the
terms of the applicable Note Surety Bond, the Eligible Lender Trustee shall
deposit such amount into the Note Distribution Account for distribution solely
to Noteholders of the applicable Class.
(b) If for any Certificate Distribution Date for a Class of
Certificates, a Certificate Surety Bond Payment is required to be made under the
terms of the related Certificate Surety Bond, the Eligible Lender Trustee shall
submit the notice in the form of Attachment I to the applicable Certificate
Surety Bond in accordance with the terms and conditions of such
Certificate Surety Bond in the amount of such Certificate Surety Bond Payment
to the Surety Provider and, if one has been designated, to the fiscal agent for
the Surety Provider no later than 12:00 noon, New York City time, on the
Business Day prior to such Certificate Distribution Date. Upon receipt of
payment from the Surety Provider in accordance with the terms of the applicable
Certificate Surety Bond, the Eligible Lender Trustee shall deposit such amount
into the Certificate Distribution Account for distribution solely to
Certificateholders of the applicable Class.
SECTION 10.2. FURTHER ASSURANCES; SURETY PROVIDER DEFAULT; ETC. (a)
The Eligible Lender Trustee, the Seller and the Master Servicer acknowledge, and
each Certificateholder by its acceptance of a Certificate and each Noteholder by
its acceptance of a Note agrees, anything herein to the contrary
notwithstanding, that any payment with respect to principal of or interest on
the Certificates which is made with moneys received pursuant to the terms of a
Certificate Surety Bond, and any payment with respect to principal of or
interest on the Notes which is made with moneys received pursuant to the terms
of a Note Surety Bond, shall not be considered payment of the Certificates, or
the Notes, as the case may be, from the Trust Estate and the Surety Provider
shall be paid such principal and interest but only from the sources and in the
manner provided herein and in the Insurance Agreement for the reimbursement to
the Surety Provider of such principal and interest.
(b) Each of the Eligible Lender Trustee, the Seller
and the Master Servicer shall cooperate in all respects with any
reasonable request by the Surety Provider for action to preserve or enforce the
Surety Provider's rights and interests under this Agreement. In addition, each
such party agrees to forward to the Master Servicer, who shall deliver to the
Surety Provider, a copy of all written communications received by each such
party from the Eligible Lender Trustee, from 25% or more of the
Certificateholders or from either Rating Agency.
(c) Notwithstanding anything to the contrary contained in this
Agreement, if a Surety Provider Default exists, the provisions of this Agreement
which (i) permit the Surety Provider to exercise rights of the
Certificateholders or the Noteholders, (ii) restrict the ability of the
Certificateholders, the Noteholders, the Master Servicer, the Indenture Trustee
or the Eligible Lender Trustee to act without the consent or approval of the
Surety Provider, (iii) provide that a particular act or thing must be acceptable
to the Surety Provider, (iv) permit the Surety Provider to direct (or otherwise
require) the actions of the Eligible Lender Trustee, the Indenture Trustee, the
Master Servicer, the Noteholders or the Certificateholders, (v) provide that any
action or omission taken with the consent, approval or authorization of the
Surety Provider shall be authorized hereunder or shall not subject the party
taking or omitting to take such action to any liability hereunder or (vi) which
have a similar effect shall be of no further force and effect, and the Eligible
Lender Trustee, the Indenture Trustee and the Administrator shall administer the
Issuer and perform its obligations hereunder solely for the benefit of the
Noteholders and the Certificateholders. Nothing in the foregoing sentence, nor
any action taken pursuant thereto or in compliance therewith, shall be deemed to
have released the Surety Provider from any obligation or liability it may have
to any party or to the Noteholders or the Certificateholders hereunder, under
any other agreement, instrument or document (including the Surety Bonds) or
under applicable law.
ARTICLE XI.
MISCELLANEOUS
SECTION 11.1 AMENDMENT. (a) This Agreement may be amended by the
Seller, the Master Servicer and the Eligible Lender Trustee, with the consent of
the Indenture Trustee and the Surety Provider (which consent shall not be
unreasonably withheld), but without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders, the Certificateholders
or the Surety Provider; PROVIDED, HOWEVER, that such action shall not, as
evidenced by an Opinion of Counsel delivered to the Eligible Lender Trustee, the
Surety Provider and the Indenture Trustee, adversely affect in any material
respect the interests of any Noteholder, Certificateholder or the Surety
Provider.
(b) This Agreement may also be amended from time to time by
the Seller, the Master Servicer and the Eligible Lender Trustee, with the
consent of the Indenture Trustee and the Surety Provider, the consent of the
Noteholders of Notes evidencing not less than a majority of the Outstanding
Amount of the Notes and the consent of the Certificateholders of Certificates
evidencing not less than a majority of the Certificate Balance, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; PROVIDED, HOWEVER, that no such amendment
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments with respect to Financed Student Loans or
distributions that shall be required to be made for the benefit of the
Noteholders or the Certificateholders or (b) reduce the aforesaid percentage of
the Outstanding Amount of the Notes and the Certificate Balance, the Noteholders
or the Certificateholders of which are required to consent to any such
amendment, without the consent of all outstanding Noteholders and
Certificateholders.
(c) Promptly after the execution of any amendment pursuant to
clause (b) above (or, in the case of the Rating Agencies, five Business Days
prior thereto), the Eligible Lender Trustee shall furnish written notification
of the substance of such amendment or consent to each Certificateholder, the
Indenture Trustee, the Surety Provider and each of the Rating Agencies.
(d) It shall not be necessary for the consent of
Certificateholders or Noteholders pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof.
(e) Prior to the execution of any amendment to this
Agreement, the Eligible Lender Trustee and the Indenture Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement and
the Opinion of Counsel referred to in Section 11.2(i)(1). The Eligible Lender
Trustee and the Indenture Trustee may, but shall not be obligated to, enter into
any such amendment which affects the Eligible Lender Trustee's or the Indenture
Trustee's, as applicable, own rights, duties or immunities under this Agreement
or otherwise.
SECTION 11.22. PROTECTION OF INTERESTS IN TRUST. (a) The Seller shall
execute and file such financing statements and cause to be executed and filed
such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain, and protect the interest of the Issuer, the Eligible Lender Trustee
and the Indenture Trustee in the Financed Student Loans and in the proceeds
thereof. The Seller shall deliver (or cause to be delivered) to the Eligible
Lender Trustee and the Indenture Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.
(b) Neither the Seller nor the Master Servicer shall change
its name, identity or corporate structure in any manner that would, could or
might make any financing statement or continuation statement filed in accordance
with paragraph (a) above seriously misleading within the meaning of Section
9-402(7) of the UCC, unless it shall have given the Eligible Lender Trustee and
the Indenture Trustee at least five days' prior written notice thereof and shall
have promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) Each of the Seller and the Master Servicer shall have an
obligation to give the Eligible Lender Trustee and the Indenture Trustee at
least 60 days' prior written notice of any relocation of its principal executive
office if, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and shall promptly file
any such amendment. The Master Servicer shall at all times maintain each office
from which it shall service Financed Student Loans, and its principal executive
office, within the United States of America.
