SOURCE: J.C. Flowers & Co. LLC

October 15, 2007 13:14 ET

Investor Group Offers to Terminate Merger Agreement

Files Answer and Counterclaims to Sallie Mae Lawsuit

NEW YORK, NY--(Marketwire - October 15, 2007) - J.C. Flowers & Co., on behalf of itself and its partners Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) released a letter sent today to Vice Chancellor Leo E. Strine, Jr. of the Delaware Chancery Court offering to terminate the Merger Agreement with SLM Corporation (NYSE: SLM), commonly known as Sallie Mae. The Investor Group also filed its Answer and Counterclaims in Sallie Mae's lawsuit, which explain why Sallie Mae has suffered a "Material Adverse Effect" as defined by the Merger Agreement.

The Investor Group's letter to Vice Chancellor Strine was sent in response to a letter that Sallie Mae sent to the court on Friday, October 12, 2007, asking the court to schedule an expedited trial. Sallie Mae sent its letter to the court the day after Sallie Mae's Chairman Al Lord told the company's shareholders that an expedited trial was unnecessary because the company was "not in any kind of difficulty." In today's letter, the Investor Group offered to terminate the Merger Agreement in response to Sallie Mae's assertion on Friday that the Merger Agreement is impeding Sallie Mae's ability to run its business. The letter explains that by entering into an agreement to terminate the Merger Agreement, Sallie Mae would be free from the restrictions that it is complaining about.

The Investor Group also filed its Answer and Counterclaims with the Delaware Chancery Court. In its filing, the Investor Group asks the Court to declare that it is not obligated to proceed to closing under the Merger Agreement because, among other reasons:

--  In the Merger Agreement, Sallie Mae agreed that the full impact of any
    legislative changes relating to the student lending industry that are "in
    the aggregate more adverse" to the company than the Bush Budget Proposal
    counts in determining whether there has been a Material Adverse Effect.
    
--  Since Sallie Mae is the largest education finance company and
    approximately 84% of Sallie Mae's loan portfolio consists of federally
    subsidized loans, Sallie Mae is the single largest beneficiary of federal
    subsidies and suffers the largest economic impact as a result of the recent
    enactment of the College Cost Reduction Act.
    
--  According to the Congressional Budget Office, the College Cost
    Reduction Act will cut subsidies to the student loan industry by $22.32
    billion on a present value basis over the next five years.  The cuts
    imposed by the College Cost Reduction Act are much more severe than the
    $15.5 billion of cuts proposed in the Bush Budget Proposal.  Sallie Mae, in
    its complaint, admitted that the new legislation is more adverse to the
    company than the Bush Proposal.
    
--  Under the terms of the Merger Agreement, if something in the aggregate
    more adverse than the Bush Budget proposal is signed into law, then the
    entirety of the impact of that new law must be included in evaluating
    whether there has been a Material Adverse Effect.
    
--  According to the Investor Group's projections, the College Cost
    Reduction Act will cut Sallie Mae's core net income by approximately $316
    million, or 15.2%, in 2009, rising to a reduction of approximately $595
    million, or 23.5%, in 2012 as compared to what it would have been if no
    legislation had been enacted.
    
--  The net result of the College Cost Reduction Act is that Sallie Mae
    will suffer a 'material' reduction in future income that is considerably
    more severe than if the Bush Budget Proposal were enacted.
    
--  Sallie Mae also agreed in the Merger Agreement that changes in credit
    markets that disproportionately impact the company relative to similarly
    sized financial services companies like banks would count in determining
    whether there has been a Material Adverse Effect.  Sallie Mae has been
    disproportionately affected by the recent credit market collapse because,
    unlike banks that can accept deposits, Sallie Mae is acutely dependent on
    the wholesale credit markets to finance its operations.
    
--  The new legislation and the changes in conditions in the credit
    markets that disproportionately affect Sallie Mae each independently give
    rise to a Material Adverse Effect under the Material Adverse Effect
    definition in the Merger Agreement.
    

Below is today's letter to Vice Chancellor Leo E. Strine, Jr., and attached is the Investor Group's Answer and Counterclaims filed today in the Delaware Chancery Court.

Media Contact:  Stephanie Cutter
                202-528-0143 or Stephanie@CutterMediaGroup.Com


                   Young Conaway Stargatt & Taylor, LLP

October 15, 2007

The Honorable Leo E. Strine, Jr.
The Court of Chancery of the State of Delaware
500 N. King Street
Wilmington, Delaware  19801

                    Re:    SLM Corp. v. J.C. Flowers II, L.P.,
                           et al., C.A. No. 3279-VCS

Dear Vice Chancellor Strine:

We are counsel to J.C. Flowers II L.P., Bank of America, N.A., JPMorgan Chase Bank, N.A, Mustang Holding Company Inc. and Mustang Merger Sub, Inc. (collectively, the "Buying Group"), defendants in the above-captioned action which, in essence, alleges that the Buying Group breached its obligation to acquire plaintiff SLM Corporation ("Sallie Mae" or the "Company") for $60 per share in cash. The Buying Group today filed its Answer and Counterclaims, which explain why Sallie Mae has suffered a "Material Adverse Effect" within the meaning of the term as it is specifically defined in the Merger Agreement. As a result of this, among other things, if the conditions to closing were to be measured today, the Buying Group would not be obligated to consummate the merger. The Buying Group has not repudiated the Merger Agreement and continues to abide by its terms. A copy of the Answer and Counterclaims is enclosed for the Court's convenience.

We write in response to Sallie Mae's October 12, 2007 letter requesting an expedited trial. The premise of the request is that Sallie Mae is in an "untenable position" because, on the one hand, the Buying Group is refusing to proceed to consummate the merger and, on the other hand, the terms of the Merger Agreement are preventing Sallie Mae from "exercising control of its business." As explained below, the premise of Sallie Mae's claim is not true.

Nevertheless, the Buying Group is prepared to eliminate any concern that Sallie Mae has by entering into an agreement to terminate the Merger Agreement and thereby free Sallie Mae from the covenants and other restrictions of which it complains. The termination would be by mutual agreement on a without prejudice basis to either party, i.e., Sallie Mae would preserve its claim that the Buying Group is in breach and has repudiated its obligations, and the Buying Group would preserve its defense to those claims and its own claims against Sallie Mae, including the defense that, if measured today, Sallie Mae has suffered a Material Adverse Effect in its business and the defense that the conditions to closing have not been satisfied.

In light of this offer, there is no need for extraordinary expedition of Sallie Mae's claim for the payment of a $900 million termination fee, a claim that the Buying Group believes to be without merit. See Gomi Investors, LLC v. Schimmel Holdings Inc., Civ. A. No. 2278-N, 2006 WL 2304035, at *1, Chandler, C. (Del. Ch. July 27, 2006) (denying motion for expedited proceedings on a declaratory judgment claim in part because any injury plaintiffs suffered could be adequately compensated by money damages).

For the record, we do want to respond briefly to Sallie Mae's assertion that the Buying Group has impeded Sallie Mae's ability to run its business. The claim is not true. Indeed, at Sallie Mae's October 11, 2007 shareholder meeting, Sallie Mae's Chairman, Al Lord, was specifically asked why Sallie Mae had not asked for expedited treatment of this suit when it was filed on October 8. He responded:

      My understanding of this is that somebody has got to be, you know,
      an emergency ward emergency, not an injured shareholder. There is
      no question that with the economics of the transaction skewed the
      way they are based on the direction we were headed that current
      shareholders are harmed, and the current shareholders were harmed
      when they announced the MAC in July. Shareholders have been in and
      out and -- of this stock at various prices and there is no question
      harm has transpired. But the company is not in any kind of difficulty
      and I don't think anybody else is in the kind of difficulty I
      understand it would take to get a judge to move more quickly than
      judges normally move, unfortunately.  (Emphasis added.)

Notwithstanding Mr. Lord's statement to the contrary, Sallie Mae offers three justifications for its newly found sense of urgency. None of them has merit:

--  The first claim is that JPMorgan Chase and Bank of America have
    impeded Sallie Mae's ability to access the asset-backed securitization
    market.  The facts are otherwise.  The very day Sallie Mae sued JPMorgan
    Chase and Bank of America, Sallie Mae contacted the two banks and indicated
    that it wanted to go forward with an asset backed securitization pursuant
    to an agreement (separate from the Merger Agreement) that gave the banks
    the right to have a "first look" at these types of offerings.  JPMorgan and
    Bank of America agreed to go forward with the offering, notwithstanding the
    litigation, and requested only that Sallie Mae agree that no party would
    use the offering as a basis for prejudicing any other party's rights in the

    litigation.  Sallie Mae refused to agree to this straightforward "no harm,
    no foul" agreement and determined to go forward with the offering with
    other institutions.  Sallie Mae also informed the banks that it did not
    believe it was any longer obligated to offer the two banks the opportunity
    to underwrite any additional offerings.  In sum, assuming Sallie Mae
    suffered any delay in reaching the markets, that delay was self-imposed.
    
--  The second claim is that the Buying Group has refused to consent to a
    management incentive compensation plan.  Again, that is not true.  On
    August 30, 2007, Sallie Mae was told by JC Flowers that the Buying Group
    consented to the plan.  Sallie Mae did not complain to the Buying Group
    directly that it had not received written confirmation; that complaint was
    made in its letter to the Court.  Written confirmation of that consent has
    now been provided to Sallie Mae.
    
--  The third claim is that Sallie Mae faces prospective harm because it
    is obligated to provide sensitive financial information to JPMorgan Chase
    and Bank of America, both of which have business units that compete with
    Sallie Mae in the student lending market.  Again, the claim is false.  Both
    banks have in place strict protocols to "firewall" off such information
    from their student lending businesses.  Moreover, under the Sherman Act,
    JPMorgan Chase and Bank of America are barred from using confidential
    information that they acquired from Sallie Mae for anticompetitive
    purposes.  Finally, as Sallie Mae knows, in order to obtain antitrust
    clearance from the United States Department of Justice, Sallie Mae, JC
    Flowers, JPMorgan Chase and Bank of America entered into a written
    agreement requiring the banks to erect comprehensive "firewalls" that would
    ensure that any confidential information provided by Sallie Mae would not
    be misused.
    
    *          *          *
    

In light of all of the foregoing, we do not believe that an expedited trial of the sort that Sallie Mae appears to be contemplating -- which would, as a practical matter, truncate our ability to get full discovery -- is necessary. All of the immediate relief that Sallie Mae claims to need is available to it if it agrees to terminate the Merger Agreement without prejudice to the claims and defenses of either side. We are, of course, prepared to discuss an orderly and appropriate schedule that accommodates all parties' legitimate needs and allows for this matter to be resolved efficiently at a status conference. Our preference would be for the Court to hold the conference in person.

