UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

SLM CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
			SLM Corporation voting common stock, par value $0.20 per share.
	(2)		Aggregate number of securities to which transaction applies:
			411,478,750 shares of SLM Corporation common stock; 42,388,933 options to purchase shares of SLM Corporation common stock; restricted stock units to purchase 689,071.62 shares of SLM Corporation common stock; and deferred stock units to purchase 949,619 shares of SLM Corporation common stock
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			The filing fee was based upon the sum of (a) 411,478,750 shares of SLM Corporation common stock multiplied by the merger consideration of $60.00 per share, plus (b) $905,474,046 expected to be paid upon cancellation of outstanding options, plus (c) 689,071.62 restricted stock units multiplied by the merger consideration of $60.00 per share, plus (d) 949,619 deferred stock units multiplied by the merger consideration of $60.00 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00003070 by the sum of the preceding sentence.
	(4)		Proposed maximum aggregate value of transaction:
			$25,692,520,483.20
	(5)		Total fee paid:
			$788,760.38

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

12061 Bluemont Way

Reston, Virginia 20190

 

 

[          ], 2007

 

Dear Stockholder:

 

The board of directors of SLM Corporation, acting upon the unanimous recommendation of the transaction committee of the board of directors, has approved a merger agreement providing for the acquisition of SLM Corporation by Mustang Holding Company Inc., an entity owned by an investor group consisting of affiliates of J.C. Flowers & Co. LLC and each of JPMorgan Chase Bank, N.A. and Bank of America, N.A. If the merger contemplated by the merger agreement is completed, you will be entitled to receive $60.00 in cash, without interest and less any applicable withholding taxes, in exchange for each share of common stock owned by you at the effective time of the merger (unless you have exercised your appraisal rights with respect to the merger).

 

At a special meeting of our stockholders, you will be asked to vote on a proposal to approve and adopt the merger agreement. The special meeting will be held on [          ], 2007 at [          ] local time, at [          ]. Notice of the special meeting and the related proxy statement are enclosed.

 

The accompanying proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and the merger agreement carefully. You may also obtain more information about SLM Corporation from documents we have filed with the Securities and Exchange Commission.

 

Our board of directors has determined that the merger is fair to and in the best interests of SLM Corporation and its stockholders and recommends that you vote “FOR” the approval and adoption of the merger agreement. This recommendation is based, in part, upon the unanimous recommendation of the transaction committee of the board of directors consisting of four independent directors.

 

Your vote is very important. We cannot complete the merger unless a majority of the votes entitled to be cast by the holders of the outstanding shares of common stock are cast in favor of the approval and adoption of the merger agreement. The failure of any stockholder to vote on the proposal to approve and adopt the merger agreement will have the same effect as a vote against the approval and adoption of the merger agreement.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or submit your proxy by telephone or the Internet. If you have Internet access, we encourage you to record your vote via the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

Albert L. Lord

Chairman of the Board

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

 

The proxy statement is dated [          ], 2007, and is first being mailed to stockholders on or about [          ], 2007.

12061 Bluemont Way

Reston, Virginia 20190

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [          ], 2007

 

[          ], 2007

 

Dear Stockholder:

 

 

A special meeting of stockholders of SLM Corporation, a Delaware corporation, will be held on [          ], 2007 at [          ] local time, at [          ], for the following purposes:

 

1. To consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger, dated as of April 15, 2007, by and among SLM Corporation, Mustang Holding Company Inc., a Delaware corporation and Mustang Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Mustang Holding Company Inc. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement. Pursuant to the terms of the merger agreement, Mustang Merger Sub, Inc. will merge with and into SLM Corporation and each outstanding share of SLM Corporation’s common stock, par value $0.20 per share (other than shares held by the SLM Corporation as treasury stock or owned by Mustang Holding Company Inc. or Mustang Merger Sub, Inc. and shares held by stockholders, if any, who have properly demanded statutory appraisal rights), will be converted into the right to receive $60.00 in cash, without interest and less any applicable withholding taxes.

 

2. To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the merger agreement.

 

Only stockholders of record on [          ] are entitled to notice of and to vote at the special meeting or at any adjournment or postponement of the special meeting. All stockholders of record are cordially invited to attend the special meeting in person.

 

The approval and adoption of the merger agreement requires the affirmative vote of a majority of the votes entitled to be cast by the holders of SLM Corporation’s common stock. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares will be represented at the special meeting if you are unable to attend. If you have Internet access, we encourage you to record your vote via the Internet. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote against the approval and adoption of the merger agreement, but will not affect the outcome of the vote regarding the adjournment proposal, if necessary. If you are a stockholder of record, voting in person at the meeting will revoke any proxy previously submitted. If you hold your shares through a bank, broker or other custodian, you must obtain a legal proxy from such custodian in order to vote in person at the meeting.

 

If your shares are held by a bank or broker, please bring to the special meeting your statement evidencing your beneficial ownership of SLM Corporation common stock and photo identification.

 

Stockholders of SLM Corporation who do not vote in favor of the approval and adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of common stock if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY IN THE ACCOMPANYING REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. IF YOU HAVE INTERNET ACCESS, WE ENCOURAGE YOU TO RECORD YOUR VOTE VIA THE INTERNET. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

 

 

Mary F. Eure
Corporate Secretary

 

TABLE OF CONTENTS

 

 

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where You Can Find More Information” beginning on page [  ].

 

The Parties to the Merger (Page [  ])

 

SLM Corporation, a Delaware corporation, which we refer to as the Company, is the nation’s leading provider of saving-and paying-for-college programs. The Company originates education loans and serves nearly 10 million student and parent customers. The Company and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies.

 

Mustang Holding Company Inc., which we refer to as Parent, is a newly formed Delaware corporation. Parent was formed solely for the purpose of effecting the merger and the transactions related to the merger. Parent has not engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the Agreement and Plan of Merger, dated as of April 15, 2007, by and among the Company, Parent and Mustang Merger Sub, Inc., which we refer to as the merger agreement. Following completion of the merger, Parent will be owned 50.2% by investment vehicles affiliated with J.C. Flowers & Co. LLC, which we refer to as J.C. Flowers, and 24.9% by each of JPMorgan Chase Bank, N.A., which we refer to as JPMorgan Chase, and Bank of America, N.A., which we refer to as Bank of America. We refer to each of J.C. Flowers, JPMorgan Chase and Bank of America as an Investor and collectively as the Investor Group.

 

Mustang Merger Sub, Inc., which we refer to as Merger Sub, is a newly formed Delaware corporation and a wholly owned subsidiary of Parent that was formed solely for the purpose of completing the merger. Merger Sub has not engaged in any business except activities incidental to its organization and in connection with the transactions contemplated by the merger agreement.

 

The Merger (Page [  ])

 

The merger agreement provides that Merger Sub will merge with and into the Company at the effective time of the merger, which we refer to as the merger. The Company will be the surviving corporation in the merger and following the merger will continue to do business as “SLM Corporation” or “Sallie Mae”. We refer to the Company after the completion of the merger as the surviving corporation. In the merger, each outstanding share of the Company’s common stock, par value $0.20 per share (other than shares held by the Company as treasury stock or owned by Parent or Merger Sub and shares held by stockholders who have properly demanded statutory appraisal rights), will be converted into the right to receive $60.00 in cash, without interest and less any applicable withholding taxes, which we refer to in this proxy statement as the merger consideration. Prior to completion of the merger, the Company will not pay dividends on the Company’s common stock.

 

Effects of the Merger (Page [  ])

 

If the merger is completed, you will be entitled to receive $60.00 in cash, without interest and less any applicable withholding taxes, for each share of the Company’s common stock owned by you, unless you have exercised your statutory appraisal rights with respect to the merger. As a result of the merger, the Company will cease to be a publicly traded company. You will not own any shares of the surviving corporation.

 

The Special Meeting (Page [  ])

 

Time, Place and Date

 

The special meeting will be held on [          ], 2007 at [          ] local time, at [          ].

 

Purpose

 

At the special meeting, you will be asked to consider and vote upon the approval and adoption of the merger agreement, pursuant to which Merger Sub will merge with and into the Company.

 

Record Date and Quorum

 

You are entitled to vote at the special meeting if you owned shares of the Company’s common stock at the close of business on [          ], 2007, the record date for the special meeting. You will have one vote for each share of the Company’s common stock that you owned on the record date. As of the record date there were [          ] shares of the Company’s common stock outstanding and entitled to vote. A majority of the total voting power of the Company’s common stock issued, outstanding and entitled to vote at the special meeting constitutes a quorum for the purpose of considering the proposals.

 

Vote Required

 

The approval and adoption of the merger agreement requires the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding shares of the Company’s common stock. Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the Company’s common stock represented in person or by proxy at the special meeting and entitled to vote on the matter, whether or not a quorum is present.

 

Common Stock Ownership of Directors and Executive Officers

 

As of the record date, the directors and executive officers of the Company held less than [     ]% in the aggregate of the shares of the Company’s common stock entitled to vote at the special meeting. All of our directors and executive officers have advised the Company that they plan to vote all of their shares in favor of the approval and adoption of the merger agreement.

 

Voting and Proxies

 

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, the Internet, returning the enclosed proxy card by mail or voting in person by appearing at the special meeting. If your shares of the Company’s common stock are held in “street name” by your broker, you should instruct your broker on how to vote your shares of the Company’s common stock using the instructions provided by your broker. If you do not provide your broker with instructions, your shares of the Company’s common stock will not be voted and that will have the same effect as a vote “AGAINST” the approval and adoption of the merger agreement. The persons named in the accompanying proxy will also have discretionary authority to vote on any adjournments or postponements of the special meeting.

 

Revocability of Proxy

 

Any stockholder of record who executes and returns a proxy card (or submits a proxy via telephone or the Internet) may revoke the proxy at any time before it is voted at the special meeting in any one of the following ways:

 

 

 

Treatment of Options and Other Awards (Page [  ])

 

Stock Options.  Upon the completion of the merger, each outstanding option to acquire the Company’s common stock granted under our equity incentive plans, whether or not vested, that remains outstanding as of the closing of the merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock underlying the option multiplied by the amount (if any) by which $60.00 exceeds the applicable exercise price of the option, less any applicable withholding taxes.

 

Restricted Stock Units.  Upon the completion of the merger, all restricted stock units, whether or not vested, will be cancelled and converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock underlying the restricted stock units multiplied by $60.00, less any applicable withholding taxes.

 

Deferred Stock Units.  Upon the completion of the merger, all amounts held in participant accounts under the deferred compensation plans that are denominated in the Company’s common stock will be converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock deemed held in such accounts multiplied by $60.00. This obligation will be payable or distributable in accordance with the terms of our deferred compensation plans, as amended to comply with Section 409A of the Internal Revenue Code.

 

Restricted Stock.  Upon the completion of the merger, each share of restricted stock, whether or not vested, will be cancelled and converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock represented by the share of restricted stock multiplied by $60.00, less any applicable withholding taxes.

 

Employee Stock Purchase Plan.  The Company has taken all action necessary to cause our Employee Stock Purchase Plan to be suspended as of the end of April 2007. The Company has caused the then current offering periods to end and such periods are the final offering periods under the plan. Upon completion of the merger, the Employee Stock Purchase Plan will be terminated.

 

Recommendation of the Transaction Committee and Our Board of Directors (Page [  ])

 

Transaction Committee.  The transaction committee is a committee of independent members of our board of directors that was formed on February 7, 2007, for the purpose of evaluating strategic alternatives of the Company. The transaction committee unanimously determined that the merger is advisable and that it is in the best interests of the Company and its stockholders to effect the transactions contemplated by the merger agreement and unanimously recommended that the board of directors (i) authorize and approve entry by the Company into the merger agreement and the transactions contemplated thereby and (ii) recommend the approval and adoption of the merger agreement and the merger by the Company’s stockholders. For a discussion of the material factors considered by the transaction committee in reaching its conclusions, see “The Merger — Reasons for the Merger; Recommendation of the Transaction Committee and Our Board of Directors” beginning on page [  ].

 

Board of Directors.  The board of directors, acting upon the unanimous recommendation of the transaction committee, (i) determined that the merger agreement and the merger are fair to and in the best interests of the Company and its stockholders and declared the merger to be advisable, (ii) approved the execution, delivery and performance of the merger agreement and the completion of the transactions contemplated thereby, including the merger, and (iii) resolved to recommend that the stockholders approve the adoption of the merger agreement and directed that such matter be submitted to the stockholders for their approval. The board of directors recommends that stockholders vote “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Interests of the Company’s Directors and Executive Officers in the Merger (Page [  ])

 

In considering the recommendation of the board of directors, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder, that may present actual or potential conflicts of interest.

 

Opinions of Financial Advisors (Page [  ])

 

In connection with the merger, the transaction committee’s financial advisors, UBS Securities LLC, which we refer to as UBS, and Greenhill & Co., LLC, which we refer to as Greenhill, each separately delivered to the transaction committee and the board of directors a written opinion, each dated April 15, 2007, as to the fairness, from a financial point of view and as of the date of such opinion, of the merger consideration to be received by the holders of the Company’s common stock (other than, in the case of UBS’ opinion, Parent, holders of beneficial interests in Parent and their respective affiliates to the extent they are holders of the Company’s common stock and, in the case of Greenhill’s opinion, affiliates of or holders of beneficial interests in Parent or Merger Sub to the extent they are holders of the Company’s common stock). The full text of the written opinions of UBS and Greenhill are attached to this proxy statement as Annex B and Annex C, respectively. Holders of the Company’s common stock are encouraged to read these opinions carefully in their entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. UBS’ and Greenhill’s opinions were provided to the transaction committee and board of directors and were directed only to fairness of the merger consideration from a financial point of view, do not address any other aspect of the merger or any related transaction and do not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger or any matters relating to the merger.