(d) The Master Servicer shall maintain accounts and records as
to each Financed Student Loan it is servicing (or provide access to such
accounts and records being serviced by a subservicer) accurately and in
sufficient detail to permit (i) the reader thereof to know at any time the
status of such Financed Student Loan, including payments and recoveries made and
payments owing (and the nature of each) and (ii) reconciliation between payments
or recoveries on (or with respect to) each Financed Student Loan and the amounts
from time to time deposited in the Collection Account in respect of such
Financed Student Loan.
(e) The Master Servicer shall maintain its computer systems so
that, from and after the time of sale under this Agreement of the Financed
Student Loans, the Master Servicer's master computer records (including any
backup archives) that refer to a Financed Student Loan shall indicate clearly
the interest of the Issuer and the Indenture Trustee in such Financed Student
Loan and that such Financed Student Loan is owned by the Issuer and has been
pledged to the Indenture Trustee. Indication of the Issuer's and the Indenture
Trustee's interest in a Financed Student Loan shall be deleted from or modified
on the Master Servicer's computer systems when, and only when, the related
Financed Student Loan shall have been paid in full or repurchased.
(f) If at any time the Seller shall propose to sell,
grant a security interest in, or otherwise transfer any interest
in Financed Student Loans to any prospective purchaser, lender or other
transferee, the Master Servicer shall give notice to such prospective purchaser,
lender or other transferee that such Financed Student Loan has been sold and is
owned by the Issuer and has been pledged to the Indenture Trustee.
(g) Upon reasonable notice, the Master Servicer shall
permit the Indenture Trustee and its agents at any time during
normal business hours to inspect, audit and make copies of and abstracts from
the Master Servicer's records regarding any Financed Student Loan; it being
understood that unless a Surety Provider Default shall have occurred and be
continuing, the Surety Provider shall be entitled to direct the Indenture
Trustee to make any such inspection or audit on behalf of the Surety Provider.
(h) Upon request at any time the Eligible Lender Trustee or
the Indenture Trustee shall have reasonable grounds to believe that such request
would be necessary in connection with its performance of its duties under the
Basic Documents, the Master Servicer shall furnish to the Eligible Lender
Trustee or to the Indenture Trustee, within twenty Business Days, a list of all
Financed Student Loans (by borrower social security number, type of loan and
date of issuance) then held as part of the Trust, and a comparison of such list
to the list of the Initial Financed Student Loans set forth in Schedule A as of
the Closing Date, and, for each Financed Student Loan that has been added to or
removed from the pool of loans held by the Eligible Lender Trustee on behalf of
the Issuer, information as to the date as of which and circumstances under which
each such Financed Student Loan was so added or removed.
(i) The Seller shall deliver to the Eligible Lender
Trustee, the Surety Provider and the Indenture Trustee:
(1) promptly after the execution and delivery of this
Agreement and of each amendment thereto an Opinion of
Counsel either (A) stating that, in the opinion of such counsel, all
financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the interest of
the Eligible Lender Trustee and the Indenture Trustee in the Financed
Student Loans, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (B)
stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest; and
(2) within 120 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Cut-off Date, an Opinion of Counsel, dated as of a date
during such 120-day period, either (A) stating that, in the opinion of
such counsel, all financing statements and continuation statements have
been executed and filed that are necessary fully to preserve and
protect the interest of the Eligible Lender Trustee and the Indenture
Trustee in the Financed Student Loans, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details
are given, or (B) stating that, in the opinion of such counsel,
no such action shall be necessary to preserve and protect such
interest; PROVIDED that a single Opinion of Counsel may be delivered
in satisfaction of the foregoing requirement and that of Section
3.6(b) of the Indenture.
Each Opinion of Counsel referred to in clause (1) or (2) above
shall specify (as of the date of such opinion and given all applicable laws as
in effect on such date) any action necessary to be taken in the following year
to preserve and protect such interest.
(j) The Administrator shall file all reports with respect to
the Notes and the Certificates as may be required by the Commission or state
securities authorities.
SECTION 11.3. NOTICES. All demands, notices and
communications upon or to the Seller, the Master Servicer, the Administrator,
the Eligible Lender Trustee, the Indenture Trustee, the Surety Provider or the
Rating Agencies under this Agreement shall be in writing, personally delivered
or mailed by certified mail, return receipt requested (or in the form of telex
or facsimile notice, followed by written notice delivered as aforesaid) and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller, the Master Servicer, TMSI or Administrator, two copies, one to Trans-
World Insurance Company, 3301 C Street, Suite 100-A, Sacramento, CA 95816
Attention: President (telephone: (916) 446-1626; facsimile:
(916) 441-0291) and the other to Trans-World Insurance Company,
c/o the Money Store Inc., Attention: Chief Financial Officer,
2480 Morris Avenue, Union, New Jersey 07083 (telephone: (908)
686-2000; facsimile: (908) 688-3846) (b) in the case of the
Issuer or the Eligible Lender Trustee, at the Corporate Trust
Office of the Eligible Lender Trustee, (c) in the case of the
Indenture Trustee, at its Corporate Trust Office, (d) in the
case of the Eligible Lender Trustee, to _______, Attention:
Corporate Trust Services, ____________, (e) in the case of the
Surety Provider, to AMBAC Indemnity Corporation, One State
Street Plaza, New York, New York 10004, Attention: Structured
Finance/Student Loan Department (telephone: (212) 668-0340;
facsimile: (212) 363- 1459), (f) in the case of Moody's to
Moody's Investors Service, Inc., 99 Church Street, New York,
New York 10007, Attention: Structured Finance Department/ Student
Loans (telephone: (212) 553-0300; facsimile: (212) 553-4792),
and (g) in the case of Standard & Poor's, to Standard & Poor's
Rating Services, 25 Broadway (20th Floor), New York, New York
10004, Attention: Asset Backed Surveillance Department
(telephone: (212) 208-8000; facsimile: (212) 412-0225); or, as
to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.4. ASSIGNMENT. Notwithstanding anything to
the contrary contained herein, except as provided in Section 6.5
and as provided in the provisions of this Agreement concerning the resignation
of the Master Servicer, this Agreement may not be assigned by the Seller or the
Master Servicer. This Agreement may only be assigned by the Eligible Lender
Trustee to its permitted successor pursuant to the Trust Agreement.
SECTION 11.5. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of
this Agreement are solely for the benefit of the Seller, the Master Servicer,
the Issuer and the Eligible Lender Trustee and for the benefit of the
Certificateholders, the Indenture Trustee, the Noteholders and the Surety
Provider, as third party beneficiaries, and nothing in this Agreement, whether
express or implied, shall be construed to give to any other Person any legal or
equitable right, remedy or claim in the Trust Estate or under or in respect of
this Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.6. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.7. SEPARATE COUNTERPARTS. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.8. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.9. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 11.10. ASSIGNMENT TO INDENTURE TRUSTEE. The
Seller hereby acknowledges and consents to any mortgage, pledge,
assignment and grant by the Issuer to the Indenture Trustee pursuant to the
Indenture for the benefit of the Noteholders of a security interest in all
right, title and interest of the Issuer in, to and under the Financed Student
Loans and/or the assignment of any or all of the Issuer's rights and obligations
hereunder to the Indenture Trustee.