                                                        Respectfully,

                                                        David C. McBride



                   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

                             IN AND FOR NEW CASTLE COUNTY


SLM CORPORATION,                            )
                                            )
      Plaintiff,                            )
                                            )
v.                                          )
                                            )
J.C. FLOWERS II L.P., JPMORGAN CHASE        )
BANK, N.A., BANK OF AMERICA, N.A.,          )
MUSTANG HOLDING COMPANY, INC. and MUSTANG   )
MERGER SUB, INC.,                           )
                                            )
      Defendants.                           )     Civil Action No. 3279-VCS
                                            )
J.C. FLOWERS II L.P., JPMORGAN CHASE        )
BANK, N.A., BANK OF AMERICA, N.A.,          )     ANSWER AND COUNTERCLAIMS
MUSTANG HOLDING COMPANY, INC. and MUSTANG   )
MERGER SUB, INC.,                           )
                                            )
      Counterclaim-Plaintiffs,              )
                                            )
v.                                          )
                                            )
SLM CORPORATION,                            )
                                            )
      Counterclaim-Defendant.

         Defendants-Counterclaim Plaintiffs J.C. Flowers II, L.P.
("Flowers"), JPMorgan Chase Bank, N.A. ("JPMorgan Chase"), Bank of America,
N.A. ("Bank of America"), Mustang Holding Company ("Buyer") and Mustang
Merger Sub, Inc. ("Subsidiary") (Buyer and Subsidiary, collectively,
"Mustang") for their answer to the Complaint of Plaintiff-Counterclaim
Defendant SLM Corporation ("Sallie Mae" or the "Company") respond as
follows:
                         NATURE OF THE ACTION

       1.    Deny the allegations of paragraph 1 of the Complaint,
except admit that on April 15, 2007, Mustang and Sallie Mae entered into
an Agreement and Plan of Merger (the "Merger Agreement" or "Agreement"),
which provided for the acquisition of Sallie Mae by Mustang at $60 cash
per share provided certain conditions were met (the "Transaction"); admit
that the merger transaction was valued at approximately $26 billion; and
admit that the Merger Agreement provided for a $900,000,000 termination
fee under certain conditions described in Section 11.05 of the Merger
Agreement.
        2.    Deny the allegations of paragraph 2 of the Complaint, except
admit that in the latter half of July 2007 there was a liquidity crisis
in the credit markets; and admit that on September 26, 2007, Defendants,
in an update to an early July statement in which Defendants indicated that
"the current legislative proposals pending before the House and Senate
could result in a failure of the conditions to the closing of the merger
to be satisfied," issued a statement indicating, inter alia, that
Defendants had informed Sallie Mae that "the conditions to closing under
the Merger Agreement, if the closing were to occur today, would not be
satisfied as a result of changes in the legislative and economic
environment."
        3.    Deny the allegations of paragraph 3 of the Complaint, except
admit that on October 2, 2007, Defendants issued a press release indicating
that Defendants had that day sent a proposal to the Board of Directors of
Sallie Mae (the "Sallie Mae Board") "to buy [Sallie Mae] at a price that
appropriately and fairly reflects the new economic and legislative
environment that faces [Sallie Mae]"; and aver that this proposal
consisted of up to $60 per Sallie Mae share, composed of $50 in cash plus
warrants with a payout of up to an additional $10 per share in five years;
and admit that attached to the press release was a four-page exhibit, and
respectfully refer the Court to the press release and attachments thereto
for the full contents thereof.
        4.    Deny the allegations of paragraph 4 of the Complaint, except
admit that the definition of Material Adverse Effect contained in Section
1.01(a) of the Merger Agreement excludes effects resulting from (i)
"changes in Applicable Law (provided that . . . 'changes in Applicable Law'
shall not include any changes in Applicable Law relating specifically to
the education finance industry that are in the aggregate more adverse to
the Company and its Subsidiaries, taken as a whole, than the legislative
and budget proposals described under the heading 'Recent Developments'
in the Company 10-K, in each case in the form proposed publicly as of
the date of the Company 10-K" and (ii) changes in "general economic,
business, regulatory, political or market conditions or in national or
global financial markets; provided that such changes do not
disproportionately affect the Company relative to similarly sized
financial services companies"; and admit that the College Cost
Reduction and Access Act of 2007 (the "College Cost Reduction Act")
was signed into law on September 27, 2007.

                             THE PARTIES

        5.    Admit the allegations of paragraph 5 of the Complaint.
        6.    Admit the allegations of paragraph 6 of the Complaint, and
aver that the Limited Guarantee dated April 15, 2007 and signed by a
representative of Flowers is expressly limited to $451,800,000.
        7.    Deny the allegations of paragraph 7 of the Complaint,
except admit that the Limited Guarantee dated April 15, 2007 and signed
by a representative of JPMorgan Chase is expressly limited to $224,100,000
and that Defendant JPMorgan Chase is a national bank with its main office,
as designated in its Articles of Association, in Columbus, Ohio.
        8.    Admit the allegations of paragraph 8 of the Complaint, and
aver that the Limited Guarantee dated April 15, 2007 and signed by a
representative of Bank of America is expressly limited to $224,100,000.
        9.    Admit the allegations of paragraph 9 of the Complaint.
        10.   Admit the allegations of paragraph 10 of the Complaint.

                         FACTUAL ALLEGATIONS

        11.   Deny the allegations of paragraph 11 of the Complaint,
except admit the first, second, and fourth sentences thereof; and admit
that, in or about February 2007, Sallie Mae met with Defendants Flowers,
JPMorgan Chase, and Bank of America to discuss certain aspects of Sallie
Mae's business, including certain aspects of the legislative environment
for the student loan industry.
        12.   Admit the allegations of paragraph 12 of the Complaint.
        13.   Deny the allegations of paragraph 13 of the Complaint, except
admit that there were legislative and budget proposals each of which
potentially could have had an adverse impact on Sallie Mae's business, and
respectfully refer the Court to the "Recent Developments" section of the
Form 10-K filed by Sallie Mae with the SEC on March 1, 2007
(the "Sallie Mae 10-K") for a description of some of these proposals.
        14.   Deny the allegations of paragraph 14 of the Complaint, except
admit that, depending on the terms of any new legislation that was actually
enacted, Sallie Mae was potentially an attractive investment at an