 

Financing (Page [  ])

 

Parent and Merger Sub estimate that the total amount of funds necessary to complete the merger and related transactions will be approximately $25.3 billion, which will be funded by new credit facilities, private offerings of debt securities and equity financing provided by the Investor Group. Funding of the equity and debt financing is subject to the satisfaction of the conditions set forth in the commitment letters under which such financing will be provided. See “The Merger — Financing of the Merger” beginning on page [  ]. The following arrangements are in place for the financing of the merger, including the payment of the aggregate merger consideration and the payment of related transaction costs, charges, fees and expenses:

 

Equity Financing.  Parent has received equity commitment letters from each Investor, pursuant to which, and subject to the conditions contained therein, the Investors have agreed severally to make or secure aggregate capital contributions of up to approximately $8.8 billion to Parent.

 

Debt Financing.  Parent has received a debt commitment letter from Bank of America and JPMorgan Chase, which we refer to collectively as the Lender Parties, and certain of their respective affiliates to provide Parent (i) up to $12.5 billion under a senior secured term loan facility and (ii) to the extent Parent does not issue up to $4.0 billion in aggregate principal amount of senior second lien secured notes in a Rule 144A offering or other private placement, $4.0 billion under a senior second lien secured bridge facility.

 

Other Financings.  On April 30, 2007, the Lender Parties and certain affiliates thereof entered into Participation Purchase and Security Agreements with subsidiaries of the Company pursuant to which such Lender Parties and their affiliates agreed to purchase participation interests in eligible FFELP and private credit loans up to an aggregate amount of $30.0 billion. These arrangements will be available until the earliest to occur of (i) February 15, 2008, (ii) the closing date of the merger and (iii) ninety days after termination of the merger agreement (or fifteen days after the date of termination of the merger agreement in connection with a “superior proposal”, as defined in the merger agreement).

 

In addition, the Lender Parties have agreed to provide upon closing, subject to the conditions set forth in the debt commitment letter, (i) three-year asset-backed commercial paper conduit facilities (with 364-day committed liquidity support facilities) of not more than $28.0 billion in the aggregate, for securitization of

FFELP and private credit loans of the surviving corporation and its subsidiaries, (ii) forward flow purchase facilities regarding the purchase and sale of certain FFELP and private credit student loans for an aggregate purchase price of up to $180.0 billion over five years following the Closing Date and (iii) a loan purchase facility regarding the purchase and sale of eligible unencumbered assets for an aggregate purchase price of up to $20.0 billion over the 364 days following the Closing Date.

 

Antitrust and Other Regulatory Approvals (Page [  ])

 

We have agreed to use our reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, and the rules promulgated thereunder by the Federal Trade Commission, which we refer to as the FTC, the merger may not be completed until notification and report forms have been filed with the FTC and the Antitrust Division of the Department of Justice, which we refer to as the DOJ, and applicable waiting periods have expired or been terminated. The Company and Parent filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ on May 18, 2007. We have filed or intend to file for other approvals, including those from the Federal Deposit Insurance Corporation and other federal and state regulatory authorities.

 

Material U.S. Federal Income Tax Consequences (Page [  ])

 

The exchange of shares of the Company’s common stock for cash pursuant to the merger agreement generally will be a taxable transaction to U.S. Holders for U.S. federal income tax purposes. U.S. Holders who exchange their shares of the Company’s common stock in the merger will generally recognize capital gain or loss in an amount equal to the difference, if any, between the cash received in the merger and their adjusted tax basis in their shares of the Company’s common stock. You should consult your own tax advisor for a complete analysis of the effect of the merger for federal, state, local and foreign tax purposes.

 

Conditions to the Merger (Page [  ])

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

Conditions to Parent’s and Merger Sub’s Obligations.  The obligation of Parent and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

Conditions to the Company’s Obligations.  Our obligation to complete the merger is subject to the satisfaction or waiver of the following further conditions:

 

 

Restrictions on Solicitations of Other Offers (Page [  ])

 

Commencing on the date of the merger agreement, we have agreed not to:

 

 

Notwithstanding these restrictions, at any time prior to the approval of the merger agreement by our stockholders, we are permitted to engage in discussions or negotiations with, or provide information with respect to the Company to, any third party to the extent that:

 

 

In addition, we may terminate the merger agreement and enter into a definitive agreement with respect to a superior proposal if we receive a bona fide written acquisition proposal that our board of directors (acting through the transaction committee if such committee still exists) concludes in good faith, after consultation with its independent financial advisor and outside counsel, constitutes a superior proposal, after giving effect to any adjustments to the terms of the merger agreement offered by Parent, and determines in good faith, after consultation with outside counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law. The Company is not entitled to enter into any agreement with respect to a superior proposal unless the merger agreement has been or is concurrently terminated in accordance with its

terms and in certain circumstances the Company has concurrently paid to Parent the $900 million termination fee as described in further detail in “The Merger Agreement — Termination Fees” beginning on page [  ].

 

Termination of the Merger Agreement (Page [  ])

 

The merger agreement may be terminated at any time prior to the completion of the merger, whether before or after stockholder approval has been obtained:

 

 

 

 

 

 

 

Termination Fees (Page [  ])

 

The merger agreement provides that the Company will be required to pay Parent a termination fee equal to $900 million upon termination of the merger agreement in the following circumstances:

 

 

The Company will also be required to pay Parent a fee equal to $900 million in the following circumstances:

 

 

The merger agreement provides that Parent will be required to pay the Company a termination fee equal to $900 million upon termination of the merger agreement in the following circumstances:

 

 

Limitation on Liability (Page [  ])

 

The Company’s sole and exclusive remedy with respect to any breach of the merger agreement will be the termination of the merger agreement in accordance with its terms and payment by Parent to the Company of the $900 million termination fee, if applicable.

 

Specific Performance (Page [  ])

 

The Company is not entitled to seek an injunction or injunctions to prevent breaches of the merger agreement by Parent or Merger Sub or any remedy to enforce specifically the terms and provisions of the merger agreement.

 

Parent and Merger Sub are entitled to seek an injunction or injunctions to prevent breaches of the merger agreement by the Company or to enforce specifically the performance of the terms and provisions of the merger agreement by the Company in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity.

 

Limited Guarantees (Page [  ])

 

In connection with the merger agreement, each of the Investors entered into a limited guarantee with the Company under which, among other things, each of the Investors is guaranteeing payment of the termination fee payable by Parent, if applicable, and Parent’s obligation for breach of the merger agreement, if applicable, up to a maximum amount equal to each Investor’s respective pro rata share of $900 million. The limited guarantee is the Company’s sole recourse against each Investor as a guarantor.

 

Appraisal Rights (Page [  ])

 

Under Delaware law, holders of the Company’s common stock who do not vote in favor of approving and adopting the merger agreement will have the right to seek appraisal of the fair value of their shares of the Company’s common stock as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this proxy statement. This appraisal amount could be more than, the same as or less than the merger consideration. Any holder of the Company’s common stock intending to exercise such holder’s appraisal rights, among other things, must submit a written demand for an appraisal to us prior to the vote on the approval and adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of approval and adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights.

 

Market Price of Common Stock (Page [  ])

 

The closing sale price of the Company’s common stock on the New York Stock Exchange, which we refer to as the NYSE, on April 12, 2007, the last trading day prior to press reports of rumors regarding a potential acquisition of the Company, was $40.75. The $60.00 per share to be paid for each share of the Company’s common stock in the merger represents a premium of approximately 47.24% to the closing price on April 12, 2007 and a premium of approximately 44.17% to the average closing share price during the thirty trading days ended April 12, 2007.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See “Where You Can Find More Information” beginning on page [  ].

 

 

 

 

 

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, include forward-looking statements based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary,” “Questions and Answers about the Special Meeting and the Merger,” “The Merger,” “The Merger — Regulatory Approvals,” and in statements containing words such as “believes,” “estimates,” “anticipates,” “continues,” “contemplates,” “expects,” “may,” “will,” “could,” “should” or “would” or other similar words or phrases. These statements, which are based on information currently available to us, are not guarantees of future performance and may involve risks and uncertainties that could cause our actual growth, results of operations, performance and business prospects, and opportunities to materially differ from those expressed in, or implied by, these statements. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement included in this proxy statement or elsewhere. In addition to other factors and matters contained or incorporated in this document, these statements are subject to risks, uncertainties, and other factors, including, among others:

 

 

and other risks detailed in our current filings with the SEC, including our most recent filings on Forms 10-Q and 10-K. See “Where You Can Find More Information” beginning on page [  ]. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

SLM Corporation

 

12061 Bluemont Way

Reston, Virginia 20190

(703) 810-3000

 

The Company is the nation’s leading provider of saving-and paying-for-college programs. The Company originates education loans and serves nearly 10 million student and parent customers. The Company and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies.

 

For more information about the Company, please visit our website at www.salliemae.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. See also “Where You Can Find More Information” beginning on page [  ]. The Company’s common stock is publicly traded on the NYSE under the symbol “SLM”.

 

Parent

 

Mustang Holding Company Inc.

c/o J.C. Flowers & Co. LLC

717 Fifth Avenue, 26th Floor

New York, New York 10022

(212) 404-6800

 

Parent is a newly formed Delaware corporation. Parent was formed solely for the purpose of acquiring the Company and has not engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. Following completion of the merger, Parent will be owned 50.2% by investment vehicles affiliated with J.C. Flowers and 24.9% by each of JPMorgan Chase and Bank of America.

 

At the effective time of the merger, Parent will be owned by the Investor Group. The Investors have the right to include additional investors in Parent and as a result, the Investors may ultimately include additional equity participants.

 

Merger Sub

 

Mustang Merger Sub, Inc.

c/o J.C. Flowers & Co. LLC

717 Fifth Avenue, 26th Floor

New York, New York 10022

(212) 404-6800

 

Merger Sub is a newly formed Delaware corporation and a wholly owned subsidiary of Parent that was formed solely for the purpose of completing the merger. Merger Sub has not engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. Upon the completion of the proposed merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting to be held on [          ], 2007 at [          ] local time, at [          ], or at any postponement or adjournment thereof. The purpose of the special meeting is for our stockholders to consider and vote upon approval and adoption of the merger agreement (and to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies). Our stockholders must approve and adopt the merger agreement in order for the merger to occur. If the stockholders fail to approve and adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on [          ], 2007.

 

We have fixed the close of business on [          ], 2007 as the record date for the special meeting, and only holders of record of the Company’s common stock on the record date are entitled to vote at the special meeting. On the record date, there were [          ] shares of the Company’s common stock outstanding and entitled to vote. Each share of the Company’s common stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the total voting power of the Company’s common stock issued, outstanding and entitled to vote at the special meeting constitutes a quorum for the purpose of considering the proposals. Shares of the Company’s common stock represented at the special meeting but not voted, including shares of the Company’s common stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.

 

Approval and adoption of the merger agreement requires the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding shares of the Company’s common stock. For the proposal to approve and adopt the merger agreement, you may vote “FOR”, “AGAINST” or “ABSTAIN”. Abstentions will not be counted as votes cast or shares voting on the proposal to approve and adopt the merger agreement, but will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as a vote “AGAINST” the approval and adoption of the merger agreement.

 

Under the rules of the NYSE, brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approving non-routine matters such as the approval and adoption of the merger agreement and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” These “broker non-votes” will be counted for purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the approval and adoption of the merger agreement.

 

As of [          ], the record date, the directors and executive officers of the Company held and are entitled to vote, in the aggregate, [          ] shares of the Company’s common stock, representing less than [     ]% of the Company’s common stock outstanding. The directors and executive officers have informed the Company that they currently intend to vote all of their shares of the Company’s common stock “FOR” the approval and adoption of the merger agreement.

 

If you submit a proxy by telephone or the Internet or by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate on your proxy card or by such other method. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.

 

If your shares of the Company’s common stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” approval and adoption of the merger agreement.

 

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. You have the right to change or revoke your proxy at any time before the vote taken at the special meeting:

 

 

Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your stock certificates.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice (if the adjournment is not for more than thirty days or if after the adjournment no new record date is fixed), other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Whether or not a quorum exists, holders of a majority of the combined voting power of the Company’s common stock represented in person or by proxy at the special meeting and entitled to vote thereat may adjourn the special meeting. Any signed proxies received by the Company which do not include voting instructions regarding an adjournment of the special meeting will be voted “FOR” an adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

Stockholders are entitled to statutory appraisal rights under Delaware law in connection with the merger. This means that you are entitled to have the value of your shares determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive as a dissenting stockholder in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the merger agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to the Company before the vote is taken on the merger agreement and you must not vote in favor of the approval and adoption of the

merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Dissenters’ Rights of Appraisal” beginning on page [  ] and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex D.

 

This proxy solicitation is being made and paid for by the Company on behalf of its board of directors. In addition, we have retained MacKenzie Partners to assist in the solicitation. We will pay MacKenzie Partners approximately $20,000 plus reasonable out-of-pocket expenses for their assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of the Company’s common stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses. In addition, we will indemnify MacKenzie Partners against any losses arising out of that firm’s proxy soliciting services on our behalf.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call MacKenzie Partners at 800-323-2885.

 

The opinions referenced in this proxy statement will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of the Company’s common stock.

 

The Company’s board of directors, acting upon the unanimous recommendation of the transaction committee, has approved the merger agreement and the transactions contemplated thereby. The Company’s board of directors has determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of the Company and its stockholders and recommends that the Company’s stockholders vote “FOR” the proposal to approve and adopt the merger agreement. See “The Merger — Reasons for the Merger; Recommendation of the Transaction Committee and Our Board of Directors” on page [  ] for a more detailed discussion of the recommendation of the Company’s board of directors.