SECTION 11.11. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement, the Master Servicer, the Administrator and the
Seller shall not acquiesce, petition or otherwise invoke or cause the Issuer to
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
SECTION 11.12. LIMITATION OF LIABILITY OF ELIGIBLE LENDER TRUSTEE AND
INDENTURE TRUSTEE. (a) Notwithstanding anything contained herein to the
contrary, this Agreement has been signed by Dauphin Deposit Bank and Trust
Company not in its individual capacity but solely in its capacity as Eligible
Lender Trustee of the Issuer and in no event shall Dauphin Deposit Bank and
Trust Company in its individual capacity or as beneficial owner of the Issuer
have any liability for the representations, warranties, covenants, agreements or
other obligations of the Issuer hereunder or in any of the certificates, notices
or agreements delivered pursuant hereto as to all of which recourse shall be had
solely to the assets of the Issuer.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been accepted by Bankers Trust Company not in its individual
capacity but solely as Indenture Trustee and in no event shall Bankers Trust
Company have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
SECTION 11.13. RIGHTS OF SURETY PROVIDER. The Surety
Provider is a third-party beneficiary of this Sale and Servicing
Agreement. Any right conferred to the Surety Provider shall be
suspended during any period in which the Surety Provider is in
default in its payment obligations under the Insurance Agreement. During any
period of suspension the Surety Provider's rights hereunder shall vest in the
Noteholders and Certificateholders and shall be exercisable by the Holders of a
majority of the aggregate principal amount of Notes and Certificates then
Outstanding. At such time as the Notes and Certificates are no longer
Outstanding and the Surety Provider has been reimbursed for all Required Surety
Payments to which it is entitled under the Basic Documents and has been paid all
Premium Amounts due and owing in respect of the Surety Bonds, the Surety
Provider's rights hereunder shall terminate.
SECTION 11.14. CONFLICTS WITH OTHER DOCUMENTS. This Third
Supplemental Sale and Servicing Agreement is being entered into in connection
with the issuance by the Issuer of the Series 199_-_ Notes. For ease of
reference, this Agreement contains provisions set forth in the Sale and
Servicing Agreement that are applicable to all Classes of Notes and all Financed
Student Loans. If any term of this Third Supplemental Sale and
Servicing Agreement conflicts with any term of the Sale and
Servicing Agreement or any other Supplemental Sale and
Servicing Agreement, this Third Supplemental Sale and Servicing Agreement shall
control for purposes of the Series 199_-_ Notes.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
[TRUST 199_-_],
by ___________, not in its
individual capacity but
solely as Eligible Lender
Trustee on behalf of the
Trust,
ATTEST:
____________________________ BY:________________________
Name: Name:
Title: Assistant Secretary Title:
TRANS-WORLD INSURANCE COMPANY d/b/a
EDUCAID, Seller, Master Servicer
and Administrator
BY:_______________________________
Name: Morton Dear
Title: Executive Vice President
THE MONEY STORE INC.,
BY:______________________________
Name: Morton Dear
Title: Executive Vice President
Acknowledged and accepted
as of the day and year
first above written:
BANKERS TRUST COMPANY, not
in its individual capacity
but solely as Indenture Trustee,
by
-----------------------
Name:
Title:
<PAGE>
SCHEDULE A
TO THE
THIRD SUPPLEMENTAL SALE AND SERVICING AGREEMENT
SCHEDULE OF FINANCED STUDENT LOANS
[To be supplied by the Seller at Closing.]
<PAGE>
SCHEDULE B
TO THE
PPLEMENTAL SALE AND SERVICING AGREEMENT
LOCATION OF FINANCED STUDENT LOAN FILES
Documents relating to the Financed Student Loans in the
custody of the Master Servicer (including original notes) are stored at
Trans-World Insurance Company's offices located at 3301 C Street, Suite 100-A,
Sacramento, California 95816.
<PAGE>
EXHIBIT A
TO THE
THIRD SUPPLEMENTAL SALE AND SERVICING AGREEMENT
Form of Noteholders' Statement
pursuant to Section 5.7(a) of Third
Supplemental Sale and Servicing
Agreement (capitalized terms used
HEREIN ARE DEFINED IN APPENDIX A THERETO)
Note Distribution Date:_____________________
(i) Amount of principal being paid or distributed:
Class ___ Notes:_________($_______ per $50,000
original principal
amount of Class ___
Notes)
(ii) Amount of interest being paid or distributed:
Class ___ Notes:_________($_______ per $50,000
original principal
amount of Class ___
Notes)
(iii) Amount of Noteholders' [Auction] [LIBOR] Rate Interest
Carryover being paid or distributed (if any) and
amount remaining (if any):
(a) Class ___ Notes:
(1) Distributed:___________ ($________per
$50,000 original
principal amount of
Class ___ Notes)
<PAGE>
(2) Balance:___________ ($________per
$50,000 original
principal amount of
Class ___ Notes)
(b) Class ___ Notes:
(1) Distributed:___________ ($________per
$50,000 original
principal amount of
Class ___ Notes)
(2) Balance:___________ ($________per
$50,000 original
principal amount of
Class ___ Notes)
(iv) Pool Balance at end of preceding Collection
Period:________
(v) After giving effect to distributions on this Note
Distribution Date:
(a) (1) outstanding principal amount of Class ___
Notes:_______________
(b) (1) outstanding principal amount of Class ___
Notes:_______________
(c) (1) Certificate Balance:_______________
(vi) Applicable Interest Rate:
(a) In general:
(1) [Auction] [LIBOR] Rate for each of the
applicable Interest Periods since the last
Note Distribution Date for such Class of
Notes was ______%, _______% and _______%;
and
(2) the Net Loan Rate was ____, ____% and ____%.
(b) Class ___ Rate:_______% (based on [Auction Rate]
[LIBOR Rate] [Net Loan
Rate])
(c) Class ___ Rate:_______% (based on [Auction Rate]
[LIBOR Rate] [Net Loan
Rate])
(d) Amount of interest that would have been paid on such
Note Distribution Date if interest instead was
calculated based on the [Auction Rate] [LIBOR
Rate] [Net Loan Rate] was $________.
(vii) (a) Amount of Servicing Fee
for related Collection
Period:_________________ ($__________ per $50,000
original principal
amount of Notes)
(b) Amount of Servicing Fee Carryover being
distributed and remaining balance (if any):
(1) Distributed: ______________ ($__________ per
$50,000 original
principal amount
of Notes)
(2) Balance: _____________ ($___________ per
$50,000 original
principal amount of
Notes)
(viii) Amount of Administration Fee, Auction Agent Fee,
Indenture Trustee Fee, Eligible Lender Trustee Fee and
Surety Provider Fee for related Collection Period
(each stated separately):____________ ($_________ per
$50,000 original
principal amount
of Notes)(fn 1)
(To be included on the last Note Distribution Date of each March, June,
September or December).
