1
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PROXY STATEMENT/PROSPECTUS SUPPLEMENT
(To Proxy Statement/Prospectus dated April 9, 1997)
--------------------------------------------------------
relating to the Common Stock of
SLM HOLDING CORPORATION
(the "Holding Company")
The following legend is required by the Privatization Act in connection
with the offering of securities by the Holding Company, including the Holding
Company Common
Stock:
OBLIGATIONS OF THE HOLDING COMPANY AND ANY SUBSIDIARY OF THE HOLDING COMPANY ARE
NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES AND NEITHER THE
HOLDING COMPANY NOR ANY SUBSIDIARY OF THE HOLDING COMPANY IS A
GOVERNMENT-SPONSORED ENTERPRISE (OTHER THAN SALLIE MAE) OR ANY INSTRUMENTALITY
OF THE UNITED STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS SUPPLEMENT IS APRIL 25, 1997.
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TABLE OF CONTENTS
Page
Investor Presentation . . . . . . . . . . . . . . 1
Update to the Reorganization--Background . . . . . 30
ii
3
SALLIE MAE
OUR COMMITMENT TO GROWTH
4
PRIVATIZATION BENEFITS
================================================================================
- Enhances core student loan business
- Reduces political and economic risk
- Increases shareholder control of Sallie Mae
-1- [SALLIE MAE LOGO]
5
STUDENT LOANS HAVE BEEN, AND WILL
CONTINUE TO BE OUR PRIMARY FOCUS
================================================================================
MANAGEMENT'S COMMITMENT TO SHAREHOLDERS:
- Managed student loans increase at a 9-11% CAGR
- Net income increases at a 7-9% CAGR
- EPS increases at a minimum 15% CAGR
- Annual return on equity of 50% plus
MAXIMIZE SUSTAINABLE RETURNS WITH A BALANCED RISK PROFILE
-2- [SALLIE MAE LOGO]
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MEETING OBJECTIVES
================================================================================
UNDERSTANDING MANAGEMENT'S PLAN
- Our school strategy
- Bringing efficiency to the bottom line
- The value we'll produce
- Fatal flaws of the CRV alternative
- The leadership contribution
-3- [SALLIE MAE LOGO]
7
THE CRV'S PLAN WILL DESTROY SHARE VALUE
================================================================================
- Originations assumptions are unrealistic
- Third party servicing and originations will cannibalize
purchases
- Operating cost reductions decimate school strategy
- High-risk financial leverage
- Huge execution risk
- Imprudent political risk -- gives direct lending new life
THEIR PLAN IS A LIQUIDATION STRATEGY-- OURS IS A TOP-LINE GROWTH
STRATEGY
-4- [SALLIE MAE LOGO]
8
STUDENT LENDING IS A GROWTH BUSINESS
================================================================================
[CHART]
Chart describing FDSLP and FFELP purchases in billions of dollars from 1993
through 2001. Chart depicts the following amounts: 1993 - 0 FDSLP, $17.9 FFELP;
1994 - $.9 FDSLP, $23.1 FFELP; 1995- $5.2 FDSLP, $20.6 FFELP; 1996- $9.3 FDSLP,
$19.7 FFELP; Estimate for 1997 - $10.3 FDSLP, $19.9 FFELP; Estimate for 1998 -
$10.8 FDSLP, $21.8 FFELP; Estimate for 1999 - $11.2 FDSLP, $23.7 FFELP; Estimate
of 2000 - $11.6 FDSLP, $25.9 FFELP; Estimate for 2001 - $12.1 FDSLP, $28.4
FFELP.
1997E-2001E: WE WILL GROW PURCHASES 12-14% A YEAR -
- - 8% FROM INDUSTRY GROWTH AND 2-4% FROM A COMBINATION OF INCREASED MARKET SHARE
AND 5% SHRINKAGE OF DIRECT LENDING BY 2001
- - WE GREW MARKET SHARE BY 3% IN LAST 2 YEARS
-5- [SALLIE MAE LOGO]
9
ASSET OWNERSHIP IS THE GOAL
================================================================================
[CHART]
Chart including Box containing the word "School" connected by a horizontal arrow
pointing to Box containing word "Guarantor" connected by a horizontal arrow
pointing to Box containing word "Lender" connected by (i) vertical arrow
pointing down to Box containing word "Servicer" and (ii) horizontal arrow
pointing to "pot of gold" graphic with the word "Ownership" connected by a
horizontal arrow pointing to Box containing the words "Secondary Market".