appropriate price.
        15.   Deny the allegations of paragraph 15 of the Complaint, except
admit that Sallie Mae filed a Form 10-K with the SEC on March 1, 2007 that
contained a section called "Recent Developments" that described certain
legislative and budget proposals, and respectfully refer the Court to the
"Recent Developments" section of the Sallie Mae 10-K for the contents
thereof.
        16.   Admit the allegations of paragraph 16 of the Complaint.
        17.   Admit that the Sallie Mae 10-K described certain features of
the President's 2008 Budget Proposals (the "Bush Budget Proposal") and
contained the language quoted in paragraph 17.
        18.   Deny the allegations of paragraph 18 of the Complaint, and
aver that the Bush Budget Proposal, if enacted, would have had a
significant adverse effect on Sallie Mae, including decreased interest
rate subsidies received by Sallie Mae from the federal government and
increased fees and credit risk for Sallie Mae on its FFELP loans.
        19.   Deny knowledge or information sufficient to form a belief
as to the truth of the allegations of paragraph 19 of the Complaint.
        20.   Deny the allegations of paragraph 20 of the Complaint,
except admit the first sentence thereof; admit that, as part of their bid,
Flowers, JPMorgan Chase, and Bank of America proposed a form of limited
guarantees by which these entities would guarantee payment of their
respective shares of a termination fee under certain conditions; and
deny knowledge or information sufficient to form a belief as to the
truth of the third sentence.
        21.   Admit the allegations of paragraph 21 of the Complaint,
except deny knowledge or information sufficient to form a belief as to the
truth of whether there was another potential bidder to acquire Sallie Mae
(the "Other Bidder"), whether, on or about April 13, 2007, discussions
with the Other Bidder were still ongoing, whether Sallie Mae engaged in
negotiations with the Other Bidder regarding any potential issues in any
merger agreement, including the definition of "Material Adverse Change,"
and whether that same day Sallie Mae requested a "best and final" offer
from the Other Bidder by April 14, 2007.
        22.   Admit the allegations of paragraph 22 of the Complaint,
except deny knowledge or information sufficient to form a belief as to
the truth of the first sentence thereof.
        23.   Deny the allegations of paragraph 23 of the Complaint,
except admit the first sentence thereof; admit that the Merger Agreement
provides that the merger cannot be consummated until 30 calendar days
after a debt marketing period (the "Marketing Period") has commenced;
and aver that the Marketing Period cannot commence until all other
conditions to the consummation of the merger (except for receipt of a
certificate signed by an officer of Sallie Mae) are satisfied or waived,
including, among other things, a condition that the representations and
warranties of Sallie Mae (including the representation in Section 4.10 of
the Merger Agreement that "there has not been any event, occurrence,
development or state of circumstances or facts that has had or would be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect") shall be true and correct; and aver that, pursuant to the
Agreement, Subsidiary would merge with and into Sallie Mae, which would
survive as a subsidiary of Buyer, owned by Defendants Flowers, JPMorgan
Chase, and Bank of America, and that holders of Sallie Mae stock would
receive $60 in cash per share, subject to all conditions of the merger
being satisfied or waived.
        24.   Admit the allegations of paragraph 24 of the Complaint.
        25.   Deny the allegations of paragraph 25 of the Complaint,
except admit that Article 4 of the Merger Agreement contains a preamble,
and respectfully refer the Court to Article 4 of the Merger Agreement for
the complete terms thereof.
        26.   Deny the allegations of paragraph 26 of the Complaint,
except admit that Section 1.01(a) of the Merger Agreement contains the
definition of Material Adverse Effect quoted in paragraph 26 but without
the added emphases.
        27.   Deny the allegations of paragraph 27 of the Complaint,
except admit that the Merger Agreement's definition of Material Adverse
Effect contains several exclusions; that the exclusion for changes in
"general economic, business, regulatory, political or market conditions"
is subject to an exception for changes that "disproportionately affect
the Company relative to similarly sized financial services companies";
and that the exclusion for "changes in Applicable Law" is subject to an
exception for "changes in Applicable Law relating specifically to the
education finance industry that are in the aggregate more adverse to the
Company and its Subsidiaries, taken as a whole, than the legislative and
budget proposals described under the heading 'Recent Developments' in the
Company 10-K, in each case in the form proposed publicly as of the date of
the Company 10-K."
        28.   Deny the allegations of paragraph 28 of the Complaint,
except admit that effects on Sallie Mae resulting from changes in
Applicable Law, as defined in the Merger Agreement, are excluded from
consideration as a Material Adverse Effect unless such changes in
Applicable Law "are in the aggregate more adverse to the Company and its
Subsidiaries, taken as a whole, than the legislative and budget proposals"
described in the Sallie Mae 10-K, "in each case in the form proposed
publicly as of the date of [the Sallie Mae] 10-K."
        29.   Deny the allegations of paragraph 29 of the Complaint,
except admit that Defendants were aware of the legislative and budget
proposals described in the Sallie Mae 10-K.
        30.   Deny the allegations of paragraph 30 of the Complaint,
except admit that, during the course of the negotiation of the Merger
Agreement, Sallie Mae provided Defendants with an initial draft of the
merger agreement that excluded all "changes in Applicable Law" from the
definition of Material Adverse Effect, and that Defendants subsequently
proposed a draft that carved out from that exclusion "any change in
Applicable Law relating specifically to the education finance industry
other than changes in Applicable Law that are within the scope of the
legislative and budget proposals described under the heading 'Recent
Developments' in the Company 10-K, in each case in the form proposed
publicly as of the date hereof."
        31.   Deny the allegations of paragraph 31 of the Complaint,
except admit that on or about May 31, 2007, J. Christopher Flowers made
a presentation to potential co-investors and that one page of a
presentation document dated May 2007, states, in part, that "[l]egislation
enacted by Congress that would be materially adverse to Sallie Mae as
compared to the proposed legislation disclosed in the SLM 2006 10-K is
one of the developments that could trigger a 'Material Adverse Effect'";
and aver that this statement does not indicate that only the incremental
adverse impact of any enacted legislation over and above the impact of
the legislative and budget proposals described in the Sallie Mae 10-K
may be considered in determining whether a Material Adverse Effect has
occurred; and further aver that the same document also states that "the
effects of changes in education finance laws that are in aggregate more
adverse to [Sallie Mae] than the currently proposed bills and budget
proposals (as described in [Sallie Mae's] current 10-K, in the form
publicly proposed as of the date of the 10-K, which included descriptions
of both H.R. 5 and the 2008 Bush Budget, but not the Kennedy proposal)
would count towards determining whether there is a MAE"; and respectfully
refer the Court to the document for the full contents thereof.
        32.   Deny the allegations of paragraph 32 of the Complaint,
except admit that Sections 7.01 and 7.02 of the Merger Agreement contain
the language quoted in paragraph 32, and respectfully refer the Court to
Sections 7.01 and 7.02 of the Merger Agreement for the complete terms
thereof.
        33.   Deny the allegations of paragraph 33 of the Complaint,
except admit that the Merger Agreement states that "[s]ubject to the terms
and conditions of this Agreement, [Sallie Mae] and [Buyer] shall use their
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 consummate the transactions contemplated by this Agreement," and
respectfully refer the Court to Section 8.01 of the Merger Agreement for
the complete terms thereof.
        34.   Deny the allegations of paragraph 34 of the Complaint,
except admit that the Merger Agreement provides for payment of a
termination fee under certain conditions, and respectfully refer the
Court to Section 11.05(c) of the Merger Agreement for the complete terms
thereof.
        35.   Deny the allegations of paragraph 35 of the Complaint,
except admit that Limited Guarantees were executed by Flowers, JPMorgan
Chase, and Bank of America; and aver that the Limited Guarantee, dated
April 15, 2007, executed by Flowers is expressly limited to $451,800,000,
the Limited Guarantee, dated April 15, 2007, executed by JPMorgan Chase
is expressly limited to $224,100,000, and the Limited Guarantee, dated
April 15, 2007, executed by Bank of America is expressly limited to
$224,100,000.
        36.   Deny the allegations of paragraph 36 of the Complaint,
except admit the first sentence thereof; and admit that the Merger
Agreement does not contain a financing condition.
        37.   Deny the allegations of paragraph 37 of the Complaint,
except admit that, on July 10, 2007, in order to satisfy a comment by the
SEC on the draft merger proxy statement, Defendants provided language to
Sallie Mae for inclusion in the proxy statement stating that "the current
legislative proposals pending before the House and Senate could result in

a failure of the conditions to the closing of the merger to be satisfied";
and aver that this language was provided in response to the imminent
passage of a House of Representatives bill cutting subsidies to the
student loan industry, which was in fact passed the next day, July 11,
2007, and predated the credit crisis, which started in the latter half
of July 2007.
        38.   Deny the allegations of paragraph 38 of the Complaint,
except admit that Sallie Mae's stock price declined from a closing price
of $57.80 on July 10, 2007, to a closing price of $52.15 on July 11, 2007,
and aver that, on July 11, 2007, the House of Representatives passed a
bill that cut government subsidies to the student loan industry.
        39.   Deny the allegations of paragraph 39 of the Complaint.
        40.   Deny the allegations of paragraph 40 of the Complaint,
except admit that, as a result of the proposed merger, Defendants would
acquire control of Sallie Mae Bank, an industrial bank in Utah that
originates loans for Sallie Mae, that this portion of the Transaction
required FDIC approval, and that the FDIC has yet to approve the transfer
of Sallie Mae Bank; and aver that the Merger Agreement required the Buyer
to hold separate or divest any of the businesses or properties or assets
of Sallie Mae or its subsidiaries, if and as may be required by any
Governmental Authority, as defined in the Agreement, to resolve its
objections to the transactions contemplated by the Merger Agreement,
including the "prompt divestiture, liquidation, sale or other disposition"
of Sallie Mae Bank or "other appropriate action" if the Buyer is "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"; and aver that it is not the case that Defendants have
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" because a reasonable time period for
obtaining those approvals has not yet elapsed.
        41.   Deny the allegations of paragraph 41 of the Complaint,
except admit that Defendants have consistently taken the position that
Sallie Mae has not provided Defendants with projections of the type
required to consummate the debt financing for the Transaction, including
information and realistic projections relating to the impact of the credit
crisis and the College Cost Reduction Act on Sallie Mae; and aver that
Sallie Mae has not provided the required information under Section 8.09(b)
of the Merger Agreement (the "Required Information"), and, in particular,
Sallie Mae has failed to provide updated pro forma financial statements,
management discussion and analysis, risk factor disclosure, and updated
projections based on reasonable assumptions regarding the impact of the
credit crisis and the College Cost Reduction Act on Sallie Mae.
        42.   Deny the allegations of paragraph 42 of the Complaint.
        43.   Deny the allegations of paragraph 43 of the Complaint,
except admit that, on September 27, 2007, President Bush signed the
College Cost Reduction Act into law, and that the College Cost Reduction
Act's provisions included a reduction in direct subsidies to FFELP
lenders, a reduction in the federal guarantee of FFELP loans, and an
increase in FFELP lender origination fees; and aver that the impact of
the College Cost Reduction Act on Sallie Mae is in the aggregate more
adverse to Sallie Mae than the potential impact of any of the legislative
and budget proposals described in the Sallie Mae 10-K in each case in the
form proposed publicly as of the date of the Sallie Mae 10-K.
        44.   Deny the allegations of paragraph 44 of the Complaint.
        45.   Deny the allegations of paragraph 45 of the Complaint,
except admit that a representative of the Defendants met with
representatives of Sallie Mae on September 26, 2007 to discuss the status
of the merger and advised the Sallie Mae representatives that, if the
conditions to the closing of the Merger Agreement were required to be
measured at that time, the conditions to closing would not be satisfied;
and admit that Defendants released a statement on September 26, 2007 that
contained the language quoted in the last sentence of paragraph 45 of the
Complaint.
        46.   Deny the allegations of paragraph 46 of the Complaint,
except admit that on October 2, 2007 the Defendants made a public proposal
to the Sallie Mae Board, and respectfully refer the Court to the proposal,
described in a letter to the Sallie Mae Board and a press release, both
dated October 2, 2007, and attachments thereto for the complete terms of
the proposal.
        47.   Deny the allegations of paragraph 47, except admit that
Flowers issued a press release on behalf of Defendants on October 2, 2007
and attached Defendants' proposal to the Sallie Mae Board, and
respectfully refer the Court to the press release and attachments thereto
for the contents thereof.
        48.   Deny the allegations of paragraph 48 of the Complaint,
except admit that Sallie Mae sent a letter to the Defendants dated October
3, 2007 that unilaterally declared that the Marketing Period must begin no
later than October 4, 2007 and purported to unilaterally set a closing
date of November 5, 2007, and respectfully refer the Court to the letter
for the complete contents thereof; and admit that Defendants sent a letter
to Sallie Mae on October 8, 2007, stating, among other things, that Sallie
Mae "has suffered a Material Adverse Effect within the meaning of the
Merger Agreement" and that Sallie Mae therefore could not satisfy the
conditions to Defendants' obligation to consummate the Transaction, and
respectfully refer the Court to the letter for the complete contents
thereof.
        49.   Deny the allegations of paragraph 49 of the Complaint.
        50.   Deny the allegations of paragraph 50 of the Complaint.
        51.   Deny the allegations of paragraph 51 of the Complaint.

                              COUNT I
                            REPUDIATION

        52.   Defendants incorporate their responses to the allegations
contained in paragraphs 1 through 51 as if fully set forth herein.
        53.   Deny the allegations of paragraph 53 of the Complaint,
except admit the Merger Agreement is a valid contract, and that Mustang
and Sallie Mae executed it and are bound by all of its terms and
conditions; and aver that, since the conditions to closing have not
occurred, those conditions including but not limited to provision of the
Required Information, the continued accuracy of the representation by
Sallie Mae in Section 4.10 of the Merger Agreement that there has not been
any event, occurrence, development or state of circumstances or facts that
has had or would be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect, and FDIC approval of Mustang's
acquisition of Sallie Mae Bank, Mustang is not in a position to perform
any obligations that may remain under the Merger Agreement.
        54.   Deny the allegations of paragraph 54 of the Complaint.
        55.   Deny the allegations of paragraph 55 of the Complaint.
        56.   Deny the allegations of paragraph 56 of the Complaint.
        57.   Deny the allegations of paragraph 57 of the Complaint.
        58.   Admit that Sallie Mae seeks damages in the amount not
less than $900,000,000, but deny that Sallie Mae is entitled to such
relief.