THE MERGER

 

The following discussion contains material information pertaining to the merger. This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is annexed to this proxy statement. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

To enhance stockholder value, the Company’s board of directors has periodically discussed and reviewed the Company’s business, strategic direction, performance and prospects in the context of developments in the industry and in the markets in which the Company operates. The Company’s board of directors has also regularly discussed with senior management various potential strategic alternatives.

 

In the fall of 2005, representatives of the Company had various exploratory discussions with representatives of several private equity firms, including representatives of a private equity firm that we refer to below as the Other Bidder, concerning a potential acquisition of the Company. The discussions were terminated in December 2005 due in substantial part to the uncertainty of the parties involved as to the feasibility of a leveraged buyout of the Company, including in particular concerns relating to whether the Company would be able to maintain its investment grade debt ratings in connection with any such transaction.

 

In October 2006, Mr. Albert L. Lord, the Chairman of the board of directors of the Company, met with Mr. Spencer Fleischer of Friedman Fleischer & Lowe, a San Francisco-based private equity firm, and discussed potential strategic opportunities for the Company. In November 2006, Mr. Fleischer introduced Mr. Lord to representatives of J.C. Flowers to discuss the possibility of an acquisition of the Company.

 

Mr. Lord engaged in a discussion with J.C. Flowers because of the reputation of that firm, and Mr. J. Christopher Flowers in particular, as being experienced in and capable of completing complex transactions in the financial services industry and having in depth knowledge of the financial services industry. After the initial discussion with Mr. Flowers, Mr. Lord held intermittent discussions with Mr. Flowers regarding the possibility of an acquisition of the Company by an investor group led by J.C. Flowers. Thereafter, senior management of the Company met other representatives of J.C. Flowers to discuss the possibility of a transaction and review the Company’s business.

 

On January 25, 2007, at a regularly scheduled meeting of the board of directors of the Company, the board of directors discussed strategic alternatives of the Company and asked management to review strategic options for the Company and report back to the board of directors at its next regularly scheduled meeting. As a result of such request, the Company requested that Sandler O’Neill & Partners review strategic alternatives for the Company and prepare a report on strategic alternatives for the next regularly scheduled meeting of the board of directors, to be held in March 2007.

 

On February 7, 2007, after Mr. Flowers indicated to Mr. Lord that he believed that a transaction between the Company and a group of investors to be led by J.C. Flowers might be feasible, the board of directors convened a meeting to review the preliminary discussions that had taken place with J.C. Flowers. After discussion, the board of directors approved the formation of a transaction committee comprised of independent directors Ann Torre Bates, Ronald F. Hunt, Albert L. Lord and Wolfgang Schoellkopf to evaluate and review strategic opportunities for the Company.

 

On several occasions in February, senior management of the Company met with representatives of J.C. Flowers, JPMorgan Chase and Bank of America to discuss issues relating to the Company’s business.

 

On February 12, 2007, the transaction committee held a telephonic meeting to consider the retention of independent legal counsel and financial advisors.

 

After the February 12 meeting Messrs. Lord and Schoellkopf, on behalf of the transaction committee, held meetings with several law firms and investment banks. On February 16, 2007, at a telephonic meeting of the transaction committee, Messrs. Lord and Schoellkopf informed other members of the transaction

committee that they had interviewed possible legal advisors and, after discussion, the transaction committee determined to engage Davis Polk & Wardwell, which we refer to as Davis Polk, as its legal advisor. Representatives of Davis Polk were then invited to join the meeting and reviewed with the transaction committee its fiduciary duties in connection with its consideration of a possible transaction. On March 2, 2007, Messrs. Lord and Schoellkopf informed other members of the transaction committee that they had interviewed possible financial advisors, including UBS and Greenhill, and, subsequently, the transaction committee determined to retain UBS as financial advisor to the transaction committee, subject to negotiation and execution of an approved engagement letter.

 

Also on March 2, 2007, the transaction committee determined that it would be beneficial to meet with representatives of J.C. Flowers to learn more about their assessment of the Company and their perspectives on the possibility of a transaction.

 

On March 8, 2007, the transaction committee and its financial and legal advisors met with representatives of J.C. Flowers and Bank of America. A representative of Bank of America indicated that it was expecting to be a member of the Investor Group. The transaction committee was further advised that JPMorgan Chase was also expected to join the Investor Group. After the meeting, the transaction committee and representatives of UBS and Davis Polk met to discuss next steps and to review other potential third parties that might be interested in exploring a potential transaction with the Company. Members of the transaction committee were committed to creating a strong competitive process; however, the committee recognized that it was also important to preserve the confidentiality of any process in view of the potential for material disruption to the Company (including the potential for damage to its investment grade rating) that might result from a premature public disclosure, which necessarily meant limiting the number of bidders involved. Concern was also expressed that given the size and public prominence of the Company and the special characteristics of a leveraged buyout in the financial services sector, a premature public disclosure could result in an unsatisfactory offer or the Company not being acquired at all. In light of the presence in the Investor Group of two major financial institutions and a private equity fund with a high level of acknowledged experience in financial institutions transactions, as well as the discussions with several private equity firms in the fall of 2005 regarding a potential transaction, the transaction committee determined to limit the number of parties to be approached. After review of a number of potential parties, the transaction committee instructed UBS to approach a leading private equity firm which we refer to as the Other Bidder. The transaction committee instructed UBS to contact the Other Bidder because of the prior interest the Other Bidder had shown in an acquisition of the Company, the reputation of the Other Bidder as a leading private equity firm capable of completing large, complex leveraged buyout transactions and the favorable impression that the Other Bidder’s approach to analyzing the Company’s business and structuring a potential transaction in connection with the discussions in the fall of 2005 regarding a potential transaction had left on the members of the transaction committee.

 

On March 9, 2007, the transaction committee held a telephonic meeting at which representatives of UBS discussed the response of the Other Bidder to inquiries from UBS about a possible transaction. UBS informed the transaction committee that the Other Bidder had indicated that it was prepared to commence due diligence of the Company immediately and was interested in pursuing a possible transaction.

 

On March 11, 2007, Messrs. Lord and Schoellkopf and representatives of UBS met with representatives of the Other Bidder regarding a potential transaction.

 

On March 14, 2007, the transaction committee held a meeting at which Messrs. Lord and Schoellkopf updated the transaction committee and representatives of UBS and Davis Polk on their meeting with representatives of the Other Bidder on March 11, 2007. Messrs. Lord and Schoellkopf reported that the Other Bidder was determined to pursue a potential transaction and that they thought it appropriate that the Other Bidder be invited to submit an indication of interest.

 

Later on March 14, 2007, the board of directors met for its regularly scheduled meeting. Among other activities, it received a report from Sandler O’Neill & Partners regarding the strategic alternatives for the Company and a report from the transaction committee and its financial and legal advisors regarding the process being undertaken by the transaction committee.

 

On March 21, 2007, the transaction committee held a telephonic meeting at which representatives of UBS updated the transaction committee on developments with the Investor Group and the Other Bidder. The transaction committee discussed next steps for the transaction and instructed UBS to inform the Investor Group and the Other Bidder that they should submit their initial indications of interest on March 26, 2007.

 

On March 22, 2007, in accordance with the transaction committee’s instructions, UBS sent bid process letters to J.C. Flowers and the Other Bidder. The letters specified March 26, 2007 as the submission deadline for an offer to acquire 100% of the Company’s common stock and requested that each prospective bidder submit, among other things, a proposed price indication and a detailed description of the structure and funding sources for its proposal, with particular emphasis on whether debt ratings of the Company after the transaction was consummated would constitute a condition to such a proposal.

 

During March and April, the Company, with the assistance of Sandler O’Neill & Partners and UBS, assembled non-public information (including certain non-public financial information regarding the Company’s financial condition and results of operations, as well as the Company’s budgets, plans and forecasts for future periods) in response to requests from J.C. Flowers and the Other Bidder and their respective equity and debt financing sources and made this information available to the representatives of J.C. Flowers and the Other Bidder and their respective equity and debt financing sources through an on-line data room. During this period, management of the Company held several meetings with representatives of J.C. Flowers and the Other Bidder and their respective equity and debt financing sources (which included Bank of America and JPMorgan Chase for J.C. Flowers and a number of prominent financial institutions for the Other Bidder) to discuss the Company’s business, operations, plans, budgets and forecasts, and to answer questions raised by them and their respective advisors regarding these matters. The transaction committee instructed management to refrain from engaging in discussions with either bidder regarding their personal roles or involvement in a potential transaction until such time as an agreement was reached by the transaction committee with a bidder on the price and principal terms of a transaction.

 

On March 26, 2007, the transaction committee held a meeting. At the meeting, representatives of UBS updated the transaction committee on the indicative proposal letter submitted by the Other Bidder earlier in the day. The Other Bidder proposed to acquire 100% of the Company’s common stock for between $56.00 and $57.50 per share in cash. The proposal was not contingent on obtaining financing or the Company maintaining an investment grade credit rating. Representatives of UBS informed the transaction committee that the Investor Group had indicated to UBS that the Investor Group would not submit an indicative proposal on March 26, 2007 as requested by the transaction committee and instead requested exclusivity as a condition to proceeding with the transaction. UBS also reported that the Investor Group had emphasized the importance of the Company retaining an investment grade credit rating after the transaction and indicated that its members would be unlikely to proceed without an investment grade credit rating for the Company after the transaction. The transaction committee rejected the request for exclusivity and was thereafter advised by representatives of the Investor Group that they would submit a bid on March 28, 2007. After further discussions, the transaction committee decided, based upon the receipt of a proposal from the Other Bidder and the communication from the Investor Group, that the Company was well positioned to receive bids from two credible potential acquirors and that the benefits of bringing another potential acquiror into the process were outweighed by the negative impact such an action might have on the Company and on the possibility of a successful conclusion of the current process. The transaction committee therefore instructed Davis Polk to distribute a draft merger agreement to the Other Bidder and instructed UBS not to contact other potential bidders at that time. Also on March 26, 2007, UBS reviewed with the transaction committee the current market environment, the Company’s strategic position and alternatives available to the Company.

 

On March 29, 2007, the Investor Group submitted an indicative proposal letter, and the transaction committee held a telephonic meeting at which representatives of UBS updated the transaction committee on this indicative proposal letter. The Investor Group proposed to acquire 100% of the Company’s common stock for $58.25 per share in cash. The proposal was not contingent on obtaining financing or the Company maintaining an investment grade credit rating. The transaction committee discussed the proposal and instructed UBS to inform the Other Bidder and the Investor Group that final bids, including definitive merger agreements

and financing commitments, should be submitted by April 11, 2007. The transaction committee also authorized the distribution of the draft merger agreement to the Investor Group.

 

On March 30, 2007, the board of directors held a telephonic meeting at which representatives of UBS and Davis Polk updated the board of directors on the status of negotiations with the Investor Group and the Other Bidder.

 

During the week of April 2, the Company, with the assistance of UBS and Sandler O’Neill & Partners, conducted separate due diligence sessions with the Investor Group and the Other Bidder and their respective advisors.

 

On April 4, 2007, the transaction committee held a telephonic meeting at which representatives of Davis Polk updated the transaction committee on the material issues raised by the revised draft of the merger agreement received from the Other Bidder. Representatives of UBS then updated the transaction committee on the progress of due diligence being conducted by the Investor Group and the Other Bidder. The transaction committee also discussed the desirability of engaging Greenhill as an additional financial advisor to the transaction committee. The transaction committee approved the engagement of Greenhill as an additional financial advisor to the transaction committee with a view that Greenhill would be requested solely to issue an opinion with respect to the proposed transaction and would be paid a fixed fee regardless of the conclusions reached in such opinion.

 

Later that same day, the transaction committee received a revised draft of the merger agreement from the Investor Group.

 

On April 6, 2007, the transaction committee held a telephonic meeting at which Mr. Thomas J. Fitzpatrick, the then Vice Chairman and Chief Executive Officer of the Company, and Mr. C.E. Andrews, the then Executive Vice President and Chief Financial Officer of the Company, provided an update on the due diligence conducted by the Other Bidder and the Investor Group. The transaction committee also discussed with Messrs. Fitzpatrick and Andrews the funding and liquidity needs of the Company between the signing of a merger agreement and closing. After Messrs. Fitzpatrick and Andrews left the meeting, representatives of Davis Polk reviewed with the members of the transaction committee principal issues raised by the revised drafts of the merger agreement received from the Investor Group and the Other Bidder, including the closing conditions and the allocation of various risks to the closing of the transaction.

 

Later that same day, representatives of Davis Polk had separate discussions with each of Wachtell, Lipton, Rosen & Katz, legal counsel for the Investor Group, and the outside legal counsel for the Other Bidder, regarding the significant issues raised by the draft merger agreements submitted by each of the bidders. Each of the bidders was instructed to submit a revised draft of the merger agreement with its definitive bids on April 11, 2007.

 

On April 11, 2007, the Investor Group submitted a definitive bid to acquire 100% of the Company’s common stock for $58.25 per share in cash. The proposal was accompanied by a markup of the draft merger agreement, debt commitment letters from JPMorgan Chase and Bank of America, the form of equity commitment letter and the form of limited guarantee from each of the equity sponsors of the Investor Group (J.C. Flowers, JPMorgan Chase and Bank of America) under which the equity sponsors would, on a several basis, guarantee the payment of the termination fee payable in certain circumstances by Parent and Merger Sub under the merger agreement.