(ix) Amount of payments to the Surety Provider in
reimbursement of prior draws under any Note Surety
Bond or any Certificate Surety Bond:_______________ (fn 2)
(To be included in the first Note Distribuion Date of each March, June,
September or December).
(x) Aggregate amount of Realized Losses (if any) for the
related Collection Period:______________
(xi) Aggregate Amount (if any) received (stated separately for
principal and interest) with respect to Financed Student Loans
for which Realized Losses were allocated
previously:____________________
(xii) (a) Amount of the distribution attributable to
amounts in the Reserve Account:________________
(b) Amount of any other withdrawals from the Reserve
Account for such Distribution Date:______________
(c) Amount in the Reserve Account:______________2
(xiii) Amount of any draw required to be made under a Note
Surety Bond (together with any other information
required to make such draw): __________________
[(xiv) (a) Portion (if any) of the distribution attributable
to amounts on deposit in the Pre-Funding
Account:_______________
(b) Amount in the Pre-Funding Account:____________]3 (fn)
(To be included for each Note Distribution Date during the Funding Period.)
(c) Amount in the Capitalized Pre-Funding
Account:___________]
(xv) Aggregate amount (if any) paid by the Eligible Lender
Trustee for Additional Financed Student Loans during
the preceding Collection Period:_______________
[(xvi) Amount in the Pre-Funding Account at the end of the
Funding Period to be distributed as a payment of
principal in respect of:
(a) Class ___ Notes:____________
(b) Class ___ Notes (only if Class ___ Notes have
been paid in full):_____________]4 (fn)
(To be included for the first Note Distribution Date on or immediately following
the end of the Funding Period.
(xvii) Aggregate amount (if any) paid for Financed Student
Loans during the preceding Collection
Period:______________
(xviii) As of the end of the preceding Collection Period:
(a) Number of Financed Student Loans that are 30 to
60 days delinquent:____
Principal amount:______________
(b) Number of Financed Student Loans that are 61 to
90 days delinquent:____
Principal amount:______________
(c) Number of Financed Student Loans that are 91 to
120 days delinquent:____
Principal amount:______________
(d) Number of Financed Student Loans that are more
than 120 days delinquent:____
Principal amount:______________
(e) Number of Financed Student Loans for which claims
have been filed with the appropriate Guarantor
and which are awaiting payment:____
Principal amount:______________
(xix) Parity Percentage, including the numerator and
denominator in determining such Parity Percentage:
(xx) Excess, if any, of amounts deposited into Collection Account
with respect to the sale by the Trust of Serial Loans over the
aggregate Purchase Amount of such loans (such excess to be
distributed to Student Holdings):______________
(xxi) Amount of Additional Principal Payments, if any, made
on such Distribution Date:________________
<PAGE>
EXHIBIT B
TO THE
THIRD SUPPLEMENTAL SALE AND SERVICING AGREEMENT
Form of Certificateholders' Statement
pursuant to Section 5.7(a) of Third
Supplemental Sale and Servicing Agree-
ment (capitalized terms used herein
ARE DEFINED IN APPENDIX A THERETO)
Certificateholder Distribution Date:_______________________
(i) Amount of principal being paid or distributed in
respect of the Class __ Certificates:___________
($___________
per $50,000
original
principal
amount of the
Certificates)5 (fn)
(Only after the Notes have been paid in full)
(ii) Amount of interest being paid or distributed in
respect of the Class __ Certificates:___________
($---------
per $50,000
original
principal
amount of
Certificates)
(iii) Amount of Certificateholders' [Auction][LIBOR] Rate
Interest Carryover being paid or distributed (if any)
and amount remaining (if any):
(1) Distributed: ________________ ($_________ per
$50,000 original
principal
amount of
Certificates)
(2) Balance: _______________ ($__________ per $50,000
original principal
amount of Certificates)
(iv) Pool Balance at end of preceding Collection
Period:_____________
(v) After giving effect to distributions on this
Certificate Distribution Date:
(a) (1) outstanding principal amount of Class ___
Notes:_____________
(b) (1) outstanding principal amount of Class ___
Notes:_____________
(c) outstanding principal amount of Class ___
Certificates
(d) (1) Certificate Balance:_______________
(vi) Applicable Interest Rate:
(a) In general:
(1) [Auction][LIBOR] Rate for the prior Interest
Period was _____%; and
(2) the Net Loan Rate was _____%.
(b) Certificate Rate:_____% (based on [Auction Rate]
[LIBOR Rate]
[Net Loan Rate])
(c) Amount of interest that would have been paid on such
Certificate Distribution Date if interest instead was
calculated based on the [Auction Rate] [LIBOR Rate]
[Net Loan Rate]
(vii) (a) Amount of Servicing Fee
for related Collection
Period:_____________ ($__________ per
$50,000 original
principal amount of
Certificates)
(b) Amount of Servicing Fee Carryover being
distributed and remaining balance (if any):
(1) Distributed: ____________ ($__________ per
$50,000 original
principal amount
of Certificates)
(2) Balance: ______________ ($___________ per
$50,000 original
principal amount
of Certificates)
(viii) Amount of Administration Fee, Auction Agent Fee,
Indenture Trustee Fee and Surety Provider Fee for
related Collection Period (each stated
separately):_________ ($_________ per $50,000 original
principal amount of Certificates)
(ix) Amount of payments to the Surety Provider in
reimbursement of prior draws under any Note Surety
Bond or the Certificate Surety Bond:______________
(x) Aggregate amount of Realized Losses (if any) for the
related Collection Period:_____________
(xi) Aggregate amount (if any) received (stated separately for
principal and interest) with respect to Financed Student Loans
for which Realized Losses were allocated
previously:________________
(xii) (a) Amount of the distribution attributable to
amounts in the Reserve Account:________________
(b) Amount of any other withdrawals from the Reserve
Account for such Distribution Date:______________
(c) Amount in the Reserve Account:____________
(xiii) Amount of any draw required to be made under the Certificate
Surety Bond (together with any other information required to
make such draw):
-------------------
[(xiv) (a) Portion (if any) of the distribution attributable
to amounts on deposit in the Pre-Funding
Account:_______________
(b) Amount in the Pre-Funding Account:___________]6 (fn)
(To be included for each Distribution Date during the Funding Period.
(c) Amount in the Capitalized Pre-Funding
Account:_________]6 (fn)
(xv) Aggregate amount (if any) paid by the Eligible
Lender Trustee for Additional Financed Student Loans
during the preceding Collection Period:_______________
(xvi) Aggregate amount (if any) paid for Financed Student
Loans during the preceding Collection
Period:______________
(xvii) As of the end of the preceding Collection Period:
(a) Number of Financed Student Loans that are 30 to
60 days delinquent:____
Principal amount:______________
(b) Number of Financed Student Loans that are 61 to
90 days delinquent:____
Principal amount:______________
(c) Number of Financed Student Loans that are 91 to
120 days delinquent:____
Principal amount:______________
(d) Number of Financed Student Loans that are more
than 120 days delinquent:____
Principal amount:______________
(e) Number of Financed Student Loans for which claims
have been filed with the appropriate Guarantor
and which are awaiting payment:____
Principal amount:______________
(xviii) Parity Percentage, including the numerator and
denominator in determining such Parity Percentage:
(xix) Excess, if any, of amounts deposited into Collection Account
with respect to the sale by the Trust of Serial Loans over the
aggregate Purchase Amount of such loans (such excess to be
distributed to Student Holdings):_______________
(xx) Amount of Additional Principal Payments, if any, made
on such Distribution Date.