THE KEY TO VALUE GROWTH IS MAXIMIZING ASSET OWNERSHIP
- - Strategy must address fundamental industry dynamics
- Lender decisions to hold or securitize
- Price competition from other secondaries
- Service alternatives
-6- [SALLIE MAE LOGO]
10
THE ANSWER IS ALL IN POSITION:
THE SCHOOL STRATEGY
================================================================================
[CHART]
Chart including Box containing the words "Student Family" connected by a
horizontal line to Box containing the word "School" connected by a horizontal
line to Box containing the word "Lender" connected by a horizontal line to "pot
of gold" graphic with the word "Ownership" connected by a horizontal line to Box
containing the words "Sallie Mae", with the "Sallie Mae" Box and the "School"
Box connected by an additional line with reciprocal arrows.
- - We recognized the changing school role
- School recommends lenders
- Family picks from list
- - We created school preference
- Great Rewards(SM)/Direct Repay(SM)
- LineSS(SM)/Consolidated EFT
- 24x7 Servicing
- - We linked branded products to commitment lender delivery
-7- [SALLIE MAE LOGO]
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THE RESULT IS "BRAND WITHIN A BRAND"
ADVANTAGE
================================================================================
[CHART]
Chart with word "School" connected by horizontal arrows to words "Lender A",
"Lender B", "Lender C", Lender D", "Lender E" and "Lender F".
- - Maximizes shelf space
- - Meets school needs
- - Leverages lender's competitive advantage
- Consumer name recognition
- Community presence
- School relationships
- - Leverages lender marketing investments
- - Delivers predictable loan flows at lower premiums
-8- [SALLIE MAE LOGO]
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IT'S A FORMULA FOR WINNING
ECONOMICS
================================================================================
[CHART]
Chart depicting an equation with a Box containing the words "School Preference"
plus Box containing the words "Distribution Network" equals Box containing the
words "Pricing Power".
-9- [SALLIE MAE LOGO]
13
WE WILL CONTINUE TO PURSUE
POSITION ADVANTAGE
================================================================================
[CHART]
Chart including Box containing the words "Student, School, Family" connected by
a horizontal line to Box containing the word "Lender" connected by a horizontal
line to "pot of gold" graphic with the word "Ownership" connected by a
horizontal line to Box containing the words "Sallie Mae", with the "Sallie Mae"
box connected by an additional line and arrow pointing to the "Student, School,
Family" Box.
- - We will continue our push to retail:
- College financing guidance services
- Internet-based sourcing
- Internet-based paperless transactions and borrower self-service
- - We will use position advantage to drive down acquisition costs
-10- [SALLIE MAE LOGO]
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CRV'S ORIGINATION - WRONG STRATEGY,
UNREALISTIC NUMBERS
================================================================================
------------------------------------------------------------------------------
1998E 2001E
----- -----
FFELP Guarantees (Estimated) $21B $28B
Amount Disbursed In Same Year $10.5B
First Time Borrowers x 30%
------
New Lender Market Potential $ 3.1B
CRV Plan Disbursement Volume $ 1.0B $5.0B
CRV 1998 Market Share 33% 21%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
TOP TEN FFELP LENDER ESTIMATED MARKET SHARE OF FIRST-TIME BORROWERS
FFY 1996 FFY 1996
Chase 8.4% Wells Fargo 3.2%
Citibank 7.1% Bank of America 3.2%
Bank One 5.0% Educaid 2.5%
Norwest 4.6% Pittsburgh National 1.7%
Key Corp. 3.8% Boatman's 1.7%
------------------------------------------------------------------------------
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CANNIBALIZATION
(VOLUME IN BILLIONS)
================================================================================
"REALITY BITES"
---------------------------------- ------------
RESTATEMENT OF CRV PLAN EARNINGS
1998 1999 2000 PER BILLION
---------- ------- -------- ------------
Origination Volume $150MM $450MM $750MM $8MM
Servicing Volume $2B $3B $6B $1.5MM
Lost Purchase Loan Volume ($4B) ($5B) ($6B) $7MM
------------
Total Lost Volume ($6B) ($8B) ($9B)
LOSS IN EPS ($2-3) ($4-5) ($6-7)
----------------------------------
-12- [SALLIE MAE LOGO]
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SERVICING INVESTMENTS DELIVER SUPERIOR
SERVICE, LOWER COSTS AND NEW INCOME
================================================================================
[CHART]
Chart titled "Servicing Costs/Managed Student Loans (Does not include joint
venture costs)" depicting four bar graphs reflecting ratio of servicing costs to
managed student loans for years 1994 through 1997. Chart depicts the following
ratios: 1994 - .66%; 1995 - .62%; 1996 - .56%; Estimate for 1997 - .53%.