                         AFFIRMATIVE DEFENSES

        59.   First Affirmative Defense: The Complaint fails to state a
claim upon which relief may be granted.
        60.   Second Affirmative Defense: Sallie Mae has materially
breached the terms of the Merger Agreement, and, as a result, Mustang
has no obligation to perform thereunder.
        61.   Third Affirmative Defense: A number of events, including
the enactment of the College Cost Reduction Act and the disruptions in
the markets for asset-backed securities and asset-backed commercial paper
will have, or will reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Sallie Mae within the meaning of
the Merger Agreement as of the Effective Time, as defined in the Merger
Agreement.
        62.   Fourth Affirmative Defense: Mustang has not repudiated or
otherwise breached the Merger Agreement.
        63.   Fifth Affirmative Defense: Mustang's obligations to perform
under the Merger Agreement are excused by reason of the failure of
conditions precedent because, among other things: (i) Sallie Mae has
failed to provide the Required Information, (ii) the Marketing Period
has not taken place, (iii) the College Cost Reduction Act and the credit
crisis will have or will reasonably be expected to have a Material Adverse
Effect on Sallie Mae as of the Effective Time, and (iv) the FDIC has not
approved Mustang's acquisition of Sallie Mae Bank.
        64.   Sixth Affirmative Defense: Flowers, JPMorgan Chase and Bank
of America have no obligation to Sallie Mae under their Limited Guarantees.

                              COUNTERCLAIMS

        Defendants-Counterclaim Plaintiffs Flowers, JPMorgan Chase, Bank
of America and Mustang for their Counterclaims against
Plaintiff-Counterclaim Defendant Sallie Mae, upon knowledge as to
themselves and their conduct and upon information and belief as to
all other matters, allege as follows:

                           NATURE OF THE CLAIMS

        1.    As alleged in detail below, on April 15, 2007, Mustang and
Sallie Mae entered into the Merger Agreement, pursuant to which Mustang
agreed to acquire Sallie Mae at a price of $60 per share provided certain
conditions were met. Since that time, there have been a number of events
that have had and will continue to have a dramatic adverse impact on
Sallie Mae's business and prospects, including the following:
        a.    the enactment of the College Cost Reduction and Access Act

   of 2007 (the "College Cost Reduction Act"), an Act that the
   Congressional Budget Office estimates will cut subsidies to the student
   loan industry by $22.32 billion over the next five years on a present
   discounted value basis, and that will cut Sallie Mae's core net income
   by approximately $316 million, or 15.2%, in 2009, rising to a reduction
   of approximately $595 million, or 23.5%, in 2012, as compared to
   reasonable projections of Sallie Mae's core net income if the new
   legislation had not been enacted; and
        b.    the collapse in the market for asset-backed securities,
   including the market for the sale of securitized student loans, as well
   as substantial disruption in the market for asset-backed commercial
   paper, events that disproportionately affect Sallie Mae as compared to
   similarly sized financial services companies.
Together, these two events will reduce Sallie Mae's core net income by an
estimated $402 million, or 19.4%, in 2009, and by $719 million, or 28.4%,
in 2012.
        2.    As a result, Mustang and Sallie Mae are engaged in a dispute
as to whether, under the specifically negotiated definition of "Material
Adverse Effect" in the Merger Agreement, Sallie Mae will have suffered, or
will reasonably be expected to suffer, a Material Adverse Effect as of
the Effective Time and, therefore, whether or not Mustang has any
obligation to consummate the merger (assuming all other conditions to
closing have been satisfied, which they have not been) or to pay a $900
million "reverse break-up" fee.  A core issue in that dispute is how the
definition of Material Adverse Effect treats "changes in Applicable Law,"
i.e., legislative changes that affect the student lending industry.
        3.    Under the unambiguous terms of the "Material Adverse Effect"
definition, if Congress enacts any change in law with respect to the
student lending industry "more adverse" to Sallie Mae than the legislative
proposals described under the "Recent Developments" heading in its 10-K
for the year ending December 31, 2006 (the "Sallie Mae 10-K") "in each
case in the form proposed publicly as of the date of the
[10-K, i.e., March 1, 2007]," then the entire impact of that new law must
be considered in evaluating whether there has been a Material Adverse
Effect. Since the College Cost Reduction Act is indisputably "more
adverse" to the Company than the proposals described in the Sallie Mae
10-K "in the form proposed publicly as of" March 1, 2007, and since the
College Cost Reduction Act will materially reduce Sallie Mae's income for
a durationally significant period, as of the Effective Time of the merger,
the College Cost Reduction Act will have, or will reasonably be expected
to have, a Material Adverse Effect on Sallie Mae.
        4.    Sallie Mae disputes this.  It claims that in evaluating
whether there has been a Material Adverse Effect, the only relevant
consideration is whether the incremental impact of the College Cost
Reduction Act over and above the impact of the legislative proposals
described in the Sallie Mae 10-K has a material adverse effect on the
Company.  Sallie Mae's claims simply cannot be reconciled with the plain,
unambiguous language of the "Material Adverse Effect" definition in the
Merger Agreement.
        5.    The operation of that language is clear. Under the contract:
        a.    "Material Adverse Effect" is defined as "a material adverse
   effect on the financial condition, business or results of operations of
   the Company and its Subsidiaries, taken as a whole."
        b.    The definition then specifies a number of events that cannot
   constitute a Material Adverse Effect. It does so by providing that a
   Material Adverse Effect means a material adverse effect on Sallie Mae's
   financial condition, business or results of operations "except to the
   extent any such effect results from" one of a series of specified
   events.
        c.    One such exception is contained in subsection (b) of the
   definition, which begins by providing that "changes in Applicable Law"
   - elsewhere defined to include federal law - cannot result in a
   Material Adverse Effect.
        d.    Subsection (b) then goes on to provide, however, that if
   there are "changes in Applicable Law relating specifically to the
   education finance industry that are in the aggregate more adverse to
   the Company" than the proposals described in the Sallie Mae 10-K, then
   those "changes in Applicable Law" are not included in the general
   exclusion of "changes in Applicable Law" from the definition of
   Material Adverse Effect.  Accordingly, any "changes in Applicable Law"
   that are in the aggregate more adverse to the Company than the
   proposals described in the Sallie Mae 10-K must be counted in
   determining whether there has been a Material Adverse Effect.
        6.    As a result, the definition is clear that the impact of a
new law that is "more adverse" to the Company than the proposals described
in the Sallie Mae 10-K - as is the College Cost Reduction Act - has to be
counted in evaluating whether there has been a Material Adverse Effect.
The definition is equally clear that the impact of that new law must be
considered in its entirety.
        7.    Although it would have been a simple matter to state that
only the incremental impact of the new law over the impact of the proposals
described in the Sallie Mae 10-K may be considered, as Sallie Mae contends,
nothing in the definition so provides.  Moreover, while the plain language
of the contract is unambiguous, obviating any need for parol evidence,
the negotiating history of the provision also confirms the parties' intent.
        8.    As alleged in detail below, the parties are in dispute on a
number of additional issues including, for example: (a) whether, assuming
that Sallie Mae is correct in its interpretation of the Material Adverse
Effect definition, as of the Effective Time, Sallie Mae will have
suffered, or will be reasonably be expected to suffer, a Material
Adverse Effect in its business as a result of the adoption of the College
Cost Reduction Act and the changes in the credit markets; and (b) whether
the conditions to closing have been satisfied, and whether Mustang is in
breach of any obligation to close the merger.

                                 PARTIES

        9.    Counterclaim-Plaintiffs Mustang Holding Company Inc. and
Mustang Merger Sub, Inc. are Delaware companies with their principal place
of business in New York, New York.  Mustang was formed in April 2007 by
Flowers, JPMorgan Chase and Bank of America to effect an acquisition of
Sallie Mae.
        10.   Counterclaim-Plaintiff Flowers is a Cayman Islands limited
partnership.
        11.   Counterclaim-Plaintiff JPMorgan Chase is a national bank
with its main office, as designated in its Articles of Association, in
Columbus, Ohio.
        12.   Counterclaim-Plaintiff Bank of America is a national bank
with its principal place of business in Charlotte, North Carolina.
        13.   Plaintiff-Counterclaim Defendant SLM Corporation is a
Delaware corporation with its principal place of business in Reston,
Virginia.

                              JURISDICTION

        14.   Jurisdiction is proper because the parties agreed that
Delaware has exclusive jurisdiction over all disputes relating to or
arising out of the Merger Agreement.
        15.   Specifically, Section 11.09 of the Merger Agreement
provides that:
        The parties hereto agree that any suit, action or proceeding
        seeking to enforce any provision of, or based on any matter
        arising out of or in connection with, this Agreement or the
        transactions contemplated hereby shall be brought in any
        federal court located in the State of Delaware or any Delaware
        state court, and each of the parties hereby irrevocably consents
        to the jurisdiction of such courts (and of the appropriate
        appellate courts therefrom) in any such suit, action or
        proceeding and irrevocably waives, to the fullest extent
        permitted by law, any objection that it may now or hereafter
        have to the laying of the venue of any such suit, action or
        proceeding in any such court or that any such suit, action or
        proceeding brought in any such court has been brought in an
        inconvenient forum.

                               BACKGROUND

        16.   Sallie Mae's primary business is to originate student loans
through federally subsidized loan programs and then either to hold those
loans in its portfolio or securitize them for sale in the asset-backed
securities market. Approximately 84% of Sallie Mae's loan portfolio
consists of federally subsidized loans.  Sallie Mae historically has
funded its operations through the issuance of student loan asset-backed
securities (securitizations) and unsecured debt securities. Sallie Mae's
primary source of earnings has been the spread between the yield it
receives, including government subsidies, on its portfolio of student
loans (less provisions for loan losses), on the one hand, and the cost
of funding those loans, on the other hand.
        17.   Prior to the recent enactment of the College Cost Reduction
Act, the federal government subsidized student loans in at least three
ways: (a) by paying interest for the student while he or she remained in
school or qualified for other deferrals; (b) by providing "special
allowance payments" to lenders that made up the difference between the
interest rates charged to students and an indexed market interest rate
(set annually at the commercial paper rate plus a certain percentage
that varies with the type of loan); and (c) by guaranteeing the collection
of 97% of the loan, a percentage that rose to 99% if the lender was
designated an "exceptional performer" by the U.S. Department of Education.
In turn, lenders participating in the program paid a 0.5% origination fee

to the federal government for each loan made.
        18.   Sallie Mae historically has been the single largest
beneficiary of these federal subsidies. According to the Sallie Mae 10-K,
as of December 31, 2006, Sallie Mae owned and managed $119.5 billion of
federally guaranteed loans to students and their parents. The U.S.
Department of Education has designated Sallie Mae's loan servicing
division an "exceptional performer," which, prior to the passage of
the College Cost Reduction Act, entitled it to the higher 99% guarantee
rate.
        19.   Sallie Mae has traditionally funded its operations through
the issuance of student loan asset-backed securities and unsecured debt.
Sallie Mae has been particularly dependent on securitization: in 2006,
Sallie Mae completed 13 securitizations for a total amount securitized of
$31.6 billion.  In the Sallie Mae 10-K, the Company described
securitization as "its principal source of financing."  Company
projections, prepared in March 2007, called for an increased use of
securitization over the next several years.