<PAGE>
EXHIBIT C
TO THE
THIRD SUPPLEMENTAL SALE AND SERVICING AGREEMENT
FORM OF ADMINISTRATOR'S CERTIFICATE
[To be provided by the Administrator pursuant to
Section 4.7 of the Third Supplemental Sale and
Servicing Agreement]
<PAGE>
EXHIBIT D
TO THE
THIRD SUPPLEMENTAL SALE AND SERVICING AGREEMENT
ASSIGNMENT FOR
INITIAL FINANCED STUDENT LOANS
For value received, in accordance with the Third Supplemental
Sale and Servicing Agreement (the "Third Supplemental Sale and Servicing
Agreement") dated as of _____, 199_, among the undersigned, as seller (the
"Seller"), as master servicer (the "Master Servicer") and as administrator
(the "Administrator"), [Trust 199_-_] (the "Trust"), and ______________, not in
its individual capacity but solely as Eligible Lender Trustee (the "Eligible
Lender Trustee"), the undersigned does hereby contribute, assign, transfer and
otherwise convey unto the Eligible Lender Trustee on behalf of the Trust,
without recourse (subject to the obligations set forth in the Third Supplemental
Sale and Servicing Agreement), all right, title and interest of the undersigned
in and to (i) the Initial Financed Student Loans and all obligations of the
Obligors thereunder, including all monies paid or payable thereunder on or after
the Initial Cut-off Date with respect to the Initial Financed Student Loans,
including the right to enforce such Loans in the same manner and to the same
extent as the Seller would have the power to do but for the execution and
delivery of this Agreement, (ii) the Assigned Rights, (iii) all funds on deposit
from time to time in the Trust Accounts, including the Reserve Account Initial
Deposit, the Capitalized Interest Account, the Capitalized Pre-Funding Account
and the Pre-Funded Amount, and in all investments and proceeds thereof
(including all income thereon) and (iv) the proceeds of any and all of the
foregoing (including proceeds derived from the voluntary or involuntary
conversion of any of the Initial Financed Student Loans into cash or other
liquidated property, such as proceeds from the applicable Guarantee Agreement).
The foregoing sale does not constitute and is not intended to result
in any assumption by the Eligible Lender Trustee or the Trust of any obligation
of the Seller to the borrowers of Initial Financed Student Loans or any other
person in connection with the Initial Financed Student Loans or any agreement or
instrument relating to any of them.
In addition, the undersigned, by execution of this instrument,
represents and warrants that the promissory notes evidencing each Initial
Financed Student Loan described in Schedule A to the Third Supplemental Sale and
Servicing Agreement have been endorsed in the manner set forth in the Third
Supplemental Sale and Servicing Agreement.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Third Supplemental Sale and Servicing Agreement and is to be
governed by the Third Supplemental Sale and Servicing Agreement.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in Appendix A to the Third Supplemental Sale and
Servicing Agreement, which also contains rules as to usage that shall be
applicable herein.
IN WITNESS WHEREOF, the undersigned has caused this Assignment
to be duly executed as of December __, 1996.
TRANS-WORLD INSURANCE CORPORATION
D/B/A/ EDUCAID, as Seller
By:______________________________
Name: Morton Dear
Title: Executive Vice President
<PAGE>
EXHIBIT E
TO THE THIRD SUPPLEMENTAL SALE AND SERVICING AGREEMENT
ASSIGNMENT FOR
ADDITIONAL FINANCED STUDENT LOANS
For value received, in accordance with the Third Supplemental
Sale and Servicing Agreement (the "Third Supplemental Sale and Servicing
Agreement") dated as of December 27, 1996, among the undersigned, as seller
(the "Seller"), as master servicer (the "Master Servicer") and as administrator
(the "Administrator"), [Trust 199_-_] (the "Trust"), and ____________, not in
its individual capacity but solely as Eligible Lender Trustee (the "Eligible
Lender Trustee"), the undersigned does hereby contribute, assign, transfer and
otherwise convey unto the Eligible Lender Trustee on behalf of the Trust,
without recourse (subject to the obligations set forth in the Third Supplemental
Sale and Servicing Agreement), all right, title and interest of the undersigned
in and to (i) the Additional Financed Student Loans listed on Schedule A hereto
and all monies received thereon or payable, on and after ______ (the
"Subsequent Cut-off Date") with respect to the Additional Financed Student
Loans, including the right to enforce such Loans in the same manner and to the
extent as the Seller would have the power to do but for the execution and
delivery of this Agreement and (ii) the proceeds of any and all of the
foregoing (including but not limited to proceeds derived from the voluntary or
involuntary conversion of any of the Additional Financed Student Loans into cash
or other liquidated property, such as proceeds from the applicable Guarantee
Agreement (as such term is defined in the Sale and Servicing Agreement)). The
foregoing sale does not constitute and is not intended to result in any
assumption by the Eligible Lender Trustee or the Trust of any obligation of the
Seller to the borrowers of such Additional Financed Student Loans or any other
person in connection with the Additional Financed Student Loans or any agreement
or instrument relating to any of them.
In addition, the undersigned, by execution of this instrument,
represents and warrants that the promissory notes evidencing each Additional
Student Loan described in Schedule A hereto have been endorsed in the manner set
forth in the Sale and Servicing Agreement.
This Assignment is made pursuant to and upon the
representations, warranties and conditions precedent on the part
of the undersigned contained in the Third Supplemental Sale and
Servicing Agreement and the Insurance and Indemnity Agreement
dated as of _______, 199_ (as amended from time to time, the "Insurance
Agreement") among The Money Store Inc., the Seller, Bankers Trust Company, as
Indenture Trustee, the Eligible Lender Trustee and AMBAC Indemnity Corporation,
and is to be governed by the Third Supplemental Sale and Servicing Agreement
and the Insurance Agreement. Each contribution of an Additional Financed Student
Loan by the Seller to the Eligible Lender Trustee shall be deemed a
certification by the Seller that all applicable representations and warranties
contained in the Third Supplemental Sale and Servicing Agreement and the
Insurance Agreement concerning such Additional Financed Student Loan are true
and correct as of the related Subsequent Cut-off Date with the same force and
effect as if made on such date, and that all conditions precedent to
contributing such Additional Financed Student Loan set forth in the Third
Supplemental Sale and Servicing Agreement and the Insurance Agreement have been
satisfied.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in the Third Supplemental Sale
and Servicing Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Assignment
to be duly executed as of ________________, 199__.