 

On April 12, 2007, the Other Bidder submitted a definitive bid to acquire 100% of the Company’s common stock for $58.00 per share in cash. The proposal was accompanied by a markup of the draft merger agreement, debt commitment letters from major lending institutions, the form of equity commitment letter and the form of limited guarantee to be submitted by the Other Bidder and its equity co-investor under which the equity sponsors would guarantee the payment of the termination fee payable under the merger agreement in certain circumstances.

 

Later in the day, the transaction committee held a telephonic meeting at which UBS updated the transaction committee on negotiations with both bidders and informed the transaction committee that the Other

Bidder had requested more time to complete its due diligence. The transaction committee discussed the timing and other implications of the Other Bidder’s request and instructed UBS to inform the Other Bidder to move forward as quickly as possible. Representatives of Davis Polk and the transaction committee discussed the material issues raised by each draft of the merger agreement submitted by each of the bidders. It was noted that both bidders had made significant progress in accommodating the requests of the transaction committee communicated to them.

 

On the evening of April 12, 2007, the transaction committee was advised that reporters had approached the Company seeking comments for news articles to the effect that discussions regarding a possible sale of the Company were ongoing. Such news articles were subsequently published.

 

On April 13, 2007, a telephonic meeting of the board of directors was held at which board members were updated on the status of negotiations with each bidder and on the recent news articles. Immediately following the board meeting, the transaction committee conducted a telephonic meeting and discussed the implications that the news articles might have on the process and the status of negotiations with each bidder.

 

Later that day, Davis Polk engaged in negotiations with representatives of both bidders regarding the remaining issues in the draft merger agreements, including in particular the definition of “Material Adverse Effect,” and the treatment of possible antitrust risks of the bid by the Investor Group. In accordance with the transaction committee’s instructions, UBS requested the bidders to submit their “best and final” offer on the afternoon of Saturday, April 14, 2007.

 

On the morning of April 14, 2007, the transaction committee held a telephonic meeting at which representatives of UBS updated the transaction committee on the status of the process with both bidders and representatives of Davis Polk reported on the contractual allocations of risks related to the closing being discussed with the bidders. Later that day, the transaction committee held a meeting at the offices of Davis Polk at which UBS reported to the committee that the Other Bidder had submitted an offer to purchase 100% of the Company’s common stock for $58.50 per share in cash but had indicated that further due diligence was still required before the Other Bidder would be in a position to enter into a definitive agreement. The Other Bidder had indicated that it was unwilling to give the transaction committee a clear indication of the time it would need to complete its due diligence but indicated it would be at least a few days. UBS also informed the transaction committee that the Investor Group submitted a bid to purchase 100% of the Company’s common stock for $59.00 per share in cash and that the Investor Group indicated that its due diligence was completed and it was prepared to proceed to negotiate final documents immediately. UBS further reported that the Investor Group indicated a willingness to increase its bid to $60.00 per share in cash if the transaction committee would grant exclusivity and recommend the Investor Group’s proposal to the board of directors. After deliberation, the transaction committee instructed UBS to inform the Investor Group that the transaction committee was prepared to move forward to negotiate a definitive agreement with the Investor Group with a view to announcement of the transaction before the markets opened on Monday, April 16, if certain changes to the proposal were made by the Investor Group, including increasing the purchase price to $60.00 per share.

 

Thereafter, the parties and their respective advisors worked to finalize the definitive merger agreement, financing agreements and ancillary documents.

 

On April 15, 2007, the transaction committee held a meeting at the offices of Davis Polk. Davis Polk updated the transaction committee on the outstanding issues in the merger agreement and reviewed the fiduciary duties of directors under Delaware law. UBS and Greenhill reviewed their joint financial analysis of the merger consideration with the transaction committee and each separately delivered an oral opinion, which opinion was confirmed by delivery of a written opinion dated April 15, 2007, to the transaction committee and the board of directors, to the effect that, as of that date and based on and subject to certain assumptions, matters considered and limitations described in such opinion, the merger consideration to be received by the holders of the Company’s common stock (other than, in the case of UBS’ opinion, Parent, holders of beneficial interests in Parent and their respective affiliates to the extent they are holders of the Company’s common stock and, in the case of Greenhill’s opinion, affiliates of or holders of beneficial interests in Parent or Merger Sub to the extent they are holders of the Company’s common stock) pursuant to the merger agreement was fair, from a financial point of view, to such holders of the Company’s common stock.

 

After considering the terms of the proposed merger agreement with the Investor Group and other related transaction documents and the other factors set forth in “Reasons for the Merger, Recommendation of the Transaction Committee and Our Board of Directors — Transaction Committee”, the transaction committee unanimously resolved that the proposed merger with the Investor Group was advisable and in the best interest of the Company and its stockholders, that it was advisable and in the best interest of the Company and its stockholders to enter into the merger agreement with the Investor Group and the transactions contemplated thereby and recommended that the board of directors approve and declare advisable such transactions and agreements and recommend approval and adoption by the Company’s stockholders of such merger agreement.

 

Later in the day, the board of directors met at the offices of Davis Polk. Davis Polk reviewed with the board of directors the fiduciary duties of directors under Delaware law. Mr. Lord reported that the transaction committee had unanimously determined that the proposed merger agreement with the Investor Group was advisable and in the best interest of the Company and its stockholders and recommended that the board of directors approve and declare advisable the merger agreement and the transactions contemplated thereby and recommend approval and adoption by the Company’s stockholders of such merger agreement. UBS and Greenhill reviewed with the board of directors their joint financial analysis of the merger consideration which previously had been reviewed with the transaction committee and each separately confirmed for the board of directors its opinion regarding the fairness, from a financial point of view, of the merger consideration rendered earlier in the day to the transaction committee. After considering the proposed terms of the merger agreement with the Investor Group, the other related transaction documents and the other factors set forth in “Reasons for the Merger, Recommendation of the Transaction Committee and Our Board of Directors — Our Board of Directors”, the board of directors, by unanimous vote of the directors present, approved and declared advisable and in the best interests of the Company and its stockholders the merger agreement with the Investor Group and the transactions contemplated thereby, and recommended that the stockholders of the Company vote for the approval and adoption of the merger agreement.

 

On April 15, 2007, the Company, Parent and Merger Sub executed the merger agreement and ancillary agreements and the transaction was announced prior to the opening of the NYSE on April 16, 2007.

 

Transaction Committee

 

The transaction committee, consisting solely of independent directors, and acting with the advice and assistance of the Company’s independent legal and financial advisors, evaluated and negotiated the merger proposal, including the terms and conditions of the merger agreement, with Parent and Merger Sub and the Investor Group. The transaction committee unanimously determined that the merger is advisable and that it is in the best interests of the Company and its stockholders for the Company to enter into the merger agreement, and unanimously recommended that the board of directors (i) authorize and approve entry by the Company into the merger agreement and the completion of the transactions contained therein and (ii) recommend that the stockholders of the Company approve and adopt merger agreement.

 

In the course of reaching its determination, the transaction committee considered the following factors and potential benefits of the merger, each of which the members of the transaction committee believed supported its decision:

 

 

 

 

 

The transaction committee also considered a variety of risks and other potentially negative factors concerning the merger agreement and the merger, including the following:

 

 

The foregoing discussion summarizes the material factors considered by the transaction committee in its consideration of the merger. After considering these factors, the transaction committee concluded that the positive factors relating to the merger agreement and the merger outweighed the potential negative factors. In view of the wide variety of factors considered by the transaction committee, and the complexity of these matters, the transaction committee did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the transaction committee may have assigned different weights to various factors. The transaction committee unanimously approved, and recommended that the board of directors approve, the merger agreement and the merger based upon the totality of the information presented to and considered by it.

 

Our Board of Directors

 

Our board of directors, acting upon the unanimous recommendation of the transaction committee and by a unanimous vote of the members of the board of directors present at the meeting described above on April 15, 2007 (i) determined that the merger agreement and the merger are fair to and in the best interests of the Company and its stockholders and declared the merger to be advisable, (ii) approved the execution, delivery and performance of the merger agreement and the completion of the transactions contemplated thereby, including the merger, and (iii) resolved to recommend that the stockholders approve and adopt the merger agreement and directed that such matter be submitted to the stockholders for their approval.

 

In reaching these determinations, our board of directors considered (i) a variety of business, financial and market factors, (ii) the joint financial presentation of UBS and Greenhill, including the separate opinions of UBS and Greenhill, each dated April 15, 2007, to the Company’s transaction committee and board of directors as to the fairness, from a financial point of view and as of the date of the opinions, of the merger consideration to be received by the holders of the Company’s common stock (other than, in the case of UBS’ opinion, Parent, holders of beneficial interests in Parent and their respective affiliates to the extent they are holders of the Company’s common stock and, in the case of Greenhill’s opinion, affiliates of or holders of beneficial interests in Parent or Merger Sub to the extent they are holders of the Company’s common stock), as more fully described under the caption “The Merger — Opinion of Financial Advisors”, (iii) each of the factors

considered by the transaction committee in its unanimous recommendation, as described above and (iv) the unanimous recommendation of the transaction committee.

 

The foregoing discussion summarizes the material factors considered by the board of directors in its consideration of the merger. In view of the wide variety of factors considered by the board of directors, and the complexity of these matters, the board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the board of directors may have assigned different weights to various factors. The board of directors approved, and recommends that stockholders approve and adopt, the merger agreement and the merger based upon the totality of the information presented to and considered by it.

 

Our board of directors recommends that you vote “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Opinions of UBS and Greenhill

 

On April 15, 2007, at meetings of the Company’s transaction committee and board of directors held to evaluate the proposed merger, UBS and Greenhill each separately delivered to the Company’s transaction committee and board of directors an oral opinion, which opinion was confirmed by delivery of a written opinion dated April 15, 2007, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in such opinion, the merger consideration to be received by holders of the Company’s common stock (other than, in the case of UBS’ opinion, Parent, holders of beneficial interests in Parent and their respective affiliates to the extent they are holders of the Company’s common stock and, in the case of Greenhill’s opinion, affiliates of or holders of beneficial interests in Parent or Merger Sub to the extent they are holders of the Company’s common stock) was fair, from a financial point of view, to such holders.

 

UBS’ and Greenhill’s opinions, the full texts of which described the assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS and Greenhill, are attached as Annex B and Annex C, respectively, and are incorporated into this proxy statement by reference. UBS’ and Greenhill’s opinions were directed only to the fairness of the merger consideration from a financial point of view and do not address any other aspect of the merger or any related transaction. The opinions do not address the relative merits of the merger or any related transaction as compared to other business strategies or transactions that might be available to the Company or the Company’s underlying business decision to effect the merger or any matters relating to the merger. The opinions do not constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the merger or any related transaction. Holders of the Company’s common stock are encouraged to read the opinions carefully in their entirety. Although subsequent developments may affect their opinions, UBS and Greenhill do not have any obligation to update, revise or reaffirm their opinions. The summaries of UBS’ and Greenhill’s opinions described below are qualified in their entirety by reference to the full texts of their respective opinions.

 

Opinion of UBS Securities LLC

 

In arriving at its opinion, UBS, among other things:

 

 

 

In connection with its review, with the consent of the Company’s board of directors and the transaction committee, UBS did not assume any responsibility for independent verification of any of the information provided to or reviewed by UBS for the purpose of its opinion and, with the consent of the Company’s board of directors and the transaction committee, UBS relied on that information being complete and accurate in all material respects. In addition, with the consent of the Company’s board of directors and the transaction committee, UBS did not make any independent evaluation or appraisal of any of the assets or liabilities, contingent or otherwise, of the Company, and was not furnished with any evaluation or appraisal. With respect to the financial forecasts and estimates prepared by the Company’s management referred to above, UBS assumed, at the direction of the Company’s board of directors and the transaction committee, that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company’s management as to the Company’s future performance. UBS is not an expert in the evaluation of loan portfolios or allowances for losses with respect to loan portfolios, was not requested to, and did not, conduct a review of individual credit files, and was advised and therefore assumed that such allowances for the Company were in the aggregate appropriate to cover such losses. UBS’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information available to UBS as of, the date of its opinion. At the direction of the Company’s board of directors and the transaction committee, UBS contacted another potential buyer group (the Other Bidder) to solicit an indication of interest in a possible transaction with the Company and held discussions with such group prior to the date of UBS’ opinion.

 

At the direction of the Company’s board of directors and the transaction committee, UBS was not asked to, and it did not, offer any opinion as to the terms, other than the merger consideration to the extent expressly specified in UBS’ opinion, of the merger agreement or any related documents or the form of the merger or any related transaction. In rendering its opinion, UBS assumed, with the consent of the Company’s board of directors and the transaction committee, that (i) the final executed form of the merger agreement would not differ in any material respect from the draft that UBS reviewed, (ii) the Company and Parent would comply with all material terms of the merger agreement, and (iii) the merger would be completed in accordance with the terms of the merger agreement without adverse waiver or amendment of any material term or condition of the merger agreement. UBS also assumed that all governmental, regulatory or other consents and approvals necessary for the completion of the merger would be obtained without any material adverse effect on the Company or the merger. Except as described above, the Company imposed no other instructions or limitations on UBS with respect to the investigations made or the procedures followed by UBS in rendering its opinion.