                    THE NEGOTIATION OF THE MERGER AGREEMENT

        20.   While there is no need to resort to parol evidence, given
the plain language of the contract, the negotiating history of the
Material Adverse Effect definition confirms that Mustang's interpretation
is the correct one.  Beginning in the Fall of 2006 and continuing through
the Winter of 2007, Sallie Mae engaged in discussions with Flowers
concerning a potential leveraged buyout of the Company. In February 2007,
Flowers requested the participation of JPMorgan Chase and Bank of America
in the potential transaction.
        21.   At that time, two existing legislative proposals called for
substantial subsidy cuts to the student loan industry: the February 5,
2007 Bush Budget Proposal and H.R. 5, which had been passed by the House
on January 17, 2007.  Both proposals were described under the heading
"Recent Developments" in the Sallie Mae 10-K, which was publicly filed on
March 1, 2007.
        22.   The Bush Budget Proposal was the more severe of the two:
according to the Congressional Budget Office, on a present discounted
value basis, the Bush Budget Proposal provided for subsidy cuts in the
amount of $15.5 billion over the next five years, while H.R. 5 provided
for $10 billion in subsidy cuts on a present discounted value basis over
the same period.  In the Sallie Mae 10-K, the Company admitted that if the
Bush Budget Proposal were enacted into law and the Company took no
remedial action, the cuts "could over time have a materially adverse
affect on [Sallie Mae's] financial condition and results of operations,
as new loans originated under the new proposal become a higher percentage
of the portfolio."
        23.   During the course of due diligence, in early March 2007,
Sallie Mae management provided Mustang with its projections for the
Company. Those "midcase" projections assumed that the ultimate legislation
would have a financial impact approximately halfway between that of the
Bush Budget Proposal and that of H.R. 5. (Those same projections were
later included in the proxy statement that the Company sent to shareholders
in order to secure their approval of the merger.) Sallie Mae estimated
that even that hypothetical compromise legislation would reduce core net
income by 8% in 2009, worsening to a 13.7% reduction in core net income
by 2012 as the percentage of loans in the Company's portfolio made under
the new legislation increase.  Although Mustang was aware that the actual
legislative outcome could end up being better or worse than Sallie Mae's
assumed "midcase" between the Bush Budget Proposal and H.R.5, Mustang and
Sallie Mae believed Sallie Mae's scenario was reasonable and Mustang used
it in pricing its bids for the Company.
        24.   Discussions proceeded.  On March 29, 2007, Sallie Mae
provided Mustang with a draft merger agreement.  Mustang and Sallie Mae
both recognized that, unless the Bush Budget Proposal was carved out of
the Merger Agreement, its enactment would constitute a Material Adverse
Effect as defined therein.  Sallie Mae's draft required Mustang to assume
the risk of any and all changes in "Applicable Law" by carving out all
such changes from the definition of Material Adverse Effect. Thus, under
Sallie Mae's draft, Mustang would have assumed the risk of subsidy cuts
and other adverse legislative impacts of any magnitude, no matter how
great.
        25.   On April 11, 2007, Mustang sent Sallie Mae its definitive
bid, and included a mark-up of the draft merger agreement. Mustang made
clear to Sallie Mae that while it would accept the risk that the Bush
Budget Proposal would become law, Mustang would not bear the risk of the
enactment of even more adverse legislation.  Accordingly, Mustang revised
the draft definition of Material Adverse Effect to provide that Mustang
would accept the risk of enactment of only those proposals described under
the heading "Recent Developments" in the Sallie Mae 10-K.
        26.   On April 12, 2007, the EFC Exchange, an education finance
industry newsletter, published a summary of a new proposal by Senator
Edward M. Kennedy that called for even deeper cuts than those proposed
by President Bush (the "Kennedy Proposal").  The Kennedy Proposal called
for cuts in subsidies to the student loan business totaling $22.3 billion
over the next five years on a present discounted value basis. According
to the EFC Exchange, Senator Kennedy wanted to, among other measures,
cut collection guarantees to 85%, reduce special allowance payments to
lenders by 60 basis points and double the lender-paid origination fee for
all loans.
        27.   Later that same day, April 12, 2007, Sallie Mae responded
to Mustang's mark-up by sending back another mark-up of the Material
Adverse Effect definition that once again sought to require Mustang to
assume the risk of any and all changes in Applicable Law.  Sallie Mae's
mark-up, as drafted, would have required Mustang to assume the risk that
a proposal more adverse than proposals described in the Sallie Mae 10-K,
including the Kennedy Proposal, would be enacted.
        28.   On April 14, 2007, after learning the published details of
the Kennedy Proposal, Mustang again revised Sallie Mae's Material Adverse
Effect definition, reiterating that Mustang would only accept the risk of
enactment of those proposals that were described in the Sallie Mae 10-K,
e.g., excluding the Kennedy Proposal, and that Mustang would not accept
the risk of any legislation "more adverse" to the Company. During
discussions on April 14, 2007, the parties agreed that the Kennedy
Proposal, if enacted, would not be subject to the "changes in Applicable
Law" carveout from the definition of Material Adverse Effect. The Material
Adverse Effect language was finalized on April 15, 2007, with Mustang
adding language to ensure that the carveout for the proposals in the
Sallie Mae 10-K was for those proposals in the form proposed publicly
"as of the date of the Company 10-K", i.e. March 1, 2007.
        29.   In this way, Mustang drew the line at the maximum amount of
legislative impact it was willing to take. It accepted the risk that the
legislative outcome might be worse than Sallie Mae's assumed "midcase"
scenario that Mustang had used to price the Company, and, indeed, as bad
as the proposals described in the Sallie Mae 10-K "in each case in the
form" proposed publicly as of March 1, 2007. But it refused the risk of
any legislation "more adverse" than the proposals in the Sallie Mae 10-K.
        30.   In sum, the parties agreed on a definition of Material
Adverse Effect that provides that any legislative changes affecting the
student loan industry "more adverse" to Sallie Mae than the proposals
described in the Sallie Mae 10-K, "in each case in the form proposed
publicly as of the date of the Company 10-K," would not be subject to
the exception for "changes in Applicable Law."  Therefore, any such
"more adverse" legislation would be considered in its entirety in
determining whether there was a Material Adverse Effect.


                          THE MERGER AGREEMENT

        31.   On April 15, 2007, Mustang and Sallie Mae entered into a
definitive merger agreement providing for the acquisition of Sallie Mae by
Mustang at $60 per share if certain conditions were met.
        32.   In Section 4.10 of the Merger Agreement, Sallie Mae
represents and warrants that, since December 31, 2006, there has not been
any event, occurrence, development or state of circumstances or facts that
has had or would be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.  In order to protect Mustang from
open-ended exposure to adverse developments in the business of Sallie Mae
in the period between signing and closing, Section 9.02(a)(ii) of the
Merger Agreement conditions Mustang's obligation to close on, among other
factors, this representation and warranty being true both as of the date of
the Merger Agreement and as of the Effective Time of the merger.
        33.   The definition of Material Adverse Effect is contained in
Section 1.01(a) of the Merger Agreement.  It provides as follows:
              "Material Adverse Effect" means 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: (a) changes in GAAP or changes
        in regulatory accounting requirements applicable to any industry in
        which the Company or any of its Subsidiaries operate; (b) changes
        in Applicable Law (provided that, for purposes of this definition,
        "changes in Applicable Law" shall not include any changes in
        Applicable Law relating specifically to the education finance
        industry that are in the aggregate more adverse to the Company and
        its Subsidiaries, taken as a whole, than the legislative and budget