- ADVANCED TECHNOLOGY TO NEXT GENERATION
- COSTS TO GO DOWN TO 40 bps
-13- [SALLIE MAE LOGO]
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LENDER SERVICING - A BAD CHOICE
================================================================================
THE MARKET FOR SALLIE MAE'S QUALITY SERVICING
- Economics do not offset lost purchase volume
- Performance liability expectation high, related
compensation is insufficient
PRICING A LOWER QUALITY SERVICE
- Big adjustment for us
- Low quality does not fit into our existing systems
- Very competitive -- excess industry capacity is chasing
low demand
- Low returns
-14- [SALLIE MAE LOGO]
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DIRECT LOAN SERVICING - HELPING THE
COMPETITOR
================================================================================
- Our name would help direct lending gain share
- Outsourcing giants (EDS and E-Systems) chasing limited
volume
- Large process differences mean big front-end investment
- Unless you go to court, no contracts open until 2002
-15- [SALLIE MAE LOGO]
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BUSINESS OPERATIONS EFFICIENCY
================================================================================
[CHART]
Chart titled "Corporate Operating Expenses/Managed Student Loans (Subsidiary
expenses excluded)" depicting six bar graphs reflecting ratio of corporate
operating expenses to managed student loans for years 1992 through 1997. Chart
depicts the following ratios: 1992 - .44%; 1993 - .43%; 1994 - .41%; 1995 -
.37%; 1996 - .31%; Estimate for 1997 - .28%. The six bar graphs also depict the
following operating expenses for years 1992 through 1997: 1992 - $101MM; 1993 -
$109MM; 1994 - $117MM; 1995 $123MM; 1996 - $115MM; Estimate for 1997 - $115MM.
- - CORPORATE OPERATING EXPENSES (LESS SUBSIDIARIES) HEADED TO .22% BY 2001
-16- [SALLIE MAE LOGO]
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NEW BUSINESS STRATEGIES TO COMPLEMENT
AND LEVERAGE CORE BUSINESS
================================================================================
Market 2001E
Size Pre-Tax Income
---- --------------
HIGHER EDUCATION
- Broker-Dealer -- Education Securities, Inc. $3B
- Consulting -- Kaludis Group $800MM
- Private Loans -- HICA $313MM $16MM
- Technology -- PeopleSoft $1.3B
OUTSOURCED FINANCIAL PROCESSING
- Government Debt Collection $300MM $62MM
- State Treasurer -- Outsourcing $125MM
(1997 Base: CO, FL, NY, TX, VA)
BOTTOM LINE
- 8-9% of SLM Pre-Tax Income by 2001
- ROEs Well In Excess Of 15% Hurdle Rate
-17- [SALLIE MAE LOGO]
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SALLIE MAE POST - PRIVATIZATION STRUCTURE
================================================================================
[CHART]
Chart including Box containing the words "SLM Corporation" connected by vertical
lines to three Boxes below containing the words "Transition GSE", "Sallie Mae
Servicing Corporation" and "Sallie Mae, Inc.", respectively.
-18- [SALLIE MAE LOGO]
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LONG-TERM FUNDING MIX
================================================================================
[CHART]
Pie chart of long-term funding mix at December 1994 depicting LIBOR at 61%,
T-bill at 26% and Other at 13%, together with pie chart of long-term funding mix
at December 1996 depicting LIBOR at 45%, Securitization at 29%, T-bill at 17%
and Other at 9%.