TRANS-WORLD INSURANCE CORPORATION,
D/B/A EDUCAID, as Seller
by
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE A
TO THE
THE BILL OF SALE
[List of Additional Financed Student Loans
and their related Subsequent Cut-off Dates]
<PAGE>
ADMINISTRATION AGREEMENT dated as of
_____, 199_, among [TRUST 199_-_], a
[Pennsylvania] business trust (the
"Issuer"), TRANS-WORLD INSURANCE COMPANY
D/B/A EDUCAID, an Arizona corporation, as
administrator (the "Administrator"), and
________, a New York banking corporation,
not in its individual capacity but solely as
Trustee (the "Indenture Trustee").
W I T N E S S E T H
WHEREAS the Issuer was created pursuant to a
Trust Agreement dated as of _____, 199_ (the "Trust Agreement") between the
Administrator, as depositor, and _______, as
Eligible Lender Trustee;
WHEREAS the Issuer may issue from time to time,
in one or more Classes, Asset Backed Certificates (the
"Certificates") pursuant to the Trust Agreement and, except for
the Class 1 Certificates, a related Trust Supplement;
WHEREAS the Issuer may issue from time to time,
in one or more Series and one or more Classes, Asset Backed Notes (the "Notes")
pursuant to the Indenture dated as of _______, 199_ (the "Indenture"), between
the Issuer and the Indenture Trustee and a related Terms Supplement (capitalized
terms used herein and not defined herein shall have the meanings assigned to
such terms in Appendix A to the Indenture, which also contains rules of usage
and construction that shall be applicable herein);
WHEREAS the Issuer has entered into or will
enter into certain agreements in connection with the issuance of the Notes and
the Certificates, including the Sale and Servicing Agreement, the Note
Depository Agreements, the Certificate Depository Agreements (the Certificate
Depository Agreements and the Note Depository Agreements being collectively
referred to herein as the "Depository Agreement"), the Guarantee Agreements, the
Note Surety Bonds, the Certificate Surety Bonds (solely with respect to the
Certificates), the Insurance Agreement, the Underwriting Agreement, the Purchase
Agreement and related Terms Agreement, the Auction Agent Agreement and the
Indenture and related Terms Supplements (all such agreements being collectively
referred to herein as the "Related Agreements");
WHEREAS, pursuant to the Related Agreements, the
Issuer and the Eligible Lender Trustee are required to perform certain duties
in connection with (a) the Notes and the Trust
Estate therefor pledged to the Indenture Trustee pursuant to the Indenture and
related Terms Supplements and (b) the Certificates (the registered holders of
the Certificates being referred to herein as the "Owners");
WHEREAS the Issuer and the Eligible Lender
Trustee desire to have the Administrator perform certain of the duties of the
Issuer and the Eligible Lender Trustee referred
to in the preceding clause, and to provide such additional services consistent
with the terms of this Agreement and the Related Agreements as the Issuer and
the Eligible Lender Trustee may from time to time request;
WHEREAS the Administrator has the capacity to
provide the services required hereby and is willing to perform
such services for the Issuer and the Eligible Lender Trustee on
the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. DUTIES OF THE ADMINISTRATOR. (a) DUTIES WITH RESPECT TO THE
INDENTURE AND TRUST AGREEMENT. The Administrator shall perform all its duties as
Administrator under the Trust Agreement and the Sale and Servicing Agreement. In
addition, the Administrator shall consult with the Eligible Lender Trustee as
the Administrator deems appropriate regarding the duties of the Issuer under the
Indenture, each related Terms Supplement and the Trust Agreement. The
Administrator shall monitor the performance of the Issuer and shall advise the
Eligible Lender Trustee when action by the Issuer or the Eligible Lender Trustee
is necessary to comply with the Issuer's or the Eligible Lender Trustee's duties
under the Indenture, each related Terms Supplement, the Trust Agreement and any
of the other Basic Documents. The Administrator shall prepare for execution, if
required, by the Issuer or shall cause the preparation by other
appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer to prepare, file
or deliver pursuant to the Indenture, each related Terms Supplement, the Trust
Agreement or any of the other Basic Documents. In furtherance of the foregoing,
the Administrator shall take all appropriate action that is the duty of the
Administrator and of the Issuer to take
pursuant to the Trust Agreement, the Indenture and each related Terms
Supplement, including such of the foregoing as are required of the Issuer with
respect to the following matters (references are to sections of the Indenture):
(A) the duty to cause the Note Registrar to keep the Note
Register and to give the Indenture Trustee notice of any appointment
of a new Note Registrar and the location, or change in location, of
the Note Registrar (Section
2.6);
(B) the fixing or causing to be fixed of any specified record
date and the notification of the Indenture Trustee and Noteholders with
respect to special payment dates, if any (Section 2.9(d));
(C) the preparation of or obtaining of the documents
and instruments required for authentication of the Notes
and delivery of the same to the Indenture Trustee (Section
2.11);
(D) the preparation, obtaining or filing of the
instruments, opinions and certificates and other documents
required for the release of collateral (Section 2.12);
(E) the duty to cause the Note Registrar to maintain
on behalf of the Issuer an office in the Borough of
Manhattan, City of New York, for registration of transfer
or exchange of Notes (Section 3.2);
(F) the duty to cause newly appointed Paying Agents,
if any, to deliver to the Indenture Trustee the
instrument specified in the Indenture regarding funds
held in trust (Section 3.3);
(G) the direction to the Paying Agents to deposit
moneys with the Indenture Trustee (Section 3.3);
(H) the obtaining and preservation of the Issuer's
qualification to do business in each jurisdiction in which
such qualification is or shall be necessary to protect the validity
and enforceability of the Indenture, the Notes and each other
instrument and agreement included in the Indenture Trust Estate
(Section 3.5);
(I) the preparation of all supplements, amendments,
financing statements, continuation statements, instruments
of further assurance and other instruments, in accordance
with Section 3.5 of the Indenture, necessary to protect
the Indenture Trust Estate (Section 3.5);
(J) the identification to the Indenture Trustee in an
Officer's Certificate of the Issuer of a Person with whom the Issuer
has contracted to perform its duties under the Indenture (Section
3.7(b));
(K) the notification of the Indenture Trustee, the Surety
Provider and the Rating Agencies of a Master Servicer Default known to
the Administrator pursuant to the Sale and Servicing Agreement and, if
such Master Servicer Default arises from the failure of the Master
Servicer to perform any of its duties under the Sale and Servicing
Agreement or the Supplemental Sale and Servicing Agreement, the taking
of all reasonable steps available to enforce the Issuer's rights under
the Basic Documents in respect of such failure (Section 3.7(d));
(L) the delivery of notice to the Indenture Trustee and the
Surety Provider of termination of the Master Servicer's rights under
the related Sale and Servicing Agreement and of appointment of a
successor (Section 3.7(f));
(M) the preparation and obtaining of documents and instruments
required for the release of the Issuer from its obligations under the
Indenture (Section 3.10);
(N) the delivery of notice to the Indenture Trustee, the
Surety Provider and the Rating Agencies of each Event of Default, any
Default under Section 5.1(iii) of the
Indenture and each default by the Master Servicer, the Administrator or
the Seller under the Sale and Servicing Agreement or any Supplemental
Sale and Servicing Agreement
known to the Administrator (Section 3.18);
(O) the monitoring of the Issuer's obligations as to