        proposals described under the heading "Recent Developments" in the
        Company 10-K, in each case in the form proposed publicly as of the
        date of the Company 10-K)  or interpretations thereof by any
        Governmental Authority; (c) changes in global, national or regional
        political conditions (including the outbreak of war or acts of
        terrorism) or in general economic, business, regulatory, political
        or market conditions or in national or global financial markets;
        provided that such changes do not disproportionately affect the
        Company relative to similarly sized financial services companies
        and provided that this exception shall not include changes excluded
        from clause (b) of this definition pursuant to the proviso
        contained therein; (d) any proposed law, rule or regulation, or any
        proposed amendment to any existing law, rule or regulation, in each
        case affecting the Company or any of its Subsidiaries and not
        enacted into law prior to the Closing Date; (e) changes affecting
        the financial services industry generally; provided that such
        changes do not disproportionately affect the Company relative to
        similarly sized financial services companies and provided that this
        exception shall not include changes excluded from clause (b) of
        this definition pursuant to the proviso contained therein; (f)
        public disclosure of this Agreement or the transactions
        contemplated hereby, including the initiation of litigation by any
        Person with respect to this Agreement; (g) any change in the debt
        ratings of the Company or any debt securities of the Company or any
        of its Subsidiaries in and of itself (it being agreed that this
        exception does not cover the underlying reason for such change,
        except to the extent such reason is within the scope of any other
        exception within this definition); (h) any actions taken (or
        omitted to be taken) at the written request of Parent; or (i) any
        action taken by the Company, or which the Company causes to be
        taken by any of its Subsidiaries, in each case which is required
        pursuant to this Agreement.  (Emphases added.)
        34.   The conclusion of the Marketing Period - the period during
which, under the Merger Agreement, Mustang is required to use its
reasonable best efforts to obtain the debt financing necessary to
consummate the merger - is another prerequisite to closing the transaction.
Under the Merger Agreement.  Sallie Mae is required to provide certain
information (the "Required Information") to enable Mustang to obtain that
financing.  The Required Information that must be delivered to Mustang
includes financial statements, management discussion & analysis, pro forma
financial information, financial data, audit reports and other information
of the type required by Regulation S-X and Regulation S-K and customarily
included in a registration statement on Form S-1.  The "Marketing Period"
is the first period of thirty consecutive calendar days, after all other
conditions to the merger have been satisfied, throughout which Mustang has
the Required Information.  The Merger Agreement does not give Sallie Mae
any right to unilaterally decide when the Marketing Period has begun.
        35.   In addition, under the Merger Agreement, prior to closing,
the FDIC must approve Mustang's acquisition of Sallie Mae's industrial bank
subsidiary.  Section 8.01(a) provides that Mustang shall agree to
liquidation or divestiture only if Mustang is unable to obtain regulatory
approval in a "reasonably timely manner customary for other transactions of
a similar nature . . . ."  In 2007, the processing period for industrial
bank applications approved by the FDIC ranged from 7 months to 21 months
from the time of filing.  The FDIC application for the acquisition of
Sallie Mae's bank was filed on June 2, 2007, i.e., just 4 1/2 months ago.
        36.   The Merger Agreement, in Section 6.03, contains a no-shop
provision pursuant to which Sallie Mae agreed that it would not solicit,
initiate or knowingly take any action to facilitate or encourage the
submission of any acquisition proposals from third parties.  Section
6.03(c) specifies that if Sallie Mae receives an Acquisition Proposal,
which is defined to include "any offer, proposal or inquiry" relating to
the acquisition of the company, Sallie Mae must so inform Mustang within
one business day.  Under Section 10.01(c)(i) of the Merger Agreement, if
Sallie Mae breaches Section 6.03 "in any material respect," Mustang is
entitled to terminate the Merger Agreement.  Section 11.05(b) of the
Merger Agreement further provides that in the event that Mustang
terminates the Merger Agreement because Sallie Mae has materially breached
this no-shop provision, Sallie Mae will be obligated to pay Mustang a $900
million termination fee.
        37.   Under Section 2.01 of the Merger Agreement, the Effective
Time - when the transaction is actually consummated and a certificate of
merger is filed with the Delaware Secretary of State - is to be "[a]s soon
as practicable (and in no event later than three Business Days) after
satisfaction, or to the extent permitted . . . waiver of all conditions to
the Merger."
        38.   If the transaction has not been consummated on or before
February 15, 2008, Section 10.01(b)(1) of the Merger Agreement gives either
party the right to terminate the Merger Agreement.  That right is not
available to any party whose breach of the Merger Agreement has caused the
transaction not to be consummated by that time.
        39.   The Merger Agreement provides, in Section 11.14, that Sallie
Mae is not entitled to injunctive relief "or any remedy to enforce
specifically" the terms and provisions of the Merger Agreement.  Under
Section 10.02, Mustang's liability, in the event it breaches the Merger
Agreement, is limited to the payment of Parent Termination Fee, a $900
million "reverse break-up" fee.
        40.   Section 11.12 of the Merger Agreement states:
        This Agreement and the Confidentiality Agreements constitutes
        the entire agreement between the parties with respect to the
        subject matter of this Agreement and supersedes all prior
        agreements and understandings, both oral and written, between the
        parties with respect to the subject matter of this Agreement.

        THE EFFECT OF THE COLLEGE COST
        REDUCTION ACT ON SALLIE MAE

        41.   Following the execution of the Merger Agreement on April 15,
2007, Congress proceeded to consider legislation cutting student loan
subsidies.  On June 12, 2007, the bill that would ultimately become the
College Cost Reduction Act was introduced in the House; that bill proposed
cutting subsidies in an amount greater than the cuts proposed by either the
Bush Budget Proposal or H.R. 5.  Sallie Mae lobbied vigorously against the
proposed legislation, as it had against the earlier proposals; Bloomberg
News reported that Sallie Mae's lobbying expenses for the first half of
2007 were the most ever by the Company in a six-month period.  In June
2007, Sallie Mae told members of Congress that if subsidies were cut by $20
billion or more, cuts of that magnitude could "mov[e] the earnings on
[federal loans] into the red."  Sallie Mae further stated that lenders
would "lose money under the proposals" even if they took remedial steps
such as cutting borrower benefits.
        42.   In a letter to Sallie Mae dated July 6, 2007, the SEC
requested that Sallie Mae revise its draft proxy statement to summarize the
recent legislative proposals and "how they would impact [Sallie Mae]."  In
an email on July 8, 2007, Sallie Mae indicated that it planned to address
this comment by adding a short paragraph to the proxy that stated "[i]f all
or any portion of these proposals are enacted, the Company's ability to
sustain its current level of profitability and growth may be negatively
impacted."  In response to Sallie Mae's planned revision, and in an effort
to ensure that the proxy fully and accurately addressed the SEC's comment,
on July 10, 2007, Mustang provided Sallie Mae with language for the proxy
statement that stated "the current legislative proposals pending before the
House and Senate could result in a failure of the conditions to the closing
of the merger to be satisfied."
        43.   Mustang's action was taken in response to the SEC's comment
and the imminent passage of the House bill, which was in fact passed the
next day, July 11, 2007.  It thus predated the disruption in the credit
markets, which began in the latter half of July 2007.
        44.   Congressional deliberations continued and, on September 7,
2007, the Senate and the House both passed the final version of the College
Cost Reduction Act by wide majorities.  The College Cost Reduction Act was
transmitted to the White House on September 19, and signed into law by
President Bush on September 27, 2007.
        45.   Effective as of October 1, 2007, the College Cost Reduction
Act sharply cuts subsidies to the student loan programs that make up the
core of Sallie Mae's business.  According to the Congressional Budget
Office, the present discounted value of the reduction in government
subsidies to the industry over the next five years under the College Cost
Reduction Act is estimated to be $22.32 billion.  The cuts imposed by
College Cost Reduction Act are thus materially more severe than the cuts
proposed in the Bush Budget Proposal (a total of $15.5 billion) and in H.R.
5 (a total of $10 billion).
        46.   In order to achieve this reduction, the College Cost
Reduction Act cuts the special allowance payment rate by 55 basis points on
all federally guaranteed student loans made after October 1, 2007 by
for-profit lenders such as Sallie Mae.  As the special allowance payment
rate was only 1.02% as of September 30, 2007, the 55 basis point cut

reduces this subsidy by over 50%.  Sallie Mae's "midcase" management
projections had assumed that the special allowance payment rate would be
cut by only 25 basis points, while the Bush Budget Proposal, the most
draconian of the proposals described in the Sallie Mae 10-K, only called
for a 50 basis point reduction in this rate on existing loans.
        47.   The College Cost Reduction Act also eliminates the
"exceptional performer" provision in effect at the time the Merger
Agreement was signed, under which the federal government guaranteed the
collection of 99% of the value of the student loans Sallie Mae originated;
beginning on October 1, 2007, collection guarantees have been reduced to
97% of the value of the loan.  Moreover, as of October 1, 2012, the
guarantee rate will be further reduced to 95%.  In other words, the new
legislation triples Sallie Mae's loan losses on federally guaranteed
student loans and will quintuple those losses as of October 1, 2012.  In
Sallie Mae's third-quarter 2007 earnings release, dated October 11, 2007,
the Company disclosed that it had already taken a $28 million charge to
reflect the impact of the reduction in the guarantee rate on existing
loans.  (The change in the guarantee rate will have additional impact on
all future loans).
        48.   Other provisions of the College Cost Reduction Act also
impact Sallie Mae more negatively than the Bush Budget Proposal would have.
For example, the fee that Sallie Mae pays to the government for each loan
that it originates on or after October 1, 2007 has doubled from 0.5% to 1%.
The Bush Budget Proposal, on the other hand, would have doubled this fee
only for the much smaller pool of consolidation loans.
        49.   Still other provisions of the College Cost Reduction Act that
were not included in the Bush Budget Proposal create new competitive
hurdles for Sallie Mae.  For example, under the College Cost Reduction Act,
non-profit lenders will receive 15 basis points more interest from the
federal government than will for-profit lenders.  This extra subsidy will
enable non-profit lenders to offer more benefits to prospective borrowers,
thereby giving them a competitive edge over Sallie Mae and other for-profit
lenders.  Under the prior law, as well as the Bush Budget Proposal and
H.R.5, non-profit lenders and for-profit lenders were treated equally.
        50.   In addition, starting in July 2009, there will be an auction
in each state granting the exclusive right to market Parent Plus loans (a
type of federally subsidized education loan that is made directly to
parents) to the two lowest bidders in each state.  After the auctions, all
other lenders will be entirely shut out from providing Parent Plus loans.
This provision was a feature of the Kennedy Proposal that Mustang refused
to accept, and it was not included in the Bush Budget Proposal or H.R.5.
When Sallie Mae lobbied against the inclusion of this proposal in the
College Cost Reduction Act, it pointed out that the auctions would create
uncertainty in the marketplace that could eliminate investment and cause
higher default rates.
        51.   The Senate Budget Committee has estimated that this auction
provision will reduce government spending on student loans by $2 billion
over five years.  One of Sallie Mae's largest shareholders, International
Specialty Proceeds, has estimated that the auction provision alone will
cost Sallie Mae some $24 million in 2009, rising to a cost to Sallie Mae
of $132 million in 2012.
        52.   The College Cost Reduction Act creates still another
competitive disadvantage for Sallie Mae by providing for total forgiveness
of direct government loans after 10 years for students who go into a wide
variety of public service-oriented professions, including teaching and
nursing, thereby giving students considering those professions a
significant incentive to choose a direct government loan rather than a
loan from a private lender like Sallie Mae.  These provisions are
indisputably adverse to Sallie Mae, and were not contained in the Bush
Budget Proposal.
        53.   The net result is that the College Cost Reduction Act will
cause Sallie Mae to suffer a material reduction in its future income over
a durationally significant period, whether income is compared to what it
would have been if no legislation had been enacted, to what it would have
been under Sallie Mae's "midcase" between H.R.5 and the Bush Budge Proposal
or to what it would have been if the Bush Budget Proposal had been enacted.
Sallie Mae itself, in a letter to lenders dated September 10, 2007,
admitted that the new legislation will "impose an adverse economic impact
on Sallie Mae," and its Complaint in this action admitted that that adverse
impact was worse than that of the Bush Budget Proposal.  And indeed, the
College Cost Reduction Act will reduce Sallie Mae's net income by
approximately $316 million, or 15.2%, in 2009, as compared to reasonable
projections of Sallie Mae's core net income if the new legislation had not
been enacted, growing to a reduction of approximately $595 million, or
23.5%, by 2012, as the percentage of Sallie Mae's loan portfolio made under
the new law increases.
        54.   Under the unambiguous terms of the Merger Agreement, because
the College Cost Reduction Act is "in the aggregate more adverse" to Sallie
Mae and its subsidiaries than any of "the legislative and budget proposals
described... in the Company 10-K," the exception in the definition of
Material Adverse Effect for "changes in Applicable Law" does not apply.
The entire impact of the College Cost Reduction Act must therefore be
considered in determining whether a Material Adverse Effect has occurred.
        55.   The College Cost Reduction Act will materially reduce, for a
durationally significant period, Sallie Mae's future income.  As a result,
as of the Effective Time, the College Cost Reduction Act will have, or will
reasonably be expected to have, a Material Adverse Effect on the financial
condition, business and results of operations of Sallie Mae within the
meaning of the Merger Agreement.