- MAXIMIZE VALUE OF ASSETS
- MAINTAIN LIQUIDITY
- PRESERVE FLEXIBILITY
-19- [SALLIE MAE LOGO]
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CAPITAL MANAGEMENT - PROGRESS 1994-1997
================================================================================
- Implemented risk-based capital discipline
- Introduced securitization
- Reduced capital ratio from 2.75% to 2.10%
- Changed prior accounting deferral policy
- Marked-to-market investments to free up $300MM of
capital
- Reduced share count by 39%
-20- [SALLIE MAE LOGO]
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FUNDING AND LIQUIDITY
================================================================================
MANAGED ASSETS
1997E 2001E
------------ ------------
$B % $B %
-- - -- -
On-Balance Sheet Loans $29 67 $28 45
Securitized 14 33 34 55
-- -- -- --
Managed Student Loans $43 100 $62 100
Other 14 14
-- --
Total Assets $57 $76
== ==
Common Equity $0.7 $0.9
OUR PLAN INCLUDES A CAPITAL GUIDELINE OF 2% FOR
ON-BALANCE SHEET LOANS AND .75% FOR OFF
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ALL ASSETS ARE NOT CREATED EQUAL
================================================================================
ON-BALANCE SHEET STUDENT LOANS
YE1997E YE2001E
------- -------
Ready to be securitized $6.3B $1.9B
Non-Offset Fee 3.6 --
Third Party Serviced 4.4 2.1
LOAN CONSOLIDATION 9.3 17.0
HEAL Loans 2.7 3.1
Private Loans 1.5 2.6
Participations 1.5 1.6
--- ---
Total $29.3 $28.3
===== =====
GUIDED BY ECONOMIC RETURNS
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FIVE YEAR FINANCIAL OBJECTIVES
1997-2001
================================================================================
LOAN PURCHASE VOLUME - 12% to 14% CAGR
TOTAL OPERATING COSTS - Reduce From Low 100 bps to Low 80 bps
OTHER REVENUE - Produce $78MM NIBT in 2001
MANAGE CAPITAL - Repurchase 16MM Shares
(30% of outstanding shares)
THE RESULT
- - NET INCOME - 7% - 9% CAGR
- - EARNINGS PER SHARE - Minimum of 15% CAGR
-23- [SALLIE MAE LOGO]
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OUR PLAN VS. CRV PLAN
================================================================================
AT 2001E
-------------------------
MANAGEMENT CRV
---------- ---
Dominant Market Position Yes No
Sustainable Earnings Growth Yes No
Capitalization/Liquidity Strong Weak
On-balance sheet assets $28B $8B
Shares outstanding 37.6M 34M
- ----------------------------------------------------------------------
Reported EPS $14.30 $19.29
- ----------------------------------------------------------------------
EPS for gain in excess of loan production 0 $2.75
RISK LOW HIGH
THIS IS NOT ABOUT THE SPEED OF LIQUIDATION, IT IS ABOUT MAXIMIZING VALUE OVER
THE SHORT AND LONG TERM
-24- [SALLIE MAE LOGO]
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LEADERSHIP
================================================================================
- Your management team
- Your new board
- Understanding the difference between proven execution
and misguided ideas
-25- [SALLIE MAE LOGO]
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POLITICAL RISKS AT PEAK IN 1997 AND 1998
================================================================================
PRO-ACTIVE MANAGEMENT REQUIRED
- - Reauthorization of Student Loan Act
- 105th Congress begins 2-year process; outcome will make
FFELP either stronger or weaker
- - Balanced budget partisan duel
- 1997 President Clinton budget targets student loans and
GOP searches for dollars to pay for tax cuts
- - Sallie Mae commits all out effort to preserve strong FFELP
- - Larry Hough leads industry coalition protecting student loan programs
-26- [SALLIE MAE LOGO]
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BOARD SLATE
================================================================================
HOLDING COMPANY
PUBLIC COMPANY EXECUTIVES
Lawrence Hough (Sallie Mae)
Roger Sant (AES)
Vincent Sarni (PPG Industries)
Bobbie Gaunt (Ford Canada)
David Vitale (First Chicago/NBD)
James Rohr (PNC Bank)
Peter Ueberroth (DoubleTree)
David Daberko (National City)
Thomas Jacobson (Mercantile Bank)
William Simms (Transamerica Insurance)
FINANCE & RESTRUCTURING EXECUTIVES
Lawrence Ricciardi (IBM)
Ann Reese (ITT)
John Spiegel (Sun Trust Banks)
EDUCATION
Dr. William Arceneaux (LA Independent
Colleges)
Dr. Dolores Cross (Chicago State)
Dr. Kenneth Shaw (Syracuse)
SCOREBOARD: 10 CURRENT OR RECENT CEOS PLUS 5 OTHER SENIOR EXECUTIVES WITH
PUBLICLY TRADED COMPANY AFFILIATIONS; 3 EDUCATORS; MEETS COUNCIL OF
INSTITUTIONAL INVESTORS INDEPENDENT DIRECTORS GUIDELINES.
