20 U.S.C. § 1087–3 — Reorganization of Student Loan Marketing Association through formation of Holding Company

(a) Board action. The Association’s Board must take the actions it considers necessary or appropriate, after the shareholder approval in subsection (b), to restructure ownership so that all outstanding common shares are directly owned by a Holding Company under a Board-adopted plan consistent with this section. The plan may include merging a wholly owned Holding Company subsidiary into the Association. The Board may cause Association common shares to convert one-for-one into Holding Company common shares under applicable law and may register the Holding Company shares with the Securities and Exchange Commission.

(b) Shareholder approval. The Board’s plan must be submitted to common shareholders. Reorganization occurs on the effective date only if holders of a majority of issued and outstanding common shares approve it in person or by proxy.

(c) Transition. Starting on the reorganization effective date: (1) until dissolution, the Association keeps the rights, privileges, duties, limits, and restrictions in section 1087–2 and continues its purposes. The Holding Company and any subsidiary of the Holding Company other than the Association receive none of those rights, privileges, or obligations and are subject to none of those Association limits or restrictions unless this section says otherwise. The Holding Company and any subsidiary of the Holding Company other than the Association or a subsidiary of the Association generally may not buy insured loans until the Association stops acquiring them. The Holding Company may buy those loans while the Association is merely continuing to acquire loans as a lender of last resort or under the specified agreement with the Secretary^*. (2) The Association must use best efforts to transfer to the Holding Company or its subsidiaries all real and personal property, tangible and intangible, except “remaining property.” This includes (A)(i) direct or indirect subsidiaries other than specified special-purpose funding companies and government-sponsored-enterprise interests, (ii) contracts, leases, and agreements, (iii) licenses and intellectual property, and (iv) other property. (B) This does not prevent later transfers of remaining property under paragraph (4). (3) Association employees become Holding Company or subsidiary employees, which must provide requested management and operational support, including loan servicing. The Association may instead obtain that support from unrelated persons or entities. (4) The Association may pay cash or noncash dividends only while its capital would comply with section 1087–2(r). If it fails those standards, the Holding Company must diligently transfer enough capital to restore compliance. (5) Before any dividend, the Association must certify compliance to the Treasury Secretary and provide supporting calculations. (6) After reorganization, the Association may not conduct new business or acquire section 1087–2(d) program assets except for: (A)(i) student-loan purchases through September 30, 2007; (ii) outstanding contractual commitments for future warehousing advances, letters of credit, or standby bond-purchase agreements; (iii) lender-of-last-resort activity; and (iv) insured-loan purchases under a Secretary agreement, approved by the Treasury Secretary, when liquidity is inadequate. (B) Such an agreement covers 12 months and may be renewed while liquidity remains inadequate. The section 1087–2(h)(7) fee does not apply to loans acquired under it. (7) The Association may not issue debt maturing after September 30, 2008, except for lender-of-last-resort activity or purchases under such an agreement. This does not change the legal attributes of its debt, including debt later transferred to a trust. (8) Safety and soundness. (A) The Association must obtain and keep records required by the Treasury Secretary about material financial risks from associated persons and its risk-monitoring systems. (B) Summary reports may be required no more often than quarterly, but more detailed reports may be required if market conditions or information raise concerns. (C) The Association’s funds and assets must remain separate from those of the Holding Company and its subsidiaries, be used only for Association purposes and obligations, and be recorded in separate books. Its office must be physically separate. An Association director appointed by the President may not serve as a director of the Holding Company. At least one officer must serve only the Association. Transactions, including servicing, must be no less favorable than comparable third-party terms. The Association may not lend to, guarantee debt of, or provide credit enhancement to the Holding Company or its subsidiaries. Amounts collected for the Association must be held only for it and immediately deposited into an Association-controlled account. (D) Association assets may never pay Holding Company claims or debts, subject to the Association’s lawful dividend right and liabilities expressly imposed by this section. (E) Before dissolution, Holding Company business must be conducted through subsidiaries. (F) Information supplied under this section has the confidentiality protection in section 1087–2(r)(12). (G) “Associated person” means a non-natural person directly or indirectly controlling, controlled by, or under common control with the Association. (9) On the effective date, the Holding Company must issue the District of Columbia Financial Responsibility and Management Assistance Authority warrants equal to 1 percent of the Association’s outstanding shares as of the last day of the quarter before September 30, 1996. Each warrant permits purchase of one registered Holding Company share, or a successor’s or assignee’s share, through September 30, 2008, at the specified 20-business-day average Association closing price. The number of shares and price adjust for the listed conversion and corporate events if agreed by the Treasury Secretary and Association. (B) The Authority may sell or exercise the warrants and must deposit the money into the section 1155(e) account. (10) After reorganization, the Holding Company may not sell, pledge, or transfer Association shares, agree to or cause Association liquidation, or cause an Association title 11 bankruptcy petition without prior approval from both the Treasury and Education Secretaries.