        THE EFFECT OF THE DISRUPTIONS IN THE
        MARKETS FOR ASSET-BACKED SECURITIES
        AND ASSET-BACKED COMMERCIAL PAPER ON
        SALLIE MAE

        56.   Sallie Mae's primary source of operating financing is the
issuance of student loan asset-backed securities.  In the Sallie Mae 10-K,
the Company predicted that approximately 75% of its 2007 funding needs
would be satisfied by securitizing loan assets and issuing asset-backed
securities.  The Company's own March 2007 projections called for an even
greater use of securitization in the future with securitization providing
79% (or $49 billion) of financing in 2008, a figure that was projected to
rise to 80% (some $97 billion) by 2011.
        57.   However, in the latter half of July 2007, the sub-prime
mortgage crisis triggered an unprecedented collapse in the markets for
asset-backed securities and significant disruption in the market for
asset-backed commercial paper.  The market for new securitizations has been
extremely inactive, while the asset-backed commercial paper market has
contracted significantly.
        58.   As a result of this market disruption, Sallie Mae has not
sold asset-backed securities since July 19, 2007.  Because Sallie Mae has
operating funding needs of, on average, $6 billion a month, Sallie Mae's
management, rather than attempt to sell asset-backed securities on
commercially unfavorable terms, decided to draw down a $30 billion credit
facility that Bank of America and JPMorgan Chase had provided Sallie Mae -
at Sallie Mae's request - in conjunction with the acquisition in order to
provide liquidity in the event that Sallie Mae experienced a temporary
lack of access to the financing markets in reaction to the announcement of
the transaction.  This credit facility was never intended to provide an
ongoing source of operating financing to Sallie Mae.  Indeed, in April
2007, Sallie Mae's management expressed its belief that it would never
need to draw upon the facility.  As of October 10, 2007, Sallie Mae had
already drawn down all but $915 million of that $30 billion.
        59.   The current adverse conditions in the credit markets are
expected to be of a sustained duration.  Moreover, when the credit markets
recover, Sallie Mae's cost of funds is reasonably expected to be higher
than it was on December 31, 2006.  This higher cost of funds will directly
and materially reduce Sallie Mae's earnings in a durationally significant
manner.
        60.   While current market conditions have had a negative effect
on most financial institutions, the collapse of the securitization market
and disruption of the commercial paper market have "disproportionately
affect[ed]" Sallie Mae "relative to similarly sized financial services
companies" and thus are not excluded from the Merger Agreement's
definition of Material Adverse Effect.  The vast majority of similarly
sized financial services companies are insurance companies that collect
premiums or banks that can rely on deposits as a source of funding; Sallie
Mae is not an insurance company or a bank (apart from one tiny bank
subsidiary) and cannot collect premiums or accept deposits.  Sallie Mae's
business therefore is acutely dependent on the financing it receives from
asset-backed commercial paper and asset-backed securities.  Moreover,
Sallie Mae's business is not as diversified as many similarly sized
financial services companies.
        61.   The changed financing conditions standing alone will
significantly reduce Sallie Mae's core net income for years to come.  Due
to more unfavorable terms going forward, even in 2012, Sallie Mae's net
income will still be some 4.9% lower than it would have been had the credit
crisis not occurred.  Accordingly, as of the Effective Time, the adverse
conditions in the credit markets independently will have, or will
reasonably be expected to have, a Material Adverse Effect on Sallie Mae

within the meaning of the Merger Agreement.

        MUSTANG SEEKS TO REVISE THE TERMS OF THE
        MERGER AGREEMENT IN LIGHT OF THE CHANGED LEGISLATIVE
        AND ECONOMIC ENVIRONMENT AND SALLIE MAE FILES SUIT

        62.   In light of the developments described above, on September
26, 2007, a Mustang representative met with representatives of Sallie Mae
to advise them that if the conditions to the closing of the Merger
Agreement were required to be measured at that time, the conditions to
closing would not be satisfied, but that Mustang would be willing to
make an alternative proposal. The Sallie Mae representatives refused to
engage in any discussion concerning an alternative transaction.
        63.   Later that day, Sallie Mae issued a press release in which it
asserted that Mustang had stated that it did not intend to consummate the
merger.  Immediately thereafter, Mustang issued a press release correcting
Sallie Mae's statement and reiterating that Mustang was open to discussing
a revision of the transaction that reflected this new environment.
        64.   Instead of responding to any of Mustang's overtures, on
September 28, 2007, Sallie Mae's counsel sent a letter to Mustang's counsel
asserting that Mustang had repudiated the Merger Agreement and that Sallie
Mae therefore had no further obligations under that Agreement, including
its no-shop provision.  Counsel for Mustang responded, stating that Mustang
had not repudiated the Merger Agreement and that Mustang believed that the
best course would be for both sides' principals to meet.
        65.   Nonetheless, Sallie Mae continued to refuse to meet with
Mustang.  Accordingly, on October 2, 2007, Mustang made a public proposal
to the Sallie Mae Board.  Under the proposal, Mustang offered a price of up
to $60 per Sallie Mae share, composed of $50 per share in cash plus
warrants with a payout of up to an additional $10 per share.  Mustang also
expressed its willingness to adjust other terms of the Merger Agreement,
including the no-shop provision, as part of an overall negotiation.
        66.   Also on October 2, 2007, Mustang advised Sallie Mae that the
financial and other information that Sallie Mae had provided for inclusion
in the materials to be given to prospective debt purchasers substantially
understated the impact of both the College Cost Reduction Act and the
ongoing credit crisis on Sallie Mae's business.  Sallie Mae had therefore
violated its obligation to provide Mustang with Required Information.
        67.   On October 3, 2007, Sallie Mae's Chairman, Albert Lord, sent
Mustang a letter purporting to set a closing date for the transaction of
November 5, 2007.  Mr. Lord asserted that the Required Information was
complete and accurate, and unilaterally declared that the Marketing
Period had therefore begun.  Mr. Lord also claimed that Mustang had
failed to obtain FDIC approval for its acquisition of Sallie Mae's bank
subsidiary in a reasonably timely fashion.
        68.   On October 8, 2007, Mustang replied to Mr. Lord stating that
the prerequisites to closing had not been satisfied for at least three
reasons:  (a) Sallie Mae had suffered a Material Adverse Effect; (b) Sallie
Mae had failed to provide Mustang with the Required Information; and
(c) FDIC approval of Mustang's acquisition of the Company Bank had not yet
been obtained.  Mustang reiterated its desire to meet with Sallie Mae
management.
        69.   Rather than responding to the invitation to meet, Sallie Mae
filed suit that evening, October 8, 2007.
        70.   On October 11, 2007, Sallie Mae announced its third-quarter
results.  Sallie Mae reported a net loss of $344 million, or 85 cents per
share.  Since the signing of the Merger Agreement, Sallie Mae has missed
its forecasts for both the second and third quarters of 2007.  In the third
quarter, Sallie Mae reported only 59 cents per share of core net income ---
some 28% worse than forecasts the Company gave Mustang in May 2007.  In a
meeting with shareholders on October 11, 2007, Mr. Lord said Sallie Mae's
"run rate" --- the current annualized earnings per share --- for 2007 had
fallen to $2.80 per share.  Moreover, Mr. Lord estimated that 2008 earnings
per share would reach only $3.25 per share.  This represents a decrease in
earnings of more than 11% compared to the $3.66 earnings per share Sallie
Mae projected in the July 18, 2007 merger proxy.  Although Mr. Lord
stated that the merger proxy was based on a "different operating model,"
in reality, the numbers in the merger proxy are based on the same model
that underlies the current 2008 estimates.
        71.   Sallie Mae's deteriorating condition has been confirmed by
Moody's and by Fitch Ratings, which have downgraded Sallie Mae's senior
unsecured debt (on a stand-alone basis assuming the merger does not take
place) from A2 to Baa1 (Moody's), and from A+ to BBB (Fitch).  Other
similarly sized financial institutions have not been similarly downgraded.
        72.   During the course of the October 11, 2007 shareholders'
meeting, Mr. Lord, stated that he "get[s] calls" from other potential
buyers of Sallie Mae and that, while the no-shop provision restricts him
from negotiating, he "can listen" to these potential buyers.  Prior to
these public statements, Sallie Mae had not given Mustang notice of these
inquiries as required by Section 6.03(c) of the Merger Agreement.  By
virtue of the foregoing, Sallie Mae has breached the no-shop provision
of the Merger Agreement.