-27- [SALLIE MAE LOGO]
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CONCLUSION
================================================================================
THE "YES" PLAN
- - Creates real top-line growth
- - Targets minimum 15% EPS CAGR, above 50% ROEs
- - Balanced risk profile
- - Independent board of directors with strong record of
shareholder value creation
VOTE YES FOR GROWTH IN SHAREHOLDER VALUE
-28- [SALLIE MAE LOGO]
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FORWARD-LOOKING INFORMATION
================================================================================
This Presentation contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of Company
Management as well as assumptions made by and information currently available to
the Company. Such forward-looking statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Estimates contained herein of future performance
under Management's Plan are based upon the Company's business plan and reflect
Management's assessment of probable results of operations, given certain
assumptions that Management believes are reasonable. The business plan was
developed based upon an integrated model with a number of independent variables,
certain of which are beyond the Company's control. In addition to assumptions
described elsewhere, the estimates contemplate that the offset fee litigation
will be resolved in the Company's favor in 1998 and that there will be no
legislative or administrative changes affecting the market share or
profitability of either the FFELP or the FDSLP. Should one or more of these
risks or uncertainties materialize, variables change or underlying assumptions
prove incorrect, actual results may vary materially from those described in this
Presentation. Information concerning the CRV's Plan was derived from materials
prepared by the CRV, in some cases adjusted to reflect Management's assessment
of probable results of operations, given certain assumptions that Management
believes are reasonable. Industry data on the FFELP and the FDSLP contained
herein is based on sources that the Company believes to be reliable and to
represent the best available information for these purposes, including published
and unpublished Department of Education data and industry publications. The
Company does not intend to update any of the forward-looking statements
contained in this Presentation. For additional information relating to the
Company and its future, investors should review the Company's Proxy
Statement/Prospectus dated April 9, 1997.
The following legend is required by the Privatization Act in connection
with the offering of securities by the Holding Company, including the Holding
Company Common Stock:
OBLIGATIONS OF THE HOLDING COMPANY AND ANY SUBSIDIARY OF THE HOLDING COMPANY ARE
NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES AND NEITHER THE
HOLDING COMPANY NOR ANY SUBSIDIARY OF THE HOLDING COMPANY IS A
GOVERNMENT-SPONSORED ENTERPRISE (OTHER THAN SALLIE MAE) OR ANY INSTRUMENTALITY
OF THE UNITED STATES.
-29- [SALLIE MAE LOGO]
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UPDATE TO THE REORGANIZATION--BACKGROUND
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to such terms in the Proxy Statement/Prospectus dated April
9, 1997.
On April 14, 1997, the Company's Chairman called the additional special
meeting requested by the Committee to Restore Value at Sallie Mae (the "CRV")
for May 15, 1997 at 2:00 p.m. On April 15, 1997, the CRV distributed proxy
materials relating to such additional special meeting, indicating that the
additional special meeting would be held at 11:00 a.m. on May 9, 1997 and that a
favorable vote by the shareholders on the CRV's proposals considered at such
additional special meeting could be binding on the Company for purposes of the
Privatization Act.
On April 18, 1997, in the matter entitled Student Loan Marketing
Association v. Albert L. Lord, et al., 1:97CV00784 (HHG) (D.D.C.), the Company
filed an action against two current directors and two other individuals who are
members of the CRV in the United States District Court for the District of
Columbia (the "Action"), seeking both declaratory and injunctive relief.
Specifically, the Company sought a temporary restraining order (the "TRO")
enjoining the CRV's solicitation of shareholder proxies on the grounds that such
activities violated the federal securities laws. The Action also sought
preliminary and declaratory relief asserting that the additional special meeting
had been improperly scheduled by the CRV and that any vote at such additional
special meeting would be precatory only.
On April 22, 1997, United States District Judge Harold H. Greene, heard
argument on the Company's motion for the TRO. The Court denied the Company's
motion for the TRO on the basis that the Company would not suffer any
irreparable injury by allowing the additional special meeting to proceed as
scheduled by the CRV, reasoning that any harm could be undone by subsequent
court order. Accordingly, the Court allowed the additional special meeting to
proceed, but declined to consider the merits of the Company's claims, including
the claim that any vote at the additional special meeting would be precatory
only, until a time after May 9, 1997.
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