 

Under the terms of UBS’ engagement, the Company has agreed to pay UBS for its financial advisory services in connection with the merger an aggregate fee estimated to be approximately $50.6 million, portions of which were payable upon the execution of UBS’ engagement letter and delivery of UBS’ opinion and a significant portion of which is contingent upon completion of the merger. In addition, the Company has agreed to reimburse UBS for its reasonable expenses, including reasonable fees, disbursements and other charges of counsel, and to indemnify UBS and related parties against liabilities, including liabilities under federal securities laws, relating to, or arising out of, its engagement. In the past, UBS has provided services unrelated to the proposed merger to the Company and to certain affiliates of JPMorgan Chase and Bank of America, each of which will be an investor in Parent, for which UBS received compensation. In addition, an affiliate of

UBS currently is a participant under existing credit facilities of the Company and JPMorgan Chase, for which such affiliate has received and expects to receive fees and interest payments. In the ordinary course of business, UBS, its successors and affiliates may hold or trade, for their own accounts and the accounts of their customers, securities of the Company and certain affiliates of the Investor Group and, accordingly, may at any time hold a long or short position in such securities.

 

The Company and its transaction committee selected UBS as financial advisor in connection with the merger because UBS is an internationally recognized investment banking firm with substantial experience in similar transactions and is familiar with the Company and its business. UBS is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

 

Opinion of Greenhill & Co., LLC

 

For purposes of its opinion, Greenhill, among other things,

 

 

Greenhill assumed and relied upon, without independent verification, the accuracy and completeness of the information publicly available, supplied or otherwise made available to it by representatives and management of the Company for purposes of its opinion and further relied upon the assurances of the representatives and management of the Company that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the Company’s financial forecasts and other financial and operating data concerning the Company that were supplied or otherwise made available to Greenhill and that the Company directed Greenhill to use for purposes of its analyses, Greenhill assumed such forecasts and data were reasonably prepared on a basis reflecting the best currently available estimates and good faith judgments of the management of the Company as to those matters. Greenhill expressed no opinion with respect to such forecasts and data or the assumptions upon which they were based. In arriving at its opinion, Greenhill did not undertake an independent valuation or appraisal of the assets or liabilities of the Company, nor were any such appraisals provided to it. In addition, Greenhill assumed that the merger would be completed in accordance with the terms set forth in the final, executed merger agreement, which Greenhill assumed would be identical in all material respects to the draft dated April 15, 2007 (the latest draft it

reviewed), and without any waiver or modification of any material terms or conditions set forth in the merger agreement. Greenhill further assumed that all governmental and third party consents, approvals and agreements necessary for the completion of the merger will be obtained without any adverse effect on the Company or the merger. Greenhill’s opinion was necessarily based upon financial, economic, market and other conditions as in effect on, and the information made available to Greenhill as of, the date of its opinion.

 

Greenhill was not requested to and did not provide advice concerning the structure, the specific amount of consideration, or any other aspect of the sale of the Company. Greenhill was not requested to, and did not, assist the Company’s transaction committee or board of directors in its evaluation of alternatives for, or participate in any process undertaken on behalf of the Company, including the solicitation of expressions of interest from, or preliminary discussions with, third parties regarding the potential acquisition of the Company or in the negotiations of the terms of the acquisition, nor was Greenhill requested to, and it did not, provide any advice or services in connection with the merger other than the delivery of its opinion. Greenhill expressed no opinion as to whether any alternative transaction might produce consideration for the Company in an amount in excess of the amount contemplated by the merger. Except as described above, the Company imposed no other instructions or limitations on Greenhill with respect to the investigations made or the procedures followed by Greenhill in rendering its opinion.

 

Under the terms of Greenhill’s engagement, the Company has agreed to pay Greenhill $4 million upon delivery of its opinion. In addition, the Company has agreed to reimburse Greenhill for its reasonable out-of-pocket expenses, including reasonable fees and expenses of counsel, and to indemnify Greenhill and related parties against liabilities relating to or arising out of its engagement.

 

The Company’s transaction committee selected Greenhill as its financial advisor to render its opinion because Greenhill is an internationally recognized investment banking firm that provides financial advice on significant mergers, acquisitions, restructurings and similar corporate finance transactions, and it believed that Greenhill’s experience qualified it to render its opinion.

 

Summary of Joint Financial Presentation

 

In connection with rendering their respective opinions to the Company’s board of directors and the transaction committee, UBS and Greenhill jointly performed a variety of financial and comparative analyses which are summarized below. The following summary is not a complete description of all analyses performed and factors considered by UBS or Greenhill in connection with their respective opinions. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected companies analysis and the selected transactions analysis summarized below, no company or transaction used as a comparison was either identical or directly comparable to the Company or the merger. These analyses necessarily involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or acquisition values of the companies concerned.

 

UBS and Greenhill believe that the analyses and the summary below must be considered as a whole and that selecting portions of the analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying UBS’ and Greenhill’s analyses and their respective opinions. Neither UBS nor Greenhill drew, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather each of UBS and Greenhill arrived at its ultimate opinion based on the results of all analyses undertaken and assessed as a whole.

 

The estimates of the future performance of the Company provided by the Company’s management in or underlying UBS’ and Greenhill’s analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing their analyses, UBS and Greenhill considered industry performance, general business and economic conditions and other matters, many of which were beyond the control of the Company. Estimates of the financial value of companies do not necessarily purport to be appraisals or reflect the prices at which companies actually may be sold.

 

The merger consideration was determined through negotiation between the Company and the Investor Group and the decision to enter into the merger was solely that of the Company’s board of directors. UBS’ and Greenhill’s opinions and financial analyses were only one of many factors considered by the Company’s board of directors and the transaction committee in their evaluation of the merger and should not be viewed as determinative of the views of the Company’s board of directors, the transaction committee or management with respect to the merger or the merger consideration.

 

The following is a brief summary of the material financial analyses reflected in UBS’ and Greenhill’s joint financial presentation and reviewed with the Company’s board of directors and the transaction committee in connection with UBS’ and Greenhill’s respective opinions relating to the proposed merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand UBS’ and Greenhill’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of UBS’ and Greenhill’s financial analyses.

 

Selected Companies Analysis

 

UBS and Greenhill compared selected financial and stock market data of the Company with corresponding data, to the extent publicly available, of the following 11 publicly traded companies, consisting of three student lending companies, five banks and three finance companies:

 

 

UBS and Greenhill reviewed, among other things, closing stock prices on April 13, 2007 as a multiple of calendar years 2007 and 2008 estimated earnings per share, commonly referred to as EPS, and as multiples of book value per share and tangible book value per share as of December 31, 2006. UBS and Greenhill then compared these multiples derived from the selected companies with corresponding multiples implied for the Company based both on the closing price of the Company’s common stock on April 12, 2007 (which was the last trading day prior to published rumors of a potential sale of the Company) and on the merger consideration. Financial data of the selected companies were based on median EPS estimates as compiled by Institutional Brokers’ Estimate System, public filings and other publicly available information. Financial data of the Company were based on internal estimates of the Company’s management, public filings and other publicly available information. This analysis indicated the following implied high, median and low multiples for the selected companies, as compared to corresponding multiples implied for the Company based on the closing price of the Company’s common stock on April 12, 2007 and on the merger consideration:

 

Discounted Cash Flow Analysis

 

UBS and Greenhill performed a discounted cash flow analysis on the Company using financial forecasts and estimates prepared by the Company’s management referred to above for calendar years 2007 through 2012. UBS and Greenhill calculated a range of implied present values as of April 13, 2007 of the excess equity that the Company could generate from April 13, 2007 through December 31, 2011 using discount rates ranging from 11.0% to 13.0%. UBS and Greenhill also calculated a range of implied terminal values for the Company as of December 31, 2011 by applying a range of forward price to earnings terminal value multiples of 10.0x to 14.0x to the Company’s calendar year 2012 estimated net income. The implied terminal values were then discounted to present value as of April 13, 2007 using discount rates ranging from 11.0% to 13.0%. This analysis resulted in a range of implied present values of approximately $39 to $58 per share of the Company’s common stock, as compared to the merger consideration of $60 per share.

 

Selected Transactions Analysis

 

UBS and Greenhill reviewed transaction value multiples in the following eight transactions announced since January 1, 2000 involving companies in the financial services industry with transaction values in excess of $10 billion:

 

 

UBS and Greenhill reviewed the transaction value in each selected transaction as a multiple of the relevant target company’s next twelve months estimated net income and as multiples of the relevant target company’s book value and tangible book value as of the most recent completed accounting period prior to public announcement of the relevant transaction. UBS and Greenhill then compared these multiples derived from the selected transactions with corresponding multiples implied for the Company based on the merger consideration. Multiples for the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Financial data for the Company were based on internal estimates of the Company’s management, public filings and other publicly available information. This analysis indicated the following implied high, median and low multiples for the selected transactions, as compared to corresponding multiples implied for the Company based on the merger consideration:

 

 

Upon completion of the merger, Parent will cause an aggregate of approximately $25.3 billion to be paid to holders of the Company’s common stock, options, restricted stock units, deferred stock units, restricted stock and other equity, assuming that no Company stockholder validly exercises and perfects its appraisal rights. Parent and Merger Sub have obtained equity and debt financing commitments described below and are obligated to use their reasonable best efforts to obtain the debt financing in connection with the transactions contemplated by the merger agreement.

 

Equity Financing

 

The Investors have collectively agreed to cause up to approximately $8.8 billion of cash to be contributed to Parent, which will constitute the equity portion of the merger financing. Subject to certain conditions, each of the Investors may assign a portion of its equity commitment obligation; provided that it remains obligated to perform to the extent not performed by such assignee. The approximate commitment of each Investor pursuant to the equity commitment letters is as follows (in billions):

 

 

Each of the equity commitments is generally subject to the satisfaction or waiver of all of the conditions to Parent’s and Merger Sub’s obligation to effect the closing of the merger under the merger agreement in accordance with its terms. Each of the equity commitment letters will terminate upon termination of the merger agreement.

 

Debt Financing

 

Parent has received a debt commitment letter, dated April 15, 2007, from the Lender Parties and certain of their affiliates pursuant to which the Lender Parties have agreed to provide, subject to the conditions set forth therein, up to $12.5 billion under a senior secured term loan facility and, to the extent Parent does not issue $4.0 billion in aggregate principal amount of senior second lien secured notes in a Rule 144A or other private placement to be launched prior to closing, up to $4.0 billion under a senior second lien secured bridge facility for the purpose of financing the merger and paying fees and expenses incurred in connection with the merger. The debt commitment letters expire on February 15, 2008.

 

Conditions Precedent to the Debt Commitments

 

The availability of the senior secured term loan facility and the senior second lien secured bridge facility is subject to customary closing conditions, including:

 

 

 

Senior Secured Term Loan Facility

 

Under the senior secured term loan facility, Parent may borrow up to $12.5 billion in order to finance the merger and payment of related fees and expenses. Borrowings under the senior secured term loan facility will mature on the seventh anniversary of the closing of the merger.

 

The obligations under the senior secured term loan facility will be guaranteed by the surviving corporation and, subject to certain exceptions, its existing and subsequently organized and acquired wholly-owned domestic subsidiaries, and will be secured by, subject to customary exceptions, perfected first-priority liens on substantially all of the present and future assets and stock of Parent, the surviving corporation and the other guarantors.

 

The debt commitment letters provide that the definitive documentation for the senior secured term loan facility will include representations, covenants and events of default usual and customary for facilities of this type.

 

Banc of America Securities LLC and J.P. Morgan Securities Inc. have been appointed to act as co-lead arrangers and joint bookrunners for the senior secured term loan facility.

 

Senior Second Lien Secured Bridge Facility

 

As part of the debt financing transactions, Parent is expected to issue $4.0 billion of senior second lien secured notes in a Rule 144A private placement or other private offering. The obligations under the senior second lien secured notes will be guaranteed by the guarantors under the senior secured term loan facility and secured by perfected second-priority liens on collateral under the senior secured term loan facility. Parent is expected to offer the notes to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act and to other purchasers pursuant to other applicable exemptions under the Securities Act.

 

To the extent the offering of notes by Parent is not completed on or prior to the closing of the merger, Parent may borrow up to $4.0 billion in loans under a senior second lien secured bridge facility in order to finance the merger and payment of related fees and expenses. Borrowings under the senior secured second lien bridge facility will mature on the eighth anniversary of the closing of the merger. If such borrowings are not paid in full on or before the first anniversary of the closing of the merger, lenders under the senior second lien secured bridge facility will have the option to exchange their bridge loans for senior second lien secured notes on customary terms.

 

The obligations under the senior second lien secured bridge facility will be guaranteed by the surviving corporation and each other guarantor of the senior secured term loan facility and secured by perfected second priority liens on the collateral securing the senior secured term loan facility. The lien priority and related creditors’ rights with respect to the senior secured term loan facility and the senior second lien secured bridge facility will be set forth in a customary intercreditor agreement.

 

The senior second lien secured bridge loan facility will contain representations, covenants and events of default customary for a financing of this type.

 

Banc of America Securities LLC and J.P. Morgan Securities Inc. have been appointed to act as co-lead arrangers and joint bookrunners for the senior second lien secured bridge facility.

 

The definitive documentation for the senior secured term loan facility and the senior secured lien secured bridge facility has not been finalized and, accordingly, the actual terms may differ from those described in this proxy statement.

 

Interim Facility

 

On April 30, 2007, the Lender Parties and certain affiliates thereof entered into Participation Purchase and Security Agreements with subsidiaries of the Company pursuant to which such Lender Parties and their affiliates have agreed to purchase participation interests in eligible FFELP and private credit loans up to an aggregate amount of $30.0 billion. These arrangements will be available until the earliest to occur of (i) February 15, 2008, (ii) the closing date of the merger and (iii) the ninety days after termination of the merger agreement (or fifteen days after the date of termination of the merger agreement in connection with a “superior proposal” as defined in the merger agreement).