the satisfaction and discharge of the Indenture and the
preparation of an Officers' Certificate of the Issuer and
the obtaining of the Opinion of Counsel and the
Independent Certificate relating thereto (Section 4.1);
(P) the compliance with any written directive of the
Indenture Trustee to compel performance by the Master
Servicer under the Sale and Servicing Agreement and any
Supplemental Sale and Servicing Agreement (Section 5.16);
(Q) the reimbursement to the Indenture Trustee of all
reasonable out-of-pocket expenses incurred or made by it in accordance
with any provision of the Indenture as well as the indemnification of
the Indenture Trustee in connection with the administration of the
Trust and the performance of the Indenture Trustee's duties under the
Indenture and the other Basic Documents (Section 6.7);
(R) the removal of the Indenture Trustee and
appointment of a successor Indenture Trustee (Section 6.8);
(S) the preparation of any written instruments required to
confirm more fully the authority of any co-trustee or separate trustee
and any written instruments necessary in connection with the
resignation or removal of
any co-trustee or separate trustee (Section 6.10);
(T) the furnishing of the Indenture Trustee with the names and
addresses of Noteholders during any period when the Indenture Trustee
is not the Note Registrar (Section
7.1);
(U) the preparation and, after execution by the Issuer, the
filing with the Commission, any applicable State agencies, the
Indenture Trustee and the Surety Provider of documents required to be
filed on a periodic basis with, and summaries thereof as may be
required by rules and regulations prescribed by, the Commission and any
applicable State agencies and the transmission of such summaries, as
necessary, to the Noteholders (Section 7.3);
(V) the opening of one or more accounts in the Issuer's, the
Indenture Trustee's or the Eligible Lender Trustee's name, the
preparation of Issuer Orders, Officers' Certificates of the Issuer and
Opinions of Counsel and all other actions necessary with respect to
investment and reinvestment of funds in the Trust Accounts (Sections
8.2 and 8.3);
(W) the preparation of an Issuer Request and Officers'
Certificate of the Issuer and the obtaining of an Opinion of Counsel
and Independent Certificates, if necessary, for the release of the
Indenture Trust Estate (Sections 8.4 and 8.5);
(X) the preparation of Issuer Orders and the obtaining of
Opinions of Counsel with respect to the execution of supplemental
indentures and the mailing to the Noteholders of notices with respect
to such supplemental indentures (Sections 9.1, 9.2 and 9.3);
(Y) the preparation of or obtaining of the documents
and instruments required for the execution and
authentication of new Notes conforming to any supplemental
indenture and the delivery of the same to the Eligible
Lender Trustee and the Indenture Trustee, respectively
(Section 9.6);
(Z) the preparation of all Officers' Certificates of
the Issuer, or obtaining Opinions of Counsel and
Independent Certificates with respect to any requests by the Issuer to
the Indenture Trustee to take any action under the Indenture (Section
11.1(a));
(AA) the preparation and delivery of Officers' Certificates of
the Issuer and the obtaining of Independent Certificates, if necessary,
for the release of property from the lien of the Indenture (Section
11.1(b));
(BB) the preparation and delivery to Noteholders and the
Indenture Trustee of any agreements with respect to alternate payment
and notice provisions (Section 11.6); and
(CC) the recording of the Indenture, if applicable (Section
11.15).
(b) DUTIES WITH RESPECT TO THE ISSUER. (i) In
addition to the duties of the Administrator set forth above and those provided
in the other Related Agreements and the Trust Agreement which the Administrator
agrees herein to perform, the Administrator shall perform such calculations and
shall prepare for execution by the Issuer or the Eligible Lender Trustee or
shall cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Issuer or the Eligible Lender Trustee to prepare, file or deliver
pursuant to the Related Agreements, the Trust Agreement or any of the other
Basic Documents, and at the request of the Eligible Lender Trustee shall take
all appropriate action that it is the duty of the Issuer to take pursuant to the
Related Agreements, the Trust Agreement or any of the other Basic Documents.
Subject to Section 5 of this Agreement, and in accordance with the directions of
the Eligible Lender Trustee, the Administrator shall administer, perform or
supervise the performance of such other activities in connection with the Trust
Estate (including the Related Agreements and other Basic Documents) as are not
covered by any of the foregoing provisions and as are expressly requested by the
Eligible Lender Trustee and are reasonably within the capability of the
Administrator.
(ii) In carrying out the foregoing duties or
any of its other obligations under this Agreement, the Administrator may enter
into transactions with or otherwise deal with any of its Affiliates; PROVIDED,
HOWEVER, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in the
Administrator's opinion, no less favorable to the Issuer than would be available
from unaffiliated parties.
(c) NON-MINISTERIAL MATTERS. With respect to
matters that in the reasonable judgment of the Administrator are
non-ministerial, the Administrator shall not take any action unless within a
reasonable time before the taking of such action, the Administrator shall have
notified the Eligible Lender Trustee of the proposed action and the Eligible
Lender Trustee shall not have withheld consent or provided an alternative
direction. For the purpose of the preceding sentence, "non-ministerial matters"
shall include:
(A) the amendment of or any supplement to the
Indenture or any Terms Supplement;
(B) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against
the Issuer (other than in connection
with the collection of the Financed Student Loans);
(C) the amendment, change or modification of the
Related Agreements or the Trust Agreement;
(D) the appointment of successor Note Registrars, successor
Certificate Paying Agents and successor Indenture Trustees pursuant to
the Indenture or to the appointment of successor Administrators or
successor Master Servicers, or the consent to the assignment by the
Note Registrar, Certificate Paying Agent or Indenture Trustee of its
obligations under the Indenture;
(E) the removal of the Indenture Trustee; and
(F) the buying or selling of assets in the Trust Estate,
including student loans.
(d) EXCEPTIONS. Notwithstanding anything to
the contrary in this Agreement, except as expressly provided herein or in the
other Basic Documents, the Administrator shall not be obligated to, and shall
not, (1) make any payments to the Noteholders under the Related Agreements, (2)
make any payments to Certificateholders under the Trust Agreement or the Sale
and Servicing Agreement, (3) sell the Trust Estate pursuant to Section 5.4 of
the Indenture, (4) take any other action that the Issuer directs the
Administrator not to take on its behalf, (5) in connection with its duties
hereunder assume any indemnification obligation of any other Person or (6)
service the Financed Student Loans.
2. RECORDS. The Administrator shall maintain
appropriate books of account and records relating to services
performed hereunder, which books of account and records shall
be accessible for inspection by the Issuer at any time during
normal business hours.
3. COMPENSATION. As compensation for the performance of the
Administrator's obligations under this Agreement and as reimbursement for its
expenses related thereto, the Administrator shall be entitled to a fee equal to
______% per annum of the outstanding principal amount of the Notes and the
Certificates, calculated monthly and payable in arrears on the first Note
Distribution Date occurring in March, June, September and December (or if in any
such month a Certificate Distribution Date occurs prior to such Note
Distribution Date, on such Certificate Distribution Date), commencing ___, 199_
(the "Administration Fee").