                          FIRST CAUSE OF ACTION

          (Declaration that the "Material Adverse Effect"
       definition requires consideration of the entire impact of
         any "change in Applicable Law" more adverse than the
              proposals described in the Sallie Mae 10-K)
        73.   Defendants-Counterclaim Plaintiffs repeat and reallege the
allegations of paragraphs 1 through 72 as if fully set forth herein.
        74.   The definition of "Material Adverse Effect" in the Merger
Agreement provides in relevant part:
              "Material Adverse Effect" means 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:
              . . . (b) changes in Applicable Law (provided that, for
              purposes of this definition, "changes in Applicable Law"
              shall not include any changes in Applicable Law relating
              specifically to the education finance industry that are
              in the aggregate more adverse to the Company and its
              Subsidiaries, taken as a whole, than the legislative and
              budget proposals described under the heading "Recent
              Developments" in the Company 10-K, in each case in the form
              proposed publicly as of the date of the Company 10-K) . . . .
        75.   This definition unambiguously provides that if the effect of
the enactment of new legislation relating specifically to the student loan
industry (here, the College Cost Reduction Act) is "in the aggregate more
adverse" to Sallie Mae than the effect of the enactment of any of the
proposals described in the Sallie Mae 10-K in the form proposed publicly as
of March 1, 2007, then the exception that provides that "changes in
Applicable Law" are not to be considered in evaluating whether the new
legislation has a Material Adverse Effect on Sallie Mae does not apply.
The entire impact of "any changes in Applicable Law relating specifically
to the education finance industry that are in the aggregate more adverse
to the Company" must be considered in evaluating whether there has been a
Material Adverse Effect.
        76.   Sallie Mae disputes this, and claims that only the
incremental impact of the enactment of the new law over and above the
impact of the legislative and budget proposals described in the Sallie
Mae 10-K may be considered in determining whether a Material Adverse Effect
has occurred or is likely to occur.
        77.   Sallie Mae is wrong.  Its position cannot be reconciled with
the unambiguous language of the Material Adverse Effect definition.
Under the definition:
        a.    "Material Adverse Effect" is first defined as "a material
adverse effect on the financial condition, business or results of
operations of the Company and its Subsidiaries, taken as a whole."
        b.    The definition of "Material Adverse Effect" then has an
exception.  Under that exception, "changes in Applicable Law" are not to
be considered in evaluating whether there has been a Material Adverse
Effect.
        c.    The exception is limited however.  If a "change in Applicable
Law" is "in the aggregate more adverse" to Sallie Mae than the proposals
described in the Sallie Mae 10-K, then that new legislation is not a
"change in Applicable Law" that is excluded from consideration in
evaluating whether there has been a Material Adverse Effect.  Accordingly,
"changes in Applicable Law" that are in the aggregate more adverse to the
company than the proposals described in the Sallie Mae 10-K must be
considered in determining whether there has been a Material Adverse Effect.
        d.    The entire impact of the new legislation "more adverse" to
Sallie Mae than the changes described in the Sallie Mae 10-K must be
counted in evaluating whether there has been a Material Adverse Effect.
        78.   There is nothing in the Material Adverse Effect definition
or elsewhere in the Merger Agreement to the contrary.  Indeed, the entire
structure of the Material Adverse Effect definition confirms that Sallie
Mae is wrong.  In addition to the exception for "changes in Applicable
Law," there are several other exceptions to the definition of Material
Adverse Effect that are qualified with a proviso.  In each case, the
definition is structured so that if the proviso applies, the entire

impact of the enumerated event must be considered, not just the incremental
impact over and above an excluded event.
        79.   Moreover, although the plain language of the contract
obviates the need for parol evidence, the negotiation history of the
provision further confirms the parties' intent.
        80.   As a result of the foregoing, there is an actual case or
controversy ripe for judicial determination.
        81.   In light of all of the foregoing, Mustang requests that the
Court enter a judgment declaring that the Material Adverse Effect
definition requires the consideration of the entire impact of any change
in Applicable Law specifically relating to the student loan industry if
that change in Applicable Law is more adverse to Sallie Mae than the
proposals described in the Sallie Mae 10-K, in each case in the form
proposed as of the date of the 10-K.

                       SECOND CAUSE OF ACTION

   (Declaration that, as of the Effective Time, a Material Adverse
   Effect will have occurred or will be reasonably expected to occur)
        82.   Defendants-Counterclaim Plaintiffs repeat and reallege
paragraphs 1 through 81 as if fully set forth herein.
        83.   In Section 4.10 of the Merger Agreement, Sallie Mae
represented and warranted to Mustang that since December 31, 2006,
there has not been any event, occurrence, development or state of
circumstances or facts that has had, or would be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.  In
Section 9.02(a)(ii) of the Merger Agreement, the obligation of Mustang
to consummate the proposed merger is subject to, among other conditions,
the representations and warranties of Sallie Mae --- including the
representation and warranty regarding the absence of any Material Adverse
Effect --- being true both as of the date of the Merger Agreement and as
of the Effective Time of the merger.  Because the conditions to closing
have not been satisfied, the Effective Time has not yet occurred.
        84.   As alleged in detail above, events, occurrences,
developments, circumstances and facts have occurred since the signing of
the Merger Agreement that, individually or in the aggregate, as of the
Effective Time, will have, or will be reasonably expected to have, a
Material Adverse Effect upon the financial condition, business, or results
of operations of Sallie Mae.
        85.   The College Cost Reduction Act is more adverse to Sallie Mae
than the legislative and budget proposals described in the Sallie Mae 10-K,
and therefore must be considered in its entirety in determining whether
there has been a Material Adverse Effect on Sallie Mae.  The College Cost
Reduction Act will materially reduce Sallie Mae's income, as compared to
what it would have been if no legislation had been adopted, for a
durationally significant period:  Sallie Mae's core net income will be
reduced by some 15.2% in 2009, 18.4% in 2010, 21% in 2011, and 23.5% in
2012, as a growing percentage of Sallie Mae's loan portfolio is made under
the new law.
        86.   Moreover, the recent collapse of the market for asset-backed
securities and disruption in the asset-backed commercial paper market
constitute changes in "general economic, business . . . or market
conditions" and "changes affecting the financial services industry
generally;" although the effects of these changes have been felt by many
financial services companies, they have "disproportionately affect[ed]
[Sallie Mae] relative to similarly sized financial services companies"
because Sallie Mae is disproportionately dependent on asset-backed
securities and asset-backed commercial paper to finance its operations.
        87.   The adoption of the College Cost Reduction Act and the
changes in conditions in the credit markets that disproportionately affect
Sallie Mae relative to similarly sized financial services companies will
each independently give rise to a Material Adverse Effect within the
meaning of the Merger Agreement at the Effective Time.  When all relevant
events are considered, Sallie Mae will have suffered, or will reasonably
be expected to suffer, an even larger Material Adverse Effect as of the
Effective Time.
        88.   Even if Sallie Mae's construction of the Material Adverse
Effect definition were accepted, which it should not be, the result would
be the same.  At the Effective Time, the incremental impact of the College
Cost Reduction Act over the Bush Budget Proposal and the changes in
conditions in the debt markets that disproportionately affect Sallie Mae
relative to similarly sized financial services companies will each
independently give rise to a Material Adverse Effect.  When all relevant
events are considered, they will have, or will reasonably be expected to
have, an even larger Material Adverse Effect on Sallie Mae at the Effective
Time.
        89.   Sallie Mae's Complaint alleges that neither the adoption of
the College Cost Reduction Act nor the changes in the conditions in the
credit markets constitute a Material Adverse Effect under the Merger
Agreement.  As a result, there is an actual case or controversy ripe for
judicial determination.
        90.   In light of all of the foregoing, Mustang requests that the
Court enter a judgment declaring that, as of the Effective Time, Sallie
Mae will have suffered, or will reasonably be expected to suffer, a
Material Adverse Effect.

                        THIRD CAUSE OF ACTION

             (Declaration that the conditions to closing have
                         not been satisfied)
        91.   Defendants-Counterclaim Plaintiffs repeat and reallege the
allegations of paragraphs 1 through 90 as if fully set forth herein.
        92.   Section 9.02 of the Merger Agreement conditions Mustang's
obligation to close the merger upon:
        a.    the continued accuracy of the representation in Section 4.10
of the Merger Agreement that there has not been any event, occurrence,
development or state of circumstances or facts that has had or would be
reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect;
        b.    the conclusion of the Marketing Period, which cannot happen
until 30 days after the other substantive conditions to closing (including
the conditions referred to in (a) above and (c) below) have been satisfied
and Sallie Mae has provided Mustang with all of the Required Information
that must be delivered to Mustang under Section 8.09(b) of the Merger
Agreement; and
        c.    FDIC approval of Mustang's acquisition of Sallie Mae's
industrial bank subsidiary.
        93.   As of the present time, none of these conditions to closing
have been satisfied.  In the absence of an obligation to close, Mustang's
failure to consummate the merger cannot constitute a breach of the Merger
Agreement, and its statement that if measured today, the conditions to
closing would not be satisfied, cannot be considered a repudiation.
        94.   Sallie Mae claims that these conditions to closing do not
have to be satisfied because Mustang has repudiated the Merger Agreement.
Mustang denies this claim.  As a result, there is an actual case or
controversy ripe for judicial determination.
        95.   In light of all of the foregoing, Mustang requests that the
Court enter a judgment declaring that the conditions to closing the merger
have not been satisfied and that Mustang therefore is not in breach or
anticipatory breach of any obligation to consummate the merger.
        WHEREFORE, Defendants-Counterclaim Plaintiffs request that this
Court enter a judgment:
        A.    Dismissing the Complaint in its entirety and with prejudice;
        B.    Declaring that the Material Adverse Effect definition
requires the consideration of the entire impact of any new legislation
specifically relating to the student loan industry that is more adverse to
Sallie Mae than the proposals described in the Sallie Mae 10-K, in each
case in the form proposed as of the date of the 10-K;
        C.    Declaring that, as of the Effective Time, Sallie Mae will
have suffered, or will reasonably be expected to suffer, a Material
Adverse Effect;
        D.    Declaring that the conditions to closing the merger have not
been satisfied and that Mustang therefore is not in breach of any
obligation to consummate the merger;
        E.    Declaring that Sallie Mae is not entitled to any relief
under the Merger Agreement and may not seek any such remedy on behalf of
its shareholders;
        F.    Declaring that Mustang has no further obligations to Sallie
Mae under the Merger Agreement (except for those obligations enumerated in
Section 10.02 as surviving termination);
        G.    Declaring that Flowers, JPMorgan Chase and Bank of America
have no obligation to Sallie Mae under their Limited Guarantees;
        H.    Awarding Defendants-Counterclaim Plaintiffs their attorneys'
fees and the costs of this action;
        I.    Granting Defendants-Counterclaim Plaintiffs such other and
further relief as this Court may deem just and proper.
                                            YOUNG CONAWAY STARGATT &
                                                    TAYLOR, LLP


                                       ____________________________________
                                       David C. McBride
                                       Bruce Silverstein
                                       The Brandywine Building
                                       1000 West Street, 17th Floor
                                       P.O. Box 391
                                       Wilmington, DE  19899-0391
                                       (302) 571-6600

                                       Attorneys for Defendants-
                                       Counterclaim Plaintiffs


OF COUNSEL:

Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Elaine P. Golin
Carrie M. Reilly
Lauren M. Kofke
WACHTELL, LIPTON, ROSEN & KATZ

51 West 52nd Street
New York, New York  10019
(212) 403-1000

Attorneys for Defendants-Counterclaim Plaintiffs

John L. Warden
Steven L. Holley
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000

Attorneys for Defendant-Counterclaim Plaintiff J.C. Flowers II L.P.

Dated:  October 15, 2007