 

Permanent Facilities

 

As part of the debt commitment letter, the Lender Parties have agreed to provide upon closing, subject to the conditions set forth in the debt commitment letter, (i) three-year asset-backed commercial paper conduit facilities (with 364-day committed liquidity support facilities) of not more than $28.0 billion in the aggregate, for securitization of FFELP and private credit loans of the surviving corporation and its subsidiaries, (ii) forward flow purchase facilities regarding the purchase and sale of certain FFELP and private credit student loans for an aggregate purchase price of up to $180.0 billion over the five-year period following the Closing Date and (iii) a loan purchase facility regarding the purchase and sale of eligible unencumbered assets for an aggregate purchase price of up to $20.0 billion over the 364 days following the Closing Date. The surviving corporation and its subsidiaries will retain no residual interest in the student loans sold under the forward flow purchase facilities, but will retain their rights to the related student loan servicing fees.

 

The definitive documentation for the permanent facilities described above has not been finalized and, accordingly, the actual terms of such facilities may differ from those described in this proxy statement.

 

Except as described in the section entitled Conditions Precedent to the Debt Commitments, it is anticipated that the surviving corporation’s existing unsecured debt will remain outstanding and that such outstanding debt will not be equally and ratably secured with the senior secured term loan facility or the senior second lien secured notes or the senior second lien secured bridge facility obtained in connection with the merger.

 

In connection with the merger agreement, each of the Investors entered into a limited guarantee with the Company pursuant to which, among other things, each Investor is providing the Company a guarantee of payment of the termination fee payable by Parent, if any, and Parent’s obligation for breach of the merger agreement with respect to the payment obligations of Parent, if any, up to a maximum amount equal to its pro rata share of the $900 million termination fee. Each guarantee will remain in full force and effect until the earlier of (i) the effective time of the merger, (ii) the termination of the merger agreement in accordance with its terms by mutual consent of the parties or under circumstances in which Parent and Merger Sub would not be obligated to make payments to the Company and (iii) one hundred eighty days after the termination of the merger agreement; provided that the limited guarantee will not terminate as to any claim for which notice has been given to the respective guarantor prior to such termination until final resolution of such claim. The limited guarantee is the Company’s sole recourse against each Investor.

 

In connection with the merger agreement, Parent and Merger Sub have agreed that if the merger agreement is terminated, Parent and Merger Sub will release any person (other than Bank of America Corporation and its affiliates, JPMorgan Chase & Co. and its affiliates and J.C. Flowers II L.P. (an affiliate of J.C. Flowers) and its affiliates and any investors in such L.P. or any such affiliates to the extent of pre-existing

limitations not specifically relating to the merger agreement) from any agreements or arrangements pursuant to which any such person has agreed to provide financing, whether pursuant to the commitment letters or otherwise, for the merger or which may reasonably be expected to limit, restrict, restrain or otherwise impair in any manner, directly or indirectly, the ability of any potential debt or equity financing source to provide financing or other assistance to any person, including the Company or any of our subsidiaries. Parent and Merger Sub have also agreed that if the merger agreement is terminated, Parent and Merger Sub will release any member of the Company’s management from any agreements or arrangements which may reasonably be expected to limit, restrict, restrain or otherwise impair in any manner, directly or indirectly, the ability of such person to participate in an alternative transaction.

 

In considering the recommendation of the board of directors with respect to the merger agreement, holders of shares of the Company’s common stock should be aware that the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, those of the Company’s stockholders generally. These interests may create actual or potential conflicts of interest. The board of directors was aware of these actual or potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger agreement and to recommend that the Company’s stockholders vote in favor of approving and adopting the merger agreement.

 

Stock Options and Restricted and Performance Stock Awards

 

The merger agreement provides for the conversion of equity interests in the Company’s common stock into cash consideration, without interest, at the effective time of the merger as follows:

 

 

As required by applicable law, cash payments will be reduced by any required federal, state, local and foreign withholding taxes.

 

The table below sets forth, as of [May 31], 2007, for each of the Company’s directors and executive officers:

 

 

 

All dollar amounts are gross amounts and do not reflect deductions for income taxes and other withholding. In each case with respect to options, the payment is calculated by multiplying the number of shares subject to each option by the amount, if any, by which $60.00 exceeds the exercise price of the option.

 

 

 

 

Change of Control Plan for Executive Officers

 

The Company’s executive officers are participants in a change in control severance plan, which we refer to as the severance plan, that provides for benefits in the event of a change in control of the Company. Under the severance plan, certain benefits will be triggered by the merger; these benefits are described below as “Single Trigger Benefits”. Other benefits may be triggered by the merger; these benefits are described below as “Double Trigger Benefits”.

 

Single Trigger Benefits.  At the effective time of the merger, all outstanding and unvested equity awards granted under the Company’s equity compensation plans and agreements and held by any executive officer will become vested and non-forfeitable. If as a result of vesting of equity awards any executive officer who is a participant in the severance plan becomes subject to excise taxes under Section 4999 of the Internal Revenue Code, the Company will make certain gross-up payments for the excise taxes payable by the executive officer and for taxes payable on the grossed-up amount.

 

Double Trigger Benefits.  If within twenty-four months of the merger, the employment of an executive officer terminates due to certain reasons, additional benefits are provided to the executive officers under the severance plan as described below.

 

Under the severance plan, if an executive officer’s employment is terminated by the Company without cause or by the executive officer for good reason within twenty-four months of the merger, the executive officer is entitled to receive a cash payment equal to two times his or her base salary and the higher of annual performance bonus earned during the two years preceding the termination and the two years preceding the merger. An executive officer is also entitled to receive a pro-rated portion of his or her target annual performance bonus for the year in which the termination occurs, as well as continuation of medical insurance benefits for a two year period.

 

Termination for cause generally means a determination by the board of directors that there has been an act of misconduct, which means (i) embezzlement, fraud, commission of a felony, breach of fiduciary duty or deliberate disregard of Company policies; (ii) personal dishonesty injurious to the Company; (iii) an unauthorized disclosure of any proprietary information; or (iv) competing with the Company for at least a two-year period after termination of employment.

 

For good reason generally means (i) a material reduction in the executive officer’s position; (ii) a reduction in the executive officer’s compensation arrangements or benefits (except that variability in the value of stock-based compensation or in incentive compensation will not be considered a reduction); or (iii) a forced relocation of the Company’s executive offices.

 

If, as a result of benefits paid upon termination of employment, an executive officer becomes subject to excise taxes under Section 4999 of the Internal Revenue Code, the Company will make certain gross-up payments for the excise taxes payable by the executive officer and for taxes payable on the grossed-up amount.

 

Under the severance plan, the Company’s executive officers are subject to two year non-competition and non-solicitation provisions.

 

In the event of termination without cause or for good reason, the amount of cash separation payments that each executive officer could receive under the severance plan, based on their compensation as of the record date, would be approximately $2,250,000 for Mr. Andrews; $1,600,000 for Mr. Autor; $1,360,000 for Mr. Lavet; $2,050,000 for Ms. McCormack; and $1,825,000 for Mr. Moehn.

 

Indemnification and Insurance

 

The surviving corporation has agreed to indemnify (and advance expenses as they are incurred), to the fullest extent permitted by law, each of our present and former officers and directors against any cost or expenses, losses and liabilities incurred in connection with any claim, action, suit, proceeding or investigation arising out of or relating to such person’s service as a director or officer of the Company at or prior to the effective time of the merger.

 

The merger agreement requires that the Company purchase, and that following the effective time of the merger, the surviving corporation maintain, “tail coverage” directors’ and officers’ liability and fiduciary liability insurance policies containing terms no less advantageous in the aggregate and in the same amount as the Company’s existing policies and with a claims period of at least six years from the effective time of the merger for claims arising from facts or events that occurred on or prior to the effective time of the merger. If the Company and the surviving corporation for any reason fail to obtain such “tail” insurance policies as of the effective time of the merger, then these obligations shall be fully satisfied if the surviving corporation continues, and the surviving corporation shall continue, to maintain in effect for a period of at least six years from and after the effective time of the merger the directors’ and officers’ liability and fiduciary liability insurance in place as of the date of the merger agreement with terms, conditions, retentions and limits of liability that are no less advantageous in the aggregate than the coverage provided under the Company’s existing policies as of the date of the merger agreement, or the surviving corporation shall purchase comparable directors’ and officers’ liability and fiduciary liability insurance for such six-year period with terms, conditions, retentions and limits of liability that are at least as favorable in the aggregate as provided in the Company’s existing policies as of the date of the merger agreement; provided that in no event shall Parent or the surviving corporation be required to expend for such policies an annual premium amount in excess of

300% of the annual premiums currently paid by the Company for such insurance; and provided, further, that if the annual premiums of such insurance coverage exceed such amount, the surviving corporation shall obtain a policy with the greatest coverage available for a cost not exceeding such amount.

 

The following is a summary of the material U.S. federal income tax consequences to “U.S. Holders” (as defined below) of the Company’s common stock that receive cash in exchange for their shares of the Company’s common stock pursuant to the merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our holders. For purposes of this discussion, we use the term “U.S. Holder” to mean a beneficial owner of the Company’s common stock that is, for U.S. federal income tax purposes:

 

 

Holders of the Company’s common stock who are not U.S. Holders may be subject to different tax consequences than those described below and are urged to consult their tax advisors regarding their tax treatment under U.S. and non-U.S. tax laws.

 

If a partnership (including an entity taxable as a partnership for U.S. federal income tax purposes) holds the Company’s common stock, the tax treatment of a partner generally will depend on the status of the partners and the activities of the partnership. Partnerships holding the Company’s common stock and their partners should consult their own tax advisors.

 

This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to holders who hold the Company’s common stock as capital assets, and may not apply to the Company’s common stock received in connection with the exercise of employee stock options or otherwise as compensation, holders who hold an equity interest, directly or indirectly, in Parent or the surviving corporation after the merger, holders who validly exercise their rights under Delaware law to object to the merger or to certain types of holders who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, U.S. Holders that have a functional currency other than the U.S. dollar, or holders who hold the Company’s common stock as part of a hedge, straddle or a constructive sale or conversion transaction). This discussion does not address the receipt of cash in connection with the cancellation of restricted stock units or options to purchase the Company’s common stock, or any other matters relating to equity compensation or benefit plans. This discussion also does not address any aspect of state, local, foreign, estate, gift or other tax laws.

 

Exchange of Common Stock for Cash Pursuant to the Merger.  The exchange of the Company’s common stock by a U.S. Holder for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder whose shares of the Company’s common stock are exchanged for cash pursuant to the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in such shares of the Company’s common stock. Gain or loss will be determined separately for each block of the Company’s common stock (i.e., the Company’s common stock acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that a U.S. Holder’s holding period for such shares of the Company’s common stock is more than one year at the time of the completion of the merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 

Backup Withholding and Information Reporting.  A U.S. Holder of the Company’s common stock will be subject to information reporting on the cash received pursuant to the merger unless such U.S. Holder is an “exempt recipient,” such as a domestic corporation. In addition, such payments may be subject to backup withholding unless the U.S. Holder or other payee establishes an exemption or provides its correct taxpayer identification number and otherwise complies with the backup withholding rules. To avoid backup withholding, each U.S. Holder and, if applicable, each other payee, should complete, sign and return to the exchange agent for the merger the substitute Form W-9 that such U.S. Holder will receive with the letter of transmittal following completion of the merger. Any amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.

 

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each holder should consult its own tax advisor regarding the applicability of the rules discussed above and the particular tax effects of the merger in light of such holder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of options, stock appreciation rights or restricted stock units to purchase the Company’s common stock, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

We have agreed to use our reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement.

 

Antitrust.  Under the HSR Act and the rules promulgated thereunder by the FTC, the merger cannot be completed until the Company and Parent each file a notification and report form under the HSR Act and applicable waiting periods have expired or been terminated. The Company and Parent filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ on May 18, 2007. The initial thirty day waiting period will therefore expire on June 18, 2007, unless terminated earlier or extended by the issuance of a request for additional information and documentary materials. At any time before or after completion of the merger, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Parent. Moreover, at any time before or after the completion of the merger, any state attorney general could take such action under the antitrust laws as is deemed necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Parent or its affiliates. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

Based on a review of information provided by Parent relating to the businesses in which it and its affiliates are engaged, the Company believes that the merger can be effected in compliance with federal, state and foreign antitrust laws. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other Federal, state and foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade. However, the Company and Parent can give no assurance that a challenge to the merger by a governmental authority or private party on antitrust grounds will not be made, or, if such a challenge is made, that the Company and Parent will prevail.

 

Other Approvals and Filings.  Because the Company owns Sallie Mae Bank, a Utah chartered industrial bank, the Investor Group is also filing a notice under the Change in Bank Control Act with the Federal Deposit Insurance Corporation to acquire Sallie Mae Bank. Pursuant to the merger agreement, the Investor Group will divest, hold separate or take other appropriate action with respect to Sallie Mae Bank, if necessary to obtain regulatory clearance for the merger. We have filed or intend to file for approvals from the Federal

Deposit Insurance Corporation as well as from other federal and state regulatory authorities in connection with the change in control of the Company’s other subsidiaries, including those engaged in securities, mortgage and debt collection activities.

 

We are not aware of any material governmental approvals or actions that are required for completion of the merger other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

 

If the merger is completed, the Company’s common stock will be delisted from the NYSE and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of the Company’s common stock.

 

This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger. It is not intended to provide you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled “Where You Can Find More Information” beginning on page [  ].

 

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the merger agreement. As the surviving corporation, the Company will continue to exist following the merger. Upon completion of the merger, the directors of Merger Sub at the effective time of the merger will be the initial directors of the surviving corporation and the officers of the Company at the effective time of the merger will be the initial officers of the surviving corporation. All surviving corporation directors and officers will hold their positions until their successors are duly elected or appointed and qualified.