4. ADDITIONAL INFORMATION TO BE FURNISHED TO THE
ISSUER. The Administrator shall furnish the Issuer from time
to time such additional information regarding the Trust Estate
as the Issuer shall reasonably request.
5. INDEPENDENCE OF THE ADMINISTRATOR. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Eligible Lender Trustee with
respect to the manner in which it accomplishes the performance of its
obligations hereunder. Unless expressly authorized by the Issuer, the
Administrator shall have no authority to act for or represent the Issuer or the
Eligible Lender Trustee in any way and shall not otherwise be deemed an agent of
the Issuer or the Eligible Lender Trustee.
6. NO JOINT VENTURE; NOT TRUSTEE. Nothing contained in this Agreement (i)
shall constitute the Administrator and any of the Issuer, the Indenture Trustee
or the Eligible Lender Trustee as members of any partnership, joint venture,
association, syndicate, unincorporated business or other separate entity, (ii)
shall be construed to impose any liability as such on any of them or (iii) shall
be deemed to confer on any of them any express, implied or apparent authority to
incur any obligation or liability on behalf of the others. Further, nothing
contained in this Agreement shall constitute or be deemed to constitute the
Administrator as a trustee or co- trustee of the Trust.
7. OTHER ACTIVITIES OF ADMINISTRATOR. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Eligible
Lender Trustee or the Indenture Trustee.
8. TERM OF AGREEMENT; RESIGNATION AND REMOVAL OF
ADMINISTRATOR. (a) This Agreement shall continue in force
until the dissolution of the Issuer, upon which event this
Agreement shall automatically terminate.
(b) The provisions of Article VII and Article
VIII of the Sale and Servicing Agreement relating to the resignation or removal
of the Administrator and the failure of the Administrator to perform its duties
under this Agreement are hereby incorporated by reference herein.
9. ACTION UPON TERMINATION, RESIGNATION OR REMOVAL.
Promptly upon the effective date of termination of this
Agreement pursuant to pursuant to Section 8(a) or the
resignation or removal of the Administrator pursuant to Section
8(b) and the Sale and Servicing Agreement, the Administrator
shall be entitled to be paid all fees and reimbursable expenses
accruing to it to the date of such termination, resignation or
removal. The Administrator shall forthwith upon such
termination pursuant to Section 8(a) deliver to the Issuer all
property and documents of or relating to the Collateral then in
the custody of the Administrator. In the event of the
resignation or removal of the Administrator, the Administrator
shall cooperate with the Issuer and take all reasonable steps
requested to assist the Issuer in making an orderly transfer of
the duties of the Administrator.
10. NOTICES. Any notice, report or other
communication given hereunder shall be in writing and addressed
as follows:
(a) if to the Issuer or the Eligible Lender
Trustee, to
(b) if to the Administrator, to
Trans-World Insurance Company
3301 C Street
Suite 100-A
Sacramento, California 95816
Attention: President
copy to
The Money Store Inc.
2840 Morris Avenue
Union, New Jersey 07083
Attention: Chief Financial Officer
(c) if to the Indenture Trustee, to
(d) if to the Surety Provider, to
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand-delivered
to the address of such party as provided above.
11. AMENDMENTS. This Agreement may be amended from
time to time by a written amendment duly executed and delivered
by the Issuer, the Administrator and the Indenture Trustee, with the written
consent of the Eligible Lender Trustee and the Surety Provider, without the
consent of the Noteholders and the Certificateholders, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Noteholders or
Certificateholders. This Agreement may also be amended by the Issuer, the
Administrator and the Indenture Trustee with the written consent of the Eligible
Lender Trustee, the Surety Provider and the Noteholders of at least a majority
in the Outstanding Amount of the Notes and the Certificateholders of at least a
majority of the Certificate Balance for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of Noteholders or the
Certificateholders; PROVIDED, HOWEVER, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments with respect to Financed Student Loans or distributions
that are required to be made for the benefit of the Noteholders or
Certificateholders or (ii) reduce the aforesaid percentage of the Noteholders
and the Certificateholders which are required to consent to any such amendment,
without the consent of all Outstanding Noteholders and Certificateholders. Prior
to the execution of any such amendment, the Administrator shall furnish written
notification or the substance of such amendment to each of the Rating Agencies
and the Surety Provider.
12. SUCCESSORS AND ASSIGNS. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 6.5 and 6.8 of the
Sale and Servicing Agreement, this Agreement may not be assigned by the
Administrator. Subject to the foregoing, this Agreement shall bind any
successors or assigns of the parties hereto.
13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
14. HEADINGS. The section headings hereof have been
inserted for convenience of reference only and shall not be
construed to affect the meaning, construction or effect of this
Agreement.
15. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall together
constitute but one and the same agreement.
16. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. NOT APPLICABLE TO TRANS-WORLD INSURANCE COMPANY
IN OTHER CAPACITIES. Nothing in this Agreement shall affect
any obligation Trans-World Insurance Company may have in any
other capacity under the Basic Documents.
18. PROVISIONS OF SALE AND SERVICING AGREEMENT
CONTROL. The provisions of the Sale and Servicing Agreement
and of each Supplemental Sale and Servicing Agreement relating
to the Administrator and to this Agreement shall in all events
govern and are hereby incorporated herein and, to the extent any provision
herein shall be inconsistent with any such provision of the Sale and Servicing
Agreement or a Supplemental Sale and Servicing Agreement, as applicable, the
Sale and Servicing Agreement or such Supplemental Sale and Servicing Agreement,
as applicable, shall govern.
19. LIMITATION OF LIABILITY OF ELIGIBLE LENDER TRUSTEE AND
INDENTURE TRUSTEE. (a) Notwithstanding anything contained herein to the
contrary, this instrument has been countersigned by Dauphin Deposit Bank and
Trust Company not in its individual capacity but solely in its capacity as
Eligible Lender Trustee of the Issuer and in no event shall Dauphin Deposit Bank
and Trust Company in its individual capacity or any Owner of the Issuer have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of any duties or obligations of the Issuer thereunder, the Eligible
Lender Trustee shall be subject to, and entitled to the benefits of, the terms
and provisions of Articles VI, VII and VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein
to the contrary, this Agreement has been countersigned by Bankers Trust Company
not in its individual capacity but solely as Indenture Trustee and in no event
shall Bankers Trust Company have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer.
20. THIRD-PARTY BENEFICIARY. The Eligible Lender
Trustee is a third-party beneficiary to this Agreement and is
entitled to the rights and benefits hereunder and may enforce
the provisions hereof as if it were a party hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Administration Agreement to be duly executed and delivered
as of the day and year first above written.
[TRUST 199_-_],
by _______, not in its
individual capacity but
solely as Eligible Lender
ATTEST: Trustee,
By:_________________________ By:_____________________
Name: Name:
Title: Title:
__________________, not in
its individual capacity but
solely as Indenture Trustee,
By:______________________
Name:
Title:
TRANS-WORLD INSURANCE COMPANY
d/b/a EDUCAID, as
Administrator,
By:_______________________
Name: Morton Dear
Title: Executive Vice President