(d) Termination of Association. If shareholders approve reorganization, the Association dissolves and ends its separate existence on September 30, 2008, after debt discharge and liquidation. It may dissolve earlier after notice to both Secretaries unless, within 60 days, the Education Secretary says it is still needed as lender of last resort or to purchase loans under the subsection (c)(6) agreement. On dissolution: (1) under an irrevocable trust agreement satisfactory in form and substance to the Treasury Secretary, the Association, and the appointed trustee, the Association transfers all remaining obligations to a trust and deposits enough money or direct noncallable United States obligations, backed by full faith and credit, to pay principal and interest on time. If the Association cannot provide enough, the Holding Company must provide the deficiency. (2) The trustee uses trust money, obligations, and financial assets to pay the remaining obligations. (3) The Association provides for every other obligation, including preferred-stock repurchase or redemption. Unsatisfied obligations become Holding Company liabilities on dissolution. (4) After paragraphs (1) and (3), remaining trust assets go to the Holding Company or its subsidiary as the Holding Company directs.

(e) Holding Company operation. After the effective date: (1) the Holding Company Board’s size and membership follow its charter or bylaws and the incorporation jurisdiction’s law; (2) the Holding Company and subsidiaries other than the Association may not use the name “Student Loan Marketing Association,” but may use “Sallie Mae” or another Board-approved name when law allows; (3) the Association may assign the “Sallie Mae” trademark or service mark to the Holding Company or a subsidiary, but they generally may not use it on or to identify the issuer of debt or other securities, except securities issued to and held by the Holding Company or its subsidiaries. The Association must pay $5,000,000 into the section 1155(e) account within 60 days as compensation for the assignment right; and (4) for 3 years after dissolution, offering documents must say Holding Company and subsidiary obligations are not backed by United States full faith and credit, and advertisements using the name must say they are not a government-sponsored enterprise or United States instrumentality.

(f) Strict construction. Unless this section specifically says otherwise, it does not limit the Association’s authority as a federally chartered corporation or the Holding Company’s authority as a State^*- or District-of-Columbia-chartered corporation.

(g) Enforcement. The Education or Treasury Secretary may ask the Attorney General to enforce this section in the United States District Court for the District of Columbia, or may bring the action under the Attorney General’s direction. The court may order compliance.

(h) Deadline. This section has no further force if the reorganization effective date does not occur within 18 months after September 30, 1996.

(i) Definitions. (1) “Association” means the Student Loan Marketing Association. (2) “Dissolution date” means September 30, 2008, or an earlier date the Education Secretary permits for transferring remaining obligations under subsection (d). (3) “Holding Company” means the new business corporation the Association establishes under a State’s or the District of Columbia’s law for the subsection (a) reorganization. (4) “Remaining obligations” means Association debt outstanding on the dissolution date. (5) “Remaining property” means Association assets and liabilities outstanding on the effective date: (A) Association debt; (B) interest-rate, currency, or commodity contracts and protections; (C) Association investment securities; (D) instruments, assets, or agreements described in section 1087–2(d), including student loans, purchase and sale agreements, forward commitments, warehousing advances, academic-facilities obligations, letters of credit, standby bond-purchase agreements, liquidity agreements, and student-loan revenue bonds or other loans; and (E) other nonmaterial assets or liabilities the Board finds necessary or appropriate, unless this section or section 1087–2 prohibits them. (6) “Reorganization” means the restructuring event or events, including a merger, that creates the Holding Company structure. (7) “Reorganization effective date” means the date the Association Board sets, not before shareholder approval and not later than 18 months after September 30, 1996. (8) “Subsidiary” means one or more direct or indirect subsidiaries.