 

The Company, Parent or Merger Sub may terminate the merger agreement prior to the completion of the merger in some circumstances, whether before or after the approval and adoption by our stockholders of the merger agreement. Additional details on termination of the merger agreement are described in “— Termination of the Merger Agreement” beginning on page [  ].

 

The merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at a later time, if agreed upon by the parties and specified in the certificate of merger). We expect to complete the merger as soon as legally permitted and practicable after our stockholders approve and adopt the merger agreement and, if necessary, the expiration of the marketing period described below.

 

Unless otherwise agreed by the parties to the merger agreement, the parties are required to complete the merger no later than the third business day after the satisfaction or waiver of the conditions described under “— Conditions to the Merger” beginning on page [  ], except that Parent and Merger Sub will not be obligated to complete the merger until the earlier to occur of a date during the marketing period specified by Parent on at least three business days’ notice to us and the final day of the marketing period.

 

For purposes of the merger agreement, “marketing period” means the first period of thirty consecutive calendar days throughout which:

 

 

The marketing period must occur either entirely before or entirely after the periods from and including August 18, 2007 through and including September 3, 2007, or from and including December 22, 2007 through and including January 1, 2008.

 

The purpose of the marketing period is to provide a reasonable period of time during which the Lender Parties can syndicate their commitment to provide financing under the debt commitment letter.

 

Each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $60.00 in cash, without interest and less any applicable withholding taxes, other than the following shares:

 

 

After the merger is effective, each holder of a certificate representing any shares of the Company’s common stock (other than shares for which appraisal rights have been properly demanded and perfected) will no longer have any rights with respect to the shares, except for the right to receive the merger consideration. See “Dissenters’ Rights of Appraisal” beginning on page [  ].

 

Stock Options.  Upon the completion of the merger, each outstanding option to acquire the Company’s common stock granted under our equity incentive plans, whether or not vested, that remains outstanding as of the closing of the merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock underlying the option multiplied by the amount (if any) by which $60.00 exceeds the applicable exercise price of the option, less any applicable withholding taxes.

 

Restricted Stock Units.  Upon the completion of the merger, all restricted stock units, whether or not vested, will be cancelled and converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock underlying the restricted stock units multiplied by $60.00, less any applicable withholding taxes.

 

Deferred Stock Units.  Upon the completion of the merger, all amounts held in participant accounts under the deferred compensation plans that are denominated in the Company’s common stock will be converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock deemed held in such accounts multiplied by $60.00, less any applicable withholding taxes. This obligation will be payable or distributable in accordance with the terms of our deferred compensation plans, as amended to comply with Section 409A of the Internal Revenue Code.

 

Restricted Stock.  Upon the completion of the merger, each share of restricted stock, whether or not vested, will be cancelled and converted into the right to receive a cash payment equal to the number of shares of the Company’s common stock represented by the share of restricted stock multiplied by $60.00, less any applicable withholding taxes.

 

Employee Stock Purchase Plan.  The Company has agreed to take all action as is necessary to cause its Employee Stock Purchase Plan to be suspended as of the end of April 2007. The Company will cause the then current offering periods to end and such periods will be the final offering periods under the plan. In accordance with the terms of the merger agreement, the Company has taken actions to comply with these obligations. Upon completion of the merger, the Employee Stock Purchase Plan will be terminated.

 

The effect of the merger upon our other employee benefit plans is described under “— Employee Benefits” beginning on page [  ].

 

All shares of our Series A 6.97% Cumulative Redeemable Preferred Stock and Series B Floating-Rate Non-Cumulative Preferred Stock outstanding immediately prior to the completion of the merger will remain

issued and outstanding and will have the rights and privileges as set forth in the surviving corporation’s certificate of incorporation.

 

Parent will designate an exchange agent reasonably acceptable to us to make payment of the merger consideration as described above. Prior to or at the effective time of the merger, Parent will deposit, or Parent will cause the surviving corporation to deposit, in trust with the exchange agent, the funds appropriate to pay the merger consideration to the stockholders and holders of options, restricted stock units, deferred stock units and restricted stock. Following the effective time of the merger, we will close our stock ledger. After that time, there will be no further transfer of shares of the Company’s common stock.

 

Promptly after the effective time of the merger, the surviving corporation will cause the exchange agent to send you a letter of transmittal and instructions advising you how to surrender your certificates in exchange for the merger consideration. The exchange agent will pay you your merger consideration after (i) you have surrendered your certificates to the exchange agent (or the exchange agent receives an “agent’s message” in the case of a book entry transfer for uncertificated shares) and (ii) you have provided to the exchange agent your signed letter of transmittal and any other items specified by the letter of transmittal. Interest will not be paid or accrue in respect of the merger consideration. The surviving corporation will reduce the amount of any merger consideration paid to you by any applicable withholding taxes. You should not forward your stock certificates to the exchange agent without a letter of transmittal, and you should not return your stock certificates with the enclosed proxy.

 

If any cash deposited with the exchange agent is not claimed within six months following the effective time of the merger, such cash will be returned to Parent upon demand. Any holder who has not exchanged shares of the Company’s common stock for the merger consideration prior to the demand of Parent to return the deposited cash must look only to Parent for payment of the merger consideration after such demand. Parent is not liable to any holder for any amounts paid to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

If the exchange agent is to pay some or all of your merger consideration to a person other than you, as the registered owner of a stock certificate, you must have your certificates properly endorsed or otherwise in proper form for transfer, and you must pay any transfer or other taxes payable by reason of the transfer or establish to the exchange agent’s reasonable satisfaction that the taxes have been paid or are not required to be paid.

 

The transmittal instructions will tell you what to do if you have lost your certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by the surviving corporation, post a bond in an amount that the surviving corporation directs as indemnity against any claim that may be made against the surviving corporation in respect of the lost, stolen or destroyed certificate.

 

The merger agreement contains representations and warranties made by us to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to us. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed by the parties in connection with negotiating its terms. Moreover, some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality or Material Adverse Effect different from that generally applicable to public disclosures to stockholders or used for the purpose of allocating risk between the parties to the merger agreement rather than establishing matters of fact. For the foregoing reasons, you should not rely on the representations and warranties contained in the merger agreement as statements of factual information.

 

In the merger agreement, the Company, Parent and Merger Sub each made representations and warranties relating to, among other things:

 

 

In the merger agreement, Parent and Merger Sub also each made representations and warranties relating to:

 

 

The Company also made representations and warranties relating to:

 

 

 

Many of the Company’s representations and warranties are qualified by a Material Adverse Effect standard. For purposes of the merger agreement, “Material Adverse Effect” is defined to mean a material adverse effect on the financial condition, business, or results of operations of the Company and its subsidiaries, taken as a whole, except to the extent any such effect results from:

 

 

We have agreed in the merger agreement that, until the completion of the merger, except as contemplated by the merger agreement, we and our subsidiaries will:

 

 

We have also agreed that, until the completion of the merger, except as expressly contemplated by the merger agreement or with Parent’s prior consent, we and our subsidiaries will not:

 

 

 

 

 

 

 

Subject to the terms and conditions set forth in the merger agreement, we and Parent have agreed to use our respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things proper or advisable under applicable law to complete the transactions contemplated by the merger agreement, including:

 

 

 

If any objections are asserted with respect to the transactions contemplated by the merger agreement under any applicable law or if any action, suit or other proceeding is instituted or threatened by any governmental authority or any private party challenging any of the transactions contemplated thereby as violative of any applicable law, we and Parent have agreed to use our respective reasonable best efforts promptly to resolve such objections. To this end, Parent has agreed to hold separate or to divest any of the businesses or properties or assets of the Company and our subsidiaries, and the affiliates of Parent have agreed to restructure the equity ownership of Parent and the related governance rights with respect to Parent or the Company and our subsidiaries to obtain HSR Act clearance. The foregoing commitments include the prompt divestiture, liquidation, sale or other disposition of, or other appropriate action (including the placing in a trust or otherwise holding separate) with respect to Sallie Mae Bank, if Parent has been unable to obtain the requisite regulatory approvals relating to Sallie Mae Bank in a reasonably timely manner customary for other transactions of a similar nature.

 

In connection with obtaining the foregoing approvals, consents, registrations, permits, authorizations and other confirmations and in taking actions to resolve any such objections, Parent is not required to take actions that would be reasonably likely to have a material adverse effect on the financial condition, business or results of operations of the Company and our subsidiaries, taken as a whole, and other than as specified above, the affiliates of Parent are not required to take any actions, be subject to any conditions or enter into any agreements or commitments with respect to their respective businesses or the Company and our subsidiaries.

 

Cooperation of the Company

 

We have agreed to, and have agreed to cause our subsidiaries to (and to use our reasonable best efforts to cause our and their respective representatives to) provide such cooperation as may be reasonably requested by Parent in connection with the arrangement of the debt and equity financing, including:

 

 

 

The merger agreement limits our obligation to incur any fees or expenses with respect to the debt or equity financing prior to the effective time of the merger.

 

Debt Financing

 

Parent has agreed, subject to the terms and conditions of the equity commitment letters, to use its reasonable best efforts to obtain debt financing on the terms and conditions described in the debt commitment letter, including using reasonable best efforts to:

 

 

Parent and Merger Sub may amend the debt commitment letter to add lenders, lead arrangers, bookrunners, syndication agents or similar entities who had not executed the debt commitment letter as of the date of the merger agreement and may otherwise replace or amend the debt commitment letter so long as such action would not reasonably be expected to materially delay or prevent the merger and so long as the terms are not materially less beneficial to Parent or Merger Sub, with respect to conditionality, than those in the debt commitment letter as in effect on the date of the merger agreement. Any amendment of the debt commitment letter will be subject to the consent of the Lender Parties. Furthermore, Parent may engage in an equity syndication to include other investors in Parent. In the event that all conditions to the availability of the financing have been satisfied, Parent must use its reasonable best efforts to cause the lenders and other persons to fund the debt financing and equity financing required to complete the merger.

 

In the event any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter, Parent will promptly notify us and Parent will use its reasonable best efforts to obtain alternative financing from alternative sources on terms not materially less beneficial to Parent and Merger Sub (as determined in the reasonable judgment of Parent), in an amount sufficient to complete the transactions contemplated by the merger agreement, as promptly as possible. In addition, Parent has agreed that, in the event that:

 

 

then the Parent shall cause the proceeds of the bridge financing to replace the high yield financing no later than the last day of the marketing period. See “— Effective Time; The Marketing Period” beginning on page [  ] for a discussion of the marketing period.

 

If requested by Parent in writing, we will, to the extent permitted by the indenture governing the Company’s Floating Rate Convertible Senior Debentures due 2035, issue a notice of redemption for the outstanding debentures pursuant to the applicable provisions of the indenture.

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

Conditions to Parent’s and Merger Sub’s Obligations.  The obligation of Parent and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

Conditions to the Company’s Obligations.  Our obligation to complete the merger is subject to the satisfaction or waiver of the following further conditions:

 

 

To the extent legally permitted, our board of directors (acting through the transaction committee if such committee still exists) can waive compliance with the foregoing conditions. Our board of directors is not presently aware of any condition to the merger that cannot be satisfied.

 

The merger agreement provides that neither the Company nor any of our subsidiaries will authorize or permit any of our respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives to directly or indirectly:

 

 

Notwithstanding the aforementioned restrictions, at any time prior to the approval of the merger agreement by our stockholders, we are permitted to engage in discussions or negotiations with, or provide information with respect to the Company to, any third party to the extent that:

 

 

In such cases, we will not, and will not allow our representatives to, disclose any non-public information to such person without entering into a confidentiality agreement that contains provisions that are no less favorable in the aggregate to us than those contained in the confidentiality agreements entered into with the lead members of the Investor Group and that does not prevent or impede our compliance with any of its disclosure or other obligations under the merger agreement. Also, we will promptly provide to Parent any material non-public information concerning us or our subsidiaries provided to such other person that was not previously provided to Parent.

 

We will promptly (within one business day) notify Parent in the event we receive an acquisition proposal, including the material terms and conditions thereof, and will keep Parent reasonably apprised as to the status and any material developments, discussions and negotiations concerning the same. Without limiting the foregoing, we will promptly (within one business day) notify Parent orally and in writing if we begin providing information or engage in negotiations concerning an acquisition proposal.

 

An “acquisition proposal” means, other than the transactions contemplated by the merger agreement, any offer, proposal or inquiry from any third party relating to (A) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of the Company and our subsidiaries or 25% or more of any class of equity or voting securities of the Company or any of our subsidiaries whose assets, individually or in the

aggregate, constitute 25% or more of the consolidated assets of the Company, (B) any tender offer (including a self-tender offer) or exchange offer that, if completed, would result in such third party’s beneficially owning 25% or more of any class of equity or voting securities of the Company or any of our subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of the Company or (C) a merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any of our subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of the Company.

 

A “superior proposal” means an acquisition proposal that our board of directors (acting through the transaction committee if such committee still exists) in good faith determines would result in a transaction that is more favorable from a financial point of view to the stockholders of the Company than the transactions contemplated by the merger agreement (x) after receiving the advice of a financial advisor (who shall be a nationally recognized investment banking firm), (y) after taking into account the likelihood and timing of completion of such transaction on the terms set forth therein (as compared to the terms in the merger agreement) and (z) after taking into account all appropriate legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory or other aspects of such proposal and any other relevant factors permitted by applicable law. For purposes of the definition of “superior proposal,” the references to “25% or more” in the definition of acquisition proposal shall be deemed to be references to “a majority.”

 

The merger agreement requires us to duly call and hold a meeting of our stockholders to approve and adopt the merger agreement. In this regard, our board of directors has resolved to recommend that our stockholders approve and adopt the merger agreement. However, at any time prior to the approval and adoption of the merger agreement by our stockholders, if we receive an acquisition proposal that our board of directors (acting through the transaction committee if such committee still exists) concludes in good faith constitutes a superior proposal (after giving effect to any adjustments to the terms of the merger agreement offered by Parent), our board of directors (acting through the transaction committee if such committee still exists) may withdraw or modify in a manner adverse to Parent its recommendation that our stockholders approve and adopt the merger agreement (or recommend an alternative acquisition proposal or take any action or make any statement inconsistent with its recommendation that our stockholders approve and adopt the merger agreement), and/or terminate the merger agreement and enter into a definitive agreement with respect to a superior proposal if our board of directors (acting through the transaction committee if such committee still exists) determines in good faith, after consultation with outside counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law.

 

To the extent the board proposes to take the foregoing actions with regard to its recommendation, it may only do so after:

 

 

In addition, we are not entitled to enter into any agreement with respect to a superior proposal unless the merger agreement has been or is concurrently terminated in accordance with its terms and we have concurrently paid to Parent the $900 million termination fee as described in further detail in “— Termination Fees” beginning on page [  ].

 

The merger agreement may be terminated at any time prior to the completion of the merger, whether before or after stockholder approval has been obtained:

 

 

 

 

 

 

 

Payable by the Company

 

We must pay Parent a termination fee of $900 million upon termination of the merger agreement in the following circumstances:

 

 

We must also pay Parent a termination fee of $900 million in the following circumstances:

 

 

Payable by Parent

 

Parent has agreed to pay us a termination fee of $900 million if the merger agreement is terminated under the following circumstances:

 

 

Parent has agreed to cause the surviving corporation after the merger to indemnify and hold harmless, to the fullest extent permitted under applicable law (including with respect to the advancement of expenses as incurred), each of our present and former directors and officers and the directors and officers of our subsidiaries, against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or related to such director’s or officer’s service as a director or officer of the Company or our subsidiaries.

 

Prior to the completion of the merger, we or the surviving corporation will obtain and fully pay the premium for the non-cancellable extension of the directors’ and officers’ liability coverage of our existing directors’ and officers’ insurance policies and our existing fiduciary liability insurance policies, in each case for a claims reporting or discovery period of at least six years from and after the effective time of the merger with respect to any claim related to any period or time at or prior to the effective time of the merger. The insurance coverage will be obtained from an insurance carrier with a comparable credit rating as our current insurance carrier with respect to directors’ and officers’ liability insurance and fiduciary liability insurance with terms, conditions, retentions and limits of liability that are no less advantageous in the aggregate than the coverage provided under our existing policies.

 

If we and the surviving corporation for any reason fail to obtain such insurance policies, known as “tail” insurance policies, as of the effective time of the merger, then the surviving corporation must maintain in effect for a period of at least six years from and after the effective time of the merger the insurance policies that were in place as of the date of the merger agreement, or purchase comparable insurance policies for such six-year period, with terms, conditions, retentions and limits of liability that are no less advantageous in the aggregate than the coverage provided under our existing policies, provided that in no event is Parent or the surviving corporation required to expend for such policies an annual premium amount in excess of 300% of the annual premiums currently paid by the Company for such insurance. If the annual premiums of such insurance coverage exceed such amount, the surviving corporation must obtain a policy with the greatest coverage available for a cost not exceeding such amount.

 

For a period of twelve months following the effective time of the merger, we and Parent have agreed to provide to each of the Company’s and our subsidiaries’ employees base salary and annual bonus opportunities not less than, and benefits that in the aggregate are substantially similar to, the base salary and annual bonus opportunities and benefits provided to each such employee immediately prior to the closing of the merger. This obligation excludes, for all purposes, equity-based compensation. The aforementioned obligations, however, do not give any of our employees any right to continued employment or impair in any way our right to terminate the employment of any employee.

 

We and Parent have agreed that all of the Company’s and our subsidiaries’ current and former employees will receive full credit for service with the Company, our subsidiaries, affiliates and predecessors for purposes of eligibility, vesting and benefit accrual (but not including accrual of benefits under any defined benefit pension plan) under the employee benefit plans and arrangements maintained by us or Parent in which such employees participate after the closing of the merger.

 

With respect to all welfare benefit plans maintained by the Company or our subsidiaries or Parent for the benefit of employees of the Company or any of our subsidiaries on and after the closing of the merger, we and Parent will cause there to be waived any eligibility requirements or pre-existing condition limitations and to give effect, in determining any deductible and maximum out-of-pocket limitations, to amounts paid by such employees with respect to similar plans maintained by us prior to the effective time of the merger.

 

The parties may amend or waive any provision of the merger agreement prior to the effective time of the merger, but only if such amendment or waiver is in writing and is signed. In the case of an amendment, the writing must be signed by each party to the merger agreement. In the case of a waiver, the writing must be signed by each party against whom the waiver is to be effective; provided that, after our stockholders have approved and adopted the merger agreement, there can be no amendment or waiver that reduces the amount or changes the kind of consideration to be received in the merger without the stockholders’ further approval. Any waiver by the Company or entry into an amendment by the Company must be approved by the transaction committee if such committee still exists.

 

The parties have agreed that the Company is not entitled to seek an injunction or injunctions to prevent breaches of the merger agreement by Parent or Merger Sub or any remedy to enforce specifically the terms and provisions of the merger agreement. Parent and Merger Sub are entitled to seek an injunction or injunctions to prevent breaches of the merger agreement by the Company or to enforce specifically the performance of the terms and provisions of the merger agreement by the Company in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity.

 

The Company’s sole and exclusive remedy with respect to any breach of the merger agreement will be the termination of the merger agreement in accordance with its terms and payment by Parent to the Company of the $900 million termination fee, if applicable.

 

On May 22, 2007, the Company announced that Thomas J. Fitzpatrick, Chief Executive Officer and Vice Chairman, was leaving the Company effective May 22, 2007. Mr. Fitzpatrick also tendered his resignation from the board of directors, which was accepted effective as of May 22, 2007. On May 22, 2007, the Company also announced that C.E. Andrews, Executive Vice President and Chief Financial Officer, was appointed Chief Executive Officer of the Company effective immediately. The departure of Mr. Fitzpatrick and appointment of Mr. Andrews was reported by the Company in its Current Report on Form 8-K filed on May 22, 2007. In accordance with the terms of the merger agreement, Parent and Merger Sub provided their written consent to the Company with respect to the termination of Mr. Fitzpatrick and the appointment of Mr. Andrews as Chief Executive Officer and have agreed that such termination and appointment will not be taken into account for purposes of determining whether a material adverse effect (as defined in the merger agreement) has occurred.

 

The Company’s common stock is listed for trading on the NYSE under the symbol “SLM”. The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share as reported on the NYSE composite tape and dividends declared for the Company’s common stock.

 

 

The closing sale price of the Company’s common stock on the NYSE on April 12, 2007, the last trading day prior to press reports of rumors regarding a potential acquisition of the Company, was $40.75 per share. On [          ], 2007, the most recent practicable date before this proxy statement was printed, the closing price for the Company’s common stock on the NYSE was $[     ] per share. You are encouraged to obtain current market quotations for the Company’s common stock in connection with voting your shares.

 

Principal Stockholders

 

To the Company’s knowledge, the following institutions beneficially owned more than 5% of the Company’s outstanding common stock on December 31, 2006. The holdings reported below are based solely on Schedules 13G and amendments thereto filed with the SEC as of March 15, 2007. The Company is not aware of any other beneficial owner who became the beneficial owner of 5% or more of the Company’s common stock between December 31, 2006 and March 15, 2007.

 

 

 

 

 

Directors and Executive Officers

 

The following table sets forth information concerning beneficial ownership of the Company’s common stock as of [May 31], 2007 for: (i) each director; (ii) and the named executive officers for 2007; (iii) the directors and executive officers as a group; and (iv) each beneficial holder of more than 5% of our voting securities.

 

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In the table below, options that are exercisable or will become exercisable into shares the Company’s common stock within sixty days of the date of this proxy statement, if any, are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

 

 

 

 

Under the General Corporation Law of the State of Delaware, which we refer to as the DGCL, you have the right to dissent from the merger and to receive payment in cash for the fair value of your shares of the Company’s common stock as determined by the Delaware Court of Chancery, together with a fair rate of interest, if any, as determined by the court, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. These rights are known as appraisal rights. The Company’s stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights. The Company will require strict compliance with the statutory procedures.

 

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the merger and perfect appraisal rights.

 

This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex D to this proxy statement. Failure to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in a termination or waiver of your appraisal rights.

 

Section 262 requires that stockholders be notified that appraisal rights will be available not less than twenty days before the stockholders’ meeting to vote on the merger. A copy of Section 262 must be included with such notice. This proxy statement constitutes the Company’s notice to its stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex D since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under the DGCL.

 

If you elect to demand appraisal of your shares, you must satisfy each of the following conditions:

 

 

If you fail to comply with either of these conditions and the merger is completed, you will be entitled to receive the cash payment for your shares of the Company’s common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of the Company’s common stock.

 

All demands for appraisal should be addressed to SLM Corporation, 12061 Bluemont Way, Reston, Virginia 20190, Attention: Secretary, and must be delivered before the vote on the merger agreement is taken at the special meeting, and should be executed by, or on behalf of, the record holder of the shares of the Company’s common stock. The demand must reasonably inform the Company of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares.

 

To be effective, a demand for appraisal by a holder of the Company’s common stock must be made by, or in the name of, such registered stockholder, fully and correctly, as the stockholder’s name appears on his or her stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to the Company. The beneficial holder must, in such cases, have the registered owner, such as a broker or other nominee, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all

joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a nominee for others, may exercise his or her right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

 

If you hold your shares of the Company’s common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

Within ten days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective to each Company stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement. At any time within sixty days after the effective time, any stockholder who has demanded an appraisal has the right to withdraw the demand and to accept the cash payment specified by the merger agreement for his or her shares of the Company’s common stock. Within one hundred twenty days after the effective date of the merger, any stockholder who has complied with Section 262 shall, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. Such written statement will be mailed to the requesting stockholder within ten days after such written request is received by the surviving corporation or within ten days after expiration of the period for delivery of demands for appraisal, whichever is later. Within one hundred twenty days after the effective time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within twenty days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Chancery Court is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Chancery Court may require the stockholders who have demanded payment for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that stockholder.

 

After determination of the stockholders entitled to appraisal of their shares of the Company’s common stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any. When the value is determined, the Chancery Court will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing those shares.

 

In determining fair value, the Chancery Court is required to take into account all relevant factors. You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the merger agreement. You should also be aware that investment banking opinions as to the fairness from a financial point of view of the consideration payable in a merger are not opinions as to fair value under Section 262.

 

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if no petition for appraisal is filed within one hundred twenty days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within sixty days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its shares of the Company’s common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than sixty days after the effective time of the merger may only be made with the written approval of the surviving corporation and must, to be effective, be made within one hundred twenty days after the effective time.

 

In view of the complexity of Section 262, the Company’s stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

 

If the merger is completed, we will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the merger is not completed or if we are otherwise required to do so under applicable law, we would hold a 2008 annual meeting of stockholders. A stockholder who intends to introduce a proposal for consideration at the Company’s 2008 annual meeting, set for May 8, 2008, may seek to have that proposal and a statement in support of the proposal included in the Company’s proxy statement if the proposal relates to a subject that is permitted under SEC Rule 14a-8. To be considered for inclusion, the proposal and supporting statement must be received by the Company not later than December 11, 2007 and must satisfy the other requirements of Rule 14a-8. The submission of a stockholder proposal does not guarantee that it will be included in the Company’s proxy statement.

 

The Company’s By-laws provide that a stockholder may otherwise propose business for consideration or nominate persons for election to our board of directors, in compliance with federal proxy rules, applicable state law and other legal requirements and without seeking to have the proposal included in the Company’s proxy statement pursuant to Rule 14a-8. The Company’s By-laws provide that any such proposals or nominations for the Company’s 2008 annual meeting must be received by the Company on or after February 17, 2008 and on or before April 17, 2008. Any such notice must satisfy the other requirements in the Company’s By-laws applicable to such proposals and nominations. If a stockholder fails to meet these deadlines or fails to comply with the requirements of SEC Rule 14a-4(c), the Company may exercise discretionary voting authority under proxies it solicits to vote on any such proposal.

 

The SEC has approved a rule concerning the delivery of annual reports and proxy statements that permits a single set of these reports to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder will continue to receive a separate proxy card.

This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces mailing and printing expenses. A number of brokerage firms have instituted householding. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household. Stockholders that wish to receive separate copies in the future may request them by calling 703-984-6785 or writing in care of the Corporate Secretary at SLM Corporation, 12061 Bluemont Way, Reston, VA 20190.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov. You also may obtain free copies of the documents the Company files with the SEC by going to the “Investors Relations” section of our website at www.salliemae.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference.

 

Reports, proxy statements or other information concerning us may also be inspected at the offices of the NYSE at 20 Broad Street, New York, New York 10005.

 

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents incorporated by reference in this document or other information concerning us, without charge, by written or telephonic request directed to the Company’s Corporate Secretary’s Office at (703) 984-6785, on the Company’s website at www.salliemae.com or from the SEC through the SEC’s website at the address provided above. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.

 

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED [          ], 2007. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

Annex A

 

EXECUTION COPY

 

 

AGREEMENT AND PLAN OF MERGER

dated as of

April 15, 2007

among

SLM CORPORATION,

MUSTANG HOLDING COMPANY INC.

and

MUSTANG MERGER SUB, INC.

 

